STAR Coffee Shop Business Plan

This project is a comprehensive business plan for a coffee shop in Malaysia, 'STAR Coffee Shop'. It analyzes the market, develops a SWOT analysis, provides financial projections, and conducts a risk analysis to determine the feasibility of the business.

Individual Project

Table of Contents
1. Executive Summary.....................................................................................................................1
2. Economic and Industry analysis..................................................................................................1
Overview of Malaysia Market Regarding Coffee Shop (Coffee shop in Malaysia)..............1
3. Business idea STAR Coffee Shop...............................................................................................1
4. Risk analysis................................................................................................................................5
(a) Risk analysis(CAPM):......................................................................................................5
(b)Determine cost of capital...................................................................................................6
(c)Valuation of project...........................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

1. Executive Summary
Coffee shop is fastest leading business now a day in every country. Business plan
regarding the coffee shop. A plan to open a business regarding coffee shop for that analysis of
economic and industry is done. In that collected knowledge about Malaysia market and also their
stock market, interest rates, currencies and commodities. How these elements affect the business
of coffee shop. Descriptions and SWOT analysis of coffee shop businesses. Five years of
financial plans showing assumption of income statements of five years and cash flow statements
of five years (Baxter and et.al, 2016). Also discussed about sources of finance used for this
business. Evaluation of the risk and compare it with public companies by using CAPM to
identify the needed returns on equity. Cost of capital is determined that effects on rates of returns
and discounting cash flows are used for valuations. Net present value, interest rate of returns,
payback periods and profitability. Recommendations regarding accept or to reject the project or
business plan.
2. Economic and Industry analysis
Overview of Malaysia Market Regarding Coffee Shop (Coffee shop in Malaysia)
In Malaysia there are both morning and night markets. Night markets timings are from 6
pm to 10:30 pm. In this market people can purchase all things: initiating from grocery store to
local food and also from households to clothing products. Coffee shop market in Malaysia is a
small sized market. It's market value depends on expenses considering sales tax, volume of
market is based on number of outlets. In Malaysia, market size for coffee shop is provided in
MYR. Forecasting market is facilitated for at least 5 years. Also consider the exposure of socio
economic information for Malaysia that includes gross domestic product, population, consumer
price index and exchange rates (Manuti and et. al, 2015). Mostly teenager after the age of 18
starts to drink coffee. In Malaysia, stock market is 1661.96, currencies are 4.18, interest rate is
3.25% (Malaysia Interest Rate, 2018). All these elements affect new business of coffee shop, it
provides financial resources and so on. Need to Exchange the currencies and high interest
should be paid. And also need to import commodities from other places.
3. Business idea STAR Coffee Shop
People usually considered good coffee for themselves. Coffee shop is a fastest growing
business. Coffee is a thing that people love and depend on and in Malaysia because this place
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always have pleasant atmosphere. It is a most normally traded commodity in all over world. It
has been seen that when coffee prices are high, people do not reduce consumption of coffee. In
Malaysia as many coffee shop is growing rapidly so it is plan to start a coffee shop.
SWOT analysis
Swot analysis is a model that is utilized to measure a competitive position of company by
ascertaining their strength, weakness, opportunities and threats (brett and et. al., 2014). To run
coffee shop business in small scale like star buck so a SWOT analysis is done to assure that that
what is required to operate a coffee shop.
Strength:
STAR coffee shop serves different types of standard quality coffee at low price.
Problems and issues related to service or product can be resolved quickly.
Weakness:
The identified weaknesses is that business is initiating at a small scale; only limited
outlets as having limited space for expansion. If it is required to raise.
for example: that in current scenario, people are more tend towards that herbal and organic
products and coffee is considered as unhealthy
Opportunities:
The reason for operating coffee shop in Malaysia as it best has pleasant atmosphere so
people use to drink coffee more and have unlimited opportunities to sell various types of coffees.
Don't need to attract customers just required to serve standard quality coffee at low price and
facilitates best services for customers. And also can operate this business 24*7 as in Malaysia
there are trends of both day and night markets.
Threats:
The threats that are going to cause the coffee shop business is the policy of Malaysia
market and also existing competitors whose coffee shop is famous by its top brands name.
Financials for 5 years
Income statements
Income statements is the statements of finance that is applied to assess a performance of
business and position of finances. This statements summarises the income and expenditures
produced by businesses in the specific periods of reporting (Darcy and et.al., 2014). It is
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generally preferred by company to trace the expense and incomes to ascertain the performance of
operations of businesses in particular time periods.
INCOME STATEMENTS
Particulars YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Gross sales 300000 330000 396000 475200 570240
opening stock 0 20000 24000 40000 40000
Add: purchases 170000 190000 186000 264000 316000
less: Closing stock 20000 24000 40000 40000 36000
Gross profit 150000 144000 226000 211200 250240
Gross profit margins
Salaries 40000 42000 44100 2315 2431
Repairs and maintenance 30000 31500 33060 34713 37640
Rents 20000 21000 22060 23163 24320
licenses and taxes 16000 16800 17640 18522 19440
Depreciations 30000 31500 33080 34734 36480
selling and distributions 16000 16800 17640 18522 19440
Miscellaneous 8000 8400 8820 9261 9720
Total operating expenses 160000 168000 176400 141230 149471
Operating Profit -10000 -24000 49600 69970 100769
Profit on sale of invesment 4000 500 400 200 600
Net Profit -6000 -23500 50000 70170 101369
Tax@30% -1800 -7050 15000 21051 30411
Profit after tax -4200 -16450 35000 49119 70958
Assumptions:- 1. All expense are paid in cash.
2. Goods are purchased and sold in cash.
3. Corporate Tax in Malaysia is 30%.
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4. Revenue is increased by 20% from past year on every year.
5. Expense is increased by 5% from past year on every
6. Expected market rate of return is 15% and Rf is 10
7. Beta is 1.5
8. Capital structure of company is divided into equity and debt where,
debt is 50000 and equity is 50000
9. Interest Rate is 12%
Cash Flow Statements
Cash flow statement is also considered as a flows of cash. It is a statement of finance that
shows the occurrence in the accounts of balance sheet and income statement which effects cash
and cash equivalents and also interrupt the analysis under the three activities that is operating
activities, investing activities and financing activities (Eaton, Roberts and Turner, 2015).
CASH FLOW STATEMENTS
Year 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Net Profit before tax 6000 -23500 50000 70170 101369
Less: Tax @ 30% 1800 -7050 15000 21051 30411
Net Profit Profit after tax 4200 -16450 35000 49119 70958
Add: Depreciation 1500 1575 1654 1737 1824
Cash Flow after tax (CFAT) 5700 -14875 36654 50856 72782
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Sources of finance for coffee shop business
For starting any business, finance play a vital role as without this business can't take
place into market. So, some of the sources of finance are discussed which help to establish the
coffee shop.
Start-up loans:
Start-up loan is the scheme facilitated by government to assist those people who want to
start or grow business. In this loans the people don't have to put any assets and guarantees. Every
people or business partners can apply for loan. This start up loan is benefited as in this loan
interest rate is low other than any loans. So, don't have to spend more money in paying interests.
Bank loans:
Bank are considered as a supermarket of debt financing. They facilitate loans for short
term, mid- term and long term. And they also finance whole needs of assets, considering real
state, working capital and equipment’s (Ellinger and Ellinger, 2014). It is assumed that sufficient
cash can be produced to recover the payments of interest and principal returns. Bank require the
pledge for payment returns like personal guarantees and some fixed amount of interest on
personal interest. They also offer some adaptability such as loan can be paid before due date and
end the contract. This source of finance is suitable for this business as it provides some funding
for coffee shop:
Loans: It facilitates including stated credit amount that can be repaid to through monthly
amount and also the interest rate amount is always fixed for all months.
Equipment funding: If anyone want to invest in precious equipment’s for coffee shop so,
this would be the best option. Some other financial benefits are provided in this option like
depreciations and tax deductions.
4. Risk analysis
(a) Risk analysis(CAPM):
Risk analysis is a method of distinguishing and examining the expected cause which can
impact business enterprise negatively and critical projects in order to assist company to confront
or rationalize that risks.
CAPM:
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CAPM is capital assets pricing model which explain the relationship among expected
returns and investment risk in security (Flin and O'Connor, 2017). This shows which is
anticipated returns on security is equivalent to risk free returns added to risk premium. That
depends on assets of security. It is calculated by using formula:
Ra = Rrf + [Ba*(Rm-Rrf)]
where, Ra= Expected return on a security
Rf=Risk free rate
Ba= Beta for security
Rm= Expected return on market.
The above formula is applied to compute the expected return on invested assets.
(b)Determine cost of capital
Cost of capital is a least rate of return which business should earn before creating value.
Before earning profit for business they have to earn some adequate income so that cost of capital
can be covered an it utilised to funds their process. This includes both cost of equity and cost of
capital applied for funding business. Cost of capital can be computed by using formula:
(c)Valuation of project
NPV: NET PRESENT VALUE is the difference between cash inflows present value and
cash out flows present value in a particular time period. This is applied in budgeting the capital
and also in planning for investment to examine the profit of business. It also explains that what
dollar value is added to businesses and amount that is to be spend to recognize the projects
provide or that are investing in and money that is earned from projects.
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Calculation of Net Present Value (NPV)
YEAR CFAT P.V. Factor @ 25.9%
Present
Value
1 5700 0.794 4526
2 -14875 0.631 -9386
3 36654 0.501 18364
4 50856 0.398 20241
5 72782 0.316 22999
NPV 56743
 IRR: Internal Rate of Returns IS a measured which is utilised in capital budgeting to
calculate the profit of expected investments. It is rate of discounts that forms the net
present value of overall cash flows from the specific project equivalent to zero (Hawkins,
2017).
YEAR Amount
0 -50000
1 6000
2 -23500
3 50000
4 70170
5 101369
IRR 38.41%
NOTE: Initial investment is taken as £50000
Payback: Payback period is time needed to recover the investment costs. It is a time
period where initial invested cash flow is anticipated to recover from cash inflows produced by
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investments. It is calculated by using formula: Payback period= Total initial capital
investment/ expected annual after tax cash inflow
It is the easy concepts to understand and compute. It can be calculated appropriately
without using electronic calculator or spread sheet. This analysis usually focused on how
invested money can be returned that is considered as a risk measurement.
Calculation of payback period = Cost of the
investment/Annual net cash flow
Year
Investme
nt CFAT Cumulative CFAT
1 100000 5700 5700
2 100000 -14875 -9175
3 100000 36654 27479
4 100000 50856 78335
5 100000 72782 151117
Payback Period = 100000/72782
= 1.37
Profitability: profitability is a capability of a company to generate returns on investments
depends on their resources compared to an alternate investment (Macdonald, Burke and Stewart,
2017). There are various types to determine the profitability. Some are profitability ratios, index
and so on. Net profit margin calculate the business profitability. Gross profit margin used to
compute the production cost.
Gross Profit
Margin Ratio (%) = Gross Profit / Sales * 100
Gross Profit= Sales + Closing Stock – op stock – Purchases – Direct
Expenses
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YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
150000/300000*1
00
144000/330000*1
00
226000/396000*1
00
211200/475200*1
00
250240/570240*10
0
50.00 43.64 57.07 44.44 43.88
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
(-)10000/300000*
100
(-)24000/330000*
100
49600/396000*10
0
69970/475200*10
0
100796/570240*10
0
-3.33 -7.27 12.53 14.72 17.68
Net Profit Margin
Ratio(%) = Net Profit / Sales * 100
Net Profit = Gross Profit + Indirect Income – Indirect Expenses
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
(-)6000/300000*1
00
(-)23500/330000*10
0
50000/396000*1
00
70170/475200*1
00
101369/570240*1
00
-2.00 -7.12 12.63 14.77 17.78
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
(-)6000/100000*1
00
(-)23500/110000*10
0
50000/121000*1
00
70170/133100*1
00
101369/146410*1
00
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-6.00 -21.36 41.32 52.72 69.24
Note: Assset increased by 10% per year
Net Worth= YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
45800 29350 64350 113469 184427
Return on Equity(%) =
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
(-)4200/45800*10
0 (-)16450/29350*100
35000/64350*10
0
49119/113469*1
00
70958/184427*10
0
-9.17 -56.05 54.39 43.29 38.47
Gordon model: It is a kind of method that can be used to calculate the intrinsic value of stock,
exclusive of current market condition. The model equates these value to present value of stock in
the coming future time.
Multi-stage growth model: In case of dividends which are not expected to grow at a specific
rate, the investor can analyse each other dividends separately that is incorporated in every year
expected dividend rate. It does assume that dividend growth eventually become constant.
Value of stock = D1/ (k - g)
$1.00/ (.10-.05) = $20
CONCLUSION
From the above report it is concluded that coffee shop business in Malaysia is a good
plan as it is analysed that coffee demand is more there due to pleasant atmosphere. And also
coffee demand does not decrease due to increasing cost of coffee. It is also seen that after the age
of 18 people usually have the habit to drink coffee and some love to drink. In Malaysia it is
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considered as profitable business as in this country both morning and night markets are there.
After SWOT analysis get knowledge about the strength, weaknesses, opportunities and threats.
Risk is more as it is a start-up business. There are more competitors in markets of Malaysia like
star buck and many more which operates business in large scale. By using CAPM risk can be
analysed so it is helpful to know the risk that is going to face in upcoming times. But by
providing the standard quality of coffee and various types are going to attract customers. Also
facilitates good customer service are beneficiary for this. Overall businesses of coffee shop in
Malaysia is a good and profitable idea so, this idea of establishing a coffee shop in Malaysia
should be accepted as it has potential of providing more benefits. .
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REFERENCES
Books and Journals
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organisations? A systematic review. BMJ Qual Saf. 25(3). pp.190-201.
Brett, J., and et. al., 2014. A systematic review of the impact of patient and public involvement
on service users, researchers and communities. The Patient-Patient-Centered Outcomes
Research. 7(4). pp.387-395.
Darcy, S., and et. al., 2014. More than a sport and volunteer organisation: Investigating social
capital development in a sporting organisation. Sport Management Review. 17(4).
pp.395-406.
Eaton, S., Roberts, S. and Turner, B., 2015. Delivering person centred care in long term
conditions. Bmj. 350. p.h181.
Ellinger, A. E. and Ellinger, A. D., 2014. Leveraging human resource development expertise to
improve supply chain managers' skills and competencies. European Journal of Training
and Development. 38(1/2). pp.118-135.
Flin, R. and O'Connor, P., 2017. Safety at the sharp end: a guide to non-technical skills. CRC
Press.
Hawkins, P., 2017. Leadership team coaching: Developing collective transformational
leadership. Kogan Page Publishers.
Macdonald, I., Burke, C. and Stewart, K., 2017. Systems leadership: Creating positive
organisations. Routledge.
Manuti, A., and et. al., 2015. Formal and informal learning in the workplace: a research review.
International journal of training and development. 19(1). pp.1-17.
Online
payback periods, 2018 [Online]. Available through
<https://www.accountingtools.com/articles/advantages-of-the-payback-period.html>
Malaysia Interest Rate. 2018. [online]. Available through
<https://tradingeconomics.com/malaysia/interest-rate
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