Strategic Management: Feasibility Report for a Coffee Shop Business

This report assesses the feasibility of a coffee business startup near TMC and UCENMCR campus by two retiring lecturers. It includes a forecast of cash flow, a budgeted statement of profit and loss, and a balance sheet for the period of January 2018 to December 2018. The analysis covers products and services, marketing strategies, operations and logistics, and financial strategy, including sales, profitability, liquidity, cash flow, gearing, and risk. The marketing strategy focuses on attracting students and faculty with high-quality coffee and a relaxing atmosphere. Operational considerations include inventory, equipment, shop design, and supply chain management. The financial analysis projects strong profitability with a net profit margin of 31.37% and a current ratio of 9.80, indicating good liquidity and low leverage. Alternative business strategies, such as using edible cups, are also considered. The report concludes that the business is feasible and recommends proceeding with the project based on projected sales and financial performance. Desklib provides access to similar solved assignments and past papers for students.

Running head: BUSINESS MANAGEMENT AND STRATEGIC MANAGEMENT
Business management and strategic management
Name of the student
Name of the university
Student ID
Author note

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Table of Contents
Executive summary....................................................................................................................2
Task 1 – Forecast of cash flow, budgeted statement of profit and loss and balance sheet........2
Task 2 – Report..........................................................................................................................2
Introduction................................................................................................................................2
Discussion..................................................................................................................................3
Products and services.............................................................................................................3
Marketing strategy.................................................................................................................3
Operations and logistics.........................................................................................................5
Financial strategy...................................................................................................................6
Alternative business strategies...................................................................................................7
Conclusion..................................................................................................................................7
References..................................................................................................................................8
Appendix..................................................................................................................................10

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Executive summary
Main purpose of the report is to evaluate the feasibility of the coffee business stated
up by 2 retiring lecturers in Openshaw that is close to TMC and UCENMCR campus. Te
report will consider the liquidity, gearing and profitability factors for assessing the business’s
feasibility. For doing this it will prepare the statement of cash flows, budgeted statement of
profit and loss and the balance sheet of the business for period of 12 months with the help of
the given information. Financial years for the purpose of assessment will be taken from
January 2018 to December 2018.
Task 1 – Forecast of cash flow, budgeted statement of profit and loss and balance sheet
Refer to the excel sheet for above projection
Task 2 – Report
Introduction
Coffee bar that will be opened in Openshaw will be owned by 2 retiring lecturers.
Coffee bar will be opened at nearby to TMC and UCENMCR campus. Partners of the
business are under the process of negotiation regarding small seating unit outside, for ground
level with the developer and competitive rent for the period of 1st 12 months that has already
been offered. Further, it is noticed that the entrepreneurs has acquired the license already for
selling the alcohol (Burns and Dewhurst 2016).

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Discussion
Products and services
Various products those will be offered by the business best taste coffee beverages that
will use high standards quality. Along with this it will also offer brewed coffee, espresso
drinks and refreshment beverages, sand witches and small salads. Further, it will also offer its
customers with pastries and will sell coffee beans (Brinckmann et al. 2018). The coffee bar
will have built around coffee based on espresso like mochas, cappuccinos and lattes. Espresso
based drinks will be provided with skimmed, whole or soy milk. Further, the espresso shots
will be combined with the steamed milk or other additives such as caramel or cocoa.
Marketing strategy
The business will cater to the people who are in needs of getting the daily cup of
coffee under relaxing atmosphere. The customers differ in age and as the coffee shop is
nearby the campus it is expected that majority of the customers will be from the faculties and
college students. As per the research it is recognized that these customers are gravitate
towards the better tasting coffee. Further, most of the students from college consider the
coffee bars convenient for meeting with friends where they can get a comfortable ambience
with a cup of coffee (Pasqual, Padilla and Jadotte 2013). It will offer unique possibility for
establishing loyal client base. Marketing strategies of the business will be as follows –
 Launching with adequate funds – once plan of the business is prepared for starting up,
the owners must have adequate funds for covering up the initial costs. This will
decrease the risk level and will start business with strong customer base (Khan and
Guruli 2015).
 Talking to potential customers – if potential customers are identified they can be
personally contacted for assessing the appropriate demand. However, if demands of

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the customers are not satisfied there is obvious likelihood that the business will not
get succeed. Hence, estimating the demand will help in generating profit.
 Pre-selling of product – before the product launch the business may pre-sell the
product on experimental basis for analysing the product’s acceptability and the
customers may be asked regarding acceptability of similar products and the amount
they are ready for paying that will help the owners to fix the price (Brinckmann et al.
2018).
 SWOT analysis
Strengths Weaknesses
 Unique quality coffee
 Close to university
 Availability of public transport
 Lower cost of operating and more
control over business
 Wide range of products availability
(McKenzie 2017)
 Depends on small base of customers
 Start up costs will be higher as
compared to any normal coffee shop
 No built in equity for brand
 Clients like faculty and students will
be available during the semesters.
Opportunities Threats
 Continuous customer base from
university
 Able to appeal different target market
as compared to other cafes
 Able to expand the business through
opening new branches in other
locations
 Other cafes are there that may offers
the products in accordance with
changing tastes of the market
 Limited income of the target market
 Other cafes are opening in the
surrounding area (McKenzie 2017)

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 USP
USP is the unique selling point that differentiates it from others. Major USP of this
coffee shop will be it will offer a special coffee that is low priced and less in quantity. Instead
of regular 200 ml servings it will have 125 ml servings. Hence, the students with lower
budgets will be able to afford this one.
Operations and logistics
Operation section of the business plan portrays the picture regarding daily activities of
the business and what goes behind the coffee cup that will be experience d by the customers.
Below mentioned things will be considered and included under the operational section –
 Listing of inventories and equipments for running the shop. Breaking down the menu
and what it will take for preparing the coffees and preparing and presenting them.
Various coffee shop suppliers list will be researched online and will be used for
building its own.
 Describing the physical location for creating atmosphere of the shop. Research will
be carried out for establishing the requirement of bar design and interior design.
Electrical requirements for electrical or water treatment shall be considered for the
business (Tahmoorespour, Mina and Randjbaran 2015).
 Describing the workflow and how this will help in performing the daily activities
shall be established. Although these things are developed with time, controls and
systems shall be considered that can be shared afterwards with the employees and
managements.

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 Key supplies for food, equipment, coffee and other services shall be listed including
the backup suppliers for unique products.
Coffee business can be ruined if the process of logistics is instable. Owing to this, the
business will require maintaining the process of own supply chain. Operational process of the
beverage industry assists in mitigating the issues involved with inventories that will increase
the operational flexibility. This scenario is more crucial to individual coffee shop as
franchising or any other business mode may reduce quality of coffee servings. In turn, it will
not be able to offer value-added services to its customer (Sander and Kantšukov 2013).
Hence, the operational process of the entity will also focus on flexible process of supply
chain for offering fantastic experience for coffee to the customers.
Financial strategy
Business is considered as feasible if it is able to generate adequate cash and profits
and offers sufficient liquidity for meeting the business goals and short term obligations. It can
ensure the profitability through the following –
 Sales and profitability – from the budgeted profit and loss account it can be identified
that the sales for the 1st year covering the period from January 2018 to December
2018 is projected as £ 2,15,928 from the sales of sit-in arrangements, take –out
coffees and food beverages. On the other hand, after paying all the expenses including
wages, website maintenance, general costs, rent, legal costs and marketing costs will
be amounted to £ 67,731 (Bodie, Kane and Marcus 2014). Hence, the net profit
margin of the company will be £ 67,731 / £ 2,15,928 * 100 = 31.37%. Hence, it can
be stated that the projected business profitability is quite strong and are feasible for
the business sustainability over the long-term period.

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 Liquidity and cash flow – liquidity is measured through computing the current ratio of
the company. It is measured for computing the ability of the company with regard to
paying off its liability with the current assets available with the firm. It can be
identified that the projected current ratio of the business is 9.80 that is indicating that
the current assets of the entity are adequate for paying the short term obligations
(Friederich and Payne 2015). On the other hand, if the cash flow of the company is
considered it can be stated that the closing cash balance of the business is in positive
and amounted to £ 55,806.
 Gearing and risk – looking into the gearing ratio of the company it can be identified
that the amount of total liabilities are £ 25,696 whereas to total equity is amounted to
£ 46,643. Hence, the gearing ratio or debt equity ratio of the company is 0.55 that
indicates that the business is expected to be lower leverages and therefore less risky
(Laitinen 2017).
Alternative business strategies
In future, the company is planning to serve the coffee in edible cup to reduce the
wastages. The edible cup will be made from cereals that are healthy as well as can be
munched like ice cream cones once the drink is finished. It will increase the revenue of the
business as well as the target customers as the kids will be interested in having the drinks
with the edible cups (Detzel and Strauss 2017).
Conclusion
With regard to the above discussion and analysis it can be concluded that the business
seems to be feasible one both in terms of risk, profitability and liquidity. Net profit of 31.37%
and current ratio of 9.80 is indicating that the business will earn adequate income to generate
return for its shareholders and sufficient cash to meet the short term obligations. Further, the

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gearing ratio of 0.59 is indicating that the company is lower leveraged and not much
dependent of outside debt for its operation. Hence, it is expected that the business will be
successful and the lecturers are recommended to go ahead with the project and start the
business with the projected level of sales.
References
Bodie, Z., Kane, A. and Marcus, A.J., 2014. Investments, 10e. McGraw-Hill Education.
Brinckmann, J., Dew, N., Read, S., Mayer-Haug, K. and Grichnik, D., 2018. Of those who
plan: A meta-analysis of the relationship between human capital and business planning. Long
Range Planning.
Burns, P. and Dewhurst, J. eds., 2016. Small business and entrepreneurship. Macmillan
International Higher Education.
Detzel, A. and Strauss, J., 2017. Combination Return Forecasts and Portfolio Allocation with
the Cross-Section of Book-to-Market Ratios. Review of Finance.
Friederich, S. and Payne, R., 2015. Order-to-trade ratios and market liquidity. Journal of
Banking & Finance, 50, pp.214-223.
Khan, A.H. and Guruli, M.R., 2015. Predicting Bankruptcy by Liquidity Ratios
Analysis. Journal UMP Social Sciences and Technology Management, 3, pp.372-380.
Laitinen, E.K., 2017. Profitability Ratios in the Early Stages of a Startup. The Journal of
Entrepreneurial Finance, 19(2), pp.1-28.
McKenzie, D., 2017. Identifying and spurring high-growth entrepreneurship: Experimental
evidence from a business plan competition. American Economic Review, 107(8), pp.2278-
2307.

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Pasqual, J., Padilla, E. and Jadotte, E., 2013. Equivalence of different profitability criteria
with the net present value. International Journal of Production Economics, 142(1), pp.205-
210.
Sander, P. and Kantšukov, M., 2013. Effect of Corporate Taxation System on Profitability
and Market Ratios–the Case of ROE and P/B Ratios. Research in Economics and Business:
Central and Eastern Europe, 1(2).
Tahmoorespour, R., Mina, A.A. and Randjbaran, E., 2015. The Impact of Capital Structure
on Stock Returns: International Evidence. Hyperion Economic Journal, 1(3), pp.56-78.

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Appendix

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