Assignment 2: Expanding Your Business
Referring to the same business you either started or purchased in the first assignment, write a 6-8 page paper in which you:
Outline a financial plan for your small business.
Develop a guerrilla marketing strategy for your small business.
Discuss the most appropriate location for a second store (an actual street address). Explain your reasoning.
Outline a plan for securing sources of debt financing for your second store.The specific course learning outcomes associated with this assignment are:
Describe and analyze the necessary activities and key decisions to start a small business.
Analyze the key financial management considerations in operating a small business.
Develop a guerrilla marketing strategy for a small business.
Analyze the role of pricing, credit, and equity financing in defining a business strategy.
Use technology and information resources to research issues in small business management.
Write clearly and concisely about small business management using proper writing mechanics
Expanding the Business
Crossroads Café is a small coffee shop in West Memphis, Arkansas. After careful consideration, the decision reached involved purchasing the coffee shop and expanding operations to include fast foods. The café currently offers a limited number of menu items to customers. These include coffee served with omelets, sausage, bacon, cheese, biscuits, and or pancakes. The coffee shop operates six days a week and remains closed on Sundays, which is the employees’ off day. The owners engage directly in managing the business. As such, the coffee shop has a positive image among customers in the Arkansas region. Crossroads Café is located in a strategic location. Its current location is along a busy intersection and one of the busiest streets in West Memphis. The coffee shop can leverage on its strategic location to increase the number of customers.
The following is the financial plan for acquiring Crossroads Café and transforming it into a coffee and fast food outlet.
|Fixed Assets (Building acquisition)||$200,000|
The above financial plan shows the initial capital or funding requirements for Crossroads Café. The cost of acquiring the premises is the highest at $200,000. This will involve payment to the current owners. Since the outlet currently operates as a coffee shop, there is need to purchase new kitchen equipment and furniture. Some of the new furniture will be for staff to use while other furniture includes additional tables and seats for customers to use. The goodwill amounts to $50,000. The outlet is located on a busy street thus able to attract a large number of customers. The outlet will be able to develop a loyal group of customers and have a substantial number of walk-by customers on daily basis. Since the owner’s contribution is $200,000, there is a deficit amounting to $150,000. Securing a loan will help in bridging the debt.
Related: To Build or Buy -Crossroads Café
Crossroads Café will have an average 100 seats. The projections are that during breakfast, the outlet will serve. The outlet will serve an estimated 70 customers for breakfast, 90 for lunch, and 70 for dinner. The average order will cost about $9.5. The figures include customers who take their food or drinks from the outlet, deliveries, and those who prefer to purchase food or drinks and eat outside the outlet. The labor costs will be about 25 percent of sales. Food costs will be about 20 percent per month. General expenses (lighting and gas) will be about 5 percent of sales. The total expenses add up to 50 percent of sales.
A breakeven point analysis will show the sales amount that covers the total operational and establishment costs of the business (Cafferky & Wentworth, 2010). The breakeven point includes the fixed costs as well as the variable costs. The profit recorded at the breakeven point is zero. Assuming sales of $65,550 per month, variable costs of $22,800 per month, and fixed costs of $15,000 per month, the breakeven margin is: 15,000/[(65,550 – 22,800)/65,550] = $23,000. The average revenue per guest is $9.5. This means that the outlet needs 2,421 guests per month to break even. The monthly target is 6,900 guests.
Guerilla Marketing Strategy for Crossroads Café
Guerilla marketing strategies are common in small businesses. They involve launching small attacks to the major competitors (Ogbor, 2009). Guerilla marketing strategies aim at achieving maximum results while using the least resources. In guerilla marketing, the small business manager looks for original ideas on how to design promotional messages. It involves breaking the laid-down norms and going beyond the traditional approach to advertising (Ogbor, 2009). While using guerilla marketing tactics, the small business manager launches an attack and then observes what happens. He/she may then launch the attack again at another appropriate time. The major focus in applying guerilla marketing is to improve profits. Traditional marketing channels such as mass media aims at accomplishing various goals such as building a brand awareness, increasing marketing share, provide information on use of the products, and other goals (Ogbor, 2009). The guerilla marketing is short and meant specifically to address the customers or suppliers. Lastly, guerilla marketing is cost effective – the business manager largely utilizes free resources in developing a guerilla marketing strategy.
The guerilla marketing strategy for Crossroads Café is geo-fencing. Geo-fencing is a relatively new form of advertising that relies on GPS technology. All the user requires is to have a smartphone. By using the smartphone’s GPS, a user can trigger an action on customers’ phones when they enter a particular location or zone, mostly a location near the business (Constine, 2017). This could be a promotion message, coupons, notifications, or another type of message. Geo-fencing uses the combination of GPs and a special app or software to trigger a specific action when a mobile user enters the virtual boundary. The virtual boundary is the geographical location set by the user on the device. Depending on the configuration, geo-fencing can send specific advertisement messages to social media platforms, trigger text message alerts, track vehicle fleets, or prompt mobile push notifications. Crossroads Café will utilize the configuration that enables the geo-fence technology to send promotion messages to social media users, specifically those on Instagram and Snapchat.
The social media platform Snapchat has developed On-Demand Geofilters that allow a user to send messages to users within a certain radius. The custom filters on Snapchat allow a user to make impressions on other users within a specific area when developing a snap or while going through the filters. Various users may apply the specific filter, thus sharing the message to a wider audience. Snapchat’s On-Demand Geofilters are relatively cheap since it costs less than $10. Instagram allows users to create and submit stories under hashtags or locations (Constine, 2017). People searching for the hashtags are likely to read the message. Stories or videos submitted under the location feature in the Explore Tab, where users can easily click on them to get more information. Instagram stories will feature short videos with the hashtags ‘Best fast-food joints in Arkansas”, “Best place to grab a Chicken Sandwich”, “Hottest joint in town”, and “Check out the crazy offers at Crossroads Café”. The following is the proposed geofilter that will be applied on Snapchat.
Most Appropriate Location for a Second Store
Location is a critical factor to consider while opening a fast-food restaurant. The location is a key determinant of the number of customers who visit the outlet. A location that has little traffic may not be appropriate for a fast-food restaurant. The best location for a fast-food restaurant is an easily accessible and highly visible place. This can maximize the number of customers who visit the outlet. In this case, the best location would be along a major highway, near shopping centers or shopping complexes, and along a busy street. Other possible places to open a fast-food restaurant includes near colleges and universities, near malls, and near other fast-food outlets. A fast-food restaurant should be convenient to visit for all target customers. If the fast-food outlet sits in an isolated location, it may be difficult to attract initial customer interest. Majority of customers in fast food outlets look forward to spending the least possible time.
Using the above analysis, the most appropriate location for a second store would be along Service Loop Rd, specifically at the intersection between Service Loop Dr and Martin Luther King Jr Dr. The location is near the intersection of major highways. This area has a high population because it is near a major highway intersection. The key businesses around the location are McDonald’s, several travel stores, Wingfoot Truck Care Center, several petrol stations, and other small businesses. This location receives many visitors who are often in transit to other towns. The visitors often make stopovers at this area for gasoline, resting, food and drinks, and to shop. The high population in the area will make it easier to attract customers. With high quality of service, it will be possible to develop a loyal base of customers and competing with existing fast-food outlets in the region.
Plan for Securing Sources of Debt Financing for Second Store
Securing debt financing is one of the easy ways to obtain capital for expanding a business. However, it may not be easy to secure a loan from banks especially when the business’ credit rating is low. In order to obtain a loan, it is important for the business owner to clear all current loans without defaulting. Defaulting on repayments could lead to a poor credit rating making it difficult to obtain credit from any of the credit agencies. Another important item is the business plan. A business plan is a document that provides important details about the business (Coyle, 2000). For instance, the business plan defines the business, explains the various financial targets, and outlines a plan of how the business will meet the targets. The investor uses the business plan to persuade the bank to provide the loan. It is also critical in determining the amount of loan that the bank agrees to issue. A business plan should contain a description of various major items such as financial plan, products, market or target customers, facilities, and among others.
There is need to evaluate possible securities that one can offer to the bank or the lender. A security is a financial instrument that the bank can trade for the money borrowed. A security may be in form of stocks, guarantors, real estate, accounts receivable, equipment, and among others (Coyle, 2000). In this case, the security could be the accounts receivable relating to Crossroads Café, equipment, and the premises. With securities, it will be easier to acquire a higher loan amount. Long-term financing will be the most appropriate since it will enable the business to have more time to repay the debt.
In summary, Crossroads Café has a high potential for growth in the fast-food industry. With proper management, the restaurant will soon be able to compete with leading giants in the fast food industry. The most appropriate guerilla marketing strategy is geofencing. Geo-fencing relies on GPS technology. Geofencing will help in targeting consumers within a certain geographical radius. A second store will be located along the intersection between Service Loop Dr and Martin Luther King Jr Dr. This location has many visitors from across the country. Using a business plan and security will help in accessing the debt capital required to start the new business.
Cafferky, M. E., & Wentworth, J. (2010). Breakeven analysis: The definitive guide to cost- volume-profit analysis. New York: Business Expert Press.
Constine, J. (2017, May 25). Instagram launches story search for hashtags and locations. Retrieved from https://techcrunch.com/2017/05/23/instagram-stories-search/
Coyle, B. (2000). Venture capital and buyouts. New York, NY: Psychology Press.
Ogbor, J. O. (2009). Entrepreneurship in Sub-Saharan Africa: A strategic management perspective. Bloomington (Indiana, US: AuthorHouse.