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Business Plan Assignment: Strategic Planning For A Cup Of Joy

Question

Task:
Business Plan Assignment Task
You are required to produce a costed business plan for a new business launch. The plan can, within reason, be based upon any area of business activity. The business plan must contain the following key elements:

  1. A summary of the business idea, an analysis of the risks that the business will face and the source(s) of initial funding for the business.
  2. An outline and discussion of the key fixed and variable costs.
  3. A budgeted profit forecast for the first year of operation.
  4. A budgeted cash flow for the first year of operation.
  5. Calculation of the breakeven point and margin of safety.
  6. Key performance indicators (KPIs) to monitor progress towards business goals.
  7. Recommendations based on the results of your analysis above.

Answer

Introduction to the context of Business Plan Assignment
A business plan is a detailed written document that states how a start-up business shall carry out its operations by defining its objectives and the procedure to be carried out in achieving its goals. A business plan is known to be a detailed well-written roadmap for the business from the viewpoints of marketing strategy, financial planning and operational activities (Chang, 2017). Start-up companies usually prepare a business plan underlining the key factors to get off the foundation and attract investors to pour money into the business venture.

Summary of the Business Plan
A Cup of Joy is a start-up café based on the coffee roaster to offer a range of premium coffee and espressos. A Cup of Joy will be located in Oxford Street in London. A Cup of Joy shall be opened as an LLC by its two founders John and Mary, to re-live the classical Italian traditions and coffee recipes to meet the demand for the people for premium coffee. A Cup of Joy highlights its three main key to success factors that shall derive a competitive advantage to the business in comparison to existing market participants in the UK coffee industry. At first, A Cup of Joy is required to develop the finest grade of coffee from the suppliers. Secondly, establish a high-end customer service system that shall exceed the expectation of the customers and lastly, employing cost management strategies. The financial and budgetary control shall help A Cup of Joy to eliminate unnecessary expenses.

Mission
The mission of A Cup of Joy is to deliver the finest selection of a variety of coffee that is unconventional. The café shall use a high-grade coffee roaster to prepare coffee that can surpass all its competition. The high-end customer service and homely atmosphere at the café shall be a perfect combination for the unique product.

Vision
The vision of A Cup of Joy is to expand its business within other cities in the UK as well as venture into international countries through multiple café chains.

Objectives
The objectives of A Cup of Joy are to create brand awareness and excellent customer services that shall promote high sales and high profits. A Cup of Joy shall use the following strategies to meet its objectives-

  • Preparing a unique menu to offer a different and wide variety of coffees
  • Promote the classical Italian coffee roasting methodology for increasing its market share and penetrate into the market using the finest raw materials
  • Offering excellent customer services that shall outreach the customer's demand in delivering the best services in the city

Cost Structure

Type of Costs

£

Fixed/ Variable

Payroll

83940

Variable

Selling and Marketing Expenditure

8394

Variable

Depreciation and Amortisation

15600

Fixed

Rent

14400

Fixed

Utilities

7800

Fixed

Insurance

9000

Fixed

Payroll Taxes

12591

Variable

Misc Expenses

2400

Fixed

Table 1: Total Cost Analysis

Start-up Cost

Start-up Expenses

 

Legal Charges

 £      5,000.00

Stationery

 £          500.00

Brochures

 £      1,000.00

Consultants

 £      1,500.00

Research and Development

 £      3,000.00

Total Start-up Expenses

 £    11,000.00

Start-up Assets

 

Cash Required

 £  116,000.00

Long-term Assets

 £    78,000.00

Total Assets

 £  194,000.00

Total Cost Required

 £  205,000.00

Table 2: Initial Cost

Start-up Funding

 

Start-up Expenses

 £    11,000.00

Start-up Assets

 £  194,000.00

Total Funds Required

 £  205,000.00

Assets

 

Inventory

 £    78,000.00

Cash Required

 £  116,000.00

Additional requirement of Cash

 £                   -  

Opening Cash Balance

 £  116,000.00

Total Assets

 £  194,000.00

Liabilities and Capital

 

Liabilities

 £     0             

Capital

 

Invested Capital

 

John

 £  110,000.00

Mary

 £    95,000.00

Additional Investment Requirement

 £                   -  

Total Planned Investment

 £  205,000.00

Table 3: Start-up Funding Summary

French Café au Lait

 

1 part hot strong coffee Fresh roast

 £       2.00

1 part steamed milk

 £       1.00

 

 £       3.00

 

Pour-over coffee

 

300 ml filtered, distilled or spring water

 £       0.80

18 gms medium-fine ground coffee

 £       1.75

 

 £       2.55

 

Cuban Coffee

 

1/4 cup finely ground coffee

 £       1.25

1 1/2 cups water

 £       0.10

1/4 powdered sugar

 £       0.25

 

 £       1.60

 

Perfect Cappuccino

 

2 tablespoons finely ground dark roast coffee

 £       1.80

4 ounces water

 £       0.20

4 ounces milk

 £       1.00

 

 £       3.00

 

New Orleans Cafe Noir

 

4 tablespoons drip-ground coffee

 £       1.00

2 tablespoons chicory

 £       0.16

1/4 teaspoon salt

 £       0.40

4 cups filtered water

 £       0.25

1 teaspoon sugar

 £       0.90

 

 £       2.71

Table 4: Raw materials used and prices

Forecasted P/L Statement

Forecasted P/L

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Sales

0

0

0

5750

6109

6668

7740

9175

10454

11475

12018

13009

Direct Cost of Sales

0

0

0

1898

2016

2200

2554

3028

3450

3787

3966

4293

Gross Margin

0

0

0

3853

4093

4467

5185

6147

7004

7688

8052

8716

Gross Margin %

0

0

0

67%

67%

67%

67%

67%

67%

67%

67%

67%

Expenses

                       

Payroll

2000

2000

4000

5280

6560

8060

9340

9340

9340

9340

9340

9340

Selling and Marketing Expenditure

200

200

400

528

656

806

934

934

934

934

934

934

Depreciation and Amortisation

1300

1300

1300

1300

1300

1300

1300

1300

1300

1300

1300

1300

Rent

1200

1200

1200

1200

1200

1200

1200

1200

1200

1200

1200

1200

Utilities

650

650

650

650

650

650

650

650

650

650

650

650

Insurance

750

750

750

750

750

750

750

750

750

750

750

750

Payroll Taxes

300

300

600

792

984

1209

1401

1401

1401

1401

1401

1401

Misc Expenses

200

200

200

200

200

200

200

200

200

200

200

200

Total Operating Cost

6600

6600

9100

10700

12300

14175

15775

15775

15775

15775

15775

15775

Profit Before Interest and Taxes

-6600

-6600

-9100

-6848

-8207

-9708

-10590

-9628

-8771

-8087

-7723

-7059

EBITDA

-5300

-5300

-7800

-5548

-6907

-8408

-9290

-8328

-7471

-6787

-6423

-5759

Net Profit

-6600

-6600

-9100

-6848

-8207

-9708

-10590

-9628

-8771

-8087

-7723

-7059

Net Profit/Sales

0

0

0

-119%

-134%

-146%

-137%

-105%

-84%

-70%

-64%

-54%

 

The table above shows the projected profit and loss for the café in the first year of operations. With the expected revenue and expenses, the company shall run into a loss throughout the period. It is due to the reason of overriding operating expenses in comparison to the revenue likely to be earned. Initially the café is required to make multiple sources of expenses that cannot be set-off from the slow-earning revenue causing a high loss margin throughout the 12 months.

Forecasted Cash Flow

Forecasted Cash Flow

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Receipts

                       

Cash Sales

0

0

0

1438

1527

1667

1935

2294

2613

2869

3004

3252

Cash from Receivables

0

0

0

0

144

4321

4596

5028

5841

6913

7866

8620

Subtotal Cash from Operations

0

0

0

1438

1671

5988

6530

7321

8454

9782

10870

11872

Additional Cash Received

                       

Subtotal Cash Received

0

0

0

1438

1671

5988

6530

7321

8454

9782

10870

11872

Expenses

                       

Cash Spent

2000

2000

4000

5280

6560

8060

9340

9340

9340

9340

9340

9340

Bill Payments

110

3300

3317

3943

8054

6607

7247

8098

8696

9057

9293

9314

Subtotal Spent on Operations

2110

5300

7317

9223

14614

14667

16587

17438

18036

18397

18633

18654

Additional Cash Spent

                       

Subtotal Cash Spent

2110

5300

7317

9223

14614

14667

16587

17438

18036

18397

18633

18654

Net Cash Flow

-2110

-5300

-7317

-7786

-12943

-8679

-10056

-10117

-9582

-8615

-7762

-6782

Cash Balance

113890

108590

101273

93487

80544

71865

61809

51692

42110

33495

25732

18950

 

The forecasted cash flow statement elaborates the sources of cash inflow and cash outflow to the café in the first 12 months. The company is expected to generate sales from April with an increasing trend. In the first three months, the café shall need to implement marketing strategies to able to recognise itself as a unique café in the Oxford Street of London. However, from the first month itself, the café shall bear expenses in the form of cash spent on activities and utility bill payments. In the past 12 months, the net cash flow remained slow and negative hence indicating that the net cash inflow is lower than net cash outflow.

Break-even Point and Margin of Safety

 

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Sales

0

0

0

5750

6109

6668

7740

9175

10454

11475

12018

13009

Payroll

2000

2000

4000

5280

6560

8060

9340

9340

9340

9340

9340

9340

Sales and Marketing and Other Expenses

200

200

400

528

656

806

934

934

934

934

934

934

Payroll Taxes

300

300

600

792

984

1209

1401

1401

1401

1401

1401

1401

Total Variable Cost

2500

2500

5000

6600

8200

10075

11675

11675

11675

11675

11675

11675

Depreciation

1300

1300

1300

1300

1300

1300

1300

1300

1300

1300

1300

1300

Rent

1200

1200

1200

1200

1200

1200

1200

1200

1200

1200

1200

1200

Utilities

650

650

650

650

650

650

650

650

650

650

650

650

Insurance

750

750

750

750

750

750

750

750

750

750

750

750

Other

200

200

200

200

200

200

200

200

200

200

200

200

Total Fixed Cost

4100

4400

4700

4892

5084

5309

5501

5501

5501

5501

5501

5501

Net Profit

-6600

-6900

-9700

-5742

-7175

-8716

-9436

-8001

-6722

-5701

-5158

-4167

P/V ratio

-2500

-2500

-5000

-850

-2091

-3407

-3935

-2500

-1221

-200

343

1334

Break-even Point

-1.64

-1.76

-0.94

-5.75529

-2.43137

-1.55826

-1.39797

-2.2004

-4.50532

-27.505

16.0379

4.123688

Margin of Safety

2.64

2.76

1.94

6.755294

3.431373

2.558262

2.397967

3.2004

5.505324

28.505

-15.0379

-3.12369

 

The break-even point analysis shows the production level where the total cost of the production is exactly equal to total revenue earned. In other words, it is a situation of no profits no loss. A Cup of Joy shall derive its break-even point in the month of November on the first year of its business. The approx. break-even point is 16.0379 units which means, the café needs to make sales revenue of 12018 to achieve the break-even cost from the operating activities. According to the principles of break-even analysis, for start-up business, the BEP is usually high as the café needs to incur high cost during the initial period. The margin of safety is a point where the company must re-stock its raw materials to prevent stock-out situation.

Key Performance Indicators
The following are the key 5 KPIs for a café business-

Employee Retention Rate: This KPI can correlate with the level of productivity to track the success or failure of A Cup of Joy. It is % of the employees that remain with the business over a specific period (Rashidet al., 2018). Usually, café business faces an alarming rate of employee turnover, and it causes problems with the hourly employees, which is highly preferred by A Cup of Joy’s owners.

RevPASH: It is the Revenue Per Available Seat Hour that determines the time as the main criterion. The café industry uses RevPASH to assist the café owner in gaining an insight into the effectiveness and efficiency of the business of every seat, generating revenue to the business (Torresand Costa, 2018).

% of labour cost: Labour cost is the % of how much the café is incurring against the employee cost during a period. Labour cost indicates high improvement in cost minimisation by making minor changes in the cost structure (Turnerand Endres, 2017). For instance, a difference in 1% of the labour cost shall make a huge difference in sales revenue and profit maximisation.

Revenue by Employee:It is also known as the sales per head, wherein the café measures the sales per head at different hours during a specific date (Marsiwiet al., 2019). A Cup of Joy can track the sales per head during the peak hours like evening as well as revenue earned by employees per week, per fortnight and per month.

Table Turn Time: It shows how long a table is occupied by the guest to have their food at the café. It begins from the time the guest occupies the table till they leave (Mohamudet al., 2017). For start-up businesses like A Cup of Joy, higher money can be generated with a faster table turn.

Recommendation
As a new business, A Cup of Joy shall face tremendous market competition due to its location and numerous existing market participants in London itself. In order to highlight its key success factors, there are few strategic ways to remain strong in the competitive market-

Specialise: A Cup of Joy needs to gain specialised knowledge in the different types of coffee like espresso, cappuccino and a variety of characteristics of coffee beans. This shall cater to offer consumers along with the reason to choose a type of coffee with others.

Products: A Cup of Joy should serve not only coffee but also some food items that go well with coffee like muffins, sandwiches and many more.

Theme: A Cup of Joy must choose a specialised theme for the café that can add an aesthetic factor for capturing the curiosity of the customers.

Conclusion
It can be concluded that a business plan is an essential tool as it provides the entrepreneur with the ability to lay down their business goals and track down the progress of their business to mark growth. A formulation of the business plan is the first step of starting a start-up business. They are essential for attracting investors so as to determine if the business is on the right track and whether it is worth investing money into it or not.

Reference List
Chang, W.L., 2017. Online training for business plan writing through the World Café method: the roles of leadership and trust. Universal Access in the Information Society, 16(2), pp.313-324.

Marsiwi, C.K.K., Syah, T.Y.R., Pusaka, S. and Indradewa, R., 2019. Investment Feasibility Analysis in Financial Aspects of Startup Business In Lifestyle Combining Barbershop And Coffee shop Over PT. Jeeva Work Corporation. Journal of Multidisciplinary Academic, 3(4), pp.97-100.

Mohamud, S.S., Khalifa, G.S., Abuelhassan, A.E. and Kaliyamoorthy, S., 2017. INVESTIGATING THE ANTECEDENTS OF COFFEE SHOP CUSTOMERS'BEHAVIORAL INTENTIONS IN KUALA LUMPUR. International Journal on Recent Trends in Business and Tourism (IJRTBT), 1(4), pp.1-14.

Rashid, S.M., Cohen, D.A. and Ghose, K., 2018. An exploration on the process of brand identity building in the context of Malaysian cafe.

Torres, J.G.D.M. and Costa, P.L.D.O., 2018. World Café method integrated with QFD for obtaining the Voice of the Customer. Production, 28.

Turner, S. and Endres, A., 2017. Strategies for enhancing small business owners' success rates. International Journal of Applied Management and Technology, 16(1), p.3.

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