Small business management: To build or buy

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Table of Contents

Introduction
Business Concept Strategy
Develop or Purchase
Form of Ownership
Business Plan
Marketing Strategy
References

Introduction

This article examines strategic planning process of purchasing an existing coffee business in Miami. We have based the business concept on News Café, which demonstrates affordability, growth, and comfort at the Ocean Drive of Miami Beach.

New Café is a 24-hour business with a great menu that consists of both national and international coffee and desserts. It has a great oceanfront view. However, the place experiences service lackluster during high tourists’ seasons.

Business Concept Strategy

Starbucks introduced coffee business to the US and coffee has become a common feature of Americans as millions of them consume coffee daily. These people are willing to spend money on quality coffee.

Specialty coffee has become a growing coffee business in Miami as News Café shows (Monaghan and Huffaker, 1995). Market conditions such as recession and slow economic growths have not affected coffee consumption in Miami or the US. In fact, specialty coffee sales have increased. In addition, no coffee house closed due to recession unlike in other industries.

News Café and other coffee outlets serve quality coffee in Miami. However, most of these coffee outlets look like ‘fast food restaurants’ because of their services. Now Miami coffee consumers have increased, and their preferences for coffee and other products have grown. As a result, many consumers need fresh coffee, varieties, and coffee with health benefits. This means that there is a niche in the coffee market of Miami.

Coffee consumers want fresh, high-end, quality, and health coffee served in high volumes and in a warm and conducive atmosphere. A new coffee business in Miami can meet these needs and fill the niche in the market. The business should provide high quality coffee products in upscale locations of Miami. The location must also provide a mixed clientele base in order to ensure that the business has high-levels of activities throughout the session.

Develop or Purchase

Based on the performance of News Café, it is necessary to purchase an existing coffee business than developing a new one. The existing coffee business in Miami has existing customers, a stream of revenues, existing employees, recognized business name, and working business policies and procedures (Joseph, Nekoranec and Steffens, 1992).

Purchasing an existing coffee business in Miami shall enable the investor to avoid risks associated with start-ups. Business pundits claim that nearly 80 percent of start-ups do not last for more than two years. In addition, start-ups may also lack adequate cash flows, which may affect their working capital.

New businesses have financing and setup challenges. An investor who opts for an existing business with history avoids challenges associated with a new business that lacks a record of accomplishment. Therefore, the process of developing a new coffee business in Miami should be through purchasing an existing business. Still, it also eliminates a daunting task of finding capital for a new business.

Start-ups also undergo creation challenges. There are business procedures and policies, which the new business owner would not like in an existing. However, the new owner may make changes that fit his new business concept. The purchasing party can easily locate what areas or policies of the existing business need changes.

The investor may also decide to overhaul all aspects of the business, but eventually gains from identifying factors that do not favor the business. Such existing business already has stability required to start operation. In addition, the interested party can rely on historical sales records in order to make sales projection. The new owner can realize immediate returns after the purchase.

Any business for sale usually has a fair price. Furthermore, purchasing an existing business may not require all the capitals needed when buying a new business. The owner can make down payment and pay the rest of the debt in installment by using the generated cash flows from the business. A new start-up does not provide this advantage.

Still, sellers also offer favorable financing terms for such existing businesses. This may be due to income tax reasons, enhance profitability of the business, and get a net for existing loans. A seller who may carry back any part of sales price indicates that he has confidence in the future performance of the business even under new management.

Form of Ownership

Aspiring entrepreneur has various forms of business ownership and can select the one that matches his business financial position. For this new coffee shop venture in Miami, we have settled on limited liability company (LLC).

LLC has a hybrid structure that will provide the new owner with limited liability features of corporation, offer tax efficiency and eliminates cases of double taxation, and operational flexibility of a partnership business. However, this form of business ownership is complex and formal that a general partnership ownership.

Business Plan

Executive Summary

This new coffee shop venture borrows the concept of News Café in Miami, but shall be in upscale areas, provide high quality coffee, efficiency, and 24-hour services. The owner can introduce other partners or run it independently (McDonald, 2007).

Financing shall be from the owner’s capital. The owner shall fund the rest with income generated from returns.

After reviewing the operation of News Café, the new coffee business shall rely on the News Café model for expansion to other areas of Miami.

Mission

The new coffee business goal is to be the coffee shop of choice in Miami for upscale consumers, tourists, students and the local business community by offering high quality coffee and coffee products. The business intends to be profitable with more than 20 percent returns annually. The business also intends to support local environmental initiatives at the beach and supports coffee farmers too.

Objectives

Make the new business highly attractive place for coffee consumers in Miami
Make sales of $750,000 in the first fiscal year, $1 million for the second year, and $ 1.3 million for the third fiscal year
Achieve over 20 percent net profit after the third year
Start expansion within six months after opening
Support community, coffee farmers, and conservation efforts

Key to Success

High quality coffee products
Upscale markets with mix customer base
Targets on tourists, affluent population, students, working community, and pedestrians
Well-trained staff
Aggressive and continuous marketing
Sales of coffee and related products for multiple revenue sources
Provide online sales services in the Web

Company Summary

The business shall provide unique coffee to its consumers.

Variety: the coffee shop shall have different varieties of coffee not found in Miami
Location: the coffee shop shall occupy upscale environments with attractive views next to busy streets, shopping complex, tourists’ destinations, and entertainment locations
The coffee shop shall expand within six months after successful takeover

Ownership

The coffee shop shall be LLC

Products

The coffee shop shall offer high quality:

Coffee varieties
Tea
Juice
Gift items
Chocolate
Bottled water
Soft drinks
Snacks

Pricing of these products shall favor both high-end and low-end consumers.

Market Analysis Summary

The new venture shall launch a new coffee business by purchasing an existing business in a receptive and a growing market. America coffee consumers are increasing.

The business shall consider:

Affluent and popular locations
Areas with tourists activities throughout the year
Student locations
Low media costs
Busy streets
Popular beach areas

Market Segmentation

The customer base in Miami shall consist of various customer segments:

High-end local residents
Local community business people
Tourists
Students
Pedestrians and travelers

These segments of consumers are strong and provide mixed benefits. They can provide consistent business and cash flows throughout the fiscal year. The business will also benefit from high tourist seasons during summer breaks when students break for their long holidays. Still, the other segments of the market shall be available throughout the year.

Figure 1: Target Market Segments for the New Coffee Shop

Competitors

Competition consists of international, regional, and local coffee shops.

Starbucks
News Café
Café Demetrio
Joffrey’s Coffee and Restaurant
Versailles
Mercedes Coffee Shop
Romeo’s Café
Greenstreet Café

These competitors have grown ever since their inception. In addition, no single chain of coffee shop has failed in Miami in the last 20 years.

Marketing Strategy

The new coffee shop shall rely on word of mouth, local media, and social media as marketing strategies in order to reduce costs of media promotions. The aim of the marketing campaign is to establish profitability for fast and continued growth of the business.

The marketing strategy shall position the coffee shop as the only place that offers high quality coffee products in Miami Beach.

Assumptions

The market requires high quality coffee products
There is a need for conducive environment
Consumers want affordable luxuries
Coffee market is stable

Competitive Edge

The business competitive edge in comparison to competitors includes:

High quality products with great tastes
Best locations in busy streets, areas with tourists’ presence throughout the year
High-end locations
Favorable prices to both high-end and low-end consumers
Superior ambience
24-hour operation
Varieties of products for various segments of the market
Internet online sales

The business should have more than 20 shops within the next five years. However, this will depend on the financial performance of the purchased business. The managers must track all daily activities in order to provide clear perspectives for expansion.

Web Plan Summary

The coffee shop will have an established Web site from the previous business owner. The established Web site of the business guarantees the new owner high traffic from existing customers. The Web site shall act as a tool of marketing and offer online sales services.

Management Profile

Owner
Chief finance officer
Marketing head
Operation manager

Financial Plan

Achieve sales growth of 15 percent annually
Adequate cash flows
Profit margins of 20 to 25 percent
Marketing budget shall be five percent of the annual budget
The profits shall fund expansion strategies

Figure 2: Monthly sales by products

Figure 3: Yearly sales by products

References

Joseph, R., Nekoranec, A., and Steffens, C. (1992). How To Buy a Business. New York, NY: Kaplan Publishing.

McDonald, M. (2007). Marketing plans: how to prepare them, how to use them. Oxford: Butterworth Heinemann.

Monaghan, J., and Huffaker, J. (1995). ESPRESSO! Starting and Running Your Own Specialty Coffee Business . New York: Wiley.

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