Introduction to Entrepreneurship essay
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While business expansion is often considered as one of the major steps towards attaining increased profitability, business analysts highlight that undertaking such an operation requires for more attention (Beer & Eisenstat 1996). This is because such an operation is costly and, therefore, if the real objective is not attained, then it would generate losses for the company. A case study of a company called Jon’s Smoothie Bar will be used in this paper. This company has identified a new business opportunity, and, therefore, seeks to expand its operations in Geneva. An initial survey conducted highlighted that some of the restaurants located in the department stores offered the drink as a minor part of their menu, thus, indicating that an opportunity exists for the company to concentrate on smoothies. The company has decided that the new facility will be located on the Quai de Mont Blanc. However, this paper will basically evaluate the business opportunity. Some of the key issues that will be analyzed are the approaches that the company can employ to gather information, the resources that would be required to develop the business plan, the factors that have to be considered for the business opportunity, the approach that will be applied in launching the new business, the potential risks, the financial analysis, and future expansion. Apparently, the main aim of the study is to evaluate the business opportunity.
How to Gather the Information that Will Be Used to Evaluate the Potential Business
Just like it applies for all the key business decisions, a thorough and more comprehensive investigation and planning, along with the analysis of the options are required to evaluate the validity of the available options (Beer & Eisenstat 1996). Indeed, market analysts highlight that the process of gathering relevant and current information is one of the most significant processes for any business, considering the fact that this process often generates significant information that could be applied to improve the business operations, and identify newer opportunities that the company needs to explore in order to enhance its profitability. Basically, it is worth noting that business information is comprised of figures and organized facts that possess a deeper meaning with regard to the context to which the information is required (Gratton & Jones 2010). This, therefore, implies that information is a valuable resource for the business, as it provides a revelation about the potential and existing customers, level of competition and general information about the industry. It actually provides room to verify the feasibility before the business agrees to commit its resources into the identified opportunity. One of the approaches that could be applied to collect information is through a research which will generate significant data that will be used to deal with the identified challenges that the company is likely to encounter, segmenting its potential market and how to target its potential customers (Gratton & Jones 2010). However, it is important to note that market research often generates two types of data, primary and secondary ones.
Under the primary research, the company can gather two types of information, the specific and the exploratory (Gratton & Jones 2010). While specific research is often considered to be accurate with regard to scope, and is applied to deal with the problems that are basically identified under the exploratory research; research experts highlight that the exploratory research, on the other hand, is considered to be open ended and is basically aimed at defining the specific problems (Gratton & Jones 2010). In addition, the exploratory research often entails unstructured and detailed interviews that are aimed at soliciting lengthy answers from the respondents. However, out of the two types of research, the specific research is often considered to be more expensive. The questionnaires are often applied in collecting primary data, which could either be directly mailed to the respondents, or conducted over the telephone or personal interviews. However, it is worth noting that the manner in which the questions are structured will determine the response rate, though mail response is often considered to be typically low. In most cases, a return rate of 3 percent is often considered to be typical, while a response rate of 5 percent is considered to be very good. The telephone surveys are considered to be more effective and fast. In addition, the telephone surveys can actually cover an extensive geographical range (Gratton & Jones 2010). On the other hand, personal interviews can either be conducted as group surveys, or as in-depth interviews. Group surveys, also known as focus groups interviews, are valuable brainstorming tools that could be useful when it comes to collecting information about the population’s buying preferences and tastes, as well as their purchasing decisions. The in-depth interviews on the other hand are basically one-on-one interviews, which can be either non-directive or focused. However, while focused interviews are often grounded on the questions that had been initially formulated, the non-directive interviews allow respondents to tackle specific topics without having to answer a lot of questions.
The secondary type of research basically refers to the external information collected by the government agencies, media sources, labour unions, and trade and industry associations, among many other sources. This information is basically published in magazines, newsletters, pamphlets, newspapers, and trade publications. Some of the most commonly referred to sources of secondary information include public sources, commercial sources, and the educational institutions. The public sources are often free, and provide a lot of useful information. They include business and government departments within the public libraries (Gratton & Jones 2010). The commercial sources although valuable, often entail some cost factors, for instance, the association and subscription fees. They include trade and research associations, financial institutions, as well as publicly traded corporations. In addition, the local newspapers, television and radio stations, magazines and journals can act as useful commercial information sources. Besides, maintaining their audiences’ demographic profiles, these outlets also generate useful information regarding the economic trends. The educational institutions are often ignored despite the fact that they often possess valuable information generated from the research studies conducted within the universities and colleges. This information is often considered valuable, especially considering the fact that it can help the business in ensuring that it becomes competitive in the new market. Market analysts highlight that it is important for any company that is intending to become competitive and profitable in the market to actually understand how the company can fit into the prospective market, as well as to identify its biggest competitors. The business can, therefore, opt to analyze the industry trends.
Alternatively, the business can decide to conduct a direct survey of the people who might have a rich knowledge of the market, especially those that may be having a direct contact with the market. These important individuals may either be suppliers, customers, reporters, industry analysts or experts, or competitors. However, it is important to note that gathering information from these individuals can be time consuming, since some of them may be unwilling to provide the required information. It is, therefore, important to network and contact as many individuals as possible in order to be able to generate adequate data.
Assumptions about the Factors that Will Be Considered When Developing the Business Plan
Market opportunity Pricing
An effective pricing calls for a thorough understanding of the target market and the channels that will be used in selling the products (William 2011). In addition, market analysts highlight that the price of a product should match with its quality. Price is defined as the amount paid by customers for a certain product. In most cases, the pricing strategies to be used usually take into account visible pricing response of main rivals and the profit margins (Rhonda and Eugene 2003). List pricing, discounts and financing are among the components of pricing (William 2011). Generally, expanding a business into a new market includes such costs as development costs, costs of infrastructure, promotions and other expenses that have to be taken into account when making decisions about the price of the product. In order to attract new customers and retain existing ones, Jon’s Smoothie Bar will have to minimize these costs in order to reduce the prices of its products. Due to its considerable competitive advantage, the bar will have to apply the price skimming strategy, whereby, it will have to offer its drink at substantially higher prices compared to its competitors. The basic assumption behind this strategy is that it is efficient as it will help the company to meet its objective of boosting its revenues and market share through amplified sales, while still meeting its customers` demands. Alternatively, the bar can decide to offer its drink at an affordable price, the one that can be afforded by most of its target customers. Apparently, it is postulated that the price of the smoothies is within the CHF range from 6 to10. It is assumed that the pricing range would govern the volume sold.
Tourist Trade Manpower Requirements
The site that has been identified as the location of the new business in Geneva has a great advantage considering the fact that there are a high number of tourists in the area. With regard to this advantage, it is assumed that this would generate a higher potential revenue turnover, instead of just focusing on the office workers and the local people as the target customers. Furthermore, it is assumed that the seasonal tourist trade would allow the business to be operational for seven days per week at some periods of the year, which will help the business to increase its returns.
Cost of Production
The business estimates that production costs to be within the range of CHF 2-4, depending on the type of fruit. Various types of fruits are often applied in producing the drinks, and, therefore, the cost of production will actually depend on the type of fruit used in the production of a smoothie drink. It is expected that the smoothies will be sold using different fruits and combinations of fruits. However, it is also important to note that the bar intends to sell smoothies for only six months, and it will expand its menu to other related products in 2013.
Expected Sales Volumes
It is the expectation of any business that is expanding to other markets to hold greater opportunities for attaining higher sales and Jon’s Smoothie Bar is not an exception (Dan 2000). The company intends to make more profits and attain a larger market share considering the fact that the restaurants located in department stores offer this type of drink as a very minor part of their menus, and it is, therefore, believed that an opportunity exists that a bar concentrating only on smoothies will be profitable. The company expects to increase its sales after making its products known among its target customers. It is also expected that the company will increase its market share, since it is entering into a newer market. However, it is important to note that the company will have to incur some expenses for promotions and advertising, setting up new facilities and conducting market research.
Business Launch Costs
The business will require a rental cost of CHF 5000 per month. The new facility is estimated to be 25 sq meters and the size would be sufficient for a bar area to produce smoothies and a small seating and standing area for customers. The business will also require CHF 10,000 to purchase the necessary equipment for the bar. This money will be used to acquire all the equipment that is required in the bar, plus the refrigerators and freezers. The company will also require CHF 10,000 that will be used to purchase tables and chairs. In addition, there will be monthly electricity and cleaning costs of CHF 1,000. It is also important to note that there will be labor costs that include both part time and full time employees. Furthermore, there will be costs that will be incurred in acquiring the raw materials for the production of smoothies. The labour costs can be estimated at CHF 20,000 per month, while the cost of acquiring raw materials is estimated at CHF 50,000 per month. Therefore, the company will require CHF 96, 000 to launch its business in Geneva.
Promotional and Advertising Costs
Promotion is one of the most effective processes for any business. The promotional strategies are often developed in order to make clients aware of the existence of a certain product, while introducing a new product into the market or expanding or establishing a new outlet and it offerings (Carrada-Bravo 2003). Promotion strategies incorporate all communications employed by a marketer, including advertising, public relations, personal selling and sales promotions. The business will have to allocate substantial funds for the advertising campaign that incorporates the use of media (radio, television and newspaper) (Carrada-Bravo 2003). Besides, the business can opt to use signage and billboards, and can even sponsor sporting events. Nevertheless, the television is often considered to play a fundamental responsibility in the advertising strategy. The business can, therefore, set aside about CHF 80, 000 to cater for the promotional and advertising costs.
Other Factors That Need to Be Considered for the Business Opportunity
Business analysts highlight that indeed business functions such as management, sales and marketing, form an integral component of a business, and are aimed at strengthening the company’s image and the quality of its outputs (Carrada-Bravo 2003). It is, therefore, important that practices relating to such functions are given more emphasis in order to enhance the manner in which the company’s drink is perceived in the market. One of the key practices the company should consider in trying to enhance its image is to increase its brand recognition. This determines how the company interacts with its customers, clients and the employees, as it basically determines the manner in which the company interacts with all those who are related to it. It also enables the company attain its next level of success contributing to the company’s profitability (Carrada-Bravo 2003). Brand recognition is one of the significant strengths that can allow the company to successfully penetrate into any global market. This will enable the company to penetrate into different markets, maintaining a positive reputation not only among its customers, but also among its competitors. Furthermore, brand recognition can offer the company a competitive advantage, especially within a highly competitive market. Apparently, brand recognition is the company’s strong advantage, since its name stands above the other companies in the industry.
It is also important that a company considers the legal issues that are required before conducting business in Geneva. These include such factors as licensing, together with the government laws and policies governing business within this industry. It is important that the business operations follow the procedures that govern business operations within the country. The business will, therefore, have to obtain the trading license from the relevant authorities to allow it to be legally operational. It is also important to understand the policies governing trade within this industry, as well as the government laws, considering the fact that contravening such laws might generate huge penalties for the business.
Despite the fact that a market survey has been performed and the findings have revealed that there is an opportunity for a Smoothie bar in Geneva, it is very clear that there are some other restaurants located in department stores. This is what provided the general agreement that an opportunity exists for a bar concentrating only on smoothies in Geneva. However, it is worth noting that the existing restaurants, regardless of the fact that they offer this type of drink as a very minor part of their menus, still present some competition to the business. The bar will also have to consider the competitiveness of this industry in order to establish strategies that will give it a competitive advantage over the other bars and restaurant chains within the industry. While trying to launch its business operations in Geneva, it is certain that the bar may face competition from other bars and restaurant chains based there. However, one great advantage is the fact that bar will be placed at the strategic location that will enable it to attract as many tourists as possible while offering their Smoothie drink at affordable price.
Research and development is considered as a significant process any business should undertake, in order to determine how the products should be developed to fit into the market in the future, as well as the future geographic markets. However, despite the fact that an initial survey of the site location and the market will be conducted, it is important to note that this should be a continuous process that will inform the business on the future developments and on how to become more competitive in the market. Besides, this will also enable the business to identify new markets that could be targeted to enable it expansion. For instance, it is noted that the bar intends to sell smoothies for only the first six months, and then it will expand its menu to cover other related products. It is, therefore, clear that a comprehensive research is required in order to identify what other products the business can incorporate into its menu in order to make it more profitable. The business will therefore have to set some funds aside to cater for research and development.
It is also important to note that just like no other business is prone to various types of risks, Jon’s Smoothies Bar is also prone to certain types of risks. These risks have to be addressed and managed to ensure effective running (Rhonda and Eugene 2003). However, most companies opt to use risk reduction strategies while undertaking this responsibility. It is important that business identifies all the risks it is likely to encounter that can have adverse impacts on its operations, and establish a risk management plan that can be employed to deal with such risks. Indeed, some risks can causes adverse impacts to the business when they occur, and it is better if they are detected early and effective measures are employed to prevent their occurrence.
Jon’s Smoothies Bar should also strive to be become an environmentally responsible business that seeks to ensure that its monitors, services and practices do not degrade the state of the environment. However, it is worth noting that this is an environment friendly business practice considering the fact that most of its activities do not degrade the environment in any way. Nonetheless, dustbins will be located at strategic places to ensure the wastes are contained. These wastes will then be disposed off appropriately to ensure they do not contaminate the environment. In addition, business should consider launching an environmental awareness program that will be offered to the surrounding communities to ensure the environment is protected. This is because environmental responsibility is an important practice that strives to make the world a safer place for both the future and present generations. Additionally, the business should inform the duties and responsibilities it has towards its employees, customers, its key shareholders, as well as to the general public, and thus the need to conserve the environment for the benefit of all.
How to Launch the New Business
The decision to launch a business operation can be both exciting and disheartening (Lawrence & Carl 2008). It is always hoped that such an undertaking will generate great merits, for instance, increased profitability for the business, while, on the other hand, this often generates some uncertainty with regard to the cost of the launch and the effort required (Lawrence & Carl 2008). Apparently, launching a new business means that there are new customers that the business intends to target, and business competitors to ward off considering the fact that there are some business running the same type of operations in the market. However, business analysts actually assert that this is a beneficial activity for any individual or group of individuals intending to make an investment and increase their net income (Lawrence & Carl 2008). It is, therefore, important to establish first a business launch plan that will guide the process.
The first significant thing that the business should consider while launching its business in the new market is choosing the business launch mode. It is important to launch the business without having to alter the manner in which the business operations are normally conducted. The business will then have to identify its target customers. Apparently, it is very clear that not all people will become customers and, thus, it is important that the target customers are identified. Basically, one of the major reasons as to why it is important to define the potential market is to enhance the effectiveness of the advertising and promotional activities. This can be best done through the analysis of the market data along with the personal characteristics of the individuals who can be the potential customers of the business, for instance, the income level, gender, age and geographic location. However, it is also important to consider the lifestyle aspects. The business will then have to identify the most appealing benefits of a drink for the customers. This will be incorporated into the sales approach. The business will also have to consider some motivational offers that will enhance the buying power. However, it is important to start with limited offerings. It takes some time before the product is fully established in the market, and, therefore, it is advisable to start with small offerings. The next step is coming with the decision on how the business can best publicize itself. This entails coming up with the promotional strategies that will make the business popular. However, considering the fact that there are various approaches that could be used in promoting the business, it is important to prioritize each approach along with a list of how each of them will be implemented. It is also important to include the time that will be required in implementing these approaches. The business will then be required to come up with a plan that will be applied to promote customer loyalty. It is important that the business cultivates its customers to ensure that they continue to work with the business, considering the fact that they can be an important resource in identifying new customers. The business can decide to write the details of its customers and contact them after the transaction and thank them. This will also enable the business to know if the customers are content with the product, and ask for referrals. This will also reveal the areas that have to be improved in order to ensure the customers are satisfied. Finally, the business is required to monitor success. After ensuring that business has become fully operational in the new market, it is important to monitor success, while making changes where necessary. Apparently, most of the changes will be based on the customers’ reactions to the product, thus, the process of monitoring can be best attained through listening and interacting with the customers (Lawrence & Carl 2008). However, it is important to continue marketing the business for it to remain successful. This will enable the business to inform the customers whatever it is offering, persuade them to buy the products and to remind the existing customers to continue buying the product. Therefore, product marketing should be a continuous process.
However, it is important for the business to keep on track its initial target market (Michael 2008). This is because it is the initial primary market that will make the business profitable. It is also important to make sure that the expansion process is conducted slowly. It is a good approach to introduce the customers gradually to the new product, since exposing everything to the customers at once may generate some losses to the business in the event that the products are not sold at once (Lawrence & Carl 2008). Indeed, the decision to sell the smoothie drink exclusively for the first six months is a good idea considering the fact that this will offer the business an adequate opportunity to understand the market and identify what other products should be introduced to fit well in the market. It is also important to listen to the customers’ feedback and to take it seriously, as this will generate significant information that will be used to enhance operations in the new market, while identifying weak areas that have to be worked on (Lawrence & Carl 2008).
The Possibility of Establishing a Profitable Business and the Realistic Monthly Income That Could Be Attained After the Expenses
Indeed, it is possible for John to establish a profitable business in Geneva. The initial market survey that had been conducted revealed an opportunity for the Smoothie bar in Geneva. From the survey, it was revealed that the restaurants located in the department stores offered this drink as a very minor part of their menu, therefore, implying that an opportunity exists for a bar concentrating on smoothies. Furthermore, this is a clear indication that the competition is low in this market, and this will provide an opportunity for the bar to thrive if effective marketing approaches are applied. Market analysts highlight that a business is more likely to be more profitable, especially where the level of competition is low (Lawrence & Carl 2008). What the business has to do is to identify its target customers and to come up with effective approaches that will be applied in reaching these customers. The other reason that suggests that the business has a higher possibility of becoming profitable is the fact that there is an advantage of a high number of tourists in the area, which presents a much higher potential revenue turnover. Therefore, apart from just targeting the office workers and the local workers, the business will also target the tourists visiting the area. Furthermore, the seasonal tourist trade means that the business can at times become operational for seven days per week. It is important to note that apart from just the increased time for working, the amount of customers served will also increase, thus implying that the business will make more profits. What the business requires is effective marketing strategies that will enable it to thrive in the new market, considering the fact that the target customer base is large, while the level of competition is considerably low. Indeed, it is possible for the business to become profitable.
It is estimated that the business will require about CHF 96, 000 to launch its business in Geneva. The business will require rental cost of CHF 5000 per month. It will also require CHF 10,000 to purchase the necessary equipment for the bar. This will be used to acquire all the equipment that is required in the bar, plus the refrigerators and freezers. The company will also require CHF 10,000 that will be used to purchase tables and chairs. In addition, there will be monthly electricity and cleaning costs of CHF 1,000. It is also important to note that there will be labour costs that will be used to pay both part time and full time employees. Furthermore, there will be costs incurred in acquiring the raw materials for the production of smoothies. The labour costs can be estimated at CHF 20,000 per month, while the cost of acquiring raw materials is estimated at CHF 50,000 in a month. This is well elaborated in the table below.
Expenses Amount in CHF per month
Rent 5 000
Equipment 10 000
Labor costs 20 000
Raw materials 50 000
Electricity and cleaning 1 000
Tables and chairs 10 000
Total 96 000
The business projects that it will make profits after initiating its operations in the new market. The projected revenues/ sales for the first three year period are as summarized below:
Sales forecast for 3 year period in CHF
Year 1 Year 2 Year 3
Other sources of revenue like investments 1,500,000
20, 000 10,200,000
Total revenue 1,500,000 3,820,000 10,223,000
According to the summary above, sales/revenue forecast increases for the three periods at a high rate. This is caused by such factors as brand recognition and quality, increased sales occurred as a result of high quality services offered by the bar, and product diversification. It illustrates that the expected revenues exceed operating expenses and, therefore, Jon’s Smoothies Bar will make net profits for the projected period.
Profit and loss forecast for the three year period in CHF
Year 1 Year 2 Year 3
Electricity and cleaning
Tables and chairs
Gross profits (not inclusive of the taxes) 1,500,000
468, 000 3,820,000
2, 830, 000 10,223,000
10, 128, 800
However, it is worth noting that apart from the general expenses the business is expected to incur, there are also various personal expenses that will be incurred. Jon’s Smoothies Bar is owned by John who intends to work in the bar himself, though some additional manpower will be required. This means that John will have to spend some cash to establish his office, which has to be furnished with the necessary equipment. Furthermore, there are travel costs, food, house rent, considering the fact that he lives far from the centre, thus there is a need to rent a house, along with the medical costs that have to be catered for. Besides the expenses the business is estimated to incur in its launch and operations, it is apparent that there is a higher probability of attaining profitability in the new market. The opportunity exists and it is therefore up to the business to identify effective strategies that will make the best out of this opportunity. Indeed it is possible for John to establish a profitable business in Geneva.
Financial Analysis to Help In Understanding Business Opportunity
Financial analysis is a very significant organizational practice. This is considered by most business analysts as the science of managing money (Armstrong & Kotler 2000). It encompasses the practice of planning income and expenditure and, thereafter, making appropriate decisions that will allow a company to survive in the market financially. Basically, financial management entails financial planning and budgeting, financial accounting, financial analysis, and financial decision-making. It is important to note that managing finances enables a business to attain its overall objectives (Armstrong & Kotler 2000). However, when talking about financial analysis, this refers to the assessment of the stability, viability and the profitability of the business. This kind of information will help to tell whether the business should continue its operations or not. It is often conducted through comparing the financial ratios of profitability and solvency or growth.
Apparently, some of the key factors that highlight that a business opportunity exists include the fact that there is low competition in the area, since the other restaurants serve smoothies as a minor part of their menu, and therefore, suggesting that there is an opportunity for a bar concentrating in smoothies to be successful. The survey also indicted that the business has the opportunity to target a wider customer base, considering the fact that a higher number of tourists visit the area. Therefore, the bar will not only concentrate on targeting the local people and the office workers, but there is an opportunity to target tourists too, which will indeed help in boosting the net incomes. It is also supported by the fact that the business will have to operate for seven days a week at some periods of the year in order to target more customers, and, thus, it will attain higher sales. Furthermore, it is apparent from the financial forecasts that the business has a higher probability of attaining profitability (Michael 2008).
A comparison of the financial ratios can be conducted in order to help John to understand better his business opportunity. For instance, from the above analysis, it is apparent that the business has a higher probability of becoming profitable. Apart from the fact that the initial survey indicated that there is an opportunity for a bar dealing with smoothies, it is clear that the business will become profitable. From the financial calculations, it is estimated that the business requires about CHF 96 000 to launch its operations in the new market, while the estimated revenues after a period of one year is estimated to be CHF 1 500 000, which, therefore, implies that this business will be a viable one. Furthermore, the seasonal tourists will be able to boost its net income. Alternatively, a percentage analysis which entails minimizing some figures as a percentage of a given amount can be carried out to help enhance the understanding of the business opportunity. For instance, various items can be calculated basing on the net income. This means that the income statement items will be divided by the sales, while the items on the balance sheet will have to be divided by the total assets.
However, it is important to note that John will be able to determine the profitability of his business from the financial analysis. This is the ability of the business to attain income and maintain growth both within the long and short terms. Business analysts highlight that the level of profitability of a business is primarily based on its income statement, which highlights the outcomes of its operations (Michael 2008). The financial analysis will also determine solvency, which is the business’ capacity to pay its creditors, as well as other third parties. For instance, it is noted that CHF 100 000 was borrowed from friends and family, which is expected to be paid back at an annual rate of 4.8 percent.
It is therefore from the financial analysis that the business will be able to determine whether it will be able to repay this loan or not. The financial analysis also provides information about the liquidity of the business. This is considered as the ability of a business to sustain a positive cash flow, whereas, on the other hand, it ensures that the normal operations of the business are maintained. In addition, the financial analysis will determine the stability of the business (Michael 2008). This is the ability of the business to remain operational in the long term without having to incur huge losses in the course of its operations. However, it is important to note that determining the stability of the business demands the application of the balance sheet along with the income statement, together with other financial and non-financial determinants (Michael 2008). This is therefore a clear indication that financial analysis is one of the significant procedures that any business has to undertake.
The Major Risks the New Business Will Encounter
Indeed, running a business can be one of the most dangerous operations, considering the fact that they are mostly prone to different types of risks. Actually, some of these risks can be potential hazards that can cause harm to the business, more so considering the fact that some of them can be costly, plus time consuming when it comes to repair. However, one factor that remains constant is the fact that almost all businesses are subjected to various risks which require them to be addressed and managed in the order that will ensure effective running (Rhonda and Eugene 2003). However, most businesses have come up with a risk reduction strategy while undertaking this responsibility. The type of risks can vary from one business to another, while actually some can be common. However, like any other business, John’s Smoothies bar is likely to encounter various risks, while conducting its business operations. Some of the major risks the business is likely to encounter include the compliance risks, which entail the laws and regulations that the business is required to meet, for instance, health and safety, taxation, and employment, especially considering the fact that new business will be located in another state. The business is also likely to encounter the employee risks such as industrial strikes and theft. In addition, the employees may be at risk of getting contagious diseases considering the fact that this is an open place where the employees have to get into contact with the public. The business may also encounter operational and administrative risks such as inaccurate records keeping or the faulty machines or even fire breakouts which may result from electric faults. There is also the financial risk that may be part of business’ financial structure, financial systems and the business transactions, which may in turn make the business incur losses, especially when effective targeting and promotional strategies have not been conducted. The business may also encounter the environmental risks such as natural disasters, for instance, floods, wind storms, along with the property damage during the power failure. In addition, the business might encounter the political and economic risks that can occur as a result of changes within the government policies and structure, along with the economic changes like recessions and economic slumps. However, it is worth noting that if these risks are not well managed, these risks may be of great threat to the corporation as a whole. It is, therefore, important that the business establishes a risk management plan (Smith and Merritt 2002).
Basically, risk management offers the organization a step by step procedure for managing risks in an efficient cross-functional way (Smith and Merritt 2002). On the other hand, contingency plans are the strategies that are employed to avoid and prevent risks, which as a result help to reduce harms caused by the same. Some of the contingency plans include the provision of a good working environment for the workers to prevent such risks as contracting contagious diseases, ensuring that all the machines within the center are well fitted to prevent risks resulting from the electricity faults, while ensuring that all outlets are well fitted with emergency exits and fire extinguishers in case of fire risks. In most circumstances, the contingency plans are considered to be reactive risk strategies, as they seek to provide measures that could be applied to prevent the occurrence of an identified risk, along with the approaches that could be used to deal with the risks in case they happen. Basically, the contingency plans will detail: the techniques of identifying the causes of risks in order to manage the root causes instead of the symptoms; a suitable quantification of the main factors of a risk that enables the prioritization of risks without errors, along with the strategies and tools that give support to the implementation of an efficient risk management program (Brian and Steven 2006). Additionally, the business has to come up with the strategies that could help it identify the most reactive or critical risks. It is worth noting that reactive risks strategies are those which are employed by an organization to react to risks once they take place. Although they are considered to be a risk reduction strategy, they are deemed to be inefficient, as they tend to treat the symptoms rather than the root causes of the same. Some of the reactive risk strategies that may be employed by the center may include employing fire fighters in case of fires, and reduction strategies to prevent further impacts.
It is important to note that the proactive risk management offers a business a step by step procedure for managing risks in an efficient cross-functional way (Smith and Merritt 2002). On the other hand, pro-active risk strategies are those strategies which are employed to avoid and prevent risks, which as a result reduce harms caused by the same. Some of the proactive risk strategies encompass: provision of a good working environment for workers to prevent such as diseases, and ensuring that the outlets are well fitted with emergency exits and fire extinguishers in case of fire risks. In most circumstances, proactive risk strategies are mostly preferred to reactive risk strategies (Smith and Merritt 2002). The approach of proactive risk management provides:
• Techniques of identifying the causes of risks in order to manage the root causes instead of the symptoms.
• A suitable quantification of the main factors of a risk that enables the prioritization of risks without errors.
• Strategies and tools that give support to the implementation of an efficient risk management program.
On the other hand, the reactive risks strategies are those which are employed by an organization to react to risks once they take place (Smith and Merritt 2002). Although they are a risk reduction strategy, they are deemed to be inefficient, as they tend to treat the symptoms rather than the root causes of the same. Some of the reactive risk strategies that may be employed by John’s Smoothies bar may include employing fire fighters in case of fires, and reduction strategies to prevent further impacts.
How John Should Expand His Business In 2013
Apparently, John intends to launch his new business in Geneva in July 1, 2012. He intends to concentrate on the sell of smoothies only for a period of about six months after which he intends to expand his menu with other related products. It is important that a variety of the smoothies is offered, depending on the type of fruit that was used in the preparation. However, in his effort to expand, John should first start by expanding his business premises. It is clear that a space of about 25sq.m only will not allow him to prepare and sell additional products. He will require some additional space that will provide room to facilitate the expansion process. It is therefore advisable that he acquires a bigger space that will enable him to carry out his business. While the business seeks to grow, apparently the walls are not also expected to grow, and that is why it is important to identify an adequate space. Apart from the space, John should also make sure that the necessary equipment that will be required to support the expansion process is available. Therefore, after identifying all the equipment required, it is advisable that he acquires it before starting to promise the customers additional products. However, it is important to note that an assessment of the equipment and the money required for the process of expansion should be done to ensure that the business is actually in a position to expand its operations. It is also important to assess and determine whether the available employees will have the capacity to handle all the operations of the new business. If they are not enough, John can hire extra manpower that is required to ensure the business becomes operational, and if the business is not in a position to support full-time workers, then he can hire them on contractual basis.
However, apart from just expanding with regard to the variety of products the business will offer to its customers, John could also consider opening other branches. You find that the space required for expansion in his current site could be limited, and thus, forcing him to look for another bigger space that would provide enough room for his activities. Therefore, instead of abandoning his current location and moving to a bigger space, John could consider remaining in this site and opening other branches. The reason as to why it is important for him to maintain his current location is based on various factors. One, it is apparent that most of his customers are aware of this location, and, therefore, moving to a new location would mean having to inform the customers, which is at times considered to be costly for the business, as it has to advertise its current location and, in addition, it will be expensive transporting the equipment. This process may also end up losing some of the key customers (Lawrence & Carl 2008). Second, it is also apparent that area serves as a tourist attraction which is expected to boost the sells. Therefore, moving to a new site would mean reducing the customer base of the business (Gupta and Lehmann 2005). To avoid these costs, it would be significant if the business maintains its location even in its efforts to expand in 2013.
However, it is important to note that despite the fact that the bar has already planned to expand its operations in 2013, basically six months after it launches its operations, it is important to assess its capacity to attain this objective by analyzing its ability to offer other related products and generate more profits (Michael 2008). If indeed, its capacity to do so is still low, then it would be better to wait sometime. Business experts highlight that business expansion is not a rapid process that any business should consider undertaking without assessing its ability to actually do that. Rather, this should be taken with a more careful thought (Michael 2008). The business has to grow at a reasonably controlled pace, as expanding rapidly could actually drive customers away, since the business might be unable to meet the customers’ needs (Gupta and Lehmann 2005).
Break- Even Analysis
This is a technique that is mainly applied by management and production accountants. It refers to the analysis that is conducted in order to help determine the specific point, whereby, the revenue generated by the business equals the amount of costs that are associated with gaining the revenues (Dayananda et al. 2002). It entails categorizing the production costs of a business between those that are considered to be variable, and the fixed costs (Dayananda et al. 2002). For the case of Jon’s Smoothies bar, some of the fixed costs include rent, marketing costs, research and development, along with the administration costs. The variable costs include the costs incurred in acquiring raw materials, labour costs, plus other costs related to revenue, such as commission. However, it is worth noting that while the variable costs are considered to be those that change depending on the production output changes, the fixed costs on the contrary are not affected by the changes on the volume of production (Dayananda et al. 2002). Basically, the total fixed costs and the variable costs have to be comparred with the business’ sales revenue to help determine specific point of the sales value, sales volume or production, whereby, the business can be considered to be generating neither profits nor losses, which are also referred to as the break-even point (Dayananda et al. 2002). This can be graphically illustrated as:
As illustrated in the graph above, P is the break-even point, representing a point at which the business is neither making profits nor incurring losses. OA displays income variation at various levels of production, while OB represents the business’ total fixed costs. Therefore, as the business’ outputs increase, the business has to incur some variable costs, which, therefore, implies that total costs, both the variable and fixed costs, also go up. The intersection point, P, is whereby the costs equal to the income (Dayananda et al. 2002).
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