Starting up a Business Coursework - Simons restaurant.

Starting up a Business Coursework

(a) Simon Edwards had several options open to him when he left the army. He could have gone back into the forces in a different regiment such as the Royal engineers or a bomb disposal squad. Also, since he had qualifications in geography, he could have used that to become a surveyor, teacher or environment scientist such as a volcanologist, meteorologist or geologist. Another option would be for him to open a business of his own or become a franchisee of another business. Finally he could have retired at an early ageand settled down with his family.

(b) Some of these options are better than others. Going back into the forces would not have been a very attractable move because he was looking for a change and this probably wouldn’t have satisfied his want for a change in his life. Even if he decided that he wanted to join the Royal Engineers for example, he would still have had to go and train to become a mechanic which, considering his age and high rank, was not very practical. Using his geography skills and becoming a surveyor, teacher or environmental scientist was another option, but again he would have had to return to university for more training which is not what he really wanted to do. Also, being high up in the army, he was paid a reasonable salary and probably wouldn’t have wanted to start a job where he was paid less, such as these options might well do. The next option was to open a business of his own. Although it would have been advised, he wouldn’t have actually had to do any more training. Also, since he had been a high up in the army and was used to telling people what to do, he would have been at an advantage when dealing with any staff he might employ in his business and customers. This also means that he would have been a good boss in a business and able to organise it successfully. If he had become a franchisee he would have had the added bonus of having a large company supporting him and he would have already had a brand image built up for him. However becoming a franchisee needs a large amount of capital for a royalty payment and continuous monthly or annual payments after that.

Costorphine

Edinburgh

Dear Mr Edwards

As your career consultant, my recommendation is that you should open your own business. This is because your leadership skills from being in the army would be very useful in managing a business and running it successfully. Also you would be able to handle customers and staff alike because of your communication skills acquired from talking to your soldiers. Becoming a franchisee of another company is also an option, and you would have the added bonus of being given support from your franchiser as well as an establishment from where to work, training and other added bonuses. Also, since you have not had much experience in running a business this seems to be the best options for you. However a large start up fee is required and continual royalty payments after that.

In specific I recommend that you become a franchisee of a high profile hotel such as the Hilton or the Sheraton. This is because it is an area of business that does not require specialised skills to manage and your army tolerance would help you to run it. In terms of where it is situated, I recommend that you consult the marketing research department of Hilton or Sheraton and find out where they already have businesses running, which areas are the most successful and where the best location that you could set up your business is. In this way you can be sure to start your franchisee in a place that you know will be successful because there aren’t many more hotels around there or there are a lot of people wanting to stay at a hotel.

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(a) The initial start-up costs for a franchisee restaurant may be paid for by the franchiser. However in this case the royalty payment would be substantially larger and the monthly or annual payments after that may be as well. If this does not happen though, the franchisee would have to pay rent for some sort of premises costing around £50 000 annually, machines and equipment such as ovens and cookers costing about £5000 and chairs, tables and cutlery at probably another £5000. Also, he would need to hire some staff to help operate the business and would need to pay them around £1000 per month at least, he would also need to find a supplier to buy food from and to purchase his initial supply. This would cost about £1000. Finally the franchisee would need to advertise his restaurant in so way so that people might know about his restaurant and go there. The price of this would vary depending on how much advertising the franchisee does and how he does it.

(b) There are several sources that Simon could raise finance from. First he could go to the bank where he could take out a long-term lone or an overdraft. Using this method he could probably raise the most amount of cash but he would have to pay it back over a period of time and would loose more money than he initially received because of interest. Another possibility would be for Simon to go to his friends and family to ask them for financial help. Alt though he wouldn’t raise so much capital, he probably wouldn’t have to pay it back. He could also sell some of his property to raise finance. Although this doesn’t sound like a very attractable option, if he had some valuable possessions that he didn’t want any more such as an old car, he could sell them for money.

To: Simon Edwards

From: Nick Stoneham

Title: Sources of Finance

Date: 24th January 2002

Executive Summary

There are several sources of finance available to you which are a loan, overdraft, family and friends, and a sponsor.

The best and most practical for you would be to take out a long term bank loan. This is because:

You can pay it back over a long period of time.

It can generate the amount of resources that you need.

It is quick and easy to set up.

However you will loose money over time due to interest and the bank will want to hold one of your possessions as security.

Terms of Reference

This report analyses and recommends the best sources of finance for you and your current situation. We are looking for the source that could generate a large amount of capital that caters for your needs starting up a franchisee restaurant. We are also looking for a source that is easy to extract finance from and will allow a long period of time for you to pay it back without a large amount of pressure.

Findings

The first possible source of finance is a long term lone from a bank. It can be withdrawn relatively easily and can last for a very long time. It also can generate huge amounts of finance, although interest means that the customer usually pays back substantially more than he takes out. The only other down side to this is that the bank will ask for some sort of security so that if you go bust and can’t pay back the debt they will take this possession as compensation. Usually it is in the form of your house or your car. Next you could use the bank in a different way and get an overdraft which is also easy and quick, but this tends to be more short term and the bank puts more pressure on you to pay it back. Also, there is normally a fixed maximum amount on an overdraft that does not allow you to receive the amount of money you need. Another option is receiving money from family and friends. However this would not generate nearly enough capital to what you need, although the likelihood that you would have to pay it back is severely decreased thus saving you money. Getting someone to sponsor you would be another possibility, but this would take time and persuasion and may lead to complications later on.

Conclusions

In conclusion, a long-term bank loan would be the best source of finance for your current situation. This is because it is quick and easy to organise and only needs to be paid back over a long period. Also it allows the customer to get hold of very large amounts of capital which is what you need. The only disadvantages to this option are that you will loose money overall because of interest and the bank will want to take something for security in case you are not able to repay the loan.

Recommendations

I recommend that the best course of action would be for you to take out a long-term loan from the bank because it can generate a very large amount of capital sufficient to what you need and does not have to be paid back for a very long period of time. The only disadvantage of this would be that overall you would loose money because of interest.

(a)

(b)

(c)

This graph illustrates the break even number of meals that Simon Edwards must serve which is 24800.

(d) The minimum price that Simon should charge if he is considering cutting prices is £8.80. At this price he would just make a small profit at the end of the year having covered for all his costs. Lowering his prices could be a good strategy because it would attract more customers who want a good meal for a low price, but on the other hand people tend to associate cheap with low quality and it may have a negative affect on his sales. The type of people eating at the restaurant may change from being predominately higher class to middle or middle-lower class.

Another way to increase demand is that Simon could also increase the quality of his food with the profits made from each year. This way his brand image would get better and therefore demand would increase. The type of people that eat at the restaurant may grow more respectable too after a while. To uphold this he should also have to improve the quality of his staff and cooks either by training or rigorous recruitment and selection to weed out the top candidates. He would also need to improve the quality of the kitchens by buying better ovens and cookers to produce better cooked meals and the visual attractiveness of the restaurant.

(a) When expanding his business Simon Edwards should take into account several factors. First he must consider where the type of food that he sells would be most popular because he would be most likely to get the most sales there. For example if curries were his speciality and if it was statistically shown that people in Dundee prefer eating curries more than people in Perth, it would be a better idea to start up his restaurant in Dundee because there is likely to be a larger percentage of people who would come to his restaurant. Second, he must decide on the market segment that he is aiming for so that he can open his new restaurant in a strategic position close to that type of person. For example if he was aiming to attract middle-class businessmen he may well start his restaurant in the town centre near to the office blocks to allow the businessmen to eat lunch there while being a short distance from work. Another factor is the amount of people living in the area that he plans to set up his restaurant. It follows that it is more sensible to open a restaurant in Edinburgh rather than in Dalkeith because there are so many more people in Edinburgh that he would almost certainly get more customers there. Finally it is important to consider the competition he would face were he to open a restaurant at any particular location. Big cities like Edinburgh for instance, have many hundreds of restaurants for people to choose from so there would be a lot of competition for customers between the restaurants, whereas a smaller city or town would not be so likely to have so many other restaurants and so less competition to handle.

The most important factor to consider is where he locates his new business in terms of how much the people around that area enjoy his food. This is because this is the main factor which determines the success of his restaurant. His whole source of finance comes from his customers and so if they don’t enjoy his food then he will loose customers and therefore loose money. If he selects a location where the people enjoy his food, then he will attract more customers and make more money which will help him survive against competition.

(b) Simon should use various forms of media to market his new restaurant and attract customers. He should start off by placing adverts in a variety of local newspapers. This way he would get a large number of people living close by to learn about his restaurant and would be able, to some extent, to target the market segment he is aiming at. The disadvantages of this are that the print quality might not be great and people might ignore the advert, being more interested in the news. He should also put an advert on the radio. This would advertise his restaurant to a very large amount of people and would consist of verbal advertising which would be more effective in capturing the audience. It is also relatively cheap. However the disadvantages are that it is very difficult to target the right segment and listeners tend to “switch off” when adverts come on. If, later on, the business is doing very well, he could try TV advertising. This would, again, spread the advert to a very large amount of people and would captivate them more than other forms of media. However it would be nation-wide advertising which might not be suitable for a specific restaurant, and it would be very expensive which is why it should only be used if the restaurant is doing well or ahs enough capital. Finally another alternative would be to put up posters which would have high visual impact, would be good for targeting local market segments, and are very noticeable to everyone whereas not everyone watches TV or listens to the radio. However it is also quite expensive to produce good quality posters and may become part of the scenery and therefore go unnoticed.

Purpose of Job To serve customers of the restaurant

Place in the Organisation On the waiting staff under branch manager

Specific Duties To serve the customers in any way possible to ensure satisfactory opinions of the restaurant. Duties include:

Serving the customers food.
Taking their plates away to the kitchens once they are finished eating.
Bringing the customers the bill when asked for.
Occasionally enquiring whether they are content with the service.
Being polite, kind and considerate to the customers.

Location of Work In restaurant branch on the shop floor.

Hours and Conditions of Work Hours vary from branch to branch, but on average 30 hours per week with negotiable shifts.

One day off per week though weekends not guaranteed.

Fixed salary of £5.00 per hour.

15 working days holiday per year.

Simon’s Restaurant

Simon’s restaurant is a new restaurant in the centre of Edinburgh. It hopes to match the pride of its sister restaurant in Glasgow by providing good quality food at a low price. If you think you would be able and would enjoy working at Simon’s Restaurant as part of the waiting staff then the position is open to you. In specific, the job would be situated on site at the restaurant and requires applicants to serve customers, clear their plates away once they are finished, bring the bill to customer when requested and generally be polite and considerate by making sure customers are happy.

The qualifications needed are very limited but applicants must be able to speak fluent English and have the right hard working, friendly personality. Other restaurant or related work experience will be greatly valued. Conditions of work are 30 hours on average per week with one day off which may or may not be at the weekend. The pay rate is £5 per hour and 15 days holiday is allowed per year.

If you feel that you would like to work at Simon’s Restaurant and have the necessary skills required, apply in person at to Simon Edwards at Simon’s Restaurant, 32 High Street, Edinburgh for the job.