Business development plan of: Coffee Bean House

1. Executive Summary

This report has been made to highlight a business plan for a coffee house by the name “Coffee Bean House”. The coffee house i.e. Coffee Bean House will be located on the Dempsey Road in Singapore. Dempsey has been referred to as one of chic locations in Singapore. Though, opening a coffee house is not a novel idea but it will be portrayed in a different manner to the target audience. Coffee Bean House would be referred to as one of the coffee house which will act as a stress buster for the people in their daily life. Coffee Bean House will offer a comfortable place to sit, dine, hangout, talk, read a novel, etc.

Coffee Bean House will not only serve coffee to the target audience whereas it will provide wide range of food items such as grilled sandwiches, vegetarian and non vegetarian burger, hot dogs, grilled canopies, light snacks, etc. It shall be kept in mind that, the overall profit margin for Coffee Bean House is expected to be between 40 % – 60%. The main target audience for Coffee Bean House will be the coffee lovers who are willing to spend some amount of their precious time as well as money by treating themselves with the best coffee in Singapore. The atmosphere provided at Coffee Bean House will be mesmerizing as well as soothing. This will attract people from different age & income groups. It can be assumed that, the main chunk of revenue at Coffee Bean House will be generated by the students studying in various universities, faculty members, coffee lovers, people located in the nearby offices, teenagers, old people, etc.Coffee Bean House would be regarded as a limited liability company (LLC) who will be entitled to enjoy the advantages of both corporations as well as partnership form of business entity. Limited Liability Company (LLC) would be referred to as one of the most popular structures to carry on the coffee house. One of the major advantages which can be attained by opting this type of structure is that profits as well as loss can be passed through the owners without paying any taxes. LLC would be referred to as an entity which combines the features of both partnership as well as corporation. The total cost which would be required to open a Coffee Bean House at one of the hip hop places located in Singapore i.e. Dempsey would be $188,000. The two main sources of funds which shall be used to start a Coffee Bean House would be Debt & Equity. The debt & equity ratio with which funds will be accumulated would be 30:70 or 3:7. While calculating the expected financial returns for the business plan i.e. Coffee Bean House Net Present Value (NPV) has been calculated. The NPV ascertained for the project is $757389. A positive NPV indicates that, it is feasible to carry on the project.

1. Business Concept

2.1  Description of Business & USPThe “Coffee Bean House” would be referred to as a specialty coffee house located on the Dempsey road one of the chic locations situated in Singapore. Dempsey has been referred to as one of the most hip hop places located in Singapore. Dempsey is one of the famous roads which are located in the heart of the Singapore city. Dempsey Road is one of the longest roads which are known for high end restaurants, coffee houses, food joints, pubs, discotheques, etc. Dempsey road would be the best location to open a brand new specialty coffee store by the name “Coffee Bean House”. This road will attract large number of people who can come to spend good time with their friends, colleagues, loved ones, etc. Coffee Bean House would be referred to as one of the coffee house which will act as a stress buster for the people in their daily life. Coffee Bean House will offer a comfortable place to sit, dine, hangout, talk, read a novel, etc.With the change in the mind set of people abroad, it has been seen that most of the Singaporean population is keen to grab a sip of coffee. Though opening a coffee joint is not a novel business plan but Coffee Bean House will be portrayed in a different manner to the target population of Singapore. Coffee Bean House will not only serve coffee to the target audience whereas it will provide wide range of food items such as grilled sandwiches, vegetarian and non vegetarian burger, hot dogs, grilled canopies, light snacks, etc. It shall be kept in mind that, the overall profit margin for Coffee Bean House is expected to be between 40 % – 60%. This will add to the competitive advantage of the other existing coffee houses in Singapore. It has been noticed that, with an increase in the numbers of coffee chains in the Singaporean market Coffee Bean House will have a market to cater too.

2.2  Goals & Potential

The main goals & objectives which have been set by Coffee Bean House have been mentioned as follows. They are:

Þ    To be known as one of the leading specialty coffee chain in the Singaporean market by the name Coffee Bean House

Þ    To maintain the profit margin by approximately 40% – 60%

Þ    To provide the customers with a high end menu not only catering to coffee but other eatables as well such as grilled sandwiches, grilled canopies, burgers, hot dogs, etc.

Þ    The training imparted to the employees at Coffee Bean House will be in such manner which would help to serve the customers in the best of the manner

Þ    To yield profits from the first month of its operations

Þ    To offer a comfortable environment to the visitors where in they can come to sit dine read or talk with their friends, family & loved ones.

Þ    To provide one of the best as well as tasty coffee to the customers in the Singaporean market

Þ    The marketing strategies shall be constructed so as to attract large number of coffee lovers to the store & serve them with one of the tastiest coffee such as espresso, cappuccino, mocha, latte, etc

Þ    Lastly, to provide an excellent service experience as well as cater to the needs of the customers in the best possible manner.

2.3  Milestone Schedule

1. Research Analysis

3.1  Target Analysis

The main target audience for Coffee Bean House will be the coffee lovers who are willing to spend some amount of their precious time as well as money by treating themselves with the best coffee in Singapore. The atmosphere provided at Coffee Bean House will be mesmerizing as well as soothing. This will attract people from different age & income groups. It can be assumed that, the main chunk of revenue at Coffee Bean House will be generated by the students studying in various universities, faculty members, coffee lovers, people located in the nearby offices, teenagers, old people and lastly all those who want a peaceful place to it dine & talk. Based upon the research conducted, it has been highlighted that the growth rate for gourmet products is on peak in the Singaporean market. The competition applicable within the existing coffee stores in the Singaporean market is quite fierce. Therefore, Coffee Bean House would be required to implement marketing strategies which would help the specialty store to outperform as compared to others. The unique selling proposition (USP) for Coffee Bean House will be that, it will provide an ambience where in more people can come to sit, talk to their friends, family, loved ones & dine. Apart from being called as a specialty coffee house, Coffee Bean House will offer wide range of food products to the customers. The menu at Coffee Bean House will cater to different variants of coffee, shakes, food items such as grilled sandwiches, canopies, hot dogs, nachos, etc. Coffee Bean House will be regarded as a coffee house which would help the customers to relieve their daily stress by sitting in a soothing ambience, get acquainted with one of the best hospitality & high end products.

3.2  Market Size & Trend

As per the requirements it can be well stated that, the growth in the brewery sector in case of the Singaporean market is on rise at a reasonable rate i.e. 7% – 9%. Apart from the growth in the brewery sector, the number of local as well as international coffee chains in the Singaporean market has increased. With an increase in the number of coffee stores, it can be said that the market for coffee has enhanced in the recent years. The consumption pattern which can be seen in the Singaporean market with respect to coffee is increasing at high rates. The standards of living of the people staying in the Singaporean economy have high levels of earning. Hence, the consumption of coffee in the Singaporean market is expected to rise. By looking into the economic outlook of the Singaporean market, there is an expected growth in the brewery sector in the future years to come. These days tea drinking tea has been replaced by coffee. Moreover, drinking coffee has been regarded to as a status symbol which adds to the personality of the individual. Hence, the market trend as well as market size of the Singaporean market is in favor of the brewery sector.

3.3  SWOT Analysis

Þ    The first strength attached along the coffee industry is in regards to the health benefits.

Þ    Some years back, it was regarded that drinking coffee is harmful for health. Based upon the various types of surveys, it has been said that drinking coffee is not harmful. On the other hand, drinking coffee is termed to be quite healthy.

Þ    An increase in the number of caffeine drinkers will add to as one of the major strengths for the coffee industry.

Þ    Based upon the surveys it has been explained that, more you drink coffee less are the chances of stroke.

Þ    It has been stated that, normal consumption of coffee will reduce the risk of Type 2 diabetes in women.

Þ    It has been seen that in today’s environment drinking tea has been replaced by coffee. Drinking coffee has been referred to as status symbol for people these days.

Þ    Based upon the survey it has been seen that, drinking 6+ cups of coffee on daily basis will lead to a reduction in the levels of risk for diabetes by 54% & 20% in men and women respectively.

Þ    It has been well stated that, there are various positive aspects attached along the consumption of the coffee. This will add to a major strength for the coffee franchisee holders (Leader & Kyritsis, 1989).

Þ    The negative aspects attached along drinking coffee are quite less as compared to the positive aspects attached along the same.Weaknesses

Þ    One of the major weaknesses which are attached along coffee industry refers the growth of the coffee bean. Coffee beans have been referred to as one of the most unpredictable crops. Hence, the price of the coffee as well as the coffee franchisee is quite unpredictable.

Þ    Climatic conditions have been regarded as one of the major weaknesses in the plantation of the crop. The trees are unable to tolerate wide variations in the weather which might hamper the growth of the crop.

Þ    Due to the economic slowdown, people are not willing to shed some amount for a cup of coffee.

Þ    Consumers these days are being more alert as to where to spend, how much to spend & when to spend. They look for better offers, options or deals so as to save some amount.

Opportunities

Þ    It has been seen that, the coffee industry is increased by 54%. This figure shows high levels of growth opportunity within the brewery sector.

Þ    The coffee houses refer to a place which provides a comfortable atmosphere for people to dine, read, write & talk with their loved ones.

Þ    An ongoing growth has been seen in the brewery sector for the past many years. This adds to the opportunity for the people who operate as a franchisee agency.

Þ    It has been calculated that, with an approximate population of 290 million 24500 coffee houses are being operated. With the growth in the levels of population, numbers of coffee houses are also increasing. This highlights high levels of opportunities for the brewery sector.

Þ    The estimated levels of sales for a cup of coffee are 125%. This shows huge levels of opportunity for the newly opened coffee houses (Pride & Ferrel, 2009).

Þ    New techniques such as use of kiosks, vending machines on the gas stations, metro stations, etc will pay an important role in serving the customers with a cup of coffee as & when required.

Þ    The old coffee has been replaced by new variants of coffee. There has been a high level of changes within the coffee industry in the last few years. The new variants of coffee available in the leading coffee stores are espresso, cappuccino, latte, mochas, etc.

Þ    With more number of coffee shops, the opportunity for book stores is also on rise.Threats

Þ    The first type of threat which is attached along the brewery sector is in regards to the rise in price of dairy products & milk. Rise in the price of dairy products will lead to a rise in the price of coffee.

Þ    Increase in the price of coffee will occur in certain unforeseen circumstances which will have an impact over the coffee industry (Zahorsky, 2011).

Þ    Other major threat refers to the slowdown of the economy. This means that, the people will not be willing to spend $5 for a cup of coffee. This will lead to a decline in the number of customers along with the levels of sales.

Þ    Lastly, high levels of competition within the coffee industry would be referred to as a major threat while opening a new coffee shop.

1. Marketing Plan

4.1  Product

The product offered at Coffee Bean house will be different variants of coffee such as mocha, latte, espresso, cappuccino, etc. Apart from serving different variants of coffee, the store will also serve its customers with wide range of food items such as grilled canopies, pastries, hot chocolate, ice creams, hot dogs, etc. It shall be noticed that, the products offered at Coffee Bean House will be as per the food guidelines issued by the Government of Singapore. The products served to the customer will be tasty & consists of healthy ingredients. Other things which shall be kept in mind apart from food or menu offered at Coffee Bean House will be ambience of the store. The design of the store will have a positive impact on the overall outlook of the store. If the ambience will be soothing, well painted walls, interesting quotes, etc more number of people will be attracted to Coffee Bean House as compared to the existing coffee houses. The coffee served at Coffee Bean House will be either made up of skimmed milk, soya milk &/ or whole milk (Nancy, Michael, Pride, 2006). The customer will have a choice to choose the type of milk he/she wants its coffee to be made form. The Coffee Bean House will have a competitive edge as compared to its competitors based upon the product quality offered to the customers. At Coffee Bean House – “Taste is on the priority list” which will act as one of the key success indicator for the same.

4.2  Price

At Coffee Bean House, the price attached along the cup of coffee shall be at par with the quality of the product offered. It shall be kept in mind that, majority chunk of the revenue will be at the Coffee House will be generated by the price attached along a cup of coffee. The prices charged by Coffee Bean House will be either at par or below the competitors. Apart from the cost allocated to a cup of coffee there are various other costs or expenses which adds to the cost while setting up a new business. Some of the other expenses attached while opening a new business i.e. Coffee Bean House would be cost of building, interiors, telephone connection, couches, furniture & fixtures, tables, lightings, flooring, paint and miscellaneous expenses. Some of the equipments which would be used at Coffee Bean House are water filter, refrigerator, 3-comp sink, dishwashers, juicer for fresh juices, crepes, coffee making machine, wine cooler, toaster, microwave, blender, a toaster bagel, slicing machine, etc. All these equipments will also add to the price attached along the coffee offered to the customers. The total cost which would be required to open a Coffee House at one of the hip hop places located in Singapore i.e. Dempsey would be $188000. This will include the recurring as well as the non recurring expenses.

The startup requirements for Coffee Bean House have been listed as follows:

4.3  Place

Place refers to one of the crucial elements in generating sales for a particular food joint or a restaurant or a coffee store. There are many aspects which shall be kept in mind while opening a coffee house. One of crucial aspect which shall be taken into consideration is the Place where the coffee house will be located. As stated above, Coffee Bean House will be located on the Dempsey road in Singapore. Dempsey has been regarded as one of the liveliest places in Singapore. It has been regarded as one of the longest roads in Singapore which caters to number of high end food joints, restaurants, pubs, discotheques, etc.  The Coffee Bean House will be located on the main streets of Dempsey road. The layout of the Coffee Bean House would induce the spirit of the customers to come & try this new coffee house.

4.4  Promotion

Marketing Coffee Bean House will also be regarded as one of the main elements to attract more number of customers. The communication or the marketing (promotional) strategy which will be adopted at Coffee Bean House will communicate everything about the product which will exceed the competitors. Different promotional strategies would be adopted in order to promote the newly opened specialty coffee house. The first type of promotional tool which shall be used to promote Coffee Bean House would be the advertisements in different newspapers, magazines, yellow pages, local restaurant journals, etc. It shall be seen that, advertisements in the local restaurant journals would be regarded as one of the best means to promote Coffee Bean House (Leader & Kyritsis, 1989). The second type of promotional tool which shall be used at Coffee Bean House is “getting out the word”. This means that, the prospective customers will be given the opportunity to taste the brewery served at Coffee Beans. This will provide the prospective customers to taste the cup of coffee as well as point out the difference amongst the competitors. Lastly, in order to capture more market share Coffee Bean House shall serve its customers in the best possible way i.e. excellent customer service shall be provided to the visitors.

1. Organization

5.1   BusinessCoffee Bean House would be regarded as a limited liability company (LLC) who will be entitled to enjoy the advantages of both corporations as well as partnership form of business entity. Limited Liability Company (LLC) would be referred to as one of the most popular structures to carry on the coffee house. One of the major advantages which can be attained by opting this type of structure is that profits as well as loss can be passed through the owners without paying any taxes. LLC would be referred to as an entity which combines the features of both partnership as well as corporation. Limited Liability Company (LLC) will provide advantage to the owners of the coffee house to get relief from double taxation. In spite of the various advantages, there are various dis-advantages attached along the same (Kotler & Armstrong, 2002). The concept of LLC is quite new; therefore it shall be taken into consideration that how the tax treatment is done & treated in various states (Kent & Monroe, 2010).

Limited Liability Company will provide Coffee Bean House the following advantages such as:

Þ    Flexibility in terms of management

Þ    Tax Simplicity

Þ    Exemption from double taxation

Þ    Limited liability

Þ    Flexibility in terms of distribution

5.2  Personnel requirements & Perceived Gaps

The personnel development plan which would be implemented at Coffee Bean House has been highlighted in this section of the business plan. In order to take care of the daily operations various people would be required to fulfill their tasks & serve the customers with the best of its ability. Coffee Bean House will be required to hire someone who has fair knowledge regarding the work to be done at the coffee house.

Þ    A business development officer would be required at Coffee Bean House who will be made responsible to look into the sales, accounting of the coffee house. The main role of the business development officer would be to keep track of all the activities which would help Coffee Bean House to work as per the pre determined goals.

Þ    A sales manager would be made responsible to enhance the level of sales. The sales manager will be made responsible to develop new sales account.

Þ    As the business will grow in the coming years, sales personnel would be hired to take up the responsibility so as to manage new sales development.

Þ    Shipping personnel would be hired so as to deliver the goods & keep a note of the deliverables. Shipping person would be required to coordinate with all the aspects which would help to fulfill the order in the stipulated time mentioned.

Þ    Support staff would be required to support the operations & provide support to the production and shipping departments.

Þ    Administrative support staff would be required to support the administrative and accounting activities.

Þ    Full time baristas, manager, book keeper & a website supervisor would be hired in order to support the coffee house as well as practice smooth functioning of the same.

1. Financial Analysis

6.1  Projection for financial statements

6.1.1        Income Statement

6.1.2        Cash Flow

6.1.3        Balance Sheet

1. Investment Proposal

7.1  Sources of funds

The total cost which would be required to open a Coffee Bean House at one of the hip hop places located in Singapore i.e. Dempsey would be $188000. The two main sources of funds which shall be used to start a Coffee Bean House would be Debt & Equity. The debt & equity ratio with which funds will be accumulated would be 30:70 or 3:7.

7.2  Expected financial returns

In order to calculate the expected financial returns, the following assumptions have been made. They are as follows:

The overall cost of capital would be calculated by the following formula:

   K_o = w_d*k_d + w_e*k_e

                                            = 0.3(0.04) + 0.7(0.10)

        = 0.012 + 0.07 = 0.082 or 8.2%

Therefore, the overall cost of capital (k_o) = 8.2% or 8%.

Free Cash Flows = Sales – EBIT – Depreciation – Tax-  + Depreciation – D Change in Working Capital (WC) – Capital  Expenditure

Capital Expenditure = D (Fixed Assets of this year – Fixed Assets of Last Year)

Free Cash Flow₁ = 600000 – 100000 – 6000 – 12348 + 6000 – 50000 – 162000

                             = $275652

Free Cash Flow₂ = 800000 – 211700 – 12000 – 29059.12 + 12000 – 108500 – 2000

                            = $448740.88

Free Cash Flow₃ = 1100000 – 345300 – 14000 – 239458.32 + 14000 – 2000 – 128400

                            = $384841.68

Calculation of NPV =

The net present is positive this means that the opening the coffee house is a feasible option.

Calculation of Internal Rate Return (IRR):

Lower Rate = 165%, NPV @ 165% = $250.4832

Higher Rate = 170%, NPV @ 170% = $(3633.0568)

IRR = Lower Rate + NPV @ Lower Rate/ (NPV Lower Rate – NPV @ Higher Rate)* change in     interest rate

= 165 + 250.4832/ 250.4832 + 3633.0568/0.05

IRR = 165 + 250.4832/3883.54 * 0.05 = 165 + 0.003 = 165.003%

Higher the IRR better the company.

7.3  Capital required from Angel Investors

The total capital which would be required from Angel investors is referred to as “Debt”. The total capital required from Angel investors would be 3/10*188000 = $56400 (or $60000 approximately). It is clear from the financial statements that, the business is growing at a rate of 12%. Thus, it is a feasible option for Coffee Bean House to open its store in the Singaporean Market.

1. Critical Risks

8.1  Potential Obstacles & Risks

Some of the potential obstacles & risks which can be seen with respect to Coffee Bean House have been highlighted as follows. They are as under:

Þ    Lack of customer Focus: In case of service industry such as Coffee house, restaurants, etc customer focus would be referred to as one of the key success factors for the enterprise. The success of Coffee Bean House will be accessed by whether needs of the customers are being met or not. Lack of customer focus will fail the business house to generate high levels of profits. This will act as one of the major hindrance in attaining competitive advantage as compared to the other coffee houses in the Singaporean market. If the coffee house lacks clear customer focus, they will not be able to meet the needs of the customer in the best possible manner. With such type of experience, people will not come to the coffee house again & the bean house will not be able to attract more number of people.

Þ    Business Idea: It has been seen that, the competition in the Singaporean economy in case of the brewery sector is on its peak. This will portray high levels of threats to Coffee Bean House in the years to come. Opening coffee bean house in Singaporean market would be referred to as a bad business idea if it does not generate high levels of revenue as expected (Dayananda, et al.2002).

Þ    Insufficient Cash: The second type of risk which might act as a major obstacle in case of Coffee Ban House would be insufficient cash. Coffee Bean House would be regarded as a new store which mainly deals in serving specialty coffee to its customers. In the initial years of the business, the coffee house will not be able to generate huge amount of cash which will recover the expenses occurred in order to start up the coffee house.

Þ    Inexperienced Personnel: Inexperienced personnel will also act one of the major threats at Coffee Bean House. In the initial years of the business, the newly recruited managers who do not have clear picture as to what is to be done will not be able to run the coffee house. Lack of management skills, leadership skills as well as incompetent to perform certain tasks will also act as one of the major threats ay Coffee Bean House.

Þ    Growth Factor: Growth in positive terms is not always good for the organization. It shall be noticed that, when an organization grows the role & responsibility of the owners will also change. It shall be kept in mind that, the work shall be delegated to the counter parts by the owner so as to live up to the growth of the coffee house. In majority of the cases, the owner of the organization gets overwhelmed that he will be required to take up more responsibility & he does not delegate work to others. In this way, the owners are unable to take up work load and the customers are left unhappy. This will be regarded as one of the major threats in case of Coffee Bean House (Allen, 2011).

8.2  Alternative Course of Action

Apart from serving specialty coffee to the customers, Coffee Bean House will take into consideration other course of actions if the coffee business declines. Apart from serving coffee to the customers, Coffee Bean House will be required to have a wide range of menu which will include grilled sandwiches, grilled canopies, pastries, ham burgers, hot dogs, donughts, ice creams, chocolate fantasy, shakes, juices etc.

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