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John’s Smoothies’ Strategic Management Case Study


John’s Smoothies’

Mission statement

To use my business skills as well as knowledge in the establishment of a successful smoothie business that will aim at providing quality and unique products to customers which will involve the use of creative and interesting recipes while ensuring world class hygienic conditions are maintained. The provision of these products while guaranteeing everyday quality service will see John’s smoothies’ to be the ideal smoothie shop.

Executive summary

Business description

The name of the business is John’s smoothies’. The name is catchy and has a ‘fun’ and cosy aspect. Just like the name depicts, it is a smoothie business which is part of a rapidly growing beverage industry.

The business will be located in Quai de Mont Blanc, a scenic town that is within an hour’s drive to Geneva, the capital of Switzerland. It is located near the tourist hotspot Pontu du Mont Blanc. The business will adopt a sole proprietorship type of business that will see John Hopkinsbecome the owner of the business.

Marketing plan

The nature of the business is relatively new in the area as there is no shop that exclusively produces and sells smoothies. However, this will provide the shop with a competitive edge and title of being the first. This will be coupled with an aggressive marketing strategy that will make John’s smoothies’ a household name. This strategy will involve:

Using market research as the basis of information will see the use of survey that will establish customer needs that are currently not being met in the market. I will therefore bridge these needs by incorporating them in my business that will offer a variety of services aimed at servicing the identified needs.

Location- This will be the main focus for ensuring success of the business. The shop, which is in close proximity to the Mont Blanc Bridge, will target visiting tourists as well as locals in the area. It is also clearly visible to potential customers and therefore, this will ensure sustainable business all year round.

Use of print media- I will be able to advertise the products and services offered by the shop by distributing flyers and leaflets to passers-by as well as ensuring the name of the business is clearly displayed in the shop.

Organization and management

The smoothie shop, though easy to run, needs proper organization of activities to ensure that no delays occur. This will see customers being attended to within a short time and fast processing of their orders. The target time for making smoothies is 2.5 minutes.

However, this time can be stretched out if there is disorganization. This time target will be achieved as I will be part of the staff hence oversee the running of operations in the shop. I will also employ three assistants on a part-time basis in order to save on my expenses to ensure that customers are served in the fastest possible time.

The shop will be run exclusively by me within the first six months. On the basis of the ownership of business being of a sole proprietorship status, the business will grow rapidly as decisions will be made faster and also the direct management of the business will ensure that quality products and services are offered to customers.

However, as time progresses, I will hire a manager who will oversee the shop operations. He/she will compile daily reports on the status of the business.

Production/operation plan

The smoothie business entails the production aspect of the final product. The smoothies will be made in the highest possible hygienic conditions and also the raw materials such as fruits will be freshly produced and of high quality.

This will ensure thetaste of the smoothies comes out and create the right flavour that will appeal to the customers. The availability of equipment dedicated to producing smoothies will save on the time taken to make smoothies and also the refrigerators will assist in preserving the freshness of the raw materials.

In as much as the product, smoothie, is central to the business, services offered will form an integral part of the business. The products, regardless of how well they are packaged will not contribute to a successful business without integrating an important aspect of offering appropriate services.

The business will therefore focus on offering appropriate training for staff to equip them with customer service skills to ensure customer needs are well attended to.

Financial plan

The business will cost approximately CHF 149,000 to set up. Part of this figure will be contributed in form of a loan from friends which amounts to CHF 100,000 (The loan is payable after fiveyears at an interest rate of 4.8%. The business will accrue daily operational expenses that will be essential for effective running of operations.

Working capital estimated at CHF 60,000

Operating expenses estimated at CHF 7,000 per month

Business description

The sponsor

The business will run under the ownership of John Hopkins. Having established a successful wine and spirits business in the beverage industry, I am well versed with the dynamics of the industry. However, the difference in the choice of products will not be a hindrance as experience in the industry is what is important.

I will be able to incorporate my business skills developed from my operational wine and spirits business as well as my experience in the industry to better understand the market as well as measures I can adopt to improve its performance in order to establish a successful business, while placing emphasis on producing quality products and offering top notch services.

Nature of the business

John’s smoothies’ is a smoothie business that is part of the rapidly growing beverage industry. The shop will specifically deal with the making of fruit flavouredsmoothies in the first six months and after which diversify its menu to incorporate a range of other products within the 3 year plan for the business.

The shop, the first of its kind, is located near the famous Monte Blanc Bridge, the town’s attraction frequented by tourists from the world over.

This type of business has been very successful in the American market as there are thousands of smoothie shops in the state (Healey 33). However, it is a fairly new concept in the European market. This is not to say that smoothies are non-existent in the town, but that even though a number of restaurants in the area have them in their menus, there is no shop that specifically deals with the making of smoothies.

However, this does not mean that the concept will be unsuccessful, rather, I am confident that with proper work ethic, quality products and services will be produced hence become a favourite spot in town.

Smoothie shops have registered tremendous growth in their operating markets. This is because reports indicate that individuals are becoming health conscious. This new trend has favored the nature of this business as consumers are now foregoing soft drinks for healthy alternatives such as yoghurt and smoothies. This translates to better returns for the business.

Human beings are social beings. They interact on a daily basis and therefore, to supplement this need, John’ssmoothies’ will be an ideal social spot. To achieve this aim, the shop will have a modern approach to its architecture as well as its setting. The shop will have an interactive floor layout with modern facilities, such as well-designed table tops in the cushioned seating bay.

The colour scheme will be fun and interactive hence create an ambience that will attract customers. This will particularly appeal to the youth with disposable income within the ages of 15-35 years. Another target group the business aims at attracting is the tourist segment. The area registers an influx of tourists especially during high peak seasons from the months of July to August.

This will see the shop open for business seven days a week. A larger composition of this segment is comprised of American citizens. The shop will therefore be an ideal home away from home for this target population.Sales during the low peak season will be supplemented by the local residents.

Products and services

John’s smoothies’ will deal with the production of smoothies in the first six months of operations and diversify its menu in due time within the 3 year business plan. The smoothie menu will comprise of creative offerings that involve various combinations of fruit flavourings that will provide unique and refreshing tastes.

Natural and fresh fruits will be used in the process to achieve quality products. Smoothies will be produced using suitable equipment to ensure that customer orders are processed within a short time.

The production of quality products is not enough to appeal to customers. Proper packaging is therefore essential to present the product to the customers. The smoothies will be packaged in paper cups with the business logo conspicuously displayed on the side for marketing purposes. The paper cups will be sealed to prevent contamination of its contents by external elements.

Customers will also find the packaging convenient as they can purchase the smoothies on the go or choose to have them in the seating bay of the shop. The packaging is also environmental friendly as it can be disposed off with ease and not pose an environmental danger.

Quality service will be part and parcel of John’s smoothies’ working policy. Being the manager of the business, I will guarantee quick response to customer needs hence enhance customer service. Value is also of paramount importance to John’s smoothies. This will resonate across all spheres of the business and incorporated into the businesses’ philosophy in order to ensure customer satisfaction.

Justification of opportunity

The main reasons as to why I think John’s smoothies’ will be a viable business are:

Upon market research which I conducted in the area, I discovered there exists a gap in the market as there is no shop that specifically deals with smoothie making. Further probing from area residents, revealed that they could be interested in a social hang out joint that offers nutritious beverages particularly during the summer.

This presented an opportunity for the establishment of a smoothie shop that would exploit this gap for business purposes in an effort to respond to customer needs. With the right marketing strategy, the shop, being a first in the town will become a success.

The area is a favourite tourist hot spot due to the presence of a variety of tourist attractions such as the Monte Blanc Bridge. The shop will be ideally located close to the Pontu du Mont Blanc. This area records a lot of human traffic and therefore this translates to increased potential customer base.

For instance, the area registers an approximate number of 5,000 tourists per day during the high peak season and 2,500 tourists during the low peak season. The high peak season occurs during the summer, in the months of July and August (Auzias andLabourdette 20).

The choice of beverage specialization will be an ideal choice for a daytime cold beverage. Therefore, tapping into this market segment will see the business registering large profit margins. The shop’s name will be conspicuously displayed in such a way that it will be clearly visible to visiting tourists and locals alike.

My vast experience in the beverage industry specifically running my own wines and spirits shop will be of great help in running the shop.

Although the choice of beverage is different, the market is the same regardless of the specialized beverage. I have been able to know a great deal of the dynamics of the market as well as the effective running of business which has widened my business perspectives as well as developed my personal business skills.

The shop will generate attractive returns. Based on my price speculations, a lot of consumers will find the products affordable as I will be charging a basic price of CHF 6-10 per smoothie based on the fruit choice. These prices will vary depending on the customer volume.

In order to make our prices competitive, during the peak season, the smoothie prices will be lower than compared to the low peak season. This is to attract a larger customer base which will translate to increased sales levels. The higher prices during the low peak season will cater for operations costs in order to maintain the profit margins.

Raw materials used in the process, in particular, fruits, will be sourced locally. This will lower costs and also ensure a constant supply of products. This will therefore ensure a steady production of smoothies to ensure smooth running of business operations.

Form of business ownership

The shop will be exclusively managed and run by me during the first six months thereby making me the sole proprietor (Madura 15). However, after the six month duration, I will appoint a manager to run the business will be accountable to me and is required to present daily reports on the progress of the business.

This will ensure that the business will continue operating despite my lack of presence which will see me venturing to other businesses. The sole proprietorship has a number of advantages that will benefit the business as well as some disadvantages that may pose a challenge to efficient running of the business as detailed below:

Advantages

  1. There are no legal formalities involved in setting up the business.
  2. The nature of the business will facilitate faster decision making.
  3. Operations will be more flexible as I will be able to implement changes to the business easily and quickly.
  4. The business nature will allow me to provide a personal touch to my customers.

Disadvantages

  1. Limited resources: I will be the only one required to handle financial requirements of the business.
  2. Limited managerial capability: I do not possess all managerial skills that can improve the business.
  3. Unlimited liability: I will be accountable for the success or failure of the business.

Business goals and objectives

The shop aims at achieving its objectives, both in the short run and long run of the shop’s existence as detailed below:

Short term objectives

  • Establish break-even levels within the first six months of operations.
  • Repay the business loan within the first year of operations.
  • Ensure quality products and services are offered.
  • Diversify the range of products and services offered.

Long term objectives

  • Expand business operations by opening similar smoothie shops in different parts of the country.
  • Increase staff numbers to serve the expanding customer base.
  • Incorporate the use of technology which will see the introduction and operation of online services that will enable customers place their orders online.
  • Form strategic alliances with potential suppliers which will ensure constant supply of raw materials at suitable prices.

Business assumptions

The location of the shop is ideally located near the famous Ponte du Monte Blanc, an area that is known for the widely popular Monte Blanc bridge. The tourist sector is very vibrant seeing the country receive a high number of tourists annually.

A good number of these tourists will most likely visit the area. Given the ideal location of the shop, the business will therefore experience an ideal customer base that will translate to high potential revenue levels. A significant number of tourists arrive during the summer in the months of July and August to enjoy the country’s alpine climate.

Therefore, the establishment of the shop will be ideal with the weather as it will focus on production of cold beverages, a favourite during this time of the year. Although the business will target the tourist population, this however does not mean the business will ignore the local population.

The shop will be an ideal meeting place for the local people, particularly, the youth who need an interactive social joint. Office workers will also frequent the shop as the ambience as well as the modern architecture of the shop offers an ideal meeting place for informal meetings.

The lack of a similar business in the area presents a viable and attractive market opportunity. Business success depends on demand outweighing supply (Henderson 35).

After undertaking market research in the area in a bid to establish the viability of the business, I discovered that there exists a market gap which has not yet been exploited. Customer surveys also revealed that the area lacks an interactive social hang out joint that would be ideal for informal meetings. This therefore proves that the establishment of the business will be successful.

Geneva, in 2011 was ranked as the fifth most expensive city in the world. The shop is located in the up market town of Quai de Mont Blanc, an area that is frequented by tourists and is an hours’ drive for Geneva. The shop’s smoothie products prices will range from CHF 6-10 depending on the type of fruit combinations used.

Therefore, based on the disposable income of most residents in the area, the price is very well in the range of being very affordable. This price will however vary depending on the customer volumes in the shop.

This will see the price levels drop as the increased customer levels will be compensate for the price difference. However, during low peak season, the price will increase due to a drop in the customer levels as this will supplement this drop hence compensate for the operations of the business.

Efficient running of a smoothie shop is fairly less demanding in terms of manpower requirement. This is why I will run the shop myself with the assistance from a part-time employee. However, as the business establishes itself hence registers an expanding customer base, the staff number will increase based on the demands placed on the business.

The primary product that John’s smoothies’ focuses on is the Smoothie. Products that go in the making of smoothies are available locally hence guarantee constant supply all year round. There being a variety of producers in the country, prices are competitive hence fair.

Upon the setting up of the business in the area, in order to make the shop’s launch which is scheduled to be on 1st July 2013 to be known, I will advertise via print media where I will distribute flyers and put up posters in malls and other popular venues.

I will also run various promotions in the shop such as ‘Buy two smoothies and get one free’ offers. Although this may not bring any monetary profit to the business, the promotion will be vital for advertising the business. Advertising being an investment to the business will help secure a customer base which will translate to future increase of revenue levels (Green 36).

Business location

Specific location of the business

John’s smoothies’ will be located in Quai de Mont Blanc, 800 meters away from the famous tourist sensation Pontu du Mont Blanc. It is also one hours’ drive from Geneva, the capital of Switzerland (Rinker 57).

The main reason on the choice of this business location is due to the fact that the area is a tourist hotspot. This will therefore see most customers of the shop being comprised mainly of tourists hence provide a higher turnover for the business.

Rent

The shop is located in the up market area of Quai du Mont Blanc. Therefore, rent prices are substantially high seeing the business pay a monthly rent of CHF 6,000 per month. However, the financial projections are promising thereby enabling the payment of this amount with ease.

Entry and growth strategy

Although there is no similar business in the area, with a good marketing strategy, the business will surely establish itself in the market in no time. A marketing strategy is a plan that a business adopts to maximize the use of resources to exploit opportunities in the market (Ranchhod 22).

Specialization in the making of smoothies in the first part of business operations will be viewed as a unique business and since consumers are always looking for a difference, the business will cut a niche in the consumer market.

Emphasis will also be placed on the layout of the shop to make it more interactive. Although space is a challenge, I will focus on creating an ambience that will portray a fun and interactive aspect with a well-designed seating bay. This will enable the business grow its customer base hence expand the shop in a bid to accommodate new customers.

Once the business properly establishes itself in the market and has an adequate customer base, this will provide cause and reason to venture into other parts of Quai du Mont Blanc or in other towns of the country to establish branches of the business in order to expand business operations. This network will enable growth of the business that will ensure sustained customer base.

The shop’s location will provide an added advantage as the location, a tourist favourite, experiences high human traffic levels hence this translates to high sales levels hence increase the profit margins.

However, in order to avoid overreliance of this target group, as this sector is vulnerable to many changing factors, John’s smoothies’ will run various promotions during the low peak seasons in a bid to attract as many local residents as possible.

SWOT analysis

The SWOT analysis is an acronym for Strengths, Weaknesses, Opportunities and Threats that affect business performance. It is defined by Pahl and Richter as a “guide that assists businesses analyze itspositives and negatives” (45).

Strengths

  • Low operating business costs hence saves on working capital that can be used in other areas of the business to facilitate its expansion.
  • A well performing consumer market that supports business start-ups.
  • Existence of government policy that offers tax incentives to new businesses.
  • Flexible local laws that are easy to comply with
  • My vast experience in the beverage industry will provide a great deal of business skills essential for successful operation of the shop.
  • The upswing of the economy that promotes businesses.

Weaknesses

  • The shop’s customer base is mainly comprised of tourists. Therefore during the low peak season, although efforts will be made to promote the shop’s products to local residents, the sales levels are still incomparable.
  • Although I am well versed with the beverage industry, I do not however have Smoothie business experience.
  • The building occupying the shop has limited space. This can pose a huge challenge upon the growth of the businesses’ customer base.

Opportunities

  • There is a large untapped market there being no other smoothie shop in the area
  • There is virtually no competition in the area apart from nearby restaurants that have smoothies in their menus.
  • Lack of a social hangout joint in the area will enable the shop establish a reputation of being the ideal meeting point in town.

Threats

  • The tourist industry is very vulnerable to many factors that may affect the economy such as economic performance, political risks and the like. This will therefore be a threat to the business due to the uncertain nature of the industry.
  • Low customer response as a result of the shop being an entirely new venture in the town.

Marketing plan

According to Malcolm and MacDonald, marketing plan is a “comprehensive guide to business’ marketing activities” (11). The following are the essentials that are part of John’s smoothies’ marketing plan.

Potential customers

John’s smoothies’ is mainly targeting tourists, local residents, particularly the youth and office workers. The location of the shop is ideal in attracting the first target group, the tourists. This is because it is located near the famous Pontu du Mont Blanc, the Mont Blanc Bridge which has an architectural appeal as well as a rich history.

The area also has a good number of hotels that accommodate tourists and therefore the concentration of tourists will be ideal for the business. The country registers an annual influx of tourists who visit the country all year round, particularly during the summer in the months of July and August (Lloyd and Richard 39).

Most tourists are mainly comprised of American citizens who are very familiar with the product. Therefore, they are likely to buy the products given that the location of the business is ideal.

Another target market is the youth of the age group 16-35 years. This is because the business aims at creating an interactive aspect and since this group looks out for the most ideal place they can hang out with friends, John’s smoothies’ will appeal to them. This is because it has a seating bay, although with limited space, which I intend on expanding the shop in good time, where they can meet and chat with friends over a glass of smoothie.

This group also has disposable income, as they are either temporarily or permanently employed and are looking for places and products to spend on. The shop will therefore register impressive growth later on during the 3 year course of the business.

Finally, the business aims at attracting the office workers in the area. The area has a variety of office buildings as well as a good number of business establishments. With this in mind, this target population will be appealed by the modern architecture of the place hence find the shop ideal for informal meetings where office staff can have a good time.

Coping with the competition

The main rivals or competition for the business comes from restaurants. There being virtually no other form of competition as there is no business establishment with the John’s smoothies’ concept, I will not be oblivious of the fact that other businesses will try to establish similar establishments upon the success of the shop. Therefore, I plan on implementing a marketing strategy that involves:

Placing the customer first

From the business’ slogan ‘Customer is king’, this shows that the business is committed to ensuring and guaranteeing quality products and services for our customers (Hudman 234). This will involve ensuring the fastest possible response time that will see customers being attended to within the shortest time possible.

Making exceptionally tasting products

John’s smoothies’ primary product, just like the name suggests is the smoothie. The shop will be committed to ensuring only the best quality raw materials are used in order to enhance the flavour of the product. They will also be made in the highest possible hygienic standards.

This prevents contamination from external elements.The shop will be well known for the unique and creative fruit combinations that will create distinct and unique taste that will leave customers’ taste buds craving for more. John’s smoothies’ will therefore ensure the standards of its products are maintained and improved to maintain customer traffic.

Diversify the range of products and services offered

After a six month period has elapsed, John’s smoothies’ will incorporate other products that could either supplement of complement the smoothies. This will leave customers spoilt for choice as there is a variety of products from which to choose from. The menu will involve the use of catchy smoothie names that will raise customers’ curiosity hence encourage them to try out the products.

Proper branding John’s smoothies’

Branding is defined as a name, slogan or logo that is associated to a businesses’ products and services (Matthew 46) The shop is committed to ensuring that john’s Smoothies’ is branded to become a household name that is easily recognizable and widely popular. Through aggressive marketing that will entail distribution of flyers and putting up of posters in strategic places, this will be achieved.

Proper packaging of products

Proper packaging of products

The smoothies will be packaged in paper cups of different capacities based on customer orders. These paper cups are made from a transparent material that enables the customers view the complete the complete content of the smoothies. I believe that this will enable our customers trust our products as drinks businesses are expected to be of high hygiene if the customers are to trust the business.

This will see the name of the business, John’s smoothies’ be conspicuously displayed with the business slogan ‘Customer is king’ as a marketing tactic thereby offering free advertising.

Market size and market share

Statistics show that the beverage industry in the market accounts for 15% of the economy. From this, 5% accounts for non-alcoholic beverages. This is the market which John’s smoothies’ aims at penetrating.

With reference to the youth target market, demographic reports from the local area council show that the area has a number of 300,000 young people of both genders within the age limit of 16-35 years making up the majority of the entire population of the area.

Employing the marketing strategy explained above, will enable the business capture this market and ensure it maintains its customer base by introducing innovative products and services in the business.

With regards to the office staff in the area, there are a number of 5,000 registered businesses and organizations in the area (Hill 43). This translates to a large number of individuals who make up the organization’s staff in each business. The marketing strategy as specified above will indeed attract this segment in a bid to establish its name in the market and makeita business to reckon with.

John’s smoothies’ main aim is to strategically position itself in the market to enable it cope with potential competitors. This will ensure that the business is able to enjoy a larger market share contributing to around 30% stake of the beverage sector. This will also be achieved upon the establishment of a number of shops in strategic location in different parts of the country.

Distribution strategy

From the definition of distribution strategy as a course of action that sees the transfer of ownership of a product or service from a producer to a consumer (Gitman and McDaniel 65).Distribution in accordance to this business plan deals with how the products of John’s smoothies’ will be distributed to customers in an efficient and effective way. The following details various approaches that pertain to the distribution strategy:

The availability of the shop in a strategic location of the Quai du Mont Blanc will promote accessibility of John’s smoothies’ products to customers. Here, they will simply enter the shop and make the transaction that will see them enjoying their preferred product options.

For those located in far from the shop but within the vicinity of the area, their products will be delivered to them free of charge. I will make arrangements with a courier service in the area and procure their services in order to see the fulfilment of this plan.

However, it is a long term plan to purchase a motorcycle that will be used by the employees with courier job descriptions in order to ensure timely delivery of products to customers. This will translate to increased savings on the part of the business as the expensive outsourcing of courier services will be avoided as the business makes its own deliveries.

To ensure that such products are delivered in the right form, the motorcycle will be customized to include a cooler that will keep contents refreshingly cold for customer delight.

However, upon expansion of business operations that will involve the establishment of similar ventures as part of the John’s smoothies’ business establishment, this will bring the businesses’ products closer to the consumers and therefore enjoy John’s smoothies’ experience.

Within the shop, the availability of the right equipment such as refrigerators will keep the products in the right form. This will ensure the products are enjoyed by customers hence improve the business’ customer service.

Management plan

A management plan refers to a strategic approach that guides businesses or organizations to enhance efficiency and effectiveness of business operations (Lawrence and McDaniel 56). A management plan should be documented to ensure that the management have a guideline to ensure that the business goals are attained.

Book keeping

The Point of Sale (P.O.S) system installed in the shop will assist me in tracking the money collected on the close of business. It will also assist in the proper management of returns as it is more accurate compared to the use of manual processes (Dopson and Hayes 20).

On the close of business, I, as the business manager, will be able to review the earnings made in the day and with the help of a relevant computer software, input the earnings as well as expenditure hence assist me in calculating the profit margins as well as the breakeven levels.

As the owner of the business, I will be acting as the cashier therefore, handle all finances of the business. All financial transactions with business suppliers will be handled electronically in order to increase efficiency in the management of operations. This will help me track the transactions and also pay off due payments in a bid to improve business relations with the suppliers.

Support services

Support services are those that a business adopts with an aim of improving business operations and activities (Jefferson 26). A business cannot maximize its capabilities if it cannot take advantage of its support activities. It is therefore important that the business embraces its support services as these enable it to meet the needs of every customer.

Communication tools

The shop will on the long term establish a business website where customers can place their orders online. In this case, customers who are not able to physically come to the shop can order for their choice of product and will be delivered to them, particularly if they are within the area’s vicinity.

The website will be comprehensible, easy to use and interactive. In this case, customers can leave their queries and comments and this will provide important information that will be the basis for the improvement of business operations for the shops.

Financial Analysis

Projected Cash Flow for the year 2013, 2014 & 2015.

Year 2013 (CHF) Year 2014 (CHF) Year 2015 (CHF)
Starting Cash 149,000 173,200 325,400
In- Sales 143,000 308,000 352,000
TOTAL IN 292,000 481200 677,400
Out
Rent expense 72,000 72,000 72,000
Equipment 20,000
Tables and Chairs 10,000
Electricity & Cleaning cost 12,000 12,000 12,000
Labour 42,000 61,000
Interest payments 4,800 4,800 4,800
Principal amount on Loan 25,000 25,000
TOTAL OUT 118,800 155,800 174,800
CASH BALANCE 173,200 325,400 502,600

Projected cash flows are an estimate of the expected flow of cash into and out of the business. These cash flows normally help a business determine how liquid it will be in the future. By looking at the above cash flows, it is a clear indication that John’s smoothies’ is a viable venture.

The cash flow balance is expected to increase in the years to come as customers are expected to increase as years progress. The cash flows for year 2013 are low. This is because more of the liquid cash was used to acquire fixed assets during the first year of business.

The increase in cash flows is also attributed to the employment of more labour in to the business. Labour is associated with economies to scale. This implies that John’s smoothies’ will be able to accommodate more customers as labour is increase.

However, it is important to note that there is a limit as to the number of employees that my business can accommodate. If labour is not increased proportionate to the amount of work, then the business is likely to experience diseconomies to scale. This explains the slow absorption rate of employees by John’s smoothies.

Projected Income Statement for the Year 2013, 2014 & 2015

Year 2013 Year 2014 Year 2015
Sales 143,000 308,000 352,000
Less: Cost of sales 53,625 78,000 82,875
Gross Profit 89375 230,000 269,125
Expenses
Rent 72,000 72,000 72,000
Electricity and cleaning Cost 12,000 12,000 12,000
Labour 42,000 61,000
Interest Expense 4800 4,800 4,800
Net Profit 575 99,200 119,325

The income statement above is a projection of John’s smoothies’ future profits. From the projections above, it clear that the business is lucrative. The business may seem small in nature but indeed the profits are impressive.

One challenge that John’s smoothies’ experiences is the cost of rental space. This reduces the profit margins by large amounts. This is why the business will reserve a certain percentage of its profits to purchase space thereby reducing the costs of conducting business by almost a third.

Graphical analysis

A graphical analysis of the projected cash flows is expected to give the stakeholders of the business a clear picture of the lucrative nature of the business. From the graphical analysis indicated below, it is clear that the business is able to meet its debts without a problem.

However, it is important to note that these increases in cash flow are increasing at a decreasing rate. This can be explained by the fact that the business is still not expected to reach its maximum attainable profit margin by 2015.

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Graphical analysis

Labels:

Year 1: 2013 (Red)

Year 2: 2014 (green)

Year 3: 2015 (maroon)

Conclusion

The financial statements reveal that John ’smoothies’ is a very lucrative business that will record tremendous growth levels within the 3 years businesses’ operation. All debts will be serviced within the second year of operation and therefore provide room for business expansion. The business will be debt free by 2015.

The business is expected to begin a social responsibility program once it becomes stable. This can only be possible after the business has cleared its debts. One way that the business plans to be socially responsible in future is by educating the community on the importance eating healthy meals.

This opportunity would make John’s smoothies’ be the next big thing. I will be sure to put on the much needed effort, dedication andhard work that will be expected of me to make the business a success. Therefore, any assistance offered will enable me make John’s smoothies’ the next Starbucks.

Works Cited

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Dopson, Lea and David Hayes. Food and beverage cost control. New York: Joessey Publishers, 2011. Print.

Gitman, Lawrence and Carl McDaniel. The future of business: The essentials. Ohio: Mary Ann Liebert Publishers, 2008. Print.

Green, Jen. Advertising. Washington, DC: Oxford Publishers, 2011. Print.

Healey, Matthew. What is branding. Washington, DC: Oxford Publishers, 2008. Print

Henderson, Hubert. Supply and demand. New York: Sage Publishers, 2004. Print.

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IvyPanda. "John’s Smoothies’ Strategic Management." August 12, 2019. https://ivypanda.com/essays/johns-smoothies/.

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IvyPanda. 2019. "John’s Smoothies’ Strategic Management." August 12, 2019. https://ivypanda.com/essays/johns-smoothies/.

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IvyPanda. (2019) 'John’s Smoothies’ Strategic Management'. 12 August.

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