Planning for Growth of New Venture

TASK 1

P1 Analyse key considerations for evaluating growth opportunities and justify these considerations within an organisational context

Growth is a significant performance element and measure for success for a company. In today's competitive business environment where every entrepreneur is competing for same market space, attaining business growth becomes quiet important to continue to exist for a longer time period. In context to UK, there are about 5.7 million private business recorded in 2017 and SME's contributes to 60% of total employment for nation. Thus in this stiff and intense competitive environment it becomes critical to be proactive to explore upcoming opportunities for attaining success and growth (Allmendinger and Haughton, 2012). Thus, planning is integral for achieving growth as it helps an entrepreneur to develop a blue print for growing business by envisioning actions that are critical to be undertaken, expenses that are to be incurred, keeps team focuses on track, saves unnecessary efforts, prevents decision fatigue etc.

Foodholic is a sophisticated restaurant that is to serve global cuisines and beverages. It is a partnership venture that is started with vision to become one of the leading restaurant chain providing a wide variety of low caloric and organic Chinese, Spanish, Continental, Mexican and other fast food and beverages. For attaining this vision and to be successful with its new venture the owners has entered into a contract with Corby Borough Council that are interested in on site catering facility for its Lodge Park Sports Centre and Midlands International Pools. This contract will help Foodholic to attain growth and expansion as it will get opportunity of getting counter services for offering their multi cuisines dishes at these centres. However, as this food and beverage industry in UK is subject to intense competition it is essential for owners to ascertain and consider some most prominent factors that could critically impact their business and its profitability (Arasa and K'Obonyo, 2012. Mentioned below are the analysis of external environment of the business along with generic strategies that could be helpful in determining direction of Foodholic business.

Porter's Generic Strategies:

Cost Leadership: This generic strategy requires firm to become lowest cost producer in its existing market for a given level of quality. The company sells its products either at average prices to gain higher profitable edge over rivals or lower than market prices so as to attain large market share. It targets broader markets and requires aggressive management of efficient scale facilities, controlled cost and overhead cost, reduction on areas like sales force, advertising, R&D etc.

Differentiation: Applying differentiation strategy a venture seeks out to be unique by introducing new innovative product in its existing target market. Under this strategies firm offers products and services that are customized as per consumers untapped demands and requirements. The value addition and uniqueness offered by firm is awarded with a premium price.It allows business to select best segment for whom those products/services perceived higher value at a differentiation cost (Barbour and Deakin, 2012). It could be based on providing innovative products, distinctive features, premium quality, after sales services etc.

Focus strategy: This generic strategy concentrates on narrow market within their existing segment to attain either cost advantage or differentiation. It has two variants:

Cost Focus: This strategy concentrates on achieving cost advantage in its target market. Under this strategy a company is not necessary required to offer lowest prices in market. Instead it set prices of its products/ services low or competitive in relation to its business rivals within target market.

Focus Differentiation: This strategy focuses on exploiting untapped needs and demands of consumers within market niches. Applying this strategy firm offers unique products and services that appeal to its customers in context to both product or service. For instance, some under focus differentiation might concentrate to improve their sales channels such as providing online facilities or might target certain demographic groups etc.

In context to Foodholic, which is a new venture Differentiation forms most suitable of all the strategies. Applying this Foodholic could attain growth and market share by offering low calorie and organic food items at relatively lower prices as compared to its other rivals. The contract with Corby Borough Council will enable Foodholic to attain business growth by providing catering opportunities to restaurant for its Lodge Park sports Centre and Midland International Pool.

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Pestle Analysis

Political Factors: The political factor of a nation greatly impacts restaurant industry as it is subject to high government intervention that keep on introducing various regulations and norms time to time for safeguarding people's health. There are various laws such as Food Safety Act, 1990, The Food Safety Order 1991 etc. that every Foodholic is subject to adhere by to maintain quality in foods and ingredients. Further, as EU used to be biggest supplier of wine to UK and accounts for 70% of UK food and non-alcoholic drinks imports and exports Brexit is likely to have major material impact on the sector. For Foodholic that might result in bearing high cost for raw material and labour (Brealey, Myers and Marcus, 2012).

Economic Factors: These factors comprising of UK governments fiscal policies are likely to affect business of Foodholic. It is as in case on heavy tax imposition on consumers items, increased prices of ingredients after Brexit etc. Foodholic will have to increase its cuisines rates that could minimize firms profit margins. For instance, due to increase in inflation rate to 3.0% in November 2017 there is increase in bank interest rate from 0.25- 0.5%.

Social Factors: As people are becoming aware about their health, they look for quality of food for which they are paying. They thoroughly inquire about food ingredients that are been used in food preparation. Also in UK due to their busy lifestyle most of consumers prefers to dine outside with family. Further, there is sudden enhancement in tendency of consumers belonging to varies cultures and region to buy fast food instead of cooking at home. All these factors appears to provide immense opportunities for Foodholic to cater demands of its target audience by providing them wide variety of quality low calorie organic food at affordable prices.

Technological Factors: Foodholic could make use IT technology for sales promotion of its restaurant. Under this, restaurant can make use of website, online social sites such as Instagram, twitter etc. to communicate about restaurants, its various offers to large number of audience in cost and time effective manner. Also Foodholic needs to maintained an efficient updated inventory system to keep its consumers updated and to develop its mobile and social application so that customers can place online orders.

Environmental Factors: The UK government has incorporated several rules and regulations related to firms to adopt environmental friendly approaches in business. Thus, to adhere by these laws Foodholic make use of biodegradable material in its food packing. This secures nutritional value of food item and is environmental friendly (Denton, Forsyth and MacLennan, 2017). Further, Foodholic make use of solar panel system in their cooking range to prepare food items that require low heating and shallow fry.

Legal factors: Foodholic is subject to follow various regulations incorporated under laws such as Employment Act 1996, Health and Safety Act 1946, Various food legislations etc. This helps restaurant to create lawful atmosphere in its business, to check its food quality and to maintain a satisfied workforce.

SWOT analysis of Foodholic

P2. Evaluate the opportunities for growth applying Ansoff's growth vector matrix

Ansoff growth is to reap benefit for Foodholic to analyse various business opportunities and to prepare most distinctive strategies to capture attention of its target audience. In addition, this matrix will provide owners with an insight about most appropriate strategy to implement as Foodholic is to enter in to contract with Corby Borough Council in Midlands. Mentioned below are various strategies that Ansoff Growth matrix encompasses:

• Market Penetration: It implies company to sell its existing products in current target market for attaining high market share. It is safest of all the four strategies. Company adopting this strategy offers its products/services at affordable prices so as to cope up with intense market competition. It involves minimum risk and concentrates on increasing sales volumes by offering products/services that readily meets consumers demands.
• Product Development: This strategy focuses on launching an innovative product in existing market by introducing modification in company's operations like process, R&D, production etc. It mainly emphasizes in developing inner core competencies of firm that can be driver for innovation and renovation for its products.

• Market Development: Applying this strategy a firm is to focus on offering its existing products/services in an whole new market where there is scope of vast business growth and development. Under this enterprise concentrates on adding new product line, emphasize on geographical market, features of products and conceptualization of new product segment by adopting different pricing strategies.
• Diversification: Diversification requires development of both product and market simultaneously.It is the riskiest of all the four growth strategies as it includes two unknowns, new products whose development issues are not known and new target market that is supposed to bring problems of having unknown characteristics (Eddleston and et. al., 2013). Therefore, for a company to attain higher profit and success by undertaking this strategy it is requisite to develop excellence in both marketing and operational functions.

In reference to Foodholic the most appropriate strategy to be adopted will be market penetration. The reason behind selecting this strategy is that being a new venture company already is subject to high uncertainties and huge capital investment. Thus in this condition this strategy forms to be safest and least risky to be applied by firm to gain high growth and market share. Also as restaurant is to enter in to contract with Corby Borough Council in Midlands it will help firm to capture large market share by providing low calorie organic food at relatively affordable prices.

TASK 3

P3. Assess the potential sources of funding available to businesses and discuss benefits and drawbacks of each source

Foodholic is a partnership restaurant that offers wide variety of cuisines to its consumers. With a aim to achieve growth and success restaurant is to introduce low calorie organic food products that will help in meeting up the demands of UK population that is becoming quiet health conscious day by day. With same purpose firm is entering into contract with Corby Borough Council where in firm has £300,000 as its last limit to bid. Out of this the owners are having £20,000 with them. However, for remaining balancing amount i.e. £280,000 company is to evaluate various below sources of funds. Mainly financial sources are divided into two category known as external sources of funds and other is internal sources of funds. External sources of funds consist the following:

Bank Loan: These are most commonly considered sources for arranging funds for SMES. Bank loan is the amount that has been borrowed from bank by a firm for certain time duration on which it is subject yo pay a fixed interest (Fahlvik, Elfving and Wikström, 2014). For Foodholic raising funds through bank loan forms most feasible and profitable option to meet up its capital requirements as interest paid bank loan is deductible in tax.

Advantages

• The loan amount, length of term, repayment time, instalments and type of interest rate can be accustomed to suit business involving both income generation and cash flow.
• Bank loan generally has lower interest rate in comparison to others sources of funds
• timely payment of loan and instalments enhances firm's credit scores.

Disadvantages

• The bank may not grant entire amount requested as company's financial situation is taken into consideration.
• Default on repayment of loan amount can lead to increased interests rates for present and future loans, collateral could be get seized, legal proceedings against firm etc.

Crowd Funding: It is another source of fund that is gaining popularity. It involves raising capital or funds by using online and social media networks to ask individuals to contribute money towards a business idea or project in exchange for goods, services or equity. It provides a platform for investors who are having money to select from hundreds of projects and to invest in idea of their interests (Gatukui and Katuse, 2014). For Foodholic crowd funding could be most cost effective source to fulfil its funds requirements as with digitalization it forms to be easiest and cheapest option to raise funds from public.

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Advantages:

• It provides an opportunity to business to communicate directly with its clients, to present its product/service idea and to receive feedbacks recommendations for its improvements. Thus, in increases chances of success for about to launch product/service by readily meeting consumers demands.
• Also it give benefit of free word-of-mouth marketing for firm's products through investors.

Disadvantages

• Although it is cost effective however it involves various legal formalities and complex procedures.
• Moreover there is high degree of risk and uncertainty for an innovative idea to get stolen or duplicated if in case company has not patent or copyright it.

Peer to Peer Lending: It refers to the method of debt financing that involves firm to borrow and lend money without the presence of any official institution as a intermediary. These types of loan too are subject to payment of fixed interest rates (Moseley, 2013). For Foodholic peer to peer lending could provide excellent option to keep its business ideas alive and expands to expand its operations.

Advantages

• More flexibility on loan amounts, loan terms and is fast.
• There are no early repayment charges attached to it.

Disadvantages

• It charges interest rate between 7%- 10% that is steeper as compared to bank loans
• Also interest charged on this source of fund is not tax deductible and loans are generally provided for small amount only.

Internal sources of funds consist the following:

• Retained Profits: This refers to the large corporations with stock and shareholders who reinvest the profit in business activities rather than paying dividends to its stakeholders. This is an effective approach but disadvantage of this is that company do not have the capital for expand its activities.
• Sale of fixed assets: This is another source of finance, in this company raise money by selling fixed assets and reinvest the amount in business function as a working capital. It is effective approach as company can quickly generate cash by selling of assets.

Angel Investors: These are the investors who invest in the small start ups and newly opened enterprises. They are the person who have excess funds with them, they invest in the companies without getting their name disclosed to the public. For the company like foodholic it will help in them in achieving the target of operating in a better manner and achieve the plan of expansion and growth.

Advantages

• This type of fund raising is much less risky then debt financing
• Huge amount of money can be retained from the investors so as to achieve the target of growth and expansion.

TASK 3

P4. Design a business plan for growth that includes financial information and strategic objectives for scaling up a business.

Business plan is a legal written document that managers of Foodholic are required to prepare so as to take decisions regarding future strategies and course of actions. It aids firm to be focused to accomplish its objective and aims within specified time frame by providing synopsis about its vision, mission mad objectives (Schetke, Haas and Kötter, 2012). It includes details about nature of business, P&L statements, information about various strategies adopted by firm related to finance, marketing etc.

Executive Summary

Foodholic is a sophisticated multi cuisine restaurant in Midlands. The restaurant offers a wide variety of Spanish, Chinese, Italian, continental and other fast food dishes. The most unique feature of the restaurant is that all its food items are having organic having low calories that are apt for health conscious people.

Vision: “To become leading and best chain of restaurant around globe”

Mission: â€œTo be  our consumers favourite food outlet  to eat and drink.”

Strategic objectives: The main objective of Foodholic is to attain business growth by 15%  providing  large variety of  cuisines that are organic and having low calories to suit requirements of health conscious people who  are fond of fast foods. For attaining this goal firm will follow SMART objectives. This implies company's objectives to be specific, measurable, achievable, realistic and time specific. Applying this, Foodholic is to attain this target within 2020. For gaining this growth constraints firm is depending on its multi cuisines that is prepared from organic ingredients and are having low calorie that helps in catering needs of growing health conscious population (Stanilov, 2013). Foodholic aims to target audience belonging to every age group belonging to middle and high income group. As it offers wide variety of different cuisines that is prepared from organic ingredients and are having low calories this is to capture attention of increasing health conscious people that are fond of fast food but are afraid from its negative impact on health.  

Financial Information

To commence activities of its new venture Foodholic is subject to raise funds. Also as restaurant is to offer wide variety of different cuisines that are prepared using organic ingredients to produce low calories healthy food items there is need of special cooking ranges like counter top induction oven and other techniques that requires investment. Thus for fulfilling its funds requirements company is to raise funds from various sources of finances such as bank loan, peer to peer and crowd funding (Todes, 2012). Also for promoting its launch, firm is required to adopt various promotional tools comprising electronic, online and social media for communicating about its products,  create interest in pubic and capture their attention. Mentioned below is the forecast for Foodholic launching its business operations:

Total forecasted budget

Cash flow statement:

TASK 4

P5. Assess exit or succession options for a small business explaining the benefits and drawbacks of each option

There are number of options for owners of Foodholic that they could consider for taking decisions related to closure down of the business operations in upcoming years (Exit Strategies, 2018).

Liquidation: This option could be determined by owners of Foodholic in case restaurant is encountering losses for consecutive years and there are no further chances for business to   regain its original product demand and sales volumes (Williamson and Parolin, 2013). In this scenario when chances of recovering losses is nil owners of Foodholic in order to attain stability can wind up restaurant's business.

Advantages:

• All outstanding debts to which restaurant is entitled to pay is written off due to incapability of its owners to pay off their existing debts. Thus, it forms an escape route from 'no win' scenario.
• Moreover, after liquidation any legal action of company comes to stoppage leaving owners free to explore new business areas without bothering about their past creditors.

Disadvantages

• It leads to selling off personal assets of owners in order to recover business debts as much as possible.

Selling business in open market: It is one of the most popular exit strategy that is adopted by small and medium businesses. In case owner does not want to shut down their restaurant and are willing to further continue business activities they have option to sell it another entrepreneur in return for certain amount. It is advantageous for owners as it provides them chance to at least get amount that is initially invested by them in business. This price could further be invested by them in some new venture.

Advantages

• It involves less time in comparison to other exit strategies.
• Goodwill and assets could be incorporated when valuing the business for selling that maximizes return for owners.

Disadvantage

• Business could be difficulty to value and selling price might be much lower than expected
• Also, it makes it difficult for the owner to formulate appropriate promotion plan in order to rephrase its firm's image in the market.

Drain it: This is another exit option for firms under this, company take as much cash as it can out of the business every year and keep only enough amount so it can operate in market smoothly. This strategy is effective where company generate a huge amount of profit but require little money to manage it.

Advantages

• This type of option requires very little planning.
• It is very profitable exit option for firms.

Disadvantage:

• This strategy may result in reducing operating profits of company.
• Company may also face situation of high taxes due to this strategy.

Friendly buy out: This is strategy in which owners of business transfer the ownership to workers, friends or family members. This is a sale of business but the transaction which take place is very different. This is easier as owner has information about the purchaser.

Advantages:

• Easy transfer of ownership as business go to an employee or friend.
• Less conflicts and issues arise in this.

Disadvantages:

• Create issues during negotiation which harm the relationship of others.

Shut it down: This is another exit strategy which can be use by the organisation. In this company stops all its operations, activities, factories and offices either temporarily or permanently.

Advantages:

• This method is easy and fast as compare to selling a business.
• This remove the risk of losing money.

Disadvantages:

• Failure to sell business results in no revenues for company.
• It diminishes the brand value.

Selling and Floating the business: As an exit opportunity that is given to the business one of them is floating the business. It is the process of selling the business and floating the available shares in the share market. It includes selling percentage of shares in the stock exchange. This can be done by institutional investors or private investors.

Advantages:

• This gives the company access to new capital to develop the business.
• This creates the market for companies share.

Disadvantage:

• The cost of floatation can be substantial.
• Market fluctuation is the main reason which would make the investors resist to purchase the share. The business may become vulnerable to market fluctuation.

There are various reasons because of which a company chooses these various exit options. For Foodholic, there are two main reasons which are described below:

• Areas of Potential Conflicts: There are various aspects within the business environment which influence the operations of an organisation and causes conflicts in business activities which ultimately results in exit of the firm. For Foodholic, these conflicts could be the inconsistent and irregular changes in policies Post-Brexit which has a wide impact on its multi-cuisine business. Another conflict is the reduction in the value of Pound after events of Brexit which has caused reduction in the standard of living of people as well.
• Cultural Issues: With multi-cuisine restaurants, it is imperative that such organisations employ people which have mastered cultural cooking standards and are appropriate to effectively serve customers of various different tastes. There are various issues related to culture which could be very threatening to a firm's reputation. Sometimes cooking is associated with cultural beliefs of the customers. If the company fails to comply with these beliefs, it may cause a serious backlash for the customers and thus, could result in its closure.

CONCLUSION

The project undertaken concludes that planning forms integral element for attaining business growth as it helps keeping business on track. A firm that is to commence business of its new venture require to analyse various macro factors through conducting PESTLE analysis. Further to ascertain various strategies related to pricing, marketing firm could make use of porter's generic growth and Ansoff growth matrix. Further to meet out its funds requirements a company could consider various sources of funds like bank loan, peer to peer and crowd funding by critically ascertaining advantages and disadvantages of each of them. A business plan is also prepared to ascertain vision, mission and objectives of firm along with providing details about probable exit strategies that firm could opt in upcoming future. 

REFERENCES

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