Tim's Coffee Shop Business Strategy

Tim's Coffee Shop Business Strategy

Intro

                  With many businesses moving into the area this is great for Tim’s Coffee Shoppe this will mean that there will be increases in some areas and decrease in others. The categories focused on will be salaries, rent, depreciation, supplies, lease, tax, interest, and insurance. Currently for the company, in 2011, they earned a total of $74,511 in pure profit which is very good for a small business like Tim’s but with the amount of new business’s coming into the area I predict this will be a bigger number at the end of 2012.

Salaries
                  With business picking up and having more customer’s everyday this would in turn mean that the current employees would get more hours and the possibility of hiring more people to handle the increase of customers. This would mean that the salary expense for Tim’s would increase.

Rent

            The rent for Tim’s would stay the same year over year no matter how much the customer base would increase. They would not be expanding the current building, to my knowledge. If they were to expand, if possible in that area, then yes the rent would increase otherwise it would stay the same.

Depreciation

                  This particular expense refers to inventory sitting for to long and losing their value minimalizing the profit margin they can receive depending on how long the product sits from time of purchase to time of sale. With the number of customers increasing from last year this number will decrease. Product will be turning over more causing less depreciation. This itself will increase the profits for Tim’s.

Supplies

            Supplies will increase for this year because of the amount of new customers. They will need to have more inventory on hand to accommodate the customers. Stock outages can be the worst case scenario especially in a Coffee Shoppe like Tim’s. When someone orders a drink or food and you are out of that, they can be upset because that is “what they get.” Supply cost will increase due to the increase in customers.

Lease

                  The lease for the refrigerator would stay current, meaning it would not raise or lower. However, if Tim was thinking about getting another refrigerator because of the increase in supplies then the lease would double because of the new fridge.  If he can make it work with one fridge then I would try to do that if it were me so you do not have double the expense of $11,987, which was the total for the lease expense last year.

Tax

            Tax expense would increase over the year because they would be buying more supplies, in turn that means more tax for the purchase of goods. Looking on the other side of the spectrum they would be charging more tax overall because they would have more purchases per day / per year. This would help offset the taxes they would be charged with per local, state and federal tax laws and regulations.

Interest

                  The interest that they paid last year was $615 for the loans they currently hold. I do not see this rising or decreasing unless with the new customer base they decide to purchase new machines to keep up with the amount of people and chose to buy using loans instead of cash. For the next year the interest expense should stay steady.

Insurance

                  Insurance expenses could increase over the next year due to adding more workers. With the addition to more works Tim’s might be required to offer more health insurance to these Full Time employees. Also depending on how many hours a part time worker averages throughout one month he could be required, by law, to pay for health insurance for them without taking it out of their pay per Obamacare. Tim will have to watch hours closely and who he hires for Full time work to regulate if the insurance rate will increase or stay equal to last year.

References

·      Complete Guide To Corporate Finance:

o   Pro Forma Financial Statements - Complete Guide To Corporate Finance | Investopedia. (2012, March 28). Retrieved December 22, 2015, from http://www.investopedia.com/walkthrough/corporate-finance/4/capital-investment-decisions/pro-forma.aspx

·      Rising costs putting the pinch on small business:

o   Rising costs putting the pinch on small business. (2015, August 22). Retrieved December 22, 2015, from http://www.dallasnews.com/business/small-business/20150822-rising-costs-putting-the-pinch-on-small-business.ece