Business Feasibility Report boost juice PDF

Preview

Summary

This report will oversee the procurement of a franchise with the intent of entering into a start-up business by analysing two finance possibilities to develop efficiency and stakeholder satisfaction.

Franchising is a business relationship in which the franchisor (the owner of the busine...

Description

Business Feasibility Report

1

Table of Contents Introduction

3

Background

3

Size and Distribution

3

Culture

3

Franchise Agreement Financial Cost and Legal Requirements Role of Franchisor and Franchisee

4 4 5

SWOT Analysis

6

Break-even Analysis

8

Evaluation

9

Recommendations

9

Conclusion

10

Reference List

11

Appendices Appendix A Appendix B Appendix C

13 13 13 14

2

Introduction This report will oversee the procurement of a franchise with the intent of entering into a start-up business by analysing two finance possibilities to develop efficiency and stakeholder satisfaction. Franchising is a business relationship in which the franchisor (the owner of the business providing the product or service) assigns independent people (the franchisees) the right to market and distribute the franchisor’s goods or service and to use the business name for a fixed period (Franchise.org.au, 2019). The investigation will focus on the Boost Juice Bar franchise model. Boost Juice (Boost) developed a business concept that was innovative from other retail/ fast food in the world with a clear vision of providing different customer service based on its founder, Janine Allis, philosophy of “love life”.

Background Australian adventurer and businesswomen Janine Allis founded one of the world’s most successful juice and smoothie bars brands: ‘Boost Juice’ in 2000. During overseas travel to the United States, Janine caught sight of the thriving, healthy fresh juice industry, whereas Australia notably lacked in this market. Upon returning, Janine started operating from her own home in Melbourne and opened the first store in Adelaide (Boost Juice, 2019c). Early on, Boost had embraced the franchise model, and now twenty years later, it has over 550 stores in 18 different countries (around 350 nationally and 200 internationally), 70% of which are franchised and stands as the industries largest operator (Reeves, 2020). In 2004, Boost acquired its primary competitor, Viva Juice, and became the biggest juice and smoothie chain in the world (Reeves, 2020). Boost is part of the Retail Zoo Group which also owns Salsa’s Fresh Mex Grill, Cibo Espresso and Betty’s Burger franchises. Bain Capital acquired 70% of Retail Zoo in 2014, bringing their international experience and additional funds to the group.

Size and Distribution The franchise model adapted by Boost has demonstrated an excellent approach to achieve growth and profitability within a brief period. New Boost store formats have been utilised to appear unique such as kiosks, drive-thru, inline on High Streets and boost carts; generating interest from prospective franchisees (Boost Juice, 2019a). Individual franchisees hold a considerable share of the store chain; Boost considers their franchisees as partners and not just a number. By providing thorough training, Boost equips their partners with extensive knowledge of the business and market. After establishing a franchise, the network will continue to support the franchisees on a day to day basis (Cole, 2019).

Culture Boost is known for its distinctive organisational culture, promoting leadership, communication, relationship and achievement; they pride themselves on a culture built on positive attitudes (Boost Juice, 2019a). The brand is a big believer in ‘once you’ve put the right people in place, everything is easy’ (Janine Allis), therefore focusing on the profile of franchisees they add to the network and type of people hired. Employees are selected based on their personalities in an attempt to create a culture with like-minded 3

people. Boost reiterates that customer service is of the highest quality, to ensure this, staff are trained and work in a happy and energetic environment (Boost Juice, 2019b).

Franchise Agreement Before entering any franchise agreement, seeking independent financial and legal advice is highly recommended to ensure proper due diligence occurs. In addition, by creating a business and forecast plan will put the franchisees on a path to success. As per Cole (2019), there are 12 steps to follow when applying for a Boost franchise, from completing an expression of interest online, application form, paying an application fee, signing legal documents, a day at a store to the final panel interview, just to name a few. Boost offers a seven years franchise agreement with a possibility to extend for a further seven years for new franchises. If you purchase an existing franchise, the term will be the remaining of the agreement (Boost Juice, 2019a).

Financial Cost and Legal Requirements There are several upfront and ongoing costs associated with starting a franchise agreement with Boost; franchise fee of $41,000 ex GST, introductory costs go towards store fit-out, equipment ($280,000-$450,000 ex GST), training ($14,000 ex GST), and working capital budget must also be employed to cover initial stock (Cole, 2019). Besides; franchisees will require to obtain a bank guarantee to supply to the landlord at the beginning of the lease term (Boost Juice, 2019a).

Cost

Amount

Note

Application Fee

$2,200

Fully refundable if you choose not to proceed - this fee is used to cover legal costs.

Franchise Fee

$41,000

Franchise Cost

$225,000 $395,000

Training Fee

$14,000

Working Capital

variable

For a New Boost Juice Store - it covers Fit-out & design of the store, all plant & equipment

Boost Juice recommends 10% of the franchise purchase price; this is used for: start-up stock, operational costs and local area marketing

Source: How to become a Boost Juice franchisee, www.finder.com.au/boost-juice-franchise-loan

Ongoing costs identified with franchises include royalties to the franchisor (8% of gross sale), compulsory marketing levy (3% of gross sale), rent, utilities, loan repayments and wage (Cole, 2019).

4

Cost

Amount

Note

Royalties

8% of gross sales

Compulsory - payable to the franchisor

Marketing Levy

3% of gross sales

Compulsory - payable to the franchisor

Rent & Utilities

Variable

Wages

Variable

Loan repayment

If applicable

Other ongoing costs: e.g. accountants, telecommunication, insurance

Variable

Source: How to become a Boost Juice franchisee, www.finder.com.au/boost-juice-franchise-loan The legal requirements are as per industry standard, that includes registering a business name, acquiring an Australian Business Number (ABN) and applying for a food safety certificate. In relation to workplace hiring, Boost must abide by the Fair Work Act 2009 to ensure staff entitlements. To provide a safe working environment in Queensland, businesses are obligated to act per the Work Health and Safety Act 2011. It's important when starting a business to obtain insurance, to protect the company, yourself and employees from unforeseen circumstances (Adams et al., 2018).

Role of Franchisor and Franchisee The Boost network is not looking for franchisees solely interested in opening a new store for investment purposes; instead, someone passionate and devoted. Franchisees are expected to work full time for a minimum of six month; after this period working at least 20 hours per week is part of their contractual obligation (Cole, 2019). Upon signing the contract, the franchisor will begin to seek potential locations, once approved, the retail leasing team will assist mediation of the lease. Boost provides comprehensive inhouse training for three weeks. As a part of the ongoing marketing levy, the franchisee will gain access to the creative team for marketing support, presenting fun, relevant and lively campaigns (Inside Franchise Business, n.d.). On the day to day operations, the franchisee has access to an extensive support network where they can consult and deliberate in various matters. The Boost HR team seeks to be efficient by overseeing recruitment, payroll, organisational development, performance management, policies & procedures and industrial relations (Boost Juice, 2019a).

Financial Objectives A well-prepared business plan will contain financial objectives, mainly relating to profitability, liquidity, solvency, growth and efficiency. The profitability is a business number one priority, in order to make a profit the revenue must be greater than its expenses, the juice bar industry considered a low-profit margin amongst a high unit volume, fruits and vegetables are identified as the most considerable variable although the most unstable expense due to various factors (Reeves, 2020). Liquidity is essential in a start-up business, as it will require this cash flow to pay bills on time. In addition, it will need a decent sum of cash to pay the upfront costs before securing its first sale. To ensure solvency, long term cash flow is crucial; the company 5

must maintain its sales to be able to repay debts on the long term (Adams et al., 2018), in Australia, it is illegal to trade if insolvent, which means unable to pay its debts.

SWOT Analysis

Source: (Reeves, 2020) & (Salar & Salar, 2013)

Franchisees can quickly profit from brand recognition, which excludes the challenge of establishing a new markets system set-up. The franchisee receives full assistance from the franchisor in all aspects. This also provides loyal customers, the reassurance that varied franchises maintain an item's quality and level of customer service. Nowadays, taking care of your health and wellbeing has become a priority for a growing number of people. The rise of health consciousness has drawn in an increasing amount of competition, operators that not primarily sell juice are expanding their range by including juices and smoothies. As a consequence of the industry growth in recent years, a large number of new establishments have opened as new startups or as a franchise.

6

Source: (Reeves, 2020) & (Salar & Salar, 2013)

Banks are more likely to lend funds to franchisees than a new start-up as there is a low rate of failure within franchising, improving financial viability. The revenue is projected to increase at an annualised 5.3% over the next five years and is projected to outperform the overall Gross Domestic Product (GDP) of 2.6%. By opening a franchise, there are more additional costs associated than any other similar business as it is required to pay franchise fees, training fees and extra-legal fees. Under a franchise agreement, franchisees are legally obligated to pay ongoing expenses on top of initial start-up costs. The rising cost of ingredients, rent, wages and leases all due to economic covid impacts will place pressure on franchisees to maintain profit margins (Reeves, 2020).

7

Break-even Analysis Break-even point is an essential tool to assist in being successful in business. It helps to establish how many items need to be sold before making a profit. The formula for break-even point is equal to the business fixed cost divided by contribution margin (sales price minus variable cost). The total cost for the franchise can be found in Appendix C. For this Boost franchise, the break-even point is approximately 10,185 units. = 35,115 / (7.033-3.5853) =35,115/3.4477 ≈ 10,185 units Therefore for this franchise to make a profit, it needs to sell over 10,185 juices a month.

Please note that this break-even analysis is based as if the franchisee has purchased 100% of the franchise without borrowing any capital. If the franchisee is required to borrow money from a lending institution the monthly cost will increase as there will be a requirement to repay the loan plus interest thus, the breakeven point will change to a higher amount, and more juices will need to be sold to break even.

8

Evaluation Before signing the franchise agreement, the franchisee must seek an accountant and financial advice in order to make the best decision. There are two types of financial options when opening a business, equity and debt financing. Equity finance is the supply of internal funds used to establish a business; these funds are often obtained by self-funded operators, private investors or crowdfunding. Janine Allis acquired sufficient funds by crowdfunding to start Boost Juice. Under equity finance, the profit made in the business is shared amongst stakeholders. Debt finance Is the supply of external funds by a lending organisation such as banks. There are short and long term debts to suit different requirements. If the franchisee chooses this option, it will require to repay the debt within the agreed period, and interest rates will apply. Boost requests that franchisees provide at least 50 % of the purchase price by equity financing in addition franchisees must have sufficient funds for training fee and working capital (Boost Juice, 2019b). To achieve growth in a franchising environment is limited as you are not able to extend the product line; however, you can extend the store size or increase the market share. Due to the business nature, expanding the scope of the store may not be viable because of rent cost, but opening new stores have a greater likelihood. Boost Juice doesn’t allow you to open a second store till you have operated your first for 12 months to ensure the franchisee is a strong operator.

Recommendations To ensure growth, the best-fit financing option for a Boost franchise is equity finance. Currently, the Juice and Smoothie Industry is projected to outperform the overall economy, given high revenue growth resulting from the increase in health consciousness, household income and ready customer portfolio. If there is an economic downfall due to uncertainty in the marketplace, putting pressure on liquidity is lively. By utilising equity, investors will only be paid profit if it is made, it will require an increase in unit sales above the breakeven point. Would be recommended for the franchisor to have an overdraft facility (debt financing) to be used as an emergency fund if required, as during a downturn, investors will still need to pay rent and wages. Banks charge an overdrawn fee and interest only for the days that the account has a negative balance; this will reduce the contribution margin and will require further sales to achieve a break-even point or profit. The profit made from the first store can be used to establish a second franchise any time after 12 months as per Boost Juice requirements.

9

Conclusion For the purpose to distinguish the viability of starting a franchise, it is essential to review all facets of Boost, analysing its strengths and opportunities as opposed to the weaknesses and threats. The Franchise model is appealing, as the brand is well established, and the business operation is proven to be successful. However, there are underlying factors which repel potential franchisees that do not want to be corralled into a business model that is rigid and inflexible. As clearly stated in this report, it is recommended to use equity finance rather than to set up the franchise using debt financing as this would reduce the break-even costs over a shorter period and potentially increase profits faster.

10

Reference List Adams, S., Furlong, B., Larsson, M. and Thompson, A. (2018). Business for qce units 1 & 2. South Melbourne, Vic: Cengage Australia. Atwell, P. (n.d.). What is the average profit margin for a fruit smoothie? [online] Azcentral - Your Business. Available at: https://yourbusiness.azcentral.com/average-profit-margin-fruit-smoothie-27068.html [Accessed Aug. 2020]. Boost Juice (2019a). Boost juice study guide - squeeze more out of life! [online] Available at: https://www.boostjuice.com.au/downloads/Boost_Study_Kit.pdf [Accessed 18 Aug. 2020]. Boost Juice (2019b). Franchising - available opportunities - boost juice - boost juice. [online] Boostjuice.com.au. Available at: https://www.boostjuice.com.au/franchising/ [Accessed Aug. 2020]. Boost Juice (2019c). Home - boost juice - boost juice. [online] Boostjuice.com.au. Available at: https://www.boostjuice.com.au/ [Accessed Aug. 2020]. Burgio-Ficca, C. (2020). Franchising in australia. IBIS World. Business Queensland. (2020). Calculating your break-even point | Business Queensland. [online] Available at: https://www.business.qld.gov.au/running-business/finances-cash-flow/managing-money/break-evenpoint [Accessed 18 Aug. 2020]. Cole, S. (2019). Compare boost juice franchise finance options online | finder.com.au. [online] finder.com.au. Available at: https://www.finder.com.au/boost-juice-franchise-loan [Accessed Aug. 2020]. Franchise Council of Australia (2019). Franchise Council of Australia | Franchisee Resources. [online] Franchise Council of Australia. Available at: https://www.franchise.org.au/franchisee-resources/ [Accessed 2 Sep. 2020]. Inside Franchise Business. (n.d.). Boost Juice healthy fast food juice bar franchise for sale | Franchise Business. [online] Available at: https://www.franchisebusiness.com.au/brands/boost-juice/ [Accessed Aug. 2020]. Matt (2011). How to create a compelling work culture with janine allis of boost juice. [online] Under30CEO. Available at: https://www.under30ceo.com/how-to-create-a-compelling-work-culture-with-janine-allis-ofboost-juice/ [Accessed Aug. 2020]. Reeves, M. (2020). Juice and smoothie bars in australia. IBIS Word. Salar, M. and Salar, O. (2013). ScienceDirect.com | Science, health and medical journals, full text articles and books. [online] www.sciencedirect.com. Available at: https://www.sciencedirect.com/science/article/pii/S1877042814014025/pdf? md5=72993b22c6bc1d8fb1a2aaa92be2a3e6&pid=1-s2.0-S1877042814014025-main.pdf [Accessed Aug. 2020].

11

Stowe, S. (2016). 9 things you need to know about the Boost Juice business. [online] Inside Franchise Business. Available at: https://www.franchisebusiness.com.au/9-things-you-need-to-know-about-the-boostjuice-bu/ [Accessed Aug. 2020].

12

Appendices Appendix A Boost Juice Initial Costs - Exclusive of GST Cost

Amount

Note

Application Fee

$2,200

Fully refundable if you choose not to proceed - this fee is used to cover legal costs.

Franchise Fee

$41,000

Franchise Cost

$225,000 $395,000

Training Fee

$14,000

Working Capital

variable

For a New Boost Juice Store - it covers Fit-out & design of the store, all plant & equipment

Boost Juice recommends 10% of the franchise purchase price; this is used for: start-up stock, operational costs and local area marketing

Source: How to become a Boost Juice franchisee, www.finder.com.au/boost-juice-franchise-loan

Appendix B Boost Juice Ongoing Costs Cost

Amount

Note

Royalties

8% of gross sales

Compulsory

Marketing Levy

3% of gross sales

Compulsory

Rent & Utilities

Variable

Wages

Variable

Loan repayment

If applicable

Other ongoing costs: e.g. accountants, telecommunication, insurance

Variable

Source: How to become a Boost Juice franchisee, www.finder.com.au/boost-juice-franchise-loan

13

Appendix C Boost Juice break-even Analysis information Unit Information Average Selling Price per Unit

$7.033