Business Decision-Making
Option 3: Increasing Investors5
Option 4: Keep the Business as it is6
Business Decision6
References8
APPENDIX9
Introduction
Businesses exist in a dynamic environment where circumstances keep on changing, and the businesses have to adapt to the changes to succeed. Businesses that are unable to adapt to the new environment find themselves closing shop and considering other options. Changes in government policies tend to affect small businesses more than they do to established businesses. This is largely because, the small businesses have limited capital bases, and their net income is usually limited and cannot significantly cushion them when harsh policies are implemented (Stuth, Conner, and Heitschmidt, 2016).
Competition in different industries is also growing at a rapid rate due to different factors among them the increasing rates of unemployment. Fresh college graduates are forced to start their own businesses to create own employment thereby increasing competition in the industry they venture into. When circumstances change and a business realizes that it may not be sustainable in the future under the new circumstances, decisions have to be made to mitigate current and future negative effects to the business (Fitzgerald, 2002). Food Empire Restaurant is based in London, UK and has been doing well with its profits increasing with double figures. Changes in government policy towards small businesses and strong competition in the industry have significantly affected the five-year-old business and its future looks dark unless it selects a better option out of the ones it has (Fitzgerald, 2002). The following section will evaluate the different options available for Food Empire Restaurant business and decide the better option under the prevailing circumstances.
Option 1: Take Over
This option involves selling Food Empire Restaurant to a well-established and known brand company. The implications to the restaurant business owner are that he loses his status as a business owner and the potential cash inflows from the business. The restaurant owner also gets cushioned against future losses from the business as a result of the changed policies and increased competition. Businesses have many challenges and dealing with changed government policies, and increasing competition are some of the challenges. An effective business manager may not consider disposing off his or her business due to industry challenges. Selling the Food Empire Restaurant over at 5% less than the amount of money invested does not make sense. The business has not started making losses and as such there is no logical reason to sell it at a loss. Following is a PESTLE analysis of the takeover option.
Option 2: Franchising
The second option is franchising. Franchising will involve among other things, using the name and logo of another leading restaurant in the UK. The business loses its identity and is seen as part of a successful restaurant in the UK. Franchising is likely to increase the restaurant's customer base as some of the franchiser's customers will start frequenting the franchisee's restaurant. It will thus, increase its revenue and make it more competitive and thus, stable in the industry to continue its operations. Marketing and advertising will also be done by the franchiser, and thus, the restaurant will be well exposed to the market. On the other hand, the restaurant business will lose its autonomy to the franchiser who will have the right to determine the products and services that will be offered in the restaurant. This has the disadvantage of limiting the creativity of the owner and to some extent, the owner’s ability to take advantage of opportunities that may arise in the industry. Moreover, according to Franchise Direct, (2016), the restaurant will have to pay franchise fee as well as regular royalties and advertising fee. This will significantly reduce the restaurant's net income since it will increase its operating costs. Furthermore, franchise fees for leading restaurants in the UK like Go Grill are at least £50,000. The same applies to Pure Health, Shake away, and The Flamin' Chicken, which charges £40,000 (Franchise Direct, 2016). Supposing Food Empire restaurant accepts this option, the following table analyses the franchise using Porters' Five Forces model.
This option involves bringing more investors into the business which will increase stability in the business. The business will have sufficient resources to compete effectively in the market. More resources from investors may also imply that the business graduates from the small business status and thus, may not be affected by the change in government policy. The increase in investment may also lead to increased revenue and profits supposing the business expands its operations and manages to keep the costs low. This also involves reduced control of the business as some degree of control and decision making is relinquished to the new investors (Blenko, Mankins, and Rogers, 2016). The profits will also be shared as per the agreement between the business owner and the investors.
Option 4: Keep the Business as it is.
This option involves taking none of the preceding three options. It implies that the business will continue to have its profits reduced each year and eventually it may start making losses and end up closing down when it can no longer operate.
Business Decision
Option three is the most viable option. Food Empire can increase the number of investors but make sure that they do not take majority control of the business. The owner can ensure that he retains more than 50% stockholding in the restaurant which will still leave him with greater control especially if control is exercised based on the percentage of ownership. Furthermore, it will allow the owner to continue pursuing his vision in the business as it will be stable financially and able to compete with the rest. Profits are likely to increase with increased investment, and thus, the original owner will probably keep the same amounts of profits he earned before even after sharing with the new investors. The table below presents a SWOT analysis for this option (Blenko, Mankins, and Rogers, 2016).
Blenko, M., Mankins, M. and Rogers, P. (2016). The five steps to better decisions. [online] Bain.com. Available at: http://www.bain.com/publications/articles/the-five-steps-to-better-decisions.aspx [Accessed 8 May 2016].
Fitzgerald, S. (2002). Decision making. Oxford, U.K.: Capstone Pub.
Franchise Direct, (2016). Restaurant Franchise Opportunities. [online] Franchise Direct UK & Ireland. Available at: http://www.franchisedirect.co.uk/foodfranchises/restaurantfranchises/235?sort_by=investment [Accessed 8 May 2016].
Stuth, J., Conner, J. and Heitschmidt, R. (2016). Chapter 10 - The Decision-Making Environment and Planning Paradigm. [online] Cnrit.tamu.edu. Available at: http://cnrit.tamu.edu/rlem/textbook/Chapter10.htm [Accessed 8 May 2016].
APPENDIX
