Events and Incidents Leading up to the Primary Issue4
Analyze of the situation5
Identification of the Suggested Alternatives8
Identification and Evaluation of the Alternatives8
Course of Action and Implementation11
Richard Paul is about to graduate from his M.B.A program and planning to start running his own store. While scanning through job advertisement, he comes across of The Body Shop Canada. The notice stated that the company has number of operating stores available for franchise. Knowing the enormous success of the company, Mr. Paul decides to purchase the franchise.
Cost to start a new franchise is estimated to reach approximately $257,900 maximum. Mr. Paul estimates that he can only afford with about $125,000 which obviously still not enough to cover the start-up cost. After examine the list of franchisees, Mr. Paul realizes that 13 of them own multiple stores. Knowing this fact, Mr. Paul comes with an idea of purchasing two stores instead of one because some of the start-up costs and operating expense would not be higher than operating a single store.
Mr. Paul has two friends who are willing to involve with The Body Shop Canada franchise. Their equity holdings would provide Mr. Paul with additional capital and would lessen the work of operating two stores in separate two separate cities. In regards of the organizational structure, Mr. Paul planning to create a holding company with him as a sole owner and his two friends would be the limited partners.
The body Shop Canada has two available franchise in City A and City B. Each city has its own advantages and disadvantages. Before jumping into any decisions, Mr. Paul has been informed with a new regarding the Goodwill cost for each city. After hearing the news, Mr. Paul rushes back to his house to create a very simple pro forma statement along the lines with his projection.
This report contains the suggested alternative, design to assist Mr. Paul with his decision. One of the alternatives is for Mr. Paul to conduct an industry analysis since he has no working experience in women product industry. Financial analysis has also been provided in this report stated that Mr. Paul should consider of buying two stores instead of one based on the profit margin from the first year and the second year. The profit margin growth between the first and the second year is much higher if Mr. Paul was operating two stores.
The last part of the report is identifying the course of action that Mr. Paul should follow and how to implement them. There are four phases on how to implement the actions before and after Mr. Paul operates the store. This report will also identify the primary issue, outlining the objective, and analyzing the current situation in order to resolve Mr. Paul’s decision on whether to purchase the store or cancel his offer.
Events and Incidents Leading up to the Primary Issue|
Partnership or Not
The Body Shop has grown its company chain throughout the world. There are over 70 shops in Canada. Mr. Paul has given a thought of buying one of the franchise because he feels he has “nothing to lose” for purchasing The Body Shop franchise. Mr. Paul asks for further information regarding the criteria for purchasing one of the franchises. The franchise agreement states several agreements that need to be followed such as the company would lease the premise and sublet it to the franchisee and the franchisee must operate the business and be in the store at least 40 hours per week. Within the letter also stating the cost to start the franchise.
After estimating the cost, Mr. Paul has come up with estimation that he could afford $125,000 by himself and the rest of the payment will be covered by the bank. Based on his experience and qualification, Mr. Paul...