To Build or Buy

Assignment 1: To Build or Buy

Business 402- Small Business Management

The small business that I chose to write about for this assignment is Sharp Cutz Barber Shop that I frequently visit with my son. The location of the barber shop is the small town of Grovetown, Ga, a separate municipality near Augusta, Ga. There are schools, a grocery store, retail stores, and several other different types of businesses surrounding Sharp Cutz. Sharp Cutz previous owner decided to leave the area to pursue other business endeavors. Comparing Sharp Cutz to similar companies the new owner offers competitive prices, and business is going well at the moment. On average the barber shop is currently generating about $2,000 in profit each month after expenses. It is my belief that the current business could make double what it is producing. The owner should incorporate some advertising and new marketing strategies like coupons or bring someone in to get a haircut and get your haircut half off or even free

I would like to point out a couple of reasons that I experienced dissatisfaction as a long term customer of Sharp Cutz. I have experienced the inconsistency of the actual operating times the posted business hours, and prices fluctuate periodically. I have to call in advance in order to ensure that the barber is there so that I do not waste my time or gas driving to the barber shop to get my son a haircut. The prices at the barbershop are reasonable in comparison to other shops in the area thy often fluctuate. This fluctuation of prices makes it very difficult sometimes to budget for my son’s haircuts.

We will fix these issues in my business by implementing a strategy for a business concept that would compete directly with the barber shop. I would complete the strategic management process, which includes nine steps. The nine steps include: 1. Develop a clear vision and translating it into a mission statement. 2. Assessing the company’s strengths and weaknesses. 3.Scanning the environment for threats facing the business and significant opportunities. 4. Identifying the critical factors for success in the business. 5. Analyze the competition.

6. Create company goals and objectives. 7. Select the appropriate strategies by formulating strategic options. In order for the business to be successful, I would need to translate strategic plans into action plans, and establish accurate controls.

1. Vision and mission statement- The company vision statement “To help customers feel better about themselves through an excellent appearance”. The mission statement “To provide quality services while successfully satisfying the needs of our customers”.

2. Assess the company’s strengths and weakness- I would do an assessment of the company’s strength and weaknesses. Some of the company’s strengths are a good solid customer base, earning a profit, expenses are minimal, and it is profitable year round. Weaknesses include not opening on time, not following posted opening and closing times, and excessive waiting times due to only having one worker.

3. Scan the environment for threats facing the business and significant opportunities. Some of the threats facing the industry are that similar companies offer lower prices, having more employees, offering quicker services, and providing more entertainment while waiting. Some opportunities are competitive prices that can grow your customer base, flexible operating hours which are convenient for customers that have odd working hours, and quality services and products.

4. Identify the critical factors for success in the business- Key factors for success are marketing the business so that potential customers are aware of what services you are offering, and the menu of options. Also managing the profits and expenses appropriately will be an enormous factor when operating the business.

5. Analyzing the competition – You must know your competition as well as you know the industry. Knowing your competition’s strengths and weaknesses will put you at an advantage, making you successful, increasing profit, and expanding your customer base.

6. Create company goals and objectives- Goals are long-range attributes that the firm seeks to accomplish. Objectives are quantifiable and more precise- they should be specific, measurable, assignable, realistic, timely, and written down. Goals are tied directly to the vision and mission statements. My company’s goal is to satisfy the needs of the customers. My objectives will be to provide quality services to customers by greeting them when they walk through the door, maintaining a clean environment, and having a positive attitude.

7. Formulate strategic options and select the appropriate strategies. The next step is to evaluate strategic plan options and then prepare a game plan that is designed to achieve the company’s mission, goals, and objectives. Including increasing sales in a particular segment (either by growing the part or taking a share of the competition). Also by penetrating a completely new section (either by repositioning the product for that segment or by promoting the product as it currently exists).

8. Translate strategic plans into action plans- Responding to customer feedback is imperative whether it’s negative or positive and being flexible.

9. Establish Accurate Controls- The plan establishes the standards against which performance is actual performance measured. The owner must identify and track key performance indicators and take corrective action if they are not met (Textbook).

It would make more sense to purchase the existing business because there is a saving in money, time, and energy when buying an existing business. The lengthy process of researching and creating business plans and models is already complete. Also, if you need financing to purchase the business, it is less difficult to obtain because lenders will likely finance a business with a proven track record. Also, most times, everything is included in the purchase, especially in a turnkey or a franchise business. It is extremely beneficial for a buyer to inherit the infrastructure that has already been established by the previous owner. Not only does this include the customers, but also the employees, suppliers, systems, and equipment. It is a good possibility that the previous owner offers some assistance and insight this will make for an easier transition. Since this is, an existing business cash flow should begin immediately, rather than not starting for a while like in a brand new startup. An existing business is probably producing a decent income and also has a substantial client base established, therefore maximizing the chances of success by the new owner (The Advantages of Buying an Existing Business).

The most appropriate ownership for this business would be the sole proprietorship because it is managed and owned by one individual. Sole Proprietorships are easy, and you can form one very quickly. For my financial situation, this is the perfect form of ownership. In most cases, entrepreneurs can obtain business licenses from the state, county, and local governments and begin operation usually in a single day. The owner is responsible for all business transactions and manages the business. The owner is also personally responsible for all liabilities and debts incurred by the business. A sole proprietor can sell it when he or she sees fit and can own the business for any duration of time. A sole proprietor as the only owner can pass a business down to his or her children, and there are no specific business taxes paid by the company.

The owner pays taxes on income from the business as part of his or her personal income tax payments (Advantages and Disadvantages of Sole Proprietorships).

Outline a business plan for your business:

Competition would be surrounding barber shops in the area currently- there are four, all of them with more than one barber. My barber shop will offer a hairstylist to serve women and will be a family friendly environment. My business will target families because the entire family can get haircuts, or get their hair done. A competitive advantage is given and will increase sales and my customer base. I also plan to make it a kid friendly environment with video games, television, and play areas being provided for the families that are being served.

My business operation hours will be Monday through Friday from 9a-5p and Saturday and Sunday from 12p-4p. Below is a quick summary of my business plan:

• Rent $500.00 a month

• Employee salary $1,200 a month

• Supplies and inventory $3,000 a month

• The current the business generates $2,000 monthly

Personnel: There will be two employees including the owner

All employees will have medical insurance including the owner

• Property insurance $200.00 monthly

• Business insurance $200.00 monthly

Financial Data

• Loan application business is selling for $80,000

• Capital equipment and supply list

With the accepted offer Seller will leave all appliances and tools needed to operate the barber shop with a one-month supplies of inventory.

Balance Sheet

• The seller must have all previous debt paid in full prior to closing or at closing table.

Breakeven analysis

• Buyer will have a total of $50,000 in cash to cover all expenses for six months

• The existing business is making a profit of $2,000 monthly

Three-year summary

• Seller will provide three years of financial data

• Seller agreed to provide proof of all monthly transactions inflow/outflow

• Seller will also provide proof of taxes paid

Conclusion

My business strategy is to buy an existing business rather than start a new business. My new barber shop is a family friendly environment, where the whole family can get their haircut or hair done at a reasonable price while not jeopardizing quality (Create your business plan).

References

(Textbook) Effective Small Business Management: An Entrepreneurial Approach (Norman M. Scarborough)

The Advantages of Buying an Existing business www.startupnation.com

Advantages and Disadvantages of Sole Proprietorship www.nytimes.com

Create your business plan www.sba.gov