At Your Service

Week 5: The Award Phase - You Decide

At Your Service

According to the situation from scenario that Chris and Pat Smith, entrepreneurs with five years of experience investing in small businesses. Eighteen months ago they decided to invest in a catering venture with two chefs, J. P. Martin and L. L. Miller, who have culinary science degrees and five years of work experience, which includes winning a prestigious prize in a gourmet food competition. Following some extended discussions, the four of them decided to set up a business catering to parties and weddings under the name of At Your Service.

Unfortunately, this project seems to be fail after eighteen months since the business started. To analyze the failures, entrepreneurs should understand and know how to run the business in the right direction otherwise they might not be able to reach the business's gold.

Generally, in the restaurant business, investor should prepare the capital reserve for the fixed cost such as rent, utilities and labor cost at least 6 months ahead since the business starts because no one knows when the business will earn profits. There are so many factors that business owner cannot expect to make money right away.

Team or partnership is one of the most important things while setting right profitability to partners is the next part. In this case, Chris and Pat Smith made a disadvantaged agreement that the profits would be split 50-50 after clearing fixed expenses while those two chefs invested just $10,000 of 35,000 or only 28.6% of the whole capital. The profitability between Chris and Pat Smith and chefs should be approximately 70-30 not 50-50.

Business owner should know how much chefs spend on the food cost? What do they order? Is it short or over stock? Comparing to revenues, what the business owner should do if the costs are too high. This problem needs to be fixed immediately otherwise the company will keep loosing more capital instead of making profits.

Lack of communications is one of the failures that could take the business down. In case of the company does not make benefits, business owner cannot blame on chefs that they do not know how to manage business because they are just food expert not a businessmen. Management has full responsibility to coordinate directly with chefs and provide guideline to them how much they should spend on goods and kitchen staffs.

In the situation of breaking even on the first year, Chris and Pat Smith should adjust their marketing strategies. One year is long enough to know that the business is hit or miss. Instead of raising 10% up on the price when Chris and Pat Smith noticed that chefs changed menus, offering more elaborate dishes with more expensive ingredients while the prices are the same. They should discuss with the chefs how to use more simple ingredients while the food are still taste good and interesting to the customers. These dishes do not only cost too much, they also take too much time to prepare, limiting their availability to take on more jobs which means the company has to spend more on labor cost.

It is about the time to make a decision for Chris and Pat Smith to continue or let go the business because of the $35,000 investment is rapidly disappearing. They are down to $15,000 in working capital and everyone has no more money to put into the business including chef Martin and Miller.

The issues that have to be resolved are as follows:

* How to split the $15,000 left in the investment.

* How to handle the lease on the kitchen space, which has 18 months more to run.

* How to handle the lease on the van, which has 18 months more to run.

* How to handle the lease on the kitchen equipment, which as six months more to run.

If I were Chris and Pat Smith: My goal is to negotiate an agreement worth as many points as possible. To reach an agreement with the chefs, I must gain at least 100 points.

How to split the $15,000 left in the investment?

When the conflicts still continue, Martin is so