Case study: Joe and Maria are long-time friends and have always had conversations about opening a space
Question:
Case study:
Joe and Maria are long-time friends and have always had conversations about opening a space that combines both their passions: good food and ocean views. Joe is currently studying hospitality and Maria works as a chef in a restaurant in the city. They decided to start a business together - a cafe on the Northern Beaches of Sydney.
Neither Joe nor Maria had a sufficient amount of money or assets of their own to invest in the business. They went to the bank together to get approval for a loan so they could get the business started but were told that they needed to find a guarantor for the bank loan. The other option they had was to obtain $100,000 either in the form of a loan or an investment from a private investor who would be willing to help them to start the project. Joe's former boss, Tom, offered to help them with the funding but indicated he would like the arrangement to be formally documented. He asked them to come back with a proposal.
Northern beaches are known to be a very competitive area in the caf market and Joe and Maria needed to identify what they can do to differentiate their business from other cafes in the area and use the USP to develop their customer base. Joe makes surfboards and he wants to get some surf-related merchandise to sell in the shop and create an open space that combines both of his dreams: surfing and food. They have four friends that want to work with them. Some are open to the idea of becoming partners, but Joe and Maria are not sure about bringing in more business partners.
N.B.
- They will still need to get three more employees to start the business.
- Maria would work helping with the menu and marketing and Joe as the manager - responsible for the front-of-house.
- Both Joe and Maria will manage the finances.
- Maria can't work during the weekends because she would like to continue working as a chef in another restaurant in the city and she needs one day off during the week.
- Joe studies on weekday evenings and does not like to wake up early on the weekends.
Questions (according to Australian regulation law sourcing including the website)
- Describe the types of business structures that are available to Joe and Maria. What are the advantages and disadvantages of each business structure? (Consider all the legal responsibilities and liabilities Joe and Maria would have under each one of the business structures.)
- Joe and Maria have asked you to advise them on the best business structure for their circumstances. What would you advise them and why?
- What steps do Joe and Maria need to follow to formalize all the necessary arrangements and register their business?
- What personal issues do you think Joe and Maria need to consider before starting the business together? What are the potential problems that can occur in the future?
- What risks or potential complications are there if Joe and Maria borrow money from Joe's friend?
- What options areavailable to Joe and Maria if they decide to accept the investment offer from Tom in exchange for equity in the business?
- What are the risks or implications of Joe and Maria allowing Joe's friend to become one of the co-owners of the business in exchange for his investment of $100,000?
- What are Joe and Maria's business' tax obligations if the business generates a net profit (EBT) of $140,000 in the first year of operation? Indicate what the tax liability would be under all the different business structures.
Managerial Economics and Business Strategy
ISBN: 978-0071267441
7th Edition
Authors: Michael R. baye