Should 'X' switch to online sales completely, shutting down on-counter sales to improve cash flow and increase profitability?

The unique selling point of <Company name> a gelateria in suburban India, is that it offers low-fat gelato, waffles, and cookies in a neighbourhood with little to no competition within a 2-kilometer radius. Due to the significant expenses required by its location, the company, which was founded in October 2018, has not been able to break even. Online sales through meal delivery apps like Swiggy and Zomato account for a sizeable amount of their income. Despite having a significant amount of seating and being in a prominent position, the gelateria is frequently underutilised. The profitability is being impacted by high overhead expenditures (such rental fees) and underutilised resources (such as the occupancy rate). Therefore, the owner is interested in assessing the viability of switching entirely to an online mode of operation and any potential effects on firm profitability. This report will make use of several qualitative and quantitative tools to help the owner comprehend both the financial viability and the limiting constraints that need to be addressed in order to make the decision successful.

Chapters 1.7 (Organisational Tools: Decision Tree, Force Field Analysis) and 3.5 (Profitability Ratio and Analysis: Profitability Ratio) were consulted in order to come up with a response to the research question. Using a decision tree, it was possible to predict the future financial situation for both options—moving to delivery-only or staying the same. In order to make an informed choice, one might use force field analysis to compare the advantages and disadvantages of both options side by side. One can compare the sales to the costs associated with the changeover using the profitability ratio.

The following people will be interviewed as a part of this research:

• Mr. <CEO Name> Co-owner of <Company Name>.
  • To understand the working of the business, Financial data and help rate FFA
• The accounts manager to get financial data for business analysis
• A few of his customers.
  • People who have had products from <Company Name>. existing customers will be interviewed via a Google Forms Survey.
• Online sources for Secondary Research as and when required.

Information accessibility issues are foreseen. Even if the necessary data is collected, it might not be accurate because it might only be an approximation because not everyone is comfortable sharing their financial information with others. Second, all of the secondary data mentioned may be outdated and so unreliable. Multiple sources would be used to mitigate the impact of these challenges, making the data valid through redundancy.

• The research question was changed as a result of the owner's interview because it became clear that the company also had cash flow problems.
  • “Should <Company Name> switch to online sales completely, shutting down oncounter sales to improve cash flow and increase profitability?” from
  • “Should <Company Name> switch to online sales completely, shutting down on-counter sales to increase profitability?”
• Added Cashflow Forecast and its comparison as a tool.

Low-fat sweets are the speciality of Scoops and Smiles' ice cream brand Kreme De La Kreme. One of the owners was called while looking for potential company projects. Despite having a dining area, they don't get enough walk-in business. Therefore, the focus of this research was on whether they should fully discontinue in-person sales in favour of online ones in order to lower operating expenses and boost profitability. Profitability Ratio, Decision Tree, and Force Field Analysis were used in this process. Owner interviews and customer surveys were the main sources of information. Web searches on the costs and methods of this change, as well as the rates of economic change, were secondary sources. The results showed that, taking into account the legal and labour environment, transferring a manufacturing unit required a lot of resources (time-consuming and process-oriented). It would require additional time and resources. These results are constrained, though, by the fact that the data being used has a lag time and might be erroneous in the given situation. Second, there can possibly be some unrecognised or misapplied legal concerns associated with such a practise. During the interviews, there might have been a misunderstanding of certain words. Only 12 of the roughly 50 participants who were asked to complete the survey did so.

In Mumbai, Maharashtra, there is a dessert shop called <Company Name>. Due to its location in a primarily residential region, the majority of its clients reside within a 2 KM radius. <Company Name>. specialises in its own-brand cookies, brownies, and gelato. Due to their distinctive offerings—low fat gelato, whilst the majority of establishments in the region serve medium fat ice cream—they stand out from other dessert restaurants in the neighbourhood. The business, which was launched in October 2018 with a sizable investment, aims to become profitable by the middle of 2019. Since the company's inception, the owner has seen that more than 80% of their revenues come from online food delivery applications. They currently occupy a location with ample area for both their manufacturing facility and customer seating. Since sales are insufficient to achieve a quick break-even point, the owner wants to fully abandon in-person sales in favour of online ones. They could maximise their space if they did this.

They are currently having cash flow issues because of low sales and high operating costs, which result in huge outlays without equivalent profits. For this Assessment, I would refer to Units 1.7 and 3.5.

The graph demonstrates that the company's sales have grown over time. According to the owner, a sizable part of their revenue (80%) originate from online delivery requests made through meal delivery applications like Swiggy and Zomato. Additionally, they feature a seating space for walk-in clients.

However, because it only accounts for 20% of their sales, the operating costs for obtaining this 20% of the sales are much more than the revenue produced. Despite being near several educational institutions and being in a residential area, they have not been successful in drawing walk-in clients. For the facilities they provide in the seated area, such as the tables and chairs (fixed cost), energy, and maintenance costs in the seating area itself, they suffer significant ongoing costs. If the seating area is gone, <Company name> might be able to lower operating costs without much of a hit to sales (given that walk-in business only accounts for 20% of total sales), use the seating area to boost manufacturing capacity, or move manufacturing to an area with lower costs but better accessibility, ramp up online delivery services, and boost profitability. Their costs can be reduced, and their earnings can increase, if they switch to a delivery-only business model without a seating area.

According to the study done using a convenient sample technique and the findings from Fig. 2, it was discovered that the demand for purchasing ice cream is rising, ensuring that the business may totally transition to an online flat form.

The owners want to downsize and switch to a delivery-only business model, which will have a significant impact on their cash flow. To assess this, a comparison of their cash flow before and after the move is used, with the assumption that they will relocate in March 2020.

Rent is reduced from $75,000 to $50,000, which has a significant positive impact on the company's cash flow and will also increase profitability. The net cash flow changed from negative to positive figures, which will undoubtedly make it easier for company to make important decisions. The length of time it takes to put this shift into place, though, might hurt their sales. Consequently, the procedure for moving places needs carefully prepared. The new site must also meet all of the needs of the company and have a rent that is affordable enough to make a difference. High foot traffic may also be advantageous for advertising. However, the act of migrating would incur costs of its own. The profitability ratio is determined to comprehend the effect on earnings.

Net Profit Margin (NPM) = \(\frac{𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖t}{𝑆𝑎𝑙𝑒𝑠\ 𝑟𝑒𝑣𝑒𝑛𝑢𝑒}\) × 100% = \(\frac{288080}{1192016}\) × 100% = 24.18%

Net Profit Margin (NPM) = \(\frac{𝑁𝑒𝑡\ 𝑃𝑟𝑜𝑓𝑖t}{𝑆𝑎𝑙𝑒𝑠\ 𝑟𝑒𝑣𝑒𝑛𝑢e}\) × 100% = \(\frac{438004.6}{1608972}\) × 100% = 27.22%

Net Profit Margin (NPM) = \(\frac{𝑁𝑒𝑡\ 𝑃𝑟𝑜𝑓𝑖t}{𝑆𝑎𝑙𝑒𝑠\ 𝑟𝑒𝑣𝑒𝑛𝑢𝑒}\) × 100% = \(\frac{823900}{1769869}\) × 100% = 46.55%

The company's revenues are going to increase tremendously over the next few years after they relocate and start just doing business online, as we can see from the calculations and tables above.

Since it directly compares a company's sales to its earnings, I have utilised the ratio net profit margin here. In this case, the NPM for FY2020 is 27.22 percent. This indicates that the company gets a profit of 27.22 INR for every instance of sales for 100 INR. The following year, this soars to 46.55 INR, or nearly 47 INR for every 100 INR of sales. They would have to spend less in terms of energy bills like electricity if they moved to a different site and changed their sales model. As a result, they would have to pay less in fixed expenses associated with maintaining the seating space they currently have. Their profitability would rise as a result of a decrease in spending as their net profit would rise. According to the results of the equations, <Company Name> would be extremely profitable and break even in a short period of time if everything went according to plan. The fact that all statistics about future performance are dependent on forecasts, which may or may not be accurate, would be a limitation of this. Additionally, it makes little consideration of outside influences; therefore, a decision tree is created.