Group Project Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

A. INITIAL FEES

INITIAL FRANCHISE FEE

An initial franchise fee of about $ 50,000 will be paid for a single full service location. This 50,000 would be paid in two breakups. An initial advance of around $ 2500 would be paid immediately and the remaining portion of the franchise fee of $ 47,500 would be payable at the execution of the franchise contract. All the fees paid will be non-refundable. Additional costs would also need to be paid regarding the credit checks of each prospective franchisee.

Apart from this the other two options are that the franchise fees could be paid under the multi-franchise development agreement or under area development agreements. Under the first method three franchise restaurants will be developed. The three franchise fees would be 50,000, 25,000 and 0 respectively. An initial payment of advance of 2500 would have to be paid when the multi-franchise agreement would be signed, the remaining balance would be due at the time of the execution of the first franchise agreement. Similarly, for an area development agreement, again three restaurants would be developed. The franchise fee would be 50,000, 25,000 and 25,000 respectively. The initial payment would be 12,500.

B. OTHER FEES

Apart from the franchise fees, there is also a range of other fees. The first is royalty fees of 4% of gross receipts. These would be payable weekly. Second would be promotional advertising fee which would be 3% of gross receipts payable weekly. Third would be Local advertising fee of 3% of sales to be paid monthly. Audit fee of 10,000 to 15,000 which would be payable upon the receipt of the invoice. Finally, the last fee would be related to the hotels business intelligence website subscription of $ 150 per month.

C. ESTIMATED INITIAL INVESTMENT

The initial estimated investment for all the items is shown in the table below:

EXPENDITURE	AMOUNT	PAID TO	WHEN DUE	REFUNDABLE
Initial fee	50000	Franchisor	Immediately	NO
Staff training expenses	35000	salary, wages, benefits	as incurred	NO
Your training expenses	32000	transportation lines	as incurred	NO
Hotel improvements	419500	contractors, architects	as incurred	NO
Furniture, fixtures and kitchen equipments	450000	vendors, suppliers	as incurred	NO
Delivery vehicles	50000	seller/lesser	acc to terms	NO
insurance	15000	Insurance company	as arranged	NO
advertising	25000	media and marketing firms	first 3 months	NO
licenses and permits	50000	local authorities, third parties		NO
Opening stock	15000	suppliers and vendors	Before opening	NO
Miscellaneous expenses	4500	various	Before opening	NO

Apart from these expected initial investments, if we consider the investments for the multi-franchise development then all the investments would be same except an additional franchise fee for the second restaurant which would be paid as described above in item 5. If we talk about an area development agreement, all the investments would be same except an additional one-time development fee as described above in item 5 would be paid.

D. FINANCIAL PERFORMANCE REPRESENTATIONS

One of the businesses of the hotel will be operational and the company will start to generate the revenues that would be needed for the business then, the financial performance of the company will have to be monitored. When the business would be running in full pace, then the information regarding the actual annual gross sales, the range of actual annual gross sales and also the percentages and the actual amount of sales spent on occupancy, ingredients and direct labor will have to be calculated. The data for calculating these sets of information would be collected from the profit and loss reports of the restaurant. Direct labor and gross sales information would be obtained directly from the POS systems present at each of the restaurants..............................

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