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first thing that stands out is that there is limited funds with which to set-up
one of these franchises. Although on paper it looks as though there would be
enough money to invest in either Perfect Pizza has a very high initial
investment cost. The ready cash requirement is 5 times that need in the
dreaming donuts estimates.? The key word
is that these are estimates these figures will not be set in stone. The
main reason for new businesses failing in the UK is not because they are not
profitable but because they have cash flow problems. I fear that this high
initial start up cost and the ready cash needed will lead to such cash flow
problems. ??????????? What is promising about both
franchises is that they both show a steady increase in Turnover, both companies
seem to be capturing market as apposed to loosing it. However the rate of
profit growth is not in proportion to these dramatic increases in Turnover.? This shows a lack of efficiency within both
companies. Even though both company?s profits are growing (Perfect Pizza at a
faster rate than Dreaming Donuts) they are not growing as fast as the turnover
is. Taking into account that the initial set-up cost is so high with Perfect
Pizza and there is a potential for a greater loss the increasing profits of the
company do not seem to be worth the risk. As apposed to the comfortably
affordable Dreaming Donuts with it?s still improving profit margins (admittedly
not as much as Perfect Pizza).How the existing
Franchises are faring Looking at the averages taken from all of each franchise
respectively what is worrying is that Perfect Pizza?s pre-tax profits have been
down over the past two years; where as Dreaming Donuts has shown increase over
the past four years. The major thing though is not haw the pre-tax profits are
down because they cannot rise every year, but they should not lead to the
closing of stores. This seems to be the case with Perfect Pizza as 4 stores
closed in 1998 out of a total of 196. Dreaming Donuts had 1 store close out of
30 in 1998. A poorer ratio than perfect pizza, but I feel confident that the
potential is there for Dreaming Donuts is there to out perform Perfect Pizza.62%
of Perfect Pizza?s customers are over the age of 41. I feel this is a bad thing
as the people aged between 25-40 are likely to have the most expendable income.
Dreaming donuts shows that it?s customers are spread out over the age range.I
feel that you should invest in a Dreaming Donuts franchise not just because it
is the safer option in terms of cash flow, but I feel it is an expanding
business with a greater potential than the floundering Perfect Pizza with it?s
falling pre-tax profits. This potential seems to be noticed buy the Heads of
Dreaming Donuts as they have set a high Marketing fee; something I see as a
good thing in the long run, it shows they are also looking at the long term. If
you do decide to invest in Dreaming Donuts than it will mean you still have the
capacity to call on more cash to see you through any rough patches.
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