Investing In Perfect Pizza Or Dreaming Donuts

Essay, Research Paper

The

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.