Question

we are 4 parnters in a burger and shakes startup, we are planing on opening a new branch by adding a 20% invester. currently the resturant is at loss. what are the pros and cons if new branch?

Answer 1

If the burger and shakes startup is currently at a loss and you are planning to open a new branch by adding a 20% invester, the pros and cons are as follows.

The pros are:

(1) More sharing of the profits or the losses of the startup and hence decreasing the risk for every partner - When one new investor gets added in the starup, there is an additional person who can provide the startup with new ideas like how to improve quality, acquire new customers, etc to recover from the losses while also sharing the profit or the loss.

(2) The new branch can get generate a higher return than the old branch - If the new branch is opened at a place where people would buy more of burgers and shakes then the new branch profits could substitute for the losses from the old branch.

(3) Make the restaurant more popular - Having more than one branch helps people from the surrounding areas know more about the restaurant and make it popular.

The cons are:

(1) More expenditure and possibility of more losses - With the new branch getting added, there would be more expenditure in the form of fixed cost and variable cost than when there was just one branch. If the new branch does not make good revenue, the total losses combined with the old and the new branch can increase in absolute numbers.

(2) Time consuming task - Setting up a new branch takes up a lot of time too. From buying or renting the branch, to decorating it and finally buying raw materials and hiring employees, it becomes a time consuming task.

(3) More corporation and less entilement to the profit sharing - With one new invester being added, the other 4 partners now has to take into account the decisions of one new investor whether they are good or bad. So, there needs to be more adjusting and corporation involved and also the profit sharing percentage of each investor would decrease than before.