Financial Management

● Legal Fees (legislation, registration, and other related legal documents) 5,480,139.98 VND (298.22 CAD)

(Minh Dinh Nhat, 2018)

-Launching a new business in Ho Chi Minh City requires a sustainable budget plan to cover monthly legal fees, such as legislation, registration, and other related legal documents. In particular, a legal consultant can assist coffeeHolic in minimizing the legal cost of business operations each month. For instance, legal consultation helps start-up entrepreneurs reduce legal expenses by relevant information, monthly payment estimator, and accounting advice (Scheske, 2020). Besides that, lawyer services also provide coffeeHolic with professional legal documents, which is cost-effective and time-efficient for small-sized businesses. As a result, the co-owners estimated that legal fees and related services would cost coffeeHolic about 5,480,139.98 VND (298.22 CAD) per month.

● Business Insurance

5,474,331.14 VND (298.17 CAD)

(Tran Vu Ai, 2013)

-Business insurance provides coffeeHolic with financial protection against financial difficulties and unfortunate accidents. There are many types of insurance available to small-sized businesses that include general liability insurance, omissions insurance, and commercial property insurance. However, insurance law and regulation in Vietnam require small businesses to obey the law by having the following compulsory insurances:

1. Social Insurance

2. Labor Accident & Occupational Disease Insurance

3. Health Insurance

4. Unemployment Insurance

5. Fire Insurance

(Ngan, 2021) (Khang, 2018)

-coffeeHolic co-owners decided to purchase the insurances from Prudential Vietnam Life Insurance Co., Ltd, and Bao Viet Insurance Company because these two insurance corporations are highly recommended by good insurance policies in Vietnam (Vietnam Credit, 2020). And coffeeHolic estimated that approximately 5,474,331.14 VND (298.17 CAD) would cover the monthly insurance expense. (Tran Vu Ai, 2013)

● Bank Charges (Service Fee)

500,000 VND (27.18 CAD)

(Vietcombank, n.d.)

-Some Vietnamese banks may charge a fee if small businesses hold an account with them or fail to maintain minimum average balance (Standard Chartered, n.d.). In particular, Vietcombank may charge coffeeHolic a monthly rate of 500,000 VND (27.18 CAD) based on the type of account management, balance confirmation, and the amount of withdrawal. And Vietcombank’s monthly bank charges are applied to clients acting as an organization. Besides that, coffeeHolic can avoid unnecessary banking charges by maintaining the minimum balance, looking for special offers on business accounts, and avoiding late payment of card bills (Kaushik, 2020).

●Office Supplies & Postages (Coffee Shop Equipment)

10,964,792.86 VND (596.44 CAD)

(Minh Dinh Nhat, 2018)

-coffeeHolic includes its office supplies and equipment costs in the monthly financial management. However, the equipment costs may vary according to the size of our business and nearly any small-sized business requires monthly maintenance. Seasonal employees hired when the season gets very busy also affect additional office expenses since it is important to secure individual equipment for daily operation (Kriss, 2020). Besides that, “the type of equipment purchased is the main differentiator in coffee shops” (Start My Coffee Shop, n.d., Equipment section). As a result, coffeeHolic reduces overall expenses and remains profitable by training staff on inventory management and eliminating waste (Kranker, 2020).

● Alarm System (Security Services)

8,000,000 VND (435.26 CAD)

(Hung Cat Loi Security, 2021)

-Security surveillance plays a significant role in protecting small businesses from shoplifting, burglaries, and employee crimes. For coffeeHolic, the risks of poor security include revenue loss, property damage, and false alarms. And a powerful security system supports coffeeHolic to focus on the more essential aspects of business operation by offering theft control, insurance benefits, and lawsuit protection. Therefore, coffeeHolic can strengthen its business commitment by improved security and security initiatives (Nolan, n.d.). On average, security services will charge coffeeHolic a monthly rate of 8,000,000 VND (435.26 CAD) in Ho Chi Minh City.

● Advertising Services

13,764,325.38 VND (749.37 CAD)

(Minh Dinh Nhat, 2018)

-cofffeeHolic must compete with other key competitors in the local market by the strategic marketing plan, including digital presence optimization, brand awareness on social media platforms, and brand influencer marketing. In particular, while coffeeHolic needs to optimize its digital presence online with positive customer reviews, social media platforms allow the coffee shop to build its brand awareness by social media advertising. Besides that, brand influencers on social media platforms can establish a strong connection between coffeeHolic and potential customers. Consequently, the marketing strategies help effectively determine possible advertising costs, and we estimate that approximately 13,764,325.38 VND (749.37 CAD) will be spent on advertising services each month.

● Advertising and promotion (launching monthly evens)

16,443,739.30 VND (897.31 CAD)

(Minh Dinh Nhat, 2018)

-Although coffeeHolic has a full-service advertising agency that assists in developing monthly marketing strategies, hosting special events each month helps coffeeHolic build brand awareness and bring in new customers in the local community (Solopress, 2019). For instance, a monthly coffee meet at coffeeHolic provides customers with a platform for innovation. Coffee lovers can learn how to make tasting americanos, cappuccinos, and egg coffee when they attend a “Coffee Appreciation Evening” at coffeeHolic. Also, coffeeHolic needs to calculate the monthly budget to expenses on equipment, ingredients, promotional banners, and leaflets and flyers for an event or promotion (Aupiais, 2017).

● Utilities (Electricity & Water)

5,471,472.82 VND (297.67 CAD) (Minh Dinh Nhat, 2018)

-coffeeHolic creates a successful budget for monthly utility expenses, such as electricity, water, waste disposal, and sewage. The accountant has to record the total amount for the use of utilities at the end of each month based on cash basis accounting (Corporate Finance Institute, n.d.). More importantly, to stay out of financial hot water with a sustainable budget plan, coffeeHolic “should not spend more than 35% of its total sales on utility bills” (The pricer, n.d., utility section). Furthermore, coffeeHolic can avoid struggling with the high cost of utilities by many energy-saving solutions, including investing in LED bulbs, installing sensors, and improving summer cooling efficiency (Dunne D, 2019).

● Co-Owners’ Salary

51,000,000 VND (2789.12 CAD)

*102,000,000 VND (5578.23 CAD) in February (Tet Holiday – Lunar New Year)

-According to Futurpreneur Canada, while coffeeHolic may experience below-average income to operate sufficiently in the first few months, the Co-Owner’s Draw may be limited from 10,200,000 VND (557.82 CAD) each person per month (The Coffee Shop Manager's minimum salary) to loss of income compensation (Salary Explorer, 2021). To run a sustainable business for long-term success, coffeeHolic co-owners must develop a strategic payment structure as soon as possible to adequately pay themselves (Futurpreneur Canada).

-Also, the “Lunar New Year” bonus (Tet Bonus) allows each co-owner to earn at least 10,200,000 VND (557.82 CAD) (an entire month’s salary) as a 13th month’s salary on the Tet holiday. And this amount of expense will depend on both company and individual performance. (Shira & Associates, 2019)

● Employee Wages

2,902,784 VND (158.75 CAD)

*5,805,568 VND (317.50 CAD) in February (Tet Holiday – Lunar New Year)

-coffeeHolic needs to manage staff shortages during peak times at the weekends by hiring a few employees (maximum of 2 part-time servers). While the part-time servers are expected to work 16 hours a week, the monthly salary expense will be 1,451,392 VND (79.37 CAD) for each part-time server based on the average hourly rate at 22,678 VND (1.24 CAD) per hour on the market (Salary Expert, 2021). Besides that, coffeeHolic also offers part-time employees the Tet bonus before the Lunar New Year holiday, which “depends on their actual employment period." (Shira & Associates, 2019, Types of bonuses section).

● Accounting Services

800,000 VND (44 CAD)

(Thịnh, 2020)

Financial challenges are faced by most start-up entrepreneurs in Vietnam but coffeeHolic can reduce significant administrative costs because one of the co-owners is an accounting specialist helping manage accurate financial records within the organization. As a result, coffeeHolic estimates that around 800,000 VND (44 CAD) need to be spent on accounting services, while “a bookkeeping service may be quoted at under 100 USD per month” (Simone, 2020, Accounting Costs for a Startup in Vietnam section). Specifically, the accounting services coffeeHolic is looking for will manage most accounting responsibilities and offer additional assistance in financial management.

● Commercial Rent

15,000,000 VND (900 CAD)

-The strategic location with access to the target market and sustainable development offers coffeeHolic many opportunities for business growth in District 5. In particular, coffeeHolic gains access to potential visitors and sustainable supply chains in the community with local schools, general hospitals, and tourist attractions. Besides that, proximity to other competitors in the local market is very ideal for competitiveness and future development. Furthermore, the monthly commercial rent with local incentives is considered realistic and competitive compared to other locations in District 5 in terms of marketing implementation, business operation, and financial forecast. (Tran K, n.d.)

● Property Taxes

0 VND (0 CAD)

-While Vietnamese lessors are not required to pay taxes on owning a property, annual non-agriculture land use tax (0.03% to 0.15% per square meter of the land price) announced by the government may apply in the tax system (ReTalk Asia, n.d.). Depending on whether the lessor is a company or an individual, they are subject to corporate income tax and personal income tax. However, although coffeeHolic is subject to VAT, the parties agree on the lessor will pay relevant taxes, including “personal income tax (PIT) plus a value-added tax (VAT) of 10% of the total yearly rental income” (World Trade Realty, 2019, para 3). (Tilleke & Gibbins, n.d.)

● Phone and Internet

1,218,000 VND (66.24 CAD)

(VNPT, n.d.)

-The right phone and internet service is an important part of business infrastructure. Beyond that, a reliable internet package helps coffeeHolic provide excellent customer service in busy seasons (Comcast Business, 2020). In particular, VNPT offers small businesses speedy internet packages with common types of price discounts and 24/7 customer support in case of any technical difficulties. VNPT’s cable internet package assists customers with a maximum domestic speed of 200 Mbps. The plan is very affordable for small business operations. And it is estimated that both Phone and Internet will cost coffeeHolic approximately 1,218,000 VND ~ 66.24 CAD (Zander, 2020)

● Subscriptions and Memberships (Customer Service App)

2,083,333 VND (113.35 CAD)

(CNV Loyalty, n.d.)

-coffeeHolic develops customer loyalty programs with digital loyalty stamp cards so that loyal regulars and potential customers are offered discounts and money off coupons on special occasions. A customer loyalty program is a great way to improve customer retention and build stronger relationships with customers (Thomsen, 2019). For example, a digital stamp card with an offer such as “buy three coffees and get the fourth one free” is the simplest way to do this (Solopress, 2019). Furthermore, coffeeHolic estimates the average cost of a digital loyalty program in one month is 2,083,333 VND (113.35 CAD). While the incremental revenues such as membership fees, increased purchase volume, and higher referral rates measure business performance, the incremental costs of a loyalty program include rewards redemption, vendor contracts, and IT investment (BigCommerce, n.d.).

● Training

362,848 VND (19.82 CAD)

-Before team members at coffeeHolic are ready to offer customers excellent services, proper training helps to simplify operations to increase the profit margin for long-term growth. However, the cost of training employees will be different for every business, while the business size has an impact on the training expenses. According to Rachel Blakely-Gray, the training cost per employee is calculated by all training costs divided by the number of new employees. The formula would look like this:

Training Cost Per Employee = Total Training Expenses / Number of New Employees

(Blakely-Gray, 2017)

-Based on the turn-over rate calculated above, coffeeHolic may have to hire up to 2 new employees each month if the part-time workers decide to hand in their resignation letter. Besides that, coffeeHolic also estimates around 362,848 VND (19.82 CAD) will be spent as a loss of productivity (salaries paid during training) in the first week for each employee. Therefore, the monthly training cost will be calculated as below:

362,848 VND (19.82 CAD) = 725,696 (39.64 CAD) / 2

Although five co-owners are working as full-time employees and there are two part-time workers at coffeeHolic, the Human Resources Manager considers the monthly employee turn-over rate should be at 33.3% calculated by the following formula:

33.3% = L/([B+E]/2) x 100 = 2/([7+5]/2) x 100

(B): Active employees at the beginning of the month

(E): Active employees at the end of the month

(L): The number of employees who left during that month

(Pavlou, n.d.)

● Other – Resupply of food and drinks ingredients

19,215,670.08 VND (1045.55 CAD)

(Minh Dinh Nhat, 2018)

-While a maximum of 35% of coffeeHolic’s anticipated sales will be spent on building a monthly supply of food and drinks ingredients, the ingredients must be priced at about 35% of the price tag for each product and service at coffeeHolic so that the coffee shop can generate the average profit margin (Start My Coffee Shop, n.d.). Generally, coffeeHolic needs to prepare a successful budget and monitor monthly supply costs, including coffee, milk, teas, smoothie ingredients, and other signature items. And “having good coffee is vital to running a coffee shop” (Paul, 2014, Things to budget for when opening a coffee shop section). Therefore, coffeeHolic boosts menu excitement by using high-quality ingredients across menu parts.

● Other administrative expenses

5,482,493.17 VND (298.41 CAD)

(Minh Dinh Nhat, 2018)

-Proper management practices improve business operation and guarantee that coffeeHolic remains competitive in the local market. In particular, The coffee shop estimates that approximately 5,482,493.17 VND (298.41 CAD) per month will be spent on administrative management. Besides that, coffeeHolic also develops further management strategies to protect and increase its profits along with improving performance at the workplace. For instance, investing in developing flexible schedules and building a unique workplace culture can cut administrative expenses and improve integrity in the workplace. Furthermore, the Point of Sale (POS) system enables coffeeHolic to make essential decisions by producing reports and data while the system can reduce customer waiting time and ensure a great customer experience. (Brand My Cafe, n.d.)