Mazud is a BC resident who has been involved with a part-time entrepreneurship activity for the past

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Question:

Mazud is a BC resident who has been involved with a part-time entrepreneurship activity for the past two years. He maintains good relations with certain local restaurants and his customers to sustain a business involving picking up meals and delivering them to people. Being employed as a software engineer by profession, Mazud works from home with flexible employment hours which permitted him to sustain a side business. However, he is now finding it more difficult to find adequate leisure and rest time between his software engineering and his meal pick-up and delivery business.

The Beginning

It all started with his cousin Farnoosh’s new restaurant. As Mazud was helping advertise Farny’s Wraps, he realized a lot of customers were asking about food delivery. Since Farnoosh was hesitant to register with DoorDash, Uber Eats, or SkiptheDishes prior to getting the business rolling, Mazud asked him if he was okay with delivering meals for a small fee (most of the interested customers were within a 5 km radius, so $2 to $3 fees were sufficient). Farnoosh agreed this was a great way to boost sales and he trusted Mazud, so they went ahead with the idea. Mazud would pay for the order when he picked it up and kept the money the customer gave him (for the order, delivery fee, and potentially a tip).

Accounting Meets Marketing

Many of Mazud’s customers are older, so they appreciated his attention to detail with their orders and his friendliness. He gave them fillable weekly paper schedules to complete, which was a lot easier than having to call the store and place orders each time. This allowed them to pre-order meals and select delivery times, days, or weeks in advance. Plus, Mazud was always available on the phone and willing to pick up what they wanted. Mazud found that some customers appreciated him so much that their tips sometimes exceeded his delivery fees! By printing newsletters and putting them into local mailboxes (monthly cost of $50), Mazud has been able to steadily grow his customer base. He is wondering if other forms of advertising would help attract a broader customer demographic, in addition to the elderly customers he served. He requests your help in considering three different types of advertising he could use to increase usage of his service, specifically with young adults, and families with young children. He would like you to provide three options, their pros, cons, and how he might go about implementing each style of advertising to his business. Mazud would like you to conclude on which of the three might be the most impactful, considering the two demographics he is targeting.

Over time, Mazud was able to convince other small restaurants in the area to use his services. With more cuisine options, several of Mazud’s customers decided to get all (or almost all) of their meals delivered by him! However, that meant multiple hours being spent in the morning, mid-day, and evening commuting between various restaurants and customers. Being so busy with a side job has resulted in Mazud regularly falling behind in his full-time job. To get a better understanding of Mazud’s current meal pick up and delivery business, he asks that you prepare a SWOT analysis to help him identify his current strengths, weaknesses, opportunities, and threats. He would like you to come up with three points under each of these categories.

Mazud’s Crossroads…

Year 1

In his first year of business, Mazud delivered an average of 12.5 meals per day (all Farny’s Wraps) with an average delivery fee of $2.33 and tip of $1.20. Mazud owned an older car at the time, so those car-related expenses amounted to about 30% of revenues. Mazud estimated he spent about 1.5 hours daily on deliveries in the first year. No calculations or analysis need be performed using year 1 figures. They have been provided for comparative and informational purposes.

Year 2

In the second year, the daily average delivery volume doubled, with an average delivery fee of $2.48 and tip of $1.18. With a newer vehicle in his second year, Mazud was able to reduce expenses to 25% of revenues (expected to be sustainable for five more years). Mazud estimates he worked an average of 3 hours a day in the past year. Mazud worked 365 days this year. If he were to make deliveries as a driver with UberEats, his hourly wage (labor cost) would be $15.00 an hour.

Mazud is looking at a couple of options going forward:

Option #1

The simplest solution would be to request his current employer to cut his working hours in half, which would result in a salary of $30,000 annually instead of the current $60,000. Mazud is strongly considering this option because he believes his employer will accept the deal. Also, Mazud hasn’t gotten a salary increase in three years and isn’t expecting any significant raises in the near term. This option will allow him to continue operating his food delivery business at 100% capacity while working part-time for the software engineering company.

Option #2

Another option is for Mazud to hire his friend, Sameera. She works as a DoorDash driver so the training would be minimal. Additionally, she decides her own work hours so serving Mazud’s customers well with precise timing wouldn’t be an issue. Since Mazud’s engineering work is slow in the morning and evening, he would continue to take care of breakfasts and dinners, while Sameera would handle lunch. To keep things simple (and fair), Mazud is considering letting Sameera keep all revenues for her deliveries since her help will allow him to continue running his service all day long. Sameera is ambitious and prioritizes efficiency over customer service, so she hopes to help Mazud increase the number of deliveries per day by cutting down on conversation time with his current clientele. Historically, lunchtime has made up 40% of Mazud’s total revenues. If he hires Sameera, Mazud is planning to continue making all deliveries on weekends (breakfast, lunch, and dinner). In this alternative, Mazud would be able to keep his $60,000 annual salary.

Your Analysis

Mazud wants you to provide a financial analysis of these two options and provide a detailed pros and cons list of these two options. Please use Mazud’s Year 2 financial figures above for the purpose of these two calculations and ignore the financial information below for the purpose of this issue. Please recommend and conclude which of the two options you believe makes the most sense from a quantitative and qualitative perspective.

Forecasting & Budgetary Analysis

As things got busier, Mazud slightly increased his delivery rates. Hence, he is projecting an average delivery fee of $2.75 in the upcoming year and tip of $1.25. He is also expecting the number of orders per day to increase to 30 on average. If he did all deliveries himself, it would amount to four hours of work per day. For the following five years (after next year), Mazud expects the daily order volume to grow at a rate of 10% per year (with no change in average delivery fees and tips). He also anticipates that each year, the average amount of delivery time per day will increase by 0.5 hours. Mazud intends on working 310 days a year over the next five years, on average. Mazud wants to see some trend/budgetary analysis on these numbers. He’d like you to compare his potential earnings over the next five years working in food delivery full-time, net of any costs or expenses (his labor included), to his potential earnings as a full-time software engineer (this means he would stop his side job in delivery). Which of the two alternatives makes the most financial sense over the next five years: working full-time in food delivery or full-time as a software engineer?

Taxation Queries

Mazud is interested in learning more about tax impacts, as he simply hands his sales numbers and expense receipts to his accountant each April without knowing any details about how his tax calculations are performed. What kind of tax return does he file? Is he currently considered a sole-proprietor, corporation, or trust? What kind of deductions can he make for tax purposes (think of 3 or 4 deductions, NOT tax credits)? Mazud is also wondering if it makes more sense to operate as a sole proprietor or as a corporation. Please tell him 2-3 benefits of each, and 1-2 cons of each.

Required:

Business Report

Advise Mazud on his career path and the current and five-year outlooks of the meal delivery business. Produce a business report, like the one you produced for Sky, including an executive summary, issue identification, comprehensive analysis, and recommendations for each distinct issue or ask Mazud has for you.

Three types of advertising he could use to increase the use of his services, specially with young adults and families with young children.