Boston Chicken Case

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BOSTON CHICKEN, INC CASE

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1. Assess Boston Chicken’s Business Strategy. What are the critical success factors and risks of Boston Chicken?

Boston chicken adopted a strategy of satisfying customer needs by providing a replica of home based meals at affordable prices and within customers’ reach in a competitive fast food restaurant by distinguishing itself from the rest. The key words here are, meeting customer taste, convenience and affordability. In addition to this, Boston Chicken adopted different form of operations by services through operating restaurants, sold franchises to large regional developers who have the necessary experience and financial resource to operate the business in the most effective way and also provided financing for area developers

The critical success factors are rapid growth of the business by creating new market development in 60 largest US metropolitan market thus increase its operating income and revenue. Boston chicken long term agreement with suppliers to provide contact and steady supplies. The in-store computer feedback from customers which enhanced good customer service and drive thru lane for effective and efficiency quick service to customers.

The risk factors associated with Boson chicken is too much focus on franishe and growth may lead to decline in the quality of food and services provided which is its main strategy of the business.   It’s growth strategy which emphasizes on expansion may put heavy strain in cash management, and loans to area development in order to start business. which later hurt the company overall performance in the long run. the growth strategy may also lead to lower returns on investment as a result of too many locations in a

particular area.

1. How is the company reporting on its performance and risks? What are the key assumption behind this policy? Do you think the accounting policy reflects the risk?

The company performance on its income statements reports shows that the company generate its revenue from franchise fee and area developer’s fees. It also earns 5% income from gross annual royalty on gross revenue. To reflect the growth that the company is making over the years, Royalties and franchise fees increased from $12,681 in 1993 to $ 55,235 in the year 1994.

The balance sheet analyzes the growth rate over the years. The note receivable grew substantially between 1993 and 1994

1. What adjustments, if any would you make to the firm’s accounting policies?

1. Any franchise that finances more than 50% of their store should be reported in Boston Chicken’s financial statements.
2. Also, detail data should be made visible in order to track that ability for franchisee’s to repay their loan obligation.
3. Create allowances for loan losses or bad debt expense.

1. What questions would you ask the management about the company’s performance?

1. How can your balance be accurately stated without an allowance for bad debt?
2. Are the note’s receivable accurately stated?
3. Are you using the stores integrated software to track sales and trend analysis outside of what relates to the costumer?

Franchise cash flow problem, what other form of securities are provided by the area developer to secure loan.  

1. How is Boston chicken performing?  

The performance of the company can be analyzed with ratio analysis.

6.) What assumptions is the market making about the company’s future performance and risks? Do you agree with those assessments?