Week 6 Blog : Bakmi GM

Week 6 Blog

Back in my country; Indonesia, there is a chicken noodle shop own by my Grandma's best friend. The business is called "Bakmi GM". Bakmi GM is basically a chicken noodle shop that was first during the year 1959 by a young couple named after Tjhai Sioe and Loei Kwai Fong. The first time it opens,it only opens in a small food truck on the side of the road only being able to serve 5 customers at once. The business has its ups and downs in regarding the sales of the noodles, as the couple issued loans to actually create the business at the first place but they weren't able to repay the loans. As days go by with the business almost shutting down soon, there was a food reviewer that decided to eat at Bakmi GM stall as he can't find any other restaurants to eat at near that area. He tried the food and fell in love with the food and decided to write reviews regarding the food and what the food tastes like. Immediately a bunch of customers came to eat there and the business was always packed with waiting list every day. From the day until now Bakmi GM has expanded opening into restaurants and opening franchises in different countries such as Singapore and Malaysia, and serve up to 30000 customers everyday.



As what i learn from this story told by my grandmother about how my grandma's best friend opened her business at the start and how she does proper capital structure to her business. I learned that borrowing money from banks has its benefits too, as if the couple did not ask for a loan to create the business, there would not be a Bakmi GM today serving over 30000 customers a day. Although borrowing money has its benefits it also has its disadvantages, In my opinion borrowing money and not being able to repay the loans in the future can lead to future bankruptcy. As using their own retained earning has its advantages and disadvantages too. Using retained earnings can provide no risk at all to the business. If the business happens to be bankrupt, the owners do not have the risk to loan cause they are using their own money for the startup of the business. As also using retained earnings can bring its disadvantages as its hard to gather capital to create the business, as tons of capital is required to start the business. 

As in the future, I will definitely be interested in doing a startup business. Although I noticed that a lot of start-up business has failed and experience a hard time to repay loans, knowing that there is plenty of business that issue loans and succeed too, such as; Bakmi Gm and also online movie streaming website; Netflix. As wanting to be an entrepreneur in the future I have to be careful in allocating my money for my startup business, I can start by using retained earnings or having to create partnerships with friends to create the business. For me, the use of having a partnership in creating a business in my opinion results in less risk as the ones that are investing in the start-up business is not only one person. The partnership also allows owners to share ideas and their thoughts to have various options in the operation management and also the financial management of the business. 

My recommendations for the future entrepreneur is that they should be careful when applying capital structure in their start-up business. In my opinion, it's better to use retained earnings when the business that they want to open is a low capital business that can be operated by the owner itself or with just one or two employees. The entrepreneur can issue loans or create a partnership to start the business when the business has high capital as this will ease the owner to be able to start the business, as although using bank loans might be risky to the owner as it might raise the cost of debt of the business. If the cost of debt increase, this might influence owners to actually increase the prices of products or services of the business to the customers. What this can result is that customers might not actually be interested in paying the amount that the owner set for the price of its product or service to just be able to repay the debt. In my opinion, the safest way and productive way is to create a partnership as the risk of getting into bankruptcy is low, as the business has limited liability to the owners. 

In conclusion, capital structure is divided into two parts which are the cost of debt and cost of equity. Cost of debt increase when a business issue a loan and cost of capital increases when retained earnings are used, the cost of debt will decrease as there is no risk at all. Choosing the right capital structure is crucial for the future of its business as it is the primary key in deciding the business future path.
References:
-Bakmigm.com
-Week 6 lecture notes International Finances

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