Business Operations at Bollvile Dining Restaurant - Example

BUSINESS PLAN FOR BOLLVILE’S UPSCALE FINE DINING RESTAURANT Name Course Instructor’s name Institution Date Table of Contents Table of Contents 2 Executive summary 4 1.0 Introduction 4 2.0 MARKET FEASIBILITY 5 3.0 TECHNICAL FEASIBILITY 6 3.1 Technology development options 6 3.2 Product and service provision options 7 3.3 Sales and distribution options 8 3.4 Development resources 8 3.5 Laws and regulation relating to the business 9 3.6 Technological changes affecting the business 10 3.7 Emerging technological changes that may affect the business 10 4.0 FINANCIAL FEASIBILITY 10 4.1 Financial Dynamics 11 4.2 Investments 11 4.3 Source of finance 12 4.4 General financial numbers 13 5.0 HUMAN RESOURCE FEASIBILITY 13 5.1Technical and management experience 13 5.2 Ownership 13 5.3 Ownership structure 14 5.4 Manpower requirements 14 5.5 Growth strategy 16 References 17 Appendix A 19 Appendix B: Financial Analysis 21 Proforma Income Statement 22 Proforma Balance Sheet 23 Projected cash flow (year 1) 24 Break Even Analysis 25 Total Contribution Margin 25 Break-even levels 27 Break even revenue 28 Contribution Ratio % 28 Break even turn over 29 Break Even Units 30 Desired Financing 31 Capitalization 31 Profitability 31 Return on equity 32 Return on Investments 32 BUSINESS PLAN FOR UPSCALE FINE DINING RESTAURANT Executive summary A business plan is vital if an enterprise has to succeed in the market. 57% of most businesses in Melbourne are restaurants thus this sector has over the years experienced tremendous growth unlike other sectors, currently standing at 6.2%. However, this industry is not fully grown and thus upcoming businesses like Bollvile have an opportunity to penetrate and establish themselves as major industry players. With the changing lifestyles of Australians any business that seeks to successfully penetrate the restaurant and hotel industry has to adopt the latest technologies, have a growth strategy as well as partners to help it expand. Rules and regulations are an integral part of any business operations and thus Bollvile dining restaurant will have to adhere to all ACTs that govern the restaurants and hotel industry in Melbourne and Australia at large (Jin et al., 2014 pp.457-485). Human resources are crucial as well to the success of any start-up and thus Bollvile dining restaurant will seek individuals with the necessary skills to make the venture a success. The ideal workforce should have the ability to communicate, work in teams, multitask and offer exemplary customer services. Most importantly any business venture requires a huge sum of money to effectively kick off, thus Bollvile dining restaurant will utilize the available funds as well as banks loans to run its operations. 1.0 Introduction The upscale dining restaurants industry in Melbourne, Australia has experienced some tremendous growth over the past few years consequently, contributing to changing the Australian culture. Some of the significant recent developments in this industry have enabled the upscale dining restaurant industry in Melbourne and Australia at large to be the nation’s largest private- sector employer. The recent growth and developments in this industry in Melbourne, Australia is attributed to the increasing diminishing leisure time and busy lifetime which have led to the most people in this city to turn to restaurants for meals and socializing. The paper, therefore; aims to bring highlight Bollvile dining restaurant’s business plan and its application if the venture has to succeed. 2.0 MARKET FEASIBILITY The market size of the upscale fine dining restaurant industry in Melbourne, Australia is estimated to be 57% of the total restaurant market in Australia. This market size is estimated to be significantly higher than any other sector in the Australian restaurant industry. This industry posts an annual growth of 6.2% (McKinney, 2002).This growth rate however, is attributed to the recent trends among potential customers in Melbourne, Australia of combining dining with leisure. On the other hand the upscale fine dining restaurant industry in Melbourne, Australia is not yet at full capacity therefore presenting an equal chance to startups like Bollvile dining restaurant. The industry has a couple of unexploited niches that if utilized by Bollvile will prove successful and sustainable. Currently, Radii Restaurant, Sofitel Melbourne on Collins,Vue de monde and the Press Club are dominating the upscale fine dining restaurant industry in Melbourne (Hwang and Ok, 2013 pp.121-131). This industry relies on residents and working class community in Melbourne as their customer base and thus Bollvile will be keen to the target markets to gain a foothold in the industry. It is estimated that these restaurants are mostly visited by couples out on dinner dates, working class individuals out on business meetings or job-related meetings. On the other hand conference and seminars attendants also make up the list of the frequent visitors of these restaurants who visit for networking dinner (Choi and Silkes, 2010 pp.132-146). Therefore, the success of Bollvile dining restaurant lies solely on the ability to produce products that target these classes as well as having enough space to attract the businesses community for conferences. Therefore, the integrated marketing communications methods employed by Bollvile will heavily rely on its ability to target this audience through mails, coupons, billboards, televised adverts and if need be the print media (Jin et al., 2014 pp.457-485). One external factor that Bollvile would come to bear is the industry dynamics. This would be attributed to the stiff competition having that a significant number of competitors are offering services and products that are relatively quite similar (Yee, 2005). However, like any business barriers of entry exist in the fine upscale dining restaurant industry. For instance, most players in this industry enjoy high levels of returning customers and to some extend close to perfection customer loyalty. The government also poses a challenge to startups like Bollvile through rigorous checks and balances, requirements to meet certain levels of hygienic needs and acquisition of all licenses necessary for the smooth running of any business this translates to high costs. Thus, costs and customer loyalty are barriers that Bollvile will have to overcome in the fine dining restaurant industry if it has to operate at a breakeven point(Johnson, Shin and Mayer, 2013 pp.196-197). 3.0 TECHNICAL FEASIBILITY 3.1 Technology development options Bollvile dining restaurant has a combinations of options that will help it develop the needed technology that will guarantee success more so in regards to customers. Through technology development, Bollvile upscale fine dining restaurant will be able to manage its customers effectively and also ensure quick restaurant service delivery. Thus, it can adopt the tablet restaurant management application which provides real-time table views, catalogues the menu regarding the ingredients selection or name, process quick sales and delivery tickets while sending the orders to the kitchen. This technological application overhauls the restaurant operations while also improving on the quickness of the service delivery (Warshaw, n.d.). Hence, it would be imperative for Bollvile dining restaurant to subcontract in the development of this technology. This is due to the technical prowess and knowledge required to effectively implement this technology in the restaurant hence a need for a subcontractor who can even train the workforce of Bollvile on how to use the technology. 3.2 Product and service provision options In line with the options of producing the product or service, Bollvile dining restaurant will utilize in-house production. This is because it will minimize in the expenses and help Bollvile tailor-make products and services that meet the needs of the customers. In this case, Bollvile upscale fine dining restaurant will have to employee a team of experts or professionals who are both knowledgeable and experienced in preparing specific fine dining dishes to be sold in the restaurant backed up by a knowledgeable and experienced team that offers exemplary hotelier services (Novak, La Lopa and Novak, 2010 pp.191-218). This will ensure that the quality of both the products and services provided by Bollvile are in top notch and supervised internally by the top management and superior chefs. 3.3 Sales and distribution options To succeed in the restaurant industry a unique combination of the sales and distribution options will help a player break even and remain sustainable. Having that Bollvile will be a startup and there is no any conclusive evidence of the option that works best for this venture a unique combination will be the only best option. Therefore, a combination of an in-house sales and distribution team and a joint venture sales and distribution team will ensure that the venture (Bollvile dining restaurant) will be the best option that works perfectly for this venture. On the other hand, this is a field that the venture is not well conversant with therefore going for a single option might limit its potential in sales and distribution hence a combination of these options has a relatively more chance of success as opposed to one (Magnini & Thelen, 2008 pp.289). 3.4 Development resources The resources required for Bollvile dining restaurant to attain success include; skills, components, suppliers, facilities & equipment which are mandatory requirements for a startup. For instance, the skills that will be required by Bollvile to develop include; professional chefs who have experience and knowledge in preparing contemporary fine dining dishes and service staff that is capable of providing professional hospitality services which will result in customer loyalty and hence, repeat customers (Johnson, Shin and Mayer, 2013 pp.196-197). Moreover, Bolville requires equipment such as furniture, refrigerators, grills and food preparation tables etc. which are mandatory requirements in delivering an exceptional atmosphere to customers. In regards to suppliers, Bollvile will need ingredients/raw materials, beverage and kitchen equipment suppliers as well as, entertainment components suppliers which add value to the premium price charged. (Lee, Lee and Dewald, 2016 pp.21-38). 3.5 Laws and regulation relating to the business Businesses do not operate in a vacuum; they have rules and regulations that govern their operations. Thus, the industry Bollvile seeks to venture into has a number of regulations more so food safety regulations which ensures food served in any restaurant in Australia meets the local and international standards on food safety (Lane, 2013 pp.357). The licensing board, in this case, reviews the standards of the food prepared in the restaurant and the food storage facilities in reference to the food liaison code. Personal certifications for a business also fall under the laws and regulation relating to Bollvile dining restaurant. In this case, Bollvile is required to employee qualified personnel who will provide labour services to the restaurant additionally regulations require all the employees who will be working in Bollvile dining restaurant to have education credentials and be accredited by their various boards e.g. the hospitality and management board and RSA certifications. For smooth operations Bollvile will be required to adhere to intellectual property rights therefore, the restaurant will have its own distinct patent, trademarks and copyrights in order to create its presence in the market (Johnson, Shin and Mayer, 2013 pp.196-197). Similarly Businesses in Australia are required to abide by the environmental liability ACT. In this law, Bollvile will be required to ensure that it conserves the environment more so on how it handles waste is in line with the stipulated by law. To adhere to this Bollvile will utilize the use of decomposable materials to avoid a conflict of interest will Melbourne’s authorities. Bollvile is also required to abide by the alcohol licenses, occupational health and safety standards (OHNS) where it is restricted from selling alcohol to under aged persons. Bollvile is also required to abide by the food licenses in order to maintain high food standards. Additionally it will abide by the occupancy permit where it is supposed to look into the working condition and the health state of its employees. Lastly, Bollvile will be required to abide by the trading hours permit carrying out business in a specified time frame. 3.6 Technological changes affecting the business Through my own research, I have not discovered any moral or ethical issue that I am uncomfortable with. 3.7 Emerging technological changes that may affect the business One of the technological changes in the restaurant industry in Melbourne, Australia is the easiness in reviewing the upscale fine dining restaurant where a review can either be made on their website or social media page. This therefore can damage the image and reputation of a upscale fine dining restaurant especially if a review is instigated by malice. In this case there have been reported cases where competitor maliciously post negative reviews on the webpage or social media pages of another competing business in order to paint its bad immaage(Kausar, Malik and Akram, 2014 p.187.). Formulation and implantation of technologies in any business enterprises has proven costly overtime, which in return affect the prices of various commodities leading to lower market shares. 4.0 FINANCIAL FEASIBILITY The projected revenue for Bollvile from the sale of its services and products is $400,000 in the first year. The sales volume for an average cost of a meal will be $ 15 thus, it is estimated that 35,000 meal orders will be processed in a month that would make it 1,100 daily sale volume meals unit. 4.1 Financial Dynamics The cost structure per unit base of a meal is estimated to be $10 therefore for every meal Bollvile dining restaurant will make a profit of $5. In this case, the price per unit minus will be $ 10. The variable cost of the goods sold and the controllable cost is projected to be $ 3 per meal unit sold. The gross margin per unit minus is also projected to be $ 3; therefore, the fixed costs per unit equal will be $10. In this case, the net margin per unit is projected to be $4. This is a clear indication that Bollvile dining restaurant will breakeven despite the profit margins being minimal. 4.2 Investments For the investment required to successfully run Bollvile dining restaurant, it is projected that there will be a one-time assets and start-up expenses of $1,000,000 financed through owners’ equity and loan from the bank: $400,000 and $600,000 respectively. The plant and equipment, in this case, will require an expense of $451,200 while the leasehold expenses are being projected to be $ 61,000. On the other hand, the initial inventory expenses are estimated to be $ 32,000; hence, the expenses to be directed to research and development are estimated to be $ 17,000 while the legal and experts expenses projected to be $11,000. The operating expense prior to breaking even is projected to be $182,000. With these figures Bollvile is expected to run smoothly without incurring prior losses. The pre-operational costs required to start the business is $451,200 with an expected profit generation of $95,386 during the first quarter. Within the first three years, the business is expected to experience break even at $486,000, $1,983,200, and $2,578,480. Moreover, Bollvile dining restaurant will expect a return on equity in the first three years to be 48.3%, 62.36% and 56.71% respectively while return on investment to be at 65.2%, 74.38%, and 85.4% respectively. Therefore, Bollvile will start its sales focused based on the information retrieved from Melbourne’s restaurant market and the readily available assumptions within the market. Moreover, Bollvile will be needed to undertake its sales projection based on the things it considers obtainable within the restaurant sector and various economic assumptions that Melbourne will not experience challenges associated with the economic meltdown (Kausar, Malik and Akram, 2014 p.187.). The Payback time is estimated to be one and a half year period; on the other hand, the financial risk to be taken up by Bollvile upscale fine dining restaurant are quite promising, therefore, there is a solid projection of the rewards during the break-even period. There are areas where there is a promise of a higher return, for instance, incorporating the yoghurt and ice-cream making business in Bollvile upscale fine dining restaurant, however, the risk to be incurred is quite high for a start-up. There are also some options of personal financial risk like signing over mortgage however, during the early stages of this business stability should be key therefore minimization of risk and expenses in order to guarantee the success of Bollvile dining restaurant industry. 4.3 Source of finance The possible sources of financing Bollvile dining restaurant include the owners’ equity and bank loans. In this case, since Bollvile will be a joint ownership, the owners will be required to contribute a particular amount of the total capital. Consequently, the business will try to minimise its borrowing capacity in an effort to finance itself hence sacrificing the opportunity to borrow funds or apply for loans (Hwang and Ok, 2013 pp.121-131). 4.4 General financial numbers The estimated gross margin for the Bollvile dining restaurant is 25% while the net profit margin is projected to be 13%. Moreover, the return on investment for Bollvile upscale fine dining restaurant is projected to be 15% while the payback period is estimated to be within two years. This means that the break-even period is projected to be within the first year thus a clear indication of a profitable start to Bollvile dining restaurant. 5.0 HUMAN RESOURCE FEASIBILITY 5.1Technical and management experience The required technical and management experience to effectively run Bollvile dining in regards to its workforce requirements include; ability to communicate, the ability to work in teams, multitasking, timely problem resolutions and capability of working in a busy environment. Other workforce experiences required are budgeting, offering exemplary customer services, food knowledge and handling and ability to maintain table appearance in top notch. (Johnson, Shin and Mayer, 2013 pp.196-197). 5.2 Ownership The owners of Bollvile upscale fine dining restaurant will be Bollvile LLC Inc., therefore they can be categorized as entrepreneurs and managers. Being entrepreneurs, in this case, they will inject finances into the business and help find other niches which Bollvile can enter and maximize on. On management perspective, Bollvile LLC Inc. will solely undertake all management tasks required in the business. For instance, from the CEO, HRM, CFO and marketing managers’ roles. This will help govern the day to day running of the business and to ensure that the operations of Bollvile dining restaurant are running smoothly (Jin et al., 2014 pp.457-485). 5.3 Ownership structure On the ownership structure, Bollvile LLC Inc., comprises of individuals who have ventured together in many other businesses like real estate and logistics. They are categorized into groups as per the set rules and number of shares held. The majority shareholders are often tasked with the running of all the available businesses to ensure continuity and sustainability. 5.4 Manpower requirements The manpower that Bollvile requires is the kitchen workforce; this will entail the cooking staffs and chefs and on the other hand, the hotelier and service staffs; this involves the waiters and waitresses. Secondly, a food and beverage manager and set of supervisors are essential to the long term success and sustainability of the business who overlooks the entire operations while ensuring smooth processes and customers receive exceptional customer service. Moreover, a sales manager is essential who is accountable for the revenue generation and also in charge of advertising and marketing activities. Further, another manpower requirement which is vital to any restaurant business is the security personnel; this includes the security guards in the business premises for smooth operations in regards to theft and issues while customers are under the consumption of alcoholic beverages. (Hwang and Ok, 2013 pp.121-131). In order to find the right employees, the business will adopt a clear and already proven hiring procedure. Thus, Bollvile dining restaurant will first advertise the vacant job positions in print media while stipulating the requirement and qualifications required for this job position, Bollvile dining will then later go on to set an interview date. After cross checking the candidate’s qualifications, references and clear police report checks, the business will offer training to the full success candidates before absorbing them into the business workforce (Hsu, 2008 pp.77). The business will adopt a combination of compensation strategies where it will pay for production for the full time employees including the chefs while waiters who will most likely be casual or part time employees will be paid for time. This particular strategy will be considered in order to focus on the Bollvile’s output due to sensitivity in the early stages of the business cycle and in regards to minimize payroll. The business will also adopt an employee motivation strategy that will be based on their performance and commitment. The entire workforce, will receive penalty rates for extra hours worked, weekend rates and also will be entitled for discounted meals at Bollville. This strategy will enable Bollvile maintain the highest quality in its products and services since they are key elements which will motivate the workforce towards being efficient and productive and help Bollville attain long term success in the business. (Harrington, Ottenbacher and Kendall, 2011 pp.272-289). The required training on an on-going basis is mostly focused on technology, marketing and improvement of their skills in their distinct fields. Front of house staff will be undergoing training sessions regularly. For instance, food and wine tasting sessions will be organized making the workforce more knowledgeable and confident while serving customers. This training is essential on an on-going basis since it ensures that there is an on-going continuous improvement of Bollvile’s workforce, as well as help the team adapt with the changing trends in this industry. 5.5 Growth strategy Bollvile dining restaurant’s growth strategy will mainly focus on expanding its number of restaurants to Queensland, Perth and Sydney within the next 5 years. Additionally, its growth strategy will focus ensuring customer loyalty through returns and referrals. Bollvile dining restaurant will offer loyalty cards to its returning customers in order to give them a chance to enjoy discounts. Similarly, in line with its growth strategy it will seek to increase its market base by 5% annually by offering unique and varying service packages for its customers priced differently. The business, in this case, will make itself more relevant to its customers in order to build its brand (Fotouhinia-Yepes, 2013 pp.281-293). Quality in Bollvile dining restaurant’s products and services will be managed through the commissioning of experts who are qualified in specific fields to guarantee quality provision. Additionally, Bollvile will seek the help of quality supervisors who will be tasked with cross checking the products and services thus ensuring that they meet the required quality standards. With growth of Bollvile dining restaurant, the organization structure will undergo changes as a result of increased demands due to the increase of orders being processed. The premises of Bollvile may become smaller due to the number of customers constantly frequenting these business premises thus a need for expansion. Bollvile’s budget will be expected to increase as a result of increases on the number of customers being served and general business operations (overhead costs) (Hwang and Ok, 2013 pp.121-131). With this growth employees will be able to advance their careers further hence improve manpower expertise and skills to help serve Bollvile dining restaurant’s customers. References Choi, J. and Silkes, C. (2010). Measuring Customer Wine Satisfaction When Dining at a Restaurant. Journal of Quality Assurance in Hospitality & Tourism, 11(2), pp.132-146. Fotouhinia-Yepes, M. 2013. Menu Calorie Labelling in a Fine Dining Restaurant: Will it Make a Difference?. Journal of Quality Assurance in Hospitality & Tourism, 143, pp.281-293. Harrington, R., Ottenbacher, M. and Kendall, K. 2011. Fine-Dining Restaurant Selection: Direct and Moderating Effects of Customer Attributes. Journal of Foodservice Business Research, 143, pp.272-289. Hsu, C. 2008. Attitudes of Korean College Students Towards Quick-Service, Family-Style, and Fine Dining Restaurants. Journal of Restaurant & Foodservice Marketing, 24, pp.65-85. Hwang, J. and Ok, C. 2013. The antecedents and consequence of consumer attitudes toward restaurant brands: A comparative study between casual and fine dining restaurants. International Journal of Hospitality Management, 32, pp.121-131. Jin, N., Goh, B., Huffman, L. and Yuan, J. 2014. Predictors and Outcomes of Perceived Image of Restaurant Innovativeness in Fine-Dining Restaurants. Journal of Hospitality Marketing & Management, 245, pp.457-485. Johnson, L., Shin, J. and Mayer, K. 2013. MEASURING FOOD SAFETY KNOWLEDGE AND ATTITUDES OF FINE DINING AND QUICK SERVICE RESTAURANT EMPLOYEES. Journal of the American Dietetic Association, 103, pp.196-197. Kausar, R., Malik, S. and Akram, B. 2014. Effects and outcome of service quality and consumer attitudes towards restaurant brands: a study of fine dining restaurants in Pakistan. International Journal of Hospitality and Event Management, 12, p.187. Lane, C. 2013. Taste makers in the “fine-dining” restaurant industry: The attribution of aesthetic and economic value by gastronomic guides. Poetics, 414, pp.342-365. Lee, L., Lee, M. and Dewald, B. 2016. Measuring the customers’ perception of tangible service quality in the restaurant industry: An emphasis on the upscale dining segment. Journal of Foodservice Business Research, 191, pp.21-38. Magnini, V. and Thelen, S. 2008. The Influence of Music on Perceptions of Brand Personality, Decor, and Service Quality: The Case of Classical Music in a Fine-Dining Restaurant. Journal of Hospitality Marketing & Management, 163, pp.286-300. McKinney, A. 2002. Real-resumes for restaurant, food service & hotel jobs--. Fayetteville, NC: PREP Pub. Novak, C., La Lopa, J. and Novak, R. 2010. Effects of Sound Pressure Levels and Sensitivity to Noise on Mood and Behavioral Intent in a Controlled Fine Dining Restaurant Environment. Journal of Culinary Science & Technology, 84, pp.191-218. Warshaw, H. n.d.. Eat out, eat well. Yee, R. 2005. Hotel and restaurant design. New York: Visual Reference Publications, Inc. Appendix A Start-up Expenditures and Expenses Worksheet Item Total Cost Cash Required Land __________ $25,000 Capital Equipment __________ $23,100 Computer __________ $9,000 Beginning Inventory __________ $6,000 Start-up Supplies __________ $16,000 Licenses and Permits __________ $5,000 Leasehold Improvements __________ $2,700 Utility hookups& Installation __________ $16,000 Advertising (Preopening) __________ $500 Insurance __________ $5,000 Other __________ $1,000 Total Estimated One-Time Cash Requirements __________ $85,600 Start-up Operating Expenses Estimate No. of Months Total Cash Item Monthly Expense X Before Break even = Required Owners Salary $23,000 Employee’s salary, wages, benefits $1,354,200 Rent $60,000 Promotion expenses $20,800 Supplies and postage $1,368 Vehicle Expenses $5,000 Telephone $1,000 Travel/Transport $100,800 Interest $550 Maintenance/Repairs $14,400 Other $10,000 Total Cash Required to Cover Operating Expenses $1,671,118 Plus: Total One-Time Cash Requirements (Table below) $51,200 Add 10% Safety Factor $17,223.18 Total Cash Required for Start-up $1,000,541.18 Appendix B: Financial Analysis Pre-operational Cost NO. DESCRIPTION AMOUNT ($) 1 Transport 10,000 2 Market research 15,000 3 Registration 4,200 4 License and permit 5,000 5 Installation 16,500 6 Marketing 500 TOTAL COST 51,200 Working Capital Requirement (Year 1) NO. DESCRIPTIONS AMOUNT ($) 1 Stock of raw materials 271,500 2 Stock of finished goods 293,000 3 Debtors 110,000 4 Cash 125,000 TOTAL WORKING CAPITAL $800,000 Proforma Income Statement Proforma income statement for the year ending 31st Dec, Year 1. ITEM AMOUNT ($) Sales Cost of goods Gross profit 5,688,000 2,108,160 3,578,840 Expenses Wages Rent Water Telephone Electricity Advertising Stationery Postage Transport Insurance Interests on loans Repairs 1,354,200 60,000 8,640 10,368 7,200 28,800 1,440 1,368 172,800 5,000 120,000 14,400 Net profit before tax Tax 1,794,624 287,140 NET PROFIT AFTER TAX $1,507,484 Proforma Balance Sheet Proforma balance sheet as at 31st Dec, Year 1 DESCRIPTIONS AMOUNT ($) ASSETS Current assets Cash Debtors Stock of finished goods Stock of raw materials Total Current Assets 245,000 215,600 575,260 532,140 1,568,000 Fixed assets Machinery and equipment’s Furniture Fittings Office equipment’s Total Fixed Assets 253,820 78,400 34,300 25,480 1,960,000 TOTAL ASSETS $3,528,000 LIABILITIES Current liabilities Creditors Long term liabilities Bank loans – American Bank - SHBC Owner’s equity 510,000 240,000 120,000 2,658,000 TOTAL LIABILITIES AND EQUITY 3,528,000 TOTAL FINANCED BY $3,528,000 Projected cash flow (year 1) YEAR THREE MONTHS 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER Beginning balance Add cash sales Debtors CASH RECEIPTS 1,816,199 2,622,400 255,120 4,693,719 2,126,976 2,946,880 306,144 5,380,000 2,385,000 3,336,256 367,310 6,088,626 2,538,228 4,803,500 440,850 7,782,578 CASH PAYMENTS Purchases Creditors Wages Rent Water Telephone Electricity Transport Stationery Postage Interests Repair Advertising Taxes Depreciation\ 1,368,576 39,720 338,550 15,000 4,440 4,200 3,732 96,240 1,248 1,440 30,000 20,760 50,840 690,995 -------- 1,642,300 47,664 338,550 15,000 5,330 5,040 4,480 115,488 1,500 1,730 30,000 24,910 62,200 700,800 -------- 1,970,750 57,100 338,550 15,000 6,390 6,048 5,375 138,585 1,800 2,080 30,000 29,890 74,650 874,180 ------- 2,365,000 68,650 338,550 15,000 7,672 7,260 6,450 166,300 2,160 2,490 30,000 35,870 89,580 1,045,212 -------- TOTAL CASH PAYMENTS 2,566,741 2,994,992 3,550,398 4,180,194 NET CASH FLOW 2,126,976 2,385,000 2,538,288 3,602,384 ACCUMULATED CASH FLOW $10,254,653 $12,639,661 $15,177,889 $18,780,273 Break Even Analysis Total Contribution Margin Contribution margin = sales – total variable costs Year 1=3,950,000-294,414 = $3,655,586 Year 2 = Contribution margin = 4,740,000 - 402,551 =$ 4,337,449 Year 3 = Contribution margin = 5,688,000 - 532,156 = $ 5,155,844 Contribution Margin percentage Contribution Margin% = Contribution Margin X 100% Sales For the 1st Year = 3,655,586 x100% 3,950,000 =92.5% For the 2nd Year =4,337,499 x 100% 4,740,000 =91.5% For, the 3rd Year = 5,155,844 x 100% 5,688,000 = 90.6% Total fixed costs NO DESCRIPTIONS YEAR 1 YEAR 2 YEAR 3 1 Wages 1,354,200 1,354,200 1,354,200 2 Rent 60,000 60,000 60,000 3 Insurance 5,000 5,000 5,000 4 Interests on loans 120,000 120,000 120,000 TOTAL COSTS 1,539,200 1,539,200 1,539,200 Total fixed sales are: YEAR 1 = $1,539,200 YEAR 2 = $1,539,200 YEAR 3 = $1,539,200 Break-even levels Break-even levels = Fixed costs Contribution margin % Year 1 = 1,539,200 92.5% =1,539,200 x 100 92.5 = $1,664,000 Year 2 = 1,539,200 91.5% = 1,539,200 x 100 91.5 = $1,682,185 Year 3 = 1,539,200 90.6% = 1,539,200 x 100 90.6 = $1,698,896 Break even revenue Break even revenue = Total sale – Cost of sales Year 1 = $3,950,000 – $1,464,000 = $2,486,000 Year 2 = $4,740,000 – $1,756,800 =$ 2,983,200 Year 3 = $5,688,000 – $2,108,160, = $ 3,578,840 Contribution Ratio % Contribution Ratio % = Contribution x 100 Total sales Year 1 = 2,486,000 x 100 3,950,000 = 62.94% Year 2 = 2,983,200 x 100 4,740,000 = 62.94% Year 3 = 3,578,840 x 100 5,688,000 = 62.92% Break even turn over Break even turn over = Fixed costs Contribution ratio % Year 1 = 1,539,200 62.94% = 1,539,200 x 100 62.94 = $ 2,445,504 Year 2 = 1,539,200 62.94% = 1,539,200 x 100 62.94 = $ 2,445,504 Year 3 = 1,539,200 62.92% = 1,539,200 x 100 62.92 = $ 2,430,388 Break Even Units Break Even units = Contribution margin Fixed Costs Year 1 = 3,655,586 1,539,200 = 2.375 Year 2 = 4,337,449 1,539,200 = 2.82 Year 3 = 5,155,844 1,539,200 = 3.35 Desired Financing ITEM AMOUNT ($) Pre operational costs 51,200 Working capital 800,000 Fixed assets 148,800 TOTAL DESIRED FINANCING 1,000,000 Capitalization ITEM AMOUNT ($) Total Investments 1,000,000 Owners contribution 400,000 Borrowed funds 600,000 Profitability Gross profit percentage Gross profit percentage = Gross profit x 100 Sales Year 1 = 2,486,000 x 100 3,950,000 = 62.94 % Year 2 = 2,983,200 x 100 4,740,000 = 62.94% Year 3 = 3,578,840 x 100 5,688,000 = 62.92% Return on equity Return on equity = Net profit after tax x 100 Owner’s equity Year1 = 652,386 x 100 1,350,000 = 48.3% Year 2 =1,041,499 x 100 1,670,000 =62.36% Year 3 = 1,507,484 x 100 2,658,000 =56.71% Return on Investments Return on investment = Net profit after tax x 100 Total investments Year 1 = 652,386 x 100 1,000,000 = 65.2% Year 2 = 1,041,000 x 100 1,400,000 = 74.38% Year 3 = 2,586,000 x 100 3,028,000 = 85.4% Read More