Bakery Startup Business in the UAE - Fresh-Sweet Bakery & Coffee Shop - Example

Student’s Name Professor’s Name Course Name Date of Submission Financial Plan-Bakery Startup Business in the UAE Fresh-Sweet Bakery & Coffee Shop Table of Contents Table of Contents 1 Introduction 2 Aims & Objectives 2 Key to Success 3 The Business Structure 3 Products 4 Marketing Strategies 5 Capital Structure 6 Financial Structure 6 Revenue 6 Cost of goods sold 8 Human Resource 9 Operating Expenses 9 Rent and Occupancy 9 Fixed Assets-Machinery & Equipment 10 Income Statement 10 Cash Flow Statement 11 Breakeven Analysis 12 Project Net Present value 13 Internal Rate of Return 13 Conclusion 13 Works Cited 14 Appendix 15 Introduction United Arabs Emirates ranks among the fastest emerging economies in the world. The economy of the region has experienced faster growth in the recent past, making it a suitable business destination. According to the 2013 economic report, UAE had a GDP per capita of $570 billion. The region experienced a growth rate of about 4.6% in the same year (The Heritage Foundation par. 4). The economy of the region is largely driven by oil, UAE being the eight largest oil producers in the world. Although UAE has a relatively low population of about 9.3 million people, UAE ranks among the most multicultural regions in the world. UAE has witnessed immense growth in food consumption in the recent past, particularly baked foods (Terterov 45; Noack 9). As such, we intend to take advantage of the growth prospects of food market in the UAE to establish a new bakery that will be called “Fresh-Sweet Bakery & Coffee Shop”. The bakery will be located in Abu Dhabi City along Al Dhafra Road, which is one of the busiest streets in the city. Fresh-Sweet Bakery & Coffee Shop will specialize in the production and sale of high quality and nutritious baked breads and cakes. Additionally, the bakery will have a coffee shop, where customers can enjoy a drink, bread and cakes together. The availability of a coffee shop will give customers the opportunity to sit around as they watch their bread and cakes being prepared. Aims & Objectives The aim of Fresh-Sweet Bakery & Coffee Shop will be to provide high quality, healthy and nutritious baked bread and cakes, as well as coffee in a serene environment at competitive prices. The company also aims to generate high profits and become a dominant company in Abu Dhabi and the UAE as a whole. Key to Success Provision of high quality products at affordable prices Excellent customer service Engaging in corporate social responsibility The Business Structure Shim, Siegel, and Shim argue that the success of any startup business largely depends on proper budgeting and identifying where the funds would come from (6). After conducting a thorough analysis of the bakery market in the UAE, Fresh-Sweet Bakery & Coffee Shop expects the company to break even after two months. As such, because the initial cash outlay required finance all the startup costs is estimated at $120,000, Fresh-Sweet Bakery & Coffee Shop seeks to raise $200,000, $50,000 of which will be used as cash to finance business operation for the first 2 months before the business breaks even and starts making profit. The owners of Fresh-Sweet Bakery & Coffee Shop have committed a capital of $50,000 towards starting the business. The owners intend to finance the remaining balance through equity and loan. In this case, Fresh-Sweet Bakery & Coffee Shop intends to raise $100,000 through equity financing and the remaining $50,000 through a bank loan. The loan will attract an interest at the rate of 15% pa and will be repaid after four years on reducing balance method. Since the investors have also contributed their money in the business, the profits generated will be shared with the investors in the form of dividend, which will be paid in proportion to an investor's investment. Products The bakery will specialize in the provision of baked bread and cakes. At the same time, Fresh-Sweet Bakery & Coffee Shop will also operate a coffee shop where the company's customers can get all the three products and enjoy sweet and nutritious taste of the company products. Research and Markets report shows that there are many bakeries that specialize in the provision of the products that Fresh-Sweet Bakery & Coffee Shop intend to introduce (4). However, Fresh-Sweet Bakery & Coffee Shop intends to attract and create customer loyalty by providing high quality and nutritious cakes and bread to customers at affordable prices. In this respect, the company intends to charge a relatively low price compared to its competitors as a way of beating competition. Additionally, the bread and cakes will be baked using taste, healthy and nutritious ingredients. To ensure that the food remain fresh and tasty all the time, the company intends to employ a just-in-time approach, where bread and cakes will be prepared once a customer makes an order. This will not only help minimize wastage, but also ensure that the bread and cakes are customized according to customer taste and preference. Abu Dhabi Council bylaws are very strict when it comes to hygiene and health (Euromonitor International par. 3). As such, the company intends to comply with the law by maintaining a high level of hygiene and ensuring that all the products that the company provides meet the quality and health standards. Additionally, the company will also ensure that the environment where the bakery and the coffee shop are located is not only tidy, but also serene so that the customers can enjoy their menus without disturbance (Ferrell and Hartline, 21; Noack 3). The bread and cakes will target people of all income levels since prices will range from as low as $1 a piece to as high as $20. Additionally, the break and cakes will target people of all ages and religion. The bakery and coffee shop will operate for 24/7 to cater even for late nighters and workers who may not have enough time during the day because of work engagement. Marketing Strategies The target market of the company is very diverse. The products of the company will target people of all age groups who may want to visit the bakery or coffee shop to have their cakes and bread as they relax. Additionally, the products that the company offers will target late nighters and workers who may not get enough time during the day to visit the bakery and have their breads or cakes for breakfasts or parties. As such, it would be very critical that the marketing strategy that the company adopts is capable of reaching and influencing these target audiences in the most appropriate way, suggests Paley (3). Although the marketing strategies that the company intends to adopt would be limited by the budget constraints, the bakery being a startup business, the company intends to use websites, social media, billboards and road shows as a means of promoting the products in Abu Dhabi and the country at large. In this regard, the company will create a website where the products will be posted. The company will also take advantage of the growth of internet usage in the UAE to promote its products through direct engagement will potential customers (Hooley, Piercy and Nicoulaud 41). Additionally, the company will also prepare billboards containing the products that we intend to offer and the location of the business. Further, the company will organize road shows throughout Abu Dhabi and surrounding areas where the products will be displayed and potential customers given samples. This way, the company will draw the attention of potential customers to the company products, thereby resulting in huge sales and success. Capital Structure The total budget estimate required to start and operate the business before it starts generating profits is estimated at $200,000. From this amount, $150,000 will be used to acquire equipment, business premises, legal fees, business license, office supplies and other expenses needed to start the business. However, $50 will be set aside to meets other costs for the first four months before the business starts making profits. Fresh-Sweet Bakery & Coffee Shop being a family-owned business, the founders will commit $50,000 in as capital. The balance of $150,000 will be sourced through equity financing $100,000 and bank loan of $50,000. The loan will attract an interest rate of 15% per annum, which will be paid in four monthly installments. Because this is an unsecured loan, the business will not be required to have a down payment as required by the Abu Dhabi laws. The capital structure will be as follows: Member’s capital $50,000 Equity $100,000 Bank Loan $50,000 Financial Structure Revenue Fresh-Sweet Bakery & Coffee Shop revenue will come from three main sources and products namely bread, cakes and coffee shop. Bread is one of the products that enjoy huge demand in Abu Dhabi. This is because it is the main food that people consume during breakfast. Accordingly, on average, we estimate that the business will be selling at least 500 loaves of bread daily at $1 a bread. This implies that the business will be making sales of $500. This translates to monthly revenue of $15,000. However, we expect the sale of bread to increase at the rate of 10% per month and the business grabs the attention of potential consumers in Abu Dhabi and surrounding areas. On the cakes, we project that the company will expect to generate $10,000 every month for the first two months. However, like bread, we expect the sales revenue to grow at the rate of 10% after engaging in a rigorous marketing campaign and increasing the business capacity. In the coffee shop, we expect to receive an average of 40 customers daily. At the same time, we expect that each customer will spend an average of $20 on coffee. This implies that the company will generate an average of $800 daily in the initial stages. This translates to $24,000 monthly. However, we expect that the number of customers visiting the coffee shop will increase at an average of 10% as time progresses, and people get to know of the brand and the location of the shop. Nevertheless, we also expect the revenue generated from the coffee shop to fluctuate depending the prevailing weather condition considering that UAE is one of the hottest countries in the world. Graphical Representation of Revenue Generated in the First Month Startup Cost Estimates $ Machinery & Equipment 40,000 Materials 11,000 Renovation and site modification 2,000 Business License 2,000 Uniforms 5,000 Brochures 2,000 Legal Fees 2,000 Supplies 10,000 Electricity 10,000 Insurance 3,000 Phone & Fax 1000 Salaries 10,000 Rent (4 months) 40,000 Stationary 3,000 Advertising 3,000 Entertainment (TV/Music, Wi-Fi) 6,000 Cash Reserve 50,000 Total Cost 200,000 Cost of goods sold The cost of goods sold will comprise of the cost incurred in acquiring materials and ingredients used in the bakery of the products, such as bread and cakes, as well as ingredients used in the coffee shop. Because the cost of obtaining these materials in Abu Dhabi, we estimate the cost of sales to be around 20% of sales. Human Resource Having the right talent is key to the success of any business. Accordingly, the business intends to employ ten employees comprising of highly trained chefs, accountant, marketers, waiters and security personnel. In this regard, we estimate employee salaries to cost the company $ 10,000 per month. Operating Expenses In order to start and run a business, there are quite a number of operating expenses that are incurred. Some of these expenses are fixed while other is variable and keep changing depending on the requirement. Accordingly, some of the operating expenses that would be incurred that must be budgeted for include business license, consultancy fees, advertising, renovation and site modification, uniforms, legal fees, stationary, supplies, business brochures, and entertainment expenses among others. Rent and Occupancy Before setting up a business, one of the most critical things to consider is the location of the business and the business premises where the business is to be conducted. There is a variety of ways by which a business can acquire business premises, such as through lease, rental or purchase. The method used to acquire a business premise depends on the availability of funds and the terms provided by the owner of the business premises. Fresh-Sweet Bakery & Coffee Shop, however, has opted to rent a business premise within Abu Dhabi CBD measuring 2000-3000 square feet for $40,000 for four months. The company decided to pay a four months' rent to give the company time before it reaches breakeven point. However, because the business has not been in use for quite sometimes, the premises will be renovated and decorated to make it look beautiful and attractive. Accordingly, a renovation fee of $2,000 will be incurred. Fixed Assets-Machinery & Equipment A significant part of the budget will be spent on acquiring the various machineries and equipment that would be used for baking breads and cakes, such as oven and refrigerators. Additionally, the business will spend some amount buying coffee machine to be used in the coffee shop. In total, we have estimated that the acquisition of machinery and equipment will cost the company $40,000. Income Statement     Fresh-Sweet Bakery & Coffee Shop           Pro-forma Income Statement                     Month1 Month 2 Month3 Month4 Month5 Revenue $ $ $ $ $ Bread 15,000 19500 25350 32955 42841.5 Cake 10,000 13000 16900 21970 28561 Coffee Shop 24,000 31200 40560 52728 68546.4 Total Revenue 49,000 63,700 82,810 107,653 139,949 Cost of Sales           Bread 3,000 3300 3630 3993 4392.3 Cakes 2,000 2200 2420 2662 2928.2 Coffee Shop 4,800 5280 5808 6388.8 7027.68 Total Cost of G. Sold 9,800 10780 11858 13043.8 14348.18 Gross Profit 39,200 52,920 70,952 94,609 125,601 Expenses           Salaries 10,000 10,000 10,000 10,000 10,000 Renovation and site modification 2,000 1800 1620 1458 1312.2 Uniforms 5,000 5250 5512.5 5788.125 6077.531 Brochures 2,000 2200 2420 2662 2928.2 Legal Fees 2,000 2,000 2,000 2,000 2,000 Supplies 10000 9000 8100 7290 6561 Electricity 10,000 10,000 10,000 10,000 10,000 Phone & Fax 1000 1050 1102.5 1157.625 1215.506 Rent (4 months) $40,000 10,000 10,000 10,000 10,000 10,000 Stationary 3,000 3300 3630 3993 4392.3 Advertising 3,000 3300 3630 3993 4392.3 Entertainment (TV/Music, Wi-Fi) 6,000 6,000 6,000 6,000 6,000 Business License 2,000 2,000 2,000 2,000 2,000 Insurance 3,000 3,000 3,000 3,000 3,000 Dep. On Mach & Equip 600 600 600 600 600 Interest Expense 1,500 1,500 1,500 1,500 1,500 Total Expenses 71,100 70,100 70,215 70,542 71,079 Net Income/Loss -31,900 -17,180 737 24,067 54,522 Cash Flow Statement The revenues generated in this business are allocated on accrual basis to enable the calculation of the day-to-day income and profits possible and easy.     Fresh-Sweet Bakery & Coffee Shop           Pro-forma Income Statement                     Month1 Month 2 Month3 Month4 Month5 Revenue $ $ $ $ $ Bread 15,000 19500 25350 32955 42841.5 Cake 10,000 13000 16900 21970 28561 Coffee Shop 24,000 31200 40560 52728 68546.4 Total Revenue 49,000 63,700 82,810 107,653 139,949 Cost of Sales           Bread 3,000 3300 3630 3993 4392.3 Cakes 2,000 2200 2420 2662 2928.2 Coffee Shop 4,800 5280 5808 6388.8 7027.68 Total Cost of G. Sold 9,800 10780 11858 13043.8 14348.18 Gross Profit 39,200 52,920 70,952 94,609 125,601 Expenses           Salaries 10,000 10,000 10,000 10,000 10,000 Renovation and site modification 2,000 1800 1620 1458 1312.2 Uniforms 5,000 5250 5512.5 5788.125 6077.531 Brochures 2,000 2200 2420 2662 2928.2 Legal Fees 2,000 2,000 2,000 2,000 2,000 Supplies 10000 9000 8100 7290 6561 Electricity 10,000 10,000 10,000 10,000 10,000 Phone & Fax 1000 1050 1102.5 1157.625 1215.506 Rent (4 months) $40,000 10,000 10,000 10,000 10,000 10,000 Stationary 3,000 3300 3630 3993 4392.3 Advertising 3,000 3300 3630 3993 4392.3 Entertainment (TV/Music, Wi-Fi) 6,000 6,000 6,000 6,000 6,000 Business License 2,000 2,000 2,000 2,000 2,000 Insurance 3,000 3,000 3,000 3,000 3,000 Dep. On Mach & Equip 600 600 600 600 600 Interest Expense 1,500 1,500 1,500 1,500 1,500 Total Expenses 71,100 70,100 70,215 70,542 71,079 Assets           Machinery & Equipment 40,000         Materials 9,800         Finance Charges           Principle loan plus interest 14,375 14375 14375 14375 14375 Total Cost 64,175 14,375 14,375 14,375 14,375             Net Income/Loss -31,900 -17,180 737 24,067 54,522 Initial Cash Investment 200,000 0 0 0 0 Cash on Hand 168,100 150,920 151,657 175,724 230,246 Breakeven Analysis We estimate that the company will break even after the second month of operation. This implies that the company will start making profit from the third month of operation. Breakeven Analysis Total variable cost   78000 Fixed cost   72000 Average Price Per Unit   $8 No. Of months required to break even 2 Months       Project Net Present value Net present value of the project is estimate to be around $12,000 discounted at a cost of capital of 10%. Internal Rate of Return The projects internal rate of return is estimated to be approximately 17.5%. Conclusion United Arabs Emirates is one of the fasted emerging economies. The country has experienced faster growth in the recent past. The economic growth has resulted in a huge drop in unemployment. Food consumption has increased in the country in the recent past due to high purchasing power of the population. Therefore, we are confident that the bakery business that we intend to start will be successful. Although there are many competitors in the UAE market, Fresh-Sweet Bakery & Coffee Shop will offer high-quality products at an affordable cost to beat the stiff competition. The major hurdle was obtaining finance. However, the founders would use equity and loan to finance the startup business alongside their capital contribution. In fact, the projections indicate that the business will break even just after the end of the second month, which is quite encouraging. Works Cited Euromonitor International. Bakery in the United Arab Emirates. Feb 2014. Web. 4 March 2015 http://www.euromonitor.com/bakery-in-the-united-arab-emirates/report Ferrell, O. C. and Michael Hartline. Marketing Strategy. Cengage Learning, 2012. Print. Hooley, Graham J., Nigel Piercy and Brigitte Nicoulaud. Marketing Strategy and Competitive Positioning. Princeton, NJ: FT Prentice Hall, 2008. Print. Noack, Sascha. Business Guide: Doing Business in Dubai & the United Arab Emirates. New York, NY: BoD – Books on Demand, 2009. Print. Noack, Sascha. Doing Business in Dubai and the United Arab Emirates. New York, NY: GRIN Verlag, 2007. Print. Paley, Norton. The Manager's Guide to Competitive Marketing Strategies. Rollinsford, NH: Thorogood Publishing, 2006. Print. Research and Markets. Bakery and Cereals Market in United Arab Emirates to 2014 (2011): 1-184. Print. Shim, Jae K., Joel G. Siegel, and Allison I. Shim. Budgeting Basics and Beyond. Upper Saddle River: John Wiley & Sons, 2011. Print. The Heritage foundation. United Arab Emirates. Web. 4 March 2015 http://www.heritage.org/index/country/unitedarabemirates Torero, Marat. Doing Business with the United Arab Emirates. London: GMB Publishing Ltd, 2006. Print. Appendix Depreciation on Machinery & Equipment Cost = $40,000 Dep. Rate 10% pa Depreciation = 40000 *12/100 = 4800pa Depreciation per month = = 4800/12 = 600 Interest Expense Interest on loan at 15%pa Loan = $50,000 Years 5 Interest Expense = 50,000*15/100 = 7,500 Interest payable Monthly = 7500/5= $1,500 Important Assumptions 1. Revenue grows at the rate of 30% per month for the following four months 2. Cost of sales increases at the rate of 10% for each of the following four months 3. Renovation and site modification decrease at the rate of 10% for each of the following four months. 4. Business license remain unchanged for each of the next four months 5. Uniform expenses grow at the rate of 5% for each of the next four months. 6. Brochures will grow at the rate of 10% for each of the following four months. 7. Legal fees remain unchanged for each of the next four months. 8. Supplies will decrease at the rate of 10% for each of the following four months. 9. Electricity is expected to remain unchanged for each of the following four months 10. Insurance will remain unchanged for each of the following four months. 11. Phone & fax will grow at the rate of 5% for each of the following four months 12. Salaries will remain unchanged for each of the following four months 13. Advertising will grow at the rate of 10% for each of the following four months. 14. Entertainment will remain unchanged for each of the following four months. 15. Rent is expected to remain unchanged for each of the following four months. 16. Stationary is expected to grow at the rate of 10% for each of the following four months. 17. Machinery & Equipment depreciate at the rate of 12% pa on straight line method 18. Project cost of capital estimated at 10%. Read More