Dark Roast Java

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Coffeehouse Business Plan

Financial Plan

  • Sales growth will be a minimum of 15% annually, margins excellent, profits at approximately 20% - 25%, cash flow adequate.

  • Marketing will remain below 5% of sales.

  • The company will invest residual profits into financial markets or real estate.  

  • Future cash investments will use NPV projections to achieve maximum return with limited risk.

8.1 Important Assumptions

  • The 20-year record of positive growth for specialty coffee drinking will continue at a healthy rate. The Specialty Coffee Association says that the market is far from saturation and will not reach maturity until at least 2019.

  • The resilience of the coffeehouse industry to negative national and world events will continue. Despite recession and war the coffeehouse industry has shown strong growth every year for the past two decades.

  • The quality of national chains will remain the same or decline slightly rather than improve as they standardize their stores, increase automation of espresso drinks and mass-produce the roasting process.

  • Coffee drinks will continue to be considered an "affordable luxury."

  • 15% minimum sales growth rate over the next three years as Dark Roast Java becomes well known.
General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 3.00% 3.00% 3.00%
Long-term Interest Rate 3.00% 3.00% 3.00%
Tax Rate 20.00% 20.00% 20.00%
Other 0 0 0

8.2 Break-even Analysis

A break-even analysis table has been completed on the basis of average costs/prices. With fixed costs of $26,400 and $4.50 an average sale, we need approximately $35,000 per month to break-even.

Break-even Analysis
Monthly Revenue Break-even $34,422
Assumptions:
Average Percent Variable Cost 23%
Estimated Monthly Fixed Cost $26,409

8.3 Projected Profit and Loss

We project high net profits starting in the first year. Our growth rate is based upon industry averages, factoring in the local conditions. We expect growth of 15% annually for the first three years before leveling off at the 800 - 900 customer per day average traffic rate.

First fiscal year gross revenues are expected to exceed $600,000 and after-tax net profits of approximately $99,000—increasing to more than $260,000 by the third fiscal year-end.

Our margins are very good.This is due in large part to the low direct cost of sales as well as the low operating costs in general for coffeehouses.

Higher staff salaries, owner/operator salaries, marketing costs and rent for a premium location depress profits but, conversely, they also ultimately contribute to higher earnings and profits.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $606,579 $786,613 $1,020,314
Direct Cost of Sales $141,197 $142,609 $144,035
Other Costs of Goods $24,000 $28,000 $32,000
Total Cost of Sales $165,197 $170,609 $176,035
Gross Margin $441,382 $616,004 $844,279
Gross Margin % 72.77% 78.31% 82.75%
Expenses
Payroll $183,400 $337,000 $339,400
Sales and Marketing $12,500 $8,000 $8,000
Depreciation $6,000 $4,000 $4,000
Rent $45,900 $55,000 $60,000
Utilities $9,200 $14,000 $16,000
Insurance $2,400 $2,400 $2,500
Legal/accounting $6,000 $6,000 $6,000
Payroll Taxes $27,510 $50,550 $50,910
Mobile Kiosk $0 $0 $0
Misc - maintenance, cleaning, training, fees $24,000 $25,000 $25,000
Total Operating Expenses $316,910 $501,950 $511,810
Profit Before Interest and Taxes $124,472 $114,054 $332,469
EBITDA $130,472 $118,054 $336,469
Interest Expense $0 $0 $0
Taxes Incurred $24,894 $22,811 $66,494
Net Profit $99,577 $91,243 $265,975
Net Profit/Sales 16.42% 11.60% 26.07%

8.4 Projected Cash Flow

We are positioning ourselves in the market as a low to medium risk concern with relatively steady cash flows. Accounts payable is paid at the end of each month, while sales are in cash, giving Dark Roast Java an excellent cash structure. Fifty percent of cash above $20,000 will be invested into semi-liquid stock portfolios to decrease the opportunity cost of cash held. Our initial investor contributions are designed to provide us with a strong cash position at all times.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $606,579 $786,613 $1,020,314
Subtotal Cash from Operations $606,579 $786,613 $1,020,314
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $0 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $606,579 $786,613 $1,020,314
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $183,400 $337,000 $339,400
Bill Payments $275,940 $358,649 $406,457
Subtotal Spent on Operations $459,340 $695,649 $745,857
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $0
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $17,600 $26,400 $26,400
Subtotal Cash Spent $476,940 $722,049 $772,257
Net Cash Flow $129,639 $64,564 $248,057
Cash Balance $131,139 $195,703 $443,761

8.5 Projected Balance Sheet

All of our tables will be updated monthly to reflect past performance and future assumptions. Future assumptions will not be based on past performance but rather on economic cycle activity, regional industry strength, and future cash flow possibilities. We expect solid growth in net worth beyond the year 2003.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $131,139 $195,703 $443,761
Inventory $16,591 $16,757 $16,925
Other Current Assets $15,000 $15,000 $15,000
Total Current Assets $162,730 $227,461 $475,685
Long-term Assets
Long-term Assets $62,000 $62,000 $62,000
Accumulated Depreciation $6,000 $10,000 $14,000
Total Long-term Assets $56,000 $52,000 $48,000
Total Assets $218,730 $279,461 $523,685
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $33,253 $29,140 $33,790
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $33,253 $29,140 $33,790
Long-term Liabilities $0 $0 $0
Total Liabilities $33,253 $29,140 $33,790
Paid-in Capital $250,500 $250,500 $250,500
Retained Earnings ($164,600) ($91,423) ($26,579)
Earnings $99,577 $91,243 $265,975
Total Capital $185,477 $250,321 $489,896
Total Liabilities and Capital $218,730 $279,461 $523,685
Net Worth $185,477 $250,321 $489,896

8.6 Business Ratios

We expect our net profit margin, gross margin, and Return on Assets to increase steadily over the three-year period. Return on Equity will decrease due to lower equity needs and higher cash inflow. Net working capital generated by the business will increase steadily each year, proving that we have the cash flows to remain a going concern independent of outside capital infusion.

While our ratios are not all in sync with those of the industry, due to the unique nature of our business, it's important to point out that in key areas the numbers are excellent. The only industry ratio category currently available, SIC Code 5812.0304, includes cafes, restaurants and other businesses serving coffee. These businesses are significantly different from the Dark Roast Java coffeehouse concept.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 29.68% 29.71% 5.24%
Percent of Total Assets
Inventory 7.59% 6.00% 3.23% 4.34%
Other Current Assets 6.86% 5.37% 2.86% 35.11%
Total Current Assets 74.40% 81.39% 90.83% 43.74%
Long-term Assets 25.60% 18.61% 9.17% 56.26%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 15.20% 10.43% 6.45% 18.93%
Long-term Liabilities 0.00% 0.00% 0.00% 25.48%
Total Liabilities 15.20% 10.43% 6.45% 44.41%
Net Worth 84.80% 89.57% 93.55% 55.59%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 72.77% 78.31% 82.75% 61.91%
Selling, General & Administrative Expenses 56.32% 66.62% 56.54% 39.08%
Advertising Expenses 0.00% 0.00% 0.00% 2.55%
Profit Before Interest and Taxes 20.52% 14.50% 32.58% 1.38%
Main Ratios
Current 4.89 7.81 14.08 1.14
Quick 4.39 7.23 13.58 0.79
Total Debt to Total Assets 15.20% 10.43% 6.45% 49.97%
Pre-tax Return on Net Worth 67.11% 45.56% 67.87% 3.97%
Pre-tax Return on Assets 56.91% 40.81% 63.49% 7.93%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 16.42% 11.60% 26.07% n.a
Return on Equity 53.69% 36.45% 54.29% n.a
Activity Ratios
Inventory Turnover 10.10 8.55 8.55 n.a
Accounts Payable Turnover 9.30 12.17 12.17 n.a
Payment Days 27 32 28 n.a
Total Asset Turnover 2.77 2.81 1.95 n.a
Debt Ratios
Debt to Net Worth 0.18 0.12 0.07 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $129,477 $198,321 $441,896 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.36 0.36 0.51 n.a
Current Debt/Total Assets 15% 10% 6% n.a
Acid Test 4.39 7.23 13.58 n.a
Sales/Net Worth 3.27 3.14 2.08 n.a
Dividend Payout 0.18 0.29 0.10 n.a