Franchise Sub Shop

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Franchise Sandwich Shop Business Plan

Financial Plan

Our financial plan is available in the following chapters. Our numbers are based on past experience, knowledge of the industry, growth expectations for the fast food sector nationwide, and common sense.

7.1 Long-term Plan

Our long-term plan includes expansion into the Medford market in year two, followed by healthy dividend payouts in years three through five. Our goal is to build a business out of two franchises, and run each franchise as a profit center for the purpose of building wealth for employees, the community, and the Walsh family.

7.2 Important Assumptions

The SBA 504 loan program stipulates that loans for the purpose of purchasing and improving small business real estate will not exceed 7.5%. The loan is pegged to the 10 year treasury note +1.7%. The current rate for the US Treasury Note is 5.13%, so our estimated long-term loan rate will be about 7%.

The tax rate includes the Oregon State Revenue Tax, currently at 6.6% of NET revenue. We have prorated the assumptive state tax rate to 4.6% due to the fact that this tax is levied on NET revenue, not GROSS. The Federal tax rate average for our net revenue is expected to average 31%. Thus, or assumed total tax rate for this table is 37.6%.

General Assumptions
Year 1 Year 2 Year 3 Year 4 Year 5
Plan Month 1 2 3 4 5
Current Interest Rate 8.40% 8.40% 8.40% 8.40% 8.40%
Long-term Interest Rate 7.00% 7.00% 7.00% 7.00% 7.00%
Tax Rate 36.97% 37.60% 36.97% 37.60% 36.97%
Other 0 0 0 0 0

7.3 Key Financial Indicators

The following chart shows the projected benchmarks.

7.4 Break-even Analysis

Our break-even analysis is based on a rough estimate of fixed costs. We predict average fixed costs to include the cost to lease the building, equipment leases, and various other equipment costs and fees. Our variable costs include the cost of labor, food inventory, and other product-related costs. Our variable cost estimate is $1.14 per unit, although that number may be revised as we review our actuals in the coming months.  

Our monthly break-even unit sales are 12,754. This includes units other than sandwiches, such as cookies, soda, chips and other add-ons. The basis for this break-even point is an average of entrees (sandwiches) and add-ons. The average per unit revenue is $3.26.

Break-even Analysis
Monthly Units Break-even 12,754
Monthly Revenue Break-even $41,538
Assumptions:
Average Per-Unit Revenue $3.26
Average Per-Unit Variable Cost $1.14
Estimated Monthly Fixed Cost $26,994

7.5 Projected Profit and Loss

The following table is the projected profit and loss for franchise Sub Shop.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3 Year 4 Year 5
Sales $1,401,048 $1,541,154 $1,695,269 $1,864,796 $2,051,276
Direct Cost of Sales $490,544 $539,599 $593,559 $652,915 $718,206
Franchisor Royalty (7%) $98,073 $107,881 $118,669 $130,536 $143,589
Total Cost of Sales $588,618 $647,480 $712,228 $783,451 $861,796
Gross Margin $812,430 $893,674 $983,041 $1,081,346 $1,189,480
Gross Margin % 57.99% 57.99% 57.99% 57.99% 57.99%
Expenses
Payroll $158,400 $167,834 $177,978 $188,657 $199,977
Sales and Marketing and Other Expenses $69,714 $75,960 $82,634 $89,791 $97,479
Depreciation $4,548 $4,548 $4,548 $4,548 $4,548
Depreciation $60,000 $63,000 $66,000 $69,000 $72,000
Depreciation $7,200 $7,920 $8,712 $9,583 $10,542
Insurance $1,200 $1,320 $1,452 $1,597 $1,757
Cleaning Service $3,600 $3,960 $4,356 $4,792 $5,271
Cell Phone Service $4,200 $4,620 $5,082 $5,590 $6,149
Legal $2,400 $2,400 $2,400 $2,400 $2,400
Payroll Taxes $12,672 $13,427 $14,238 $15,093 $15,998
Other $0 $0 $0 $0 $0
Total Operating Expenses $323,934 $344,989 $367,400 $391,050 $416,120
Profit Before Interest and Taxes $488,496 $548,685 $615,641 $690,295 $773,360
EBITDA $493,044 $553,233 $620,189 $694,843 $777,908
Interest Expense $18,156 $15,848 $13,439 $11,031 $8,623
Taxes Incurred $174,138 $200,347 $222,614 $255,403 $282,698
Net Profit $296,203 $332,491 $379,588 $423,861 $482,039
Net Profit/Sales 21.14% 21.57% 22.39% 22.73% 23.50%

7.6 Projected Cash Flow

The following chart and table shows the projected cash flow.

Pro Forma Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5
Cash Received
Cash from Operations
Cash Sales $1,401,048 $1,541,154 $1,695,269 $1,864,796 $2,051,276
Subtotal Cash from Operations $1,401,048 $1,541,154 $1,695,269 $1,864,796 $2,051,276
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0 $0 $0
New Current Borrowing $0 $0 $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0 $0 $0
New Long-term Liabilities $0 $0 $0 $0 $0
Sales of Other Current Assets $0 $0 $0 $0 $0
Sales of Long-term Assets $0 $0 $0 $0 $0
New Investment Received $0 $0 $0 $0 $0
Subtotal Cash Received $1,401,048 $1,541,154 $1,695,269 $1,864,796 $2,051,276
Expenditures Year 1 Year 2 Year 3 Year 4 Year 5
Expenditures from Operations
Cash Spending $158,400 $167,834 $177,978 $188,657 $199,977
Bill Payments $922,938 $1,036,091 $1,130,375 $1,244,014 $1,361,367
Subtotal Spent on Operations $1,081,338 $1,203,925 $1,308,353 $1,432,671 $1,561,344
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $12,000 $12,000 $12,000 $12,000 $12,000
Other Liabilities Principal Repayment $15,980 $0 $0 $0 $0
Long-term Liabilities Principal Repayment $20,004 $20,004 $20,004 $20,004 $20,004
Purchase Other Current Assets $0 $75,000 $0 $0 $0
Purchase Long-term Assets $35,000 $250,000 $0 $0 $0
Dividends $202,000 $0 $300,000 $400,000 $500,000
Subtotal Cash Spent $1,366,322 $1,560,929 $1,640,357 $1,864,675 $2,093,348
Net Cash Flow $34,726 ($19,775) $54,911 $121 ($42,072)
Cash Balance $54,426 $34,651 $89,562 $89,683 $47,611

7.7 Projected Balance Sheet

The following table is the projected balance sheet for the franchise Sub Shop.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
Assets
Current Assets
Cash $54,426 $34,651 $89,562 $89,683 $47,611
Inventory $47,468 $52,215 $57,437 $63,180 $69,498
Other Current Assets $4,000 $79,000 $79,000 $79,000 $79,000
Total Current Assets $105,894 $165,866 $225,999 $231,864 $196,109
Long-term Assets
Long-term Assets $240,000 $490,000 $490,000 $490,000 $490,000
Accumulated Depreciation $4,548 $9,096 $13,644 $18,192 $22,740
Total Long-term Assets $235,452 $480,904 $476,356 $471,808 $467,260
Total Assets $341,346 $646,770 $702,355 $703,672 $663,369
Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5
Current Liabilities
Accounts Payable $80,627 $85,564 $93,565 $103,025 $112,687
Current Borrowing $53,000 $41,000 $29,000 $17,000 $5,000
Other Current Liabilities $0 $0 $0 $0 $0
Subtotal Current Liabilities $133,627 $126,564 $122,565 $120,025 $117,687
Long-term Liabilities $179,996 $159,992 $139,988 $119,984 $99,980
Total Liabilities $313,623 $286,556 $262,553 $240,009 $217,667
Paid-in Capital $30,000 $30,000 $30,000 $30,000 $30,000
Retained Earnings ($298,480) ($2,277) $30,214 $9,801 ($66,338)
Earnings $296,203 $332,491 $379,588 $423,861 $482,039
Total Capital $27,723 $360,214 $439,801 $463,662 $445,702
Total Liabilities and Capital $341,346 $646,770 $702,355 $703,672 $663,369
Net Worth $27,723 $360,214 $439,801 $463,662 $445,702

7.8 Business Ratios

Our ratios table shows industry numbers for SIC 5812, Eating Places. The SIC industry averages are generic and do not reflect our precise numbers.

Ratio Analysis
Year 1 Year 2 Year 3 Year 4 Year 5 Industry Profile
Sales Growth 0.00% 10.00% 10.00% 10.00% 10.00% 7.60%
Percent of Total Assets
Inventory 13.91% 8.07% 8.18% 8.98% 10.48% 3.60%
Other Current Assets 1.17% 12.21% 11.25% 11.23% 11.91% 35.60%
Total Current Assets 31.02% 25.65% 32.18% 32.95% 29.56% 43.70%
Long-term Assets 68.98% 74.35% 67.82% 67.05% 70.44% 56.30%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 39.15% 19.57% 17.45% 17.06% 17.74% 32.70%
Long-term Liabilities 52.73% 24.74% 19.93% 17.05% 15.07% 28.50%
Total Liabilities 91.88% 44.31% 37.38% 34.11% 32.81% 61.20%
Net Worth 8.12% 55.69% 62.62% 65.89% 67.19% 38.80%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 57.99% 57.99% 57.99% 57.99% 57.99% 60.50%
Selling, General & Administrative Expenses 36.83% 36.24% 35.69% 35.17% 34.67% 39.80%
Advertising Expenses 2.20% 2.20% 2.20% 2.20% 2.20% 3.20%
Profit Before Interest and Taxes 34.87% 35.60% 36.32% 37.02% 37.70% 0.70%
Main Ratios
Current 0.79 1.31 1.84 1.93 1.67 0.98
Quick 0.44 0.90 1.38 1.41 1.08 0.65
Total Debt to Total Assets 91.88% 44.31% 37.38% 34.11% 32.81% 61.20%
Pre-tax Return on Net Worth 1696.57% 147.92% 136.93% 146.50% 171.58% 1.70%
Pre-tax Return on Assets 137.79% 82.38% 85.74% 96.53% 115.28% 4.30%
Additional Ratios Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit Margin 21.14% 21.57% 22.39% 22.73% 23.50% n.a
Return on Equity 1068.43% 92.30% 86.31% 91.42% 108.15% n.a
Activity Ratios
Inventory Turnover 10.91 10.83 10.83 10.83 10.83 n.a
Accounts Payable Turnover 12.07 12.17 12.17 12.17 12.17 n.a
Payment Days 28 29 29 29 29 n.a
Total Asset Turnover 4.10 2.38 2.41 2.65 3.09 n.a
Debt Ratios
Debt to Net Worth 11.31 0.80 0.60 0.52 0.49 n.a
Current Liab. to Liab. 0.43 0.44 0.47 0.50 0.54 n.a
Liquidity Ratios
Net Working Capital ($27,733) $39,302 $103,433 $111,838 $78,422 n.a
Interest Coverage 26.91 34.62 45.81 62.58 89.69 n.a
Additional Ratios
Assets to Sales 0.24 0.42 0.41 0.38 0.32 n.a
Current Debt/Total Assets 39% 20% 17% 17% 18% n.a
Acid Test 0.44 0.90 1.38 1.41 1.08 n.a
Sales/Net Worth 50.54 4.28 3.85 4.02 4.60 n.a
Dividend Payout 0.68 0.00 0.79 0.94 1.04 n.a