The Pasta House Co.

Start your own business plan »

Italian Restaurant Business Plan

Financial Plan

  1. Growth will be moderate, cash flows steady.
  2. Sales increase at a steady rate of 4% per year.
  3. Costs will increase at a rate of 1% to 2% per year.
  4. The company will invest residual profits into financial markets and not company expansion (unless absolutely necessary).
  5. General maintenance and repairs will be kept up to maintain a solid operation.
  6. Future cash investments will use NPV projections to achieve maximum return with limited risk.

8.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the following table as annual figures. The key underlying assumptions are:

  • We assume JD Drews will be unable to make their note payment or lease payment and will have to default on their loans.
  • We assume that we will take over the SBA note payment and acquire all of the assets and leasehold improvements.
  • We assume the equipment is in good working order.
  • We assume this will happen in the next three to six months.
  • We assume a slow-growth economy, without major recession.
  • We assume that there are no unforseen changes in the expectancy in the popularity of our candidates.
  • We assume access to loans and financing are sufficient to maintain and fulfill our financial plan as shown in the tables.
  • We assume the landlord will have no problem allowing us to take over the current lease.
  • We assume The Pasta House Co. will approve our leasehold improvements and budget.
General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 5.50% 5.50% 5.50%
Long-term Interest Rate 9.50% 9.50% 9.50%
Tax Rate 22.03% 21.30% 22.03%
Other 0 0 0

8.2 Projected Profit and Loss

The most important assumption in the Projected Profit and Loss statement is the gross margin. Although it doesn't jump drastically in the first year, over time the restaurant will develop its customer base and reputation and the growth will pick up more rapidly towards the fourth and fifth years of business.

Month-by-month assumptions for profit and loss are included in the appendix.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $1,681,248 $1,747,957 $1,817,321
Direct Cost of Sales $421,053 $429,474 $438,064
Other Costs of Goods $0 $0 $0
Total Cost of Sales $421,053 $429,474 $438,064
Gross Margin $1,260,195 $1,318,483 $1,379,257
Gross Margin % 74.96% 75.43% 75.90%
Expenses
Payroll $471,438 $528,780 $544,643
Sales and Marketing Promotions $0 $0 $0
Depreciation $66,144 $66,144 $66,144
Credit Card Discounts $21,692 $21,930 $22,172
Royality & Advertising Fees $104,142 $105,288 $106,446
Rent Fixed Rate with Cam $112,200 $113,434 $114,682
Utilities 2.4% of Sales $40,350 $40,794 $41,243
Insurance $35,304 $35,692 $36,085
Paper Costs $30,262 $32,881 $36,169
Coupons $158,555 $160,299 $162,062
Trash Disposal $1,500 $1,517 $1,533
Uniforms $3,000 $3,033 $3,066
Telephone $3,000 $3,033 $3,066
Maintaince & Repairs $13,500 $13,649 $13,799
Smallwares $1,500 $1,517 $1,533
Outside Services $3,000 $3,033 $3,066
Cleaning & Dishwashing $11,769 $11,898 $12,029
Menus & Guest Checks $1,200 $1,213 $1,227
Linen & Laundry $1,500 $1,517 $1,533
Music & Entertainment $1,500 $1,517 $1,533
Advertising $1,500 $1,517 $1,533
Over/Short ($180) ($182) ($184)
Professional Fees $4,500 $4,550 $4,600
Taxes & Licenses $1,980 $2,002 $2,024
Bank Charges $936 $946 $957
Pest Control $1,500 $1,517 $1,533
Payroll Taxes $70,716 $79,317 $81,696
Office Expense $3,900 $0 $0
Other $2,100 $2,123 $2,146
Total Operating Expenses $1,168,508 $1,238,956 $1,266,337
Profit Before Interest and Taxes $91,687 $79,527 $112,920
EBITDA $157,831 $145,671 $179,064
Interest Expense $56,050 $53,200 $50,667
Taxes Incurred $7,868 $5,607 $13,711
Net Profit $27,769 $20,719 $48,542
Net Profit/Sales 1.65% 1.19% 2.67%

8.3 Projected Cash Flow

The cash flow depends on assumptions for inventory turnover, payment days, and accounts receivable management. Our projected same-day collections is critical, and is reasonable and customary in the restaurant industry. We do not expect to need significant additional support even when we reach the less profitable months, as they are expected. The first six months of PHC openings have shown huge sales volumes. We expect this volume, however our projections do not reflect this high volume. We have done this in the event there is normal sales during the first six months.

Month-by-month assumptions for projected cash flow are included in the appendix.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $1,681,248 $1,747,957 $1,817,321
Subtotal Cash from Operations $1,681,248 $1,747,957 $1,817,321
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 $1,681,248 $1,747,957 $1,817,321
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $471,438 $528,780 $544,643
Bill Payments $1,053,685 $1,135,251 $1,157,087
Subtotal Spent on Operations $1,525,123 $1,664,031 $1,701,730
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 $7,500 $7,500 $7,500
Long-term Liabilities Principal Repayment $26,664 $26,664 $26,664
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $1,559,287 $1,698,195 $1,735,894
Net Cash Flow $121,961 $49,761 $81,426
Cash Balance $211,961 $261,723 $343,149

8.4 Projected Balance Sheet

The projected Balance Sheet is quite solid. We do not anticipate difficulty meeting our debt obligations providing that we achieve our specific goals.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $211,961 $261,723 $343,149
Inventory $39,382 $44,187 $45,071
Other Current Assets $10,000 $10,000 $10,000
Total Current Assets $261,344 $315,909 $398,219
Long-term Assets
Long-term Assets $547,600 $547,600 $547,600
Accumulated Depreciation $66,144 $132,288 $198,432
Total Long-term Assets $481,456 $415,312 $349,168
Total Assets $742,800 $731,221 $747,387
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $91,595 $93,462 $95,250
Current Borrowing $0 $0 $0
Other Current Liabilities $67,500 $60,000 $52,500
Subtotal Current Liabilities $159,095 $153,462 $147,750
Long-term Liabilities $573,336 $546,672 $520,008
Total Liabilities $732,431 $700,134 $667,758
Paid-in Capital $0 $0 $0
Retained Earnings ($17,400) $10,369 $31,088
Earnings $27,769 $20,719 $48,542
Total Capital $10,369 $31,088 $79,629
Total Liabilities and Capital $742,800 $731,221 $747,387
Net Worth $10,369 $31,088 $79,629

8.5 Business Ratios

We expect our net profit margin, and gross margin to increase steadily over the three-years. Our net working capital will increase by year three, proving that we have the cash flows to remain a going concern. The following table shows these important financial ratios. Industry profile ratios based on the Standard Industrial Classification (SIC) code 5812.0108, Italian restaurant, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 3.97% 3.97% 6.96%
Percent of Total Assets
Inventory 5.30% 6.04% 6.03% 3.90%
Other Current Assets 1.35% 1.37% 1.34% 28.39%
Total Current Assets 35.18% 43.20% 53.28% 37.68%
Long-term Assets 64.82% 56.80% 46.72% 62.32%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 21.42% 20.99% 19.77% 19.17%
Long-term Liabilities 77.19% 74.76% 69.58% 29.21%
Total Liabilities 98.60% 95.75% 89.35% 48.38%
Net Worth 1.40% 4.25% 10.65% 51.62%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 74.96% 75.43% 75.90% 59.31%
Selling, General & Administrative Expenses 72.17% 73.20% 72.15% 39.09%
Advertising Expenses 0.00% 0.00% 0.00% 2.75%
Profit Before Interest and Taxes 5.45% 4.55% 6.21% 1.59%
Main Ratios
Current 1.64 2.06 2.70 1.26
Quick 1.40 1.77 2.39 0.87
Total Debt to Total Assets 98.60% 95.75% 89.35% 54.38%
Pre-tax Return on Net Worth 343.69% 84.68% 78.18% 3.27%
Pre-tax Return on Assets 4.80% 3.60% 8.33% 7.17%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 1.65% 1.19% 2.67% n.a
Return on Equity 267.81% 66.65% 60.96% n.a
Activity Ratios
Inventory Turnover 10.91 10.28 9.82 n.a
Accounts Payable Turnover 12.50 12.17 12.17 n.a
Payment Days 27 30 30 n.a
Total Asset Turnover 2.26 2.39 2.43 n.a
Debt Ratios
Debt to Net Worth 70.64 22.52 8.39 n.a
Current Liab. to Liab. 0.22 0.22 0.22 n.a
Liquidity Ratios
Net Working Capital $102,249 $162,448 $250,469 n.a
Interest Coverage 1.64 1.49 2.23 n.a
Additional Ratios
Assets to Sales 0.44 0.42 0.41 n.a
Current Debt/Total Assets 21% 21% 20% n.a
Acid Test 1.40 1.77 2.39 n.a
Sales/Net Worth 162.14 56.23 22.82 n.a
Dividend Payout 0.00 0.00 0.00 n.a