Belle Epoque Dinner Theatre
We are assuming a low start-up funding figure of approximated $500,000. The business will grow exponentially by a net worth of about two million dollars per year and this growth is based off of sheer cash profits and managerial excellence. Growth will be self financed. No additional funding will be needed.
8.1 Important Assumptions
The financial plan depends on important assumptions, most of which are shown in the following table as annual assumptions. The monthly assumptions are included in the appendices. From the beginning, we recognize that our direct marketing will be critical to advertising, a factor we can influence easily. Weather and catastrophe cannot be so easily planned on and would delay project by a year (hurricane, tornado, etc…) At least we are planning on the potential problem, and dealing with it.
Interest rates, tax rates, and personnel burden are based on conservative assumptions.
Two of the more important underlying assumptions are:
- We assume a strong economy, without major recession.
- We assume funding will be maintained and strongly backed.
One item of particular note is that we have set our cost of goods for food sales at high percentage factors of 30% to 36%. The majority of seasoned managers would raise an eyebrow at those percentages. We intend to beat these percentages and therefore bring in a windfall on our P & L. One important assumption is our capability to decrease food waste and costs.
|Year 1||Year 2||Year 3|
|Current Interest Rate||10.00%||10.00%||10.00%|
|Long-term Interest Rate||8.20%||8.20%||8.20%|
8.2 Start-up Funding
Start-up funding requirements come to just shy of $500,000. This presumes we can move into an established, equiped restaurant space. Expenses and asset purchases will increase dramatically if we must fully outfit and equip a space for its first use as a restaurant.
Funding will be through a combination of owner investment, outside investment, and long-term loans. A small amount of current borrowing (credit card purchases) complete the start-up funding.
|Start-up Expenses to Fund||$178,420|
|Start-up Assets to Fund||$317,000|
|Total Funding Required||$495,420|
|Non-cash Assets from Start-up||$267,000|
|Cash Requirements from Start-up||$50,000|
|Additional Cash Raised||$420|
|Cash Balance on Starting Date||$50,420|
|Liabilities and Capital|
|Accounts Payable (Outstanding Bills)||$0|
|Other Current Liabilities (interest-free)||$0|
|Additional Investment Requirement||$0|
|Total Planned Investment||$450,420|
|Loss at Start-up (Start-up Expenses)||($178,420)|
|Total Capital and Liabilities||$317,420|
8.3 Business Ratios
The following table shows the projected businesses ratios. We expect to maintain healthy ratios for profitability, risk, and return. The Standard Industrial Classification (SIC) Code for the industry we chose is French Restaurant (5812.0104), though there is no SIC that accurately describes our offering platform of dinner theatre. We used the Industry Ratios report for Eating Places (5812) to generate the industry profile shown in the following table.
|Year 1||Year 2||Year 3||Industry Profile|
|Percent of Total Assets|
|Other Current Assets||0.46%||0.22%||0.14%||35.60%|
|Total Current Assets||95.58%||98.01%||98.84%||43.70%|
|Percent of Sales|
|Selling, General & Administrative Expenses||32.12%||34.20%||34.10%||39.80%|
|Profit Before Interest and Taxes||56.94%||59.34%||61.10%||0.70%|
|Total Debt to Total Assets||6.58%||5.03%||3.60%||61.20%|
|Pre-tax Return on Net Worth||126.67%||74.25%||56.06%||1.70%|
|Pre-tax Return on Assets||118.34%||70.52%||54.04%||4.30%|
|Additional Ratios||Year 1||Year 2||Year 3|
|Net Profit Margin||42.67%||44.48%||45.81%||n.a|
|Return on Equity||95.01%||55.69%||42.04%||n.a|
|Accounts Payable Turnover||17.85||12.17||12.17||n.a|
|Total Asset Turnover||2.08||1.19||0.88||n.a|
|Debt to Net Worth||0.07||0.05||0.04||n.a|
|Current Liab. to Liab.||0.86||0.93||0.96||n.a|
|Net Working Capital||$3,313,676||$7,081,367||$11,450,067||n.a|
|Assets to Sales||0.48||0.84||1.13||n.a|
|Current Debt/Total Assets||6%||5%||3%||n.a|
8.4 Break-even Analysis
The following chart and table summarize our break-even analysis. We expect to reach break-even a few months into the business operation. With favorable response from PR exposure and teaser advertising, in the first month we open, April of 2005, we may achieve goal and break even.
The break-even assumes variable costs of 38% percent of revenue. This assumption is probably too high, and therefore conservative. With initial monthly expenses of over $86,600 we will need averaged monthly revenues of about $140,000 to break-even.
|Monthly Units Break-even||127,018|
|Monthly Revenue Break-even||$127,018|
|Average Per-Unit Revenue||$1.00|
|Average Per-Unit Variable Cost||$0.38|
|Estimated Monthly Fixed Cost||$78,751|
8.5 Projected Profit and Loss
Our advertising budget pulls data from several tables; the fact that we are spending less than the industry average will be due to getting such great reviews in the consumer and press related magazines and newspapers. Also, of specific note is our unique marketing stunts and plan that does not rely on traditional advertising schemes.
We are profitable in the first year at just over $3 million. As with the break-even, we are projecting very conservatively regarding cost of sales and gross margin. Our cost of goods should be much lower, and gross margin higher, than in this projection. We prefer to project conservatively so that we make sure we have enough cash.
Based on 30+ years of restaurant experience we have budgeted for continued computer and equipage purchases. If we do open in a previously equipped restaurant space we know we will need replacements. If we must open with brand new, guaranteed equipment, we will not have replacement expenses as soon. Normal wear and tear and breakage of plates, glasses, tableware, etc. are budgeted monthly.
Labor costs may be lower than the pro forma projects – but we are planning on worst-case scenario of our attention being diverted as we grow into exactly what we need and when. Later years may be lower as we learn more about how much labor is truly critical. Conversely, if our dinner and show concept is well received, we may have to increase staff (and therefore labor costs) to serve the customer demand.
The Gross Margin Percentage holds steady from year to year due to holding menu and show prices with minimal increases to cover increased food costs and operating expenses. This may be unrealistic – the quandary is – do we want to raise our prices each year or hold them fast. Customer response surveys combined with economic condition analysis will yield the answer to this after the first twelve months. Either way, at worst, we forecast profits between $3-$4 million per annum.
|Pro Forma Profit and Loss|
|Year 1||Year 2||Year 3|
|Direct Cost of Sales||$2,355,984||$2,695,245||$3,113,008|
|Other Production Expenses||$0||$0||$0|
|Total Cost of Sales||$2,355,984||$2,695,245||$3,113,008|
|Gross Margin %||69.27%||70.13%||70.69%|
|Sales and Marketing and Other Expenses||$92,807||$81,632||$81,632|
|MICROS syterm, phones, security, fire, computer upgrades||$10,000||$10,000||$10,000|
|Linen and Dry Cleaning||$2,100||$2,400||$2,700|
|Dish and Cleaning Supplies||$4,800||$5,000||$5,250|
|Office Products Upkeep||$2,400||$2,500||$2,600|
|Paper Products Upkeep||$9,600||$10,000||$11,000|
|Total Operating Expenses||$945,011||$974,038||$1,018,075|
|Profit Before Interest and Taxes||$4,365,325||$5,353,975||$6,489,292|
8.6 Projected Cash Flow
The plan projects a $11,340,000 net worth by 2007 (three years of operation in a high activity vacation environment). The plan anticipates full staffing, a small management team, and maximum acceptance by the dining public. The highest sales will be in the prime summer vacation months, but we believe our unique offering will draw customers to Belle Epoque all year long.
If our sales and profits forecasts prove accurate Chef Joachim will expand his management team and accelerate the long-term plan of opening a second and third Belle Epoque restaurants in other demographic markets. The opening of the second venue will be financed by the profits from this restaurant, and the third site will be financed by the profits from the first two ventures. Obviously this will result in substantial changes in the cash flow and profit figures in year two and year three of this plan.
Cash flow projections are critical to our success. The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month, and the other the monthly cash balance. The annual cash flow figures are included here and the more important detailed monthly numbers are included in the appendices.
|Pro Forma Cash Flow|
|Year 1||Year 2||Year 3|
|Cash from Operations|
|Subtotal Cash from Operations||$7,666,320||$9,023,259||$10,620,375|
|Additional Cash Received|
|Sales Tax, VAT, HST/GST Received||$536,642||$631,628||$743,426|
|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||$8,202,962||$9,654,887||$11,363,802|
|Expenditures||Year 1||Year 2||Year 3|
|Expenditures from Operations|
|Subtotal Spent on Operations||$4,164,346||$4,859,750||$5,695,707|
|Additional Cash Spent|
|Sales Tax, VAT, HST/GST Paid Out||$536,642||$631,628||$743,426|
|Principal Repayment of Current Borrowing||$5,400||$0||$0|
|Other Liabilities Principal Repayment||$0||$0||$0|
|Long-term Liabilities Principal Repayment||$6,900||$8,000||$9,000|
|Purchase Other Current Assets||$0||$0||$0|
|Purchase Long-term Assets||$0||$0||$0|
|Subtotal Cash Spent||$4,813,288||$5,749,378||$6,948,133|
|Net Cash Flow||$3,389,674||$3,905,508||$4,415,668|
8.7 Projected Balance Sheet
The balance sheet in the following table shows managed but sufficient growth of net worth, and a sufficiently healthy financial position. The monthly estimates are included in the appendices.
|Pro Forma Balance Sheet|
|Year 1||Year 2||Year 3|
|Other Current Assets||$17,000||$17,000||$17,000|
|Total Current Assets||$3,523,184||$7,438,209||$11,865,597|
|Total Long-term Assets||$163,000||$151,000||$139,000|
|Liabilities and Capital||Year 1||Year 2||Year 3|
|Other Current Liabilities||$0||$0||$0|
|Subtotal Current Liabilities||$209,508||$356,843||$415,529|
|Total Liabilities and Capital||$3,686,184||$7,589,209||$12,004,597|