Franchise Sub Shop
“The Sub Shop” Corporation franchises, and sometimes owns and operates quick-service Italian-style sub sandwich shops called, appropriately, “The Sub Shop” subs.
The Sub Shop’s upscale concept fits a niche between fast food and fine dining–offering the customer the best benefits of both segments. The company provides the convenience of fast food with rapid response times, affordability, as well as carry-out and home meal replacement options. The Sub Shop also offers a fresher and tastier alternative to typical fried fast food products such as hamburgers and french fries.
The Sub Shop’s concept was born in the kitchen of a popular Italian sit-down restaurant called Gianni’s. The goal of the original owner was to provide great Italian food in a clean, urban environment, and at a reasonable price. After two years as Gianni’s, the owner changed the name to The Sub Shop and began selling subs and soup to go. In 1993, the company expanded to two stores and sales tripled. Financing was secured in December of 1993, and the company became a local Franchise, then a national Franchise. Now with 53 stores in 23 states and four countries, The Sub Shop has taken the Fast Food segment by storm by producing a better product than its competitors, and at a moderately low price.
2.1 Company Ownership
Ninety-seven percent of the restaurant belongs to Walsh and Walsh LLC. The company was formed in Oregon in 1995, and is owned by Jack William Walsh and his father Luke Walsh. Luke owns 77% and Jack owns 30% of Walsh and Walsh LLC. The remaining 3% is held by Lisa McKewan, Store Manager.
2.2 Start-up Summary
The start-up table shows a summary of our overall start-up costs. The highest initial outlay is for the franchise fee. This is required to launch the franchise. After paying our Franchise fee, our only liability to the franchise will be the 7% cost of sales, and 2.2% advertising charge. Normally the franchise fee would be paid in interest accruing installments, but we decided to forego this to keep the books as clean as possible and to reduce the possibility of a “parent/child” conflict between our company and the constituents.
Cash requirements for start-up are $19,700, and most of this will sit in a zero interest bearing, highly liquid bank account. The first month our change in accounts payable will top $61,000, so we need this $19,700 in case sales are not what we expected. If sales are 30% off projected, this $19,700 will help us gather enough cash to pay off our accounts payable within 30 days. The principles will invest a combined $30,000 to start-up the franchise. We expect that the majority of this will be paid back to the owners within two years of operations, in the form of dividends. This investment makes up over 8% of the total start-up requirements for the company. The remainder consists of one $65,000 short-term interest bearing, unsecured personal loan, one $15,980 interest-free “First Card Visa” 0% promotional loan, and a $200,000 long-term loan guaranteed by the SBA 504 program. The term of the expected loan is 10 years.
The SBA loan that we are seeking will be secured via the pre-appraised market value of the land and property, as well as the improvements to be made on the property through 2001. The estimated net market value of the property following all improvements is approximately $320,000.
|3% Loan Originition Fee||$7,800|
|Research and development||$1,500|
|Total Start-up Expenses||$96,480|
|Other Current Assets||$4,000|
|Start-up Expenses to Fund||$96,480|
|Start-up Assets to Fund||$244,500|
|Total Funding Required||$340,980|
|Non-cash Assets from Start-up||$224,800|
|Cash Requirements from Start-up||$19,700|
|Additional Cash Raised||$0|
|Cash Balance on Starting Date||$19,700|
|Liabilities and Capital|
|Accounts Payable (Outstanding Bills)||$30,000|
|Other Current Liabilities (interest-free)||$15,980|
|Additional Investment Requirement||$0|
|Total Planned Investment||$30,000|
|Loss at Start-up (Start-up Expenses)||($96,480)|
|Total Capital and Liabilities||$244,500|
2.3 Company Locations and Facilities
The company will be located between Oak St. and Water St. on Highway 99 in Ashland, Oregon. It is the busiest shopping district in Ashland, and is very close to world famous Lithia Park, also a bustling tourist destination. The building will be decorated like many of the merchants along this thoroughfare; as would befit a former 19th century gold-mining town.