Franchise Sub Shop
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 |
