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Coffeehouse Business Plan

Dark Roast Java

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Financial Plan

8.0 Financial Plan

• Sales growth will be a minimum of 15% annually, margins excellent, profits at approximately 20% - 25%, cash flow adequate.

• Marketing will remain below 5% of sales.

• The company will invest residual profits into financial markets or real estate.

• Future cash investments will use NPV projections to achieve maximum return with limited risk.

8.1 Important Assumptions

• The 20-year record of positive growth for specialty coffee drinking will continue at a healthy rate. The Specialty Coffee Association says that the market is far from saturation and will not reach maturity until at least 2019.


• The resilience of the coffeehouse industry to negative national and world events will continue. Despite recession and war the coffeehouse industry has shown strong growth every year for the past two decades.


• The quality of national chains will remain the same or decline slightly rather than improve as they standardise their stores, increase automation of espresso drinks and mass-produce the roasting process.


• Coffee drinks will continue to be considered an "affordable luxury."


• 15% minimum sales growth rate over the next three years as Dark Roast Java becomes well known.

General Assumptions

General Assumptions
	FY 2004	FY 2005	FY 2006
Plan Month	1	2	3
Current Interest Rate	3.00%	3.00%	3.00%
Long-term Interest Rate	3.00%	3.00%	3.00%
Tax Rate	20.00%	20.00%	20.00%
Other	0	0	0

8.2 Break-even Analysis

A break-even analysis table has been completed on the basis of average costs/prices. With fixed costs of £26,400 and £4.50 an average sale, we need approximately £35,000 per month to break-even.

Break-even Analysis

Break-even Analysis
Monthly Revenue Break-even	£34,422
Assumptions:
Average Percent Variable Cost	23%
Estimated Monthly Fixed Cost	£26,409

Break-even Analysis



8.3 Projected Profit and Loss

We project high net profits starting in the first year. Our growth rate is based upon industry averages, factoring in the local conditions. We expect growth of 15% annually for the first three years before leveling off at the 800 - 900 customer per day average traffic rate.

First fiscal year gross revenues are expected to exceed £600,000 and after-tax net profits of approximately £99,000 - increasing to more than £260,000 by the third fiscal year-end.

Our margins are very good.This is due in large part to the low direct cost of sales as well as the low operating costs in general for coffeehouses.

Higher staff salaries, owner/operator salaries, marketing costs and rent for a premium location depress profits but, conversely, they also ultimately contribute to higher earnings and profits.

Profit and Loss

Pro Forma Profit and Loss
	FY 2004	FY 2005	FY 2006
Sales	£606,579	£786,613	£1,020,314
Direct Costs of Goods	£141,197	£142,609	£144,035
Other Costs of Goods	£24,000	£28,000	£32,000
	------------	------------	------------
Cost of Goods Sold	£165,197	£170,609	£176,035
Gross Margin	£441,382	£616,004	£844,279
Gross Margin %	72.77%	78.31%	82.75%
Expenses
Payroll	£183,400	£337,000	£339,400
Sales and Marketing	£12,500	£8,000	£8,000
Depreciation	£6,000	£4,000	£4,000
Rent	£45,900	£55,000	£60,000
Utilities	£9,200	£14,000	£16,000
Insurance	£2,400	£2,400	£2,500
Legal/accounting	£6,000	£6,000	£6,000
Payroll Taxes (National Insurance)	£27,510	£50,550	£50,910
Mobile Kiosk	£0	£0	£0
Misc - maintenance, cleaning, training, fees	£24,000	£25,000	£25,000
	------------	------------	------------
Total Operating Expenses	£316,910	£501,950	£511,810
Profit Before Interest and Taxes	£124,472	£114,054	£332,469
EBITDA	£130,472	£118,054	£336,469
Interest Expense	£0	£0	£0
Taxes Incurred	£24,894	£22,811	£66,494
Net Profit	£99,577	£91,243	£265,975
Net Profit/Sales	16.42%	11.60%	26.07%

Profit Monthly



Profit Yearly



Gross Margin Monthly



Gross Margin Yearly



8.4 Projected Cash Flow

We are positioning ourselves in the market as a low to medium risk concern with relatively steady cash flows. Accounts payable is paid at the end of each month, while sales are in cash, giving Dark Roast Java an excellent cash structure. Fifty percent of cash above £20,000 will be invested into semi-liquid stock portfolios to decrease the opportunity cost of cash held. Our initial investor contributions are designed to provide us with a strong cash position at all times.

Cash Flow

Pro Forma Cash Flow
	FY 2004	FY 2005	FY 2006
Cash Received
Cash from Operations
Cash Sales	£606,579	£786,613	£1,020,314
Subtotal Cash from Operations	£606,579	£786,613	£1,020,314
Additional Cash Received
VAT, VAT, HST/GST Received	£0	£0	£0
New Current Borrowing	£0	£0	£0
New Other Liabilities (interest-free)	£0	£0	£0
New Fixed liabilities	£0	£0	£0
Sales of Other Current Assets	£0	£0	£0
Sales of Fixed assets	£0	£0	£0
New Investment Received	£0	£0	£0
Subtotal Cash Received	£606,579	£786,613	£1,020,314
Expenditures	FY 2004	FY 2005	FY 2006
Expenditures from Operations
Cash Spending	£183,400	£337,000	£339,400
Bill Payments	£275,940	£358,649	£406,457
Subtotal Spent on Operations	£459,340	£695,649	£745,857
Additional Cash Spent
VAT, VAT, HST/GST Paid Out	£0	£0	£0
Principal Repayment of Current Borrowing	£0	£0	£0
Other Liabilities Principal Repayment	£0	£0	£0
Fixed liabilities Principal Repayment	£0	£0	£0
Purchase Other Current Assets	£0	£0	£0
Purchase Fixed assets	£0	£0	£0
Dividends	£17,600	£26,400	£26,400
Subtotal Cash Spent	£476,940	£722,049	£772,257
Net Cash Flow	£129,639	£64,564	£248,057
Cash Balance	£131,139	£195,703	£443,761

Cash



8.5 Projected Balance Sheet

All of our tables will be updated monthly to reflect past performance and future assumptions. Future assumptions will not be based on past performance but rather on economic cycle activity, regional industry strength, and future cash flow possibilities. We expect solid growth in net worth beyond the year 2003.

Balance Sheet

Pro Forma Balance Sheet
	FY 2004	FY 2005	FY 2006
Assets
Current Assets
Cash	£131,139	£195,703	£443,761
Stock	£16,591	£16,757	£16,925
Other Current Assets	£15,000	£15,000	£15,000
Total Current Assets	£162,730	£227,461	£475,685
Fixed assets
Fixed assets	£62,000	£62,000	£62,000
Accumulated Depreciation	£6,000	£10,000	£14,000
Total Fixed assets	£56,000	£52,000	£48,000
Total Assets	£218,730	£279,461	£523,685
Liabilities and Capital	FY 2004	FY 2005	FY 2006
Current Liabilities
Accounts Payable	£33,253	£29,140	£33,790
Current Borrowing	£0	£0	£0
Other Current Liabilities	£0	£0	£0
Subtotal Current Liabilities	£33,253	£29,140	£33,790
Fixed liabilities	£0	£0	£0
Total Liabilities	£33,253	£29,140	£33,790
Paid-in Capital	£250,500	£250,500	£250,500
Retained Earnings	(£164,600)	(£91,423)	(£26,579)
Earnings	£99,577	£91,243	£265,975
Total Capital	£185,477	£250,321	£489,896
Total Liabilities and Capital	£218,730	£279,461	£523,685
Net Worth	£185,477	£250,321	£489,896

8.6 Business Ratios

We expect our net profit margin, gross margin, and Return on Assets to increase steadily over the three-year period. Return on Equity will decrease due to lower equity needs and higher cash inflow. Net working capital generated by the business will increase steadily each year, proving that we have the cash flows to remain a going concern independent of outside capital infusion.

While our ratios are not all in sync with those of the industry, due to the unique nature of our business, it's important to point out that in key areas the numbers are excellent. The only industry ratio category currently available, SIC Code 5812.0304, includes cafes, restaurants and other businesses serving coffee. These businesses are significantly different from the Dark Roast Java coffeehouse concept.

Ratios

Ratio Analysis
	FY 2004	FY 2005	FY 2006	Industry Profile
Sales Growth	0.00%	29.68%	29.71%	5.24%
Percent of Total Assets
Stock	7.59%	6.00%	3.23%	4.34%
Other Current Assets	6.86%	5.37%	2.86%	35.11%
Total Current Assets	74.40%	81.39%	90.83%	43.74%
Fixed assets	25.60%	18.61%	9.17%	56.26%
Total Assets	100.00%	100.00%	100.00%	100.00%
Current Liabilities	15.20%	10.43%	6.45%	18.93%
Fixed liabilities	0.00%	0.00%	0.00%	25.48%
Total Liabilities	15.20%	10.43%	6.45%	44.41%
Net Worth	84.80%	89.57%	93.55%	55.59%
Percent of Sales
Sales	100.00%	100.00%	100.00%	100.00%
Gross Margin	72.77%	78.31%	82.75%	61.91%
Selling, General & Administrative Expenses	56.32%	66.62%	56.54%	39.08%
Advertising Expenses	0.00%	0.00%	0.00%	2.55%
Profit Before Interest and Taxes	20.52%	14.50%	32.58%	1.38%
Main Ratios
Current	4.89	7.81	14.08	1.14
Quick	4.39	7.23	13.58	0.79
Total Debt to Total Assets	15.20%	10.43%	6.45%	49.97%
Pre-tax Return on Net Worth	67.11%	45.56%	67.87%	3.97%
Pre-tax Return on Assets	56.91%	40.81%	63.49%	7.93%
Additional Ratios	FY 2004	FY 2005	FY 2006
Net Profit Margin	16.42%	11.60%	26.07%	n.a
Return on Equity	53.69%	36.45%	54.29%	n.a
Activity Ratios
Stock Turnover	10.10	8.55	8.55	n.a
Accounts Payable Turnover	9.30	12.17	12.17	n.a
Payment Days	27	32	28	n.a
Total Asset Turnover	2.77	2.81	1.95	n.a
Debt Ratios
Debt to Net Worth	0.18	0.12	0.07	n.a
Current Liab. to Liab.	1.00	1.00	1.00	n.a
Liquidity Ratios
Net Working Capital	£129,477	£198,321	£441,896	n.a
Interest Coverage	0.00	0.00	0.00	n.a
Additional Ratios
Assets to Sales	0.36	0.36	0.51	n.a
Current Debt/Total Assets	15%	10%	6%	n.a
Acid Test	4.39	7.23	13.58	n.a
Sales/Net Worth	3.27	3.14	2.08	n.a
Dividend Payout	0.18	0.29	0.10	n.a