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Cafe Bistro Coffeehouse Business Plan

The Watertower

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Financial Plan

7.0 Financial Plan

We want to finance growth mainly through cash flow. We recognise that this means we will have to grow more slowly than we might like.

The most important indicator in our case is stock turnover. We have to make sure that food stock turnover stays at approximately four turns per month, or we risk loss through spoilage.

We do not want to let our average collection days get above 45 under any circumstances. This could cause a serious problem with cash flow, because our working capital situation is tight. Most credit sales will be via credit and debit cards. We do have plans to initiate direct billing for law firms and other businesses conducting regular visits.

We must target a net profit of 14% at the least, and hold marketing costs to no more than one to three percent of gross sales.

7.1 Important Assumptions

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

• We assume a slow-growth economy, without major recession.

• We assume of course that there are no unforeseen changes in technology to make equipment immediately obsolete.

• We assume access to equity capital and financing sufficient to maintain our financial plan as shown in the tables.

General Assumptions

General Assumptions
	FY 2002	FY 2003	FY 2004
Plan Month	1	2	3
Current Interest Rate	12.25%	12.25%	12.25%
Long-term Interest Rate	6.75%	6.75%	6.75%
Tax Rate	25.42%	25.00%	25.42%
Other	0	0	0

7.2 Key Financial Indicators

The most important indicators in our case are are daily seating "counts" and weekly sales numbers. We must also make sure that we are turning our stock rapidly so as to avoid food spoilage.

We must target net profit/sales figures toward the 14% level with gross margins never dipping below 38%. Marketing costs should never exceed three percent of sales.

Benchmarks



7.3 Break-even Analysis

The Break-even Analysis shows that The Watertower has a good balance of fixed costs and sufficient sales strength to remain healthy. Our break-even point is £106,101 on sales averaging £12.54 per patron. This break-even position is achieved on a monthly fixed cost of £57,873 and and per unit/patron variable cost of £5.70.

Break-even Analysis



Break-even Analysis

Break-even Analysis
Monthly Revenue Break-even	£122,179
Assumptions:
Average Percent Variable Cost	62%
Estimated Monthly Fixed Cost	£46,841

7.4 Projected Profit and Loss

We expect income to approach £2.1 million for calendar year 2002. It should increase to £2.57 million by the end of the years covered in this plan.

Profit and Loss

Pro Forma Profit and Loss
	FY 2002	FY 2003	FY 2004
Sales	£2,186,601	£2,351,541	£2,573,024
Direct Costs of Goods	£1,348,308	£1,277,010	£1,340,860
Other	£0	£0	£0
	------------	------------	------------
Cost of Goods Sold	£1,348,308	£1,277,010	£1,340,860
Gross Margin	£838,293	£1,074,531	£1,232,164
Gross Margin %	38.34%	45.69%	47.89%
Expenses
Payroll	£322,008	£322,008	£322,008
Sales and Marketing and Other Expenses	£80,800	£80,800	£80,800
Depreciation	£6,900	£6,900	£6,900
Leased Equip/Van/Dispensing Systems	£12,600	£12,600	£12,600
Utilities	£24,000	£24,000	£24,000
Insurance	£20,940	£22,000	£23,000
Other Taxes	£24,000	£24,000	£24,000
Payroll Taxes (National Insurance)	£70,842	£70,842	£70,842
Other	£0	£0	£0
	------------	------------	------------
Total Operating Expenses	£562,090	£563,150	£564,150
Profit Before Interest and Taxes	£276,203	£511,381	£668,014
EBITDA	£283,103	£518,281	£674,914
Interest Expense	£48,095	£43,298	£41,442
Taxes Incurred	£55,675	£117,021	£159,254
Net Profit	£172,433	£351,062	£467,318
Net Profit/Sales	7.89%	14.93%	18.16%

Profit Monthly



7.5 Projected Cash Flow

We expect to manage cash flow over the next three years with minimal new investment required over the first two years. It is our expectation that revenue beyond projected sales will be invested in retiring long-term debt early.

Cash



Cash Flow

Pro Forma Cash Flow
	FY 2002	FY 2003	FY 2004
Cash Received
Cash from Operations
Cash Sales	£2,186,601	£2,351,541	£2,573,024
Subtotal Cash from Operations	£2,186,601	£2,351,541	£2,573,024
Additional Cash Received
VAT, VAT, HST/GST Received	£0	£0	£0
New Current Borrowing	£0	£0	£29,559
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	£2,186,601	£2,351,541	£2,602,583
Expenditures	FY 2002	FY 2003	FY 2004
Expenditures from Operations
Cash Spending	£322,008	£322,008	£322,008
Bill Payments	£1,633,772	£1,677,517	£1,773,221
Subtotal Spent on Operations	£1,955,780	£1,999,525	£2,095,229
Additional Cash Spent
VAT, VAT, HST/GST Paid Out	£0	£0	£0
Principal Repayment of Current Borrowing	£23,160	£26,435	£0
Other Liabilities Principal Repayment	£0	£0	£0
Fixed liabilities Principal Repayment	£27,430	£29,329	£31,339
Purchase Other Current Assets	£0	£0	£0
Purchase Fixed assets	£0	£0	£0
Dividends	£0	£0	£0
Subtotal Cash Spent	£2,006,370	£2,055,289	£2,126,568
Net Cash Flow	£180,231	£296,252	£476,015
Cash Balance	£280,231	£576,483	£1,052,498

7.6 Projected Balance Sheet

As shown in the Balance Sheet, we expect a healthy growth in net worth from approximately £172,000 at the end of 2002 to almost £1 million by the end of the plan period.

Balance Sheet

Pro Forma Balance Sheet
	FY 2002	FY 2003	FY 2004
Assets
Current Assets
Cash	£280,231	£576,483	£1,052,498
Stock	£129,671	£122,814	£128,955
Other Current Assets	£0	£0	£0
Total Current Assets	£409,902	£699,297	£1,181,453
Fixed assets
Fixed assets	£595,040	£595,040	£595,040
Accumulated Depreciation	£6,900	£13,800	£20,700
Total Fixed assets	£588,140	£581,240	£574,340
Total Assets	£998,042	£1,280,537	£1,755,793
Liabilities and Capital	FY 2002	FY 2003	FY 2004
Current Liabilities
Accounts Payable	£27,818	£136,826	£146,543
Current Borrowing	£6,690	(£19,745)	£9,814
Other Current Liabilities	£0	£0	£0
Subtotal Current Liabilities	£34,508	£117,081	£156,357
Fixed liabilities	£667,969	£638,640	£607,301
Total Liabilities	£702,477	£755,721	£763,658
Paid-in Capital	£98,000	£98,000	£98,000
Retained Earnings	(£96,679)	£75,754	£426,817
Earnings	£172,433	£351,062	£467,318
Total Capital	£173,754	£524,817	£992,135
Total Liabilities and Capital	£876,232	£1,280,537	£1,755,793
Net Worth	£295,565	£524,817	£992,135

7.7 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 5812, Eating Places, are shown for comparison. The ratios show a plan for balanced, healthy growth.

Ratios

Ratio Analysis
	FY 2002	FY 2003	FY 2004	Industry Profile
Sales Growth	0.00%	7.54%	9.42%	7.60%
Percent of Total Assets
Stock	12.99%	9.59%	7.34%	3.60%
Other Current Assets	0.00%	0.00%	0.00%	35.60%
Total Current Assets	41.07%	54.61%	67.29%	43.70%
Fixed assets	58.93%	45.39%	32.71%	56.30%
Total Assets	100.00%	100.00%	100.00%	100.00%
Current Liabilities	3.46%	9.14%	8.91%	32.70%
Fixed liabilities	66.93%	49.87%	34.59%	28.50%
Total Liabilities	70.39%	59.02%	43.49%	61.20%
Net Worth	29.61%	40.98%	56.51%	38.80%
Percent of Sales
Sales	100.00%	100.00%	100.00%	100.00%
Gross Margin	38.34%	45.69%	47.89%	60.50%
Selling, General & Administrative Expenses	30.51%	30.77%	29.62%	39.80%
Advertising Expenses	0.73%	0.68%	0.62%	3.20%
Profit Before Interest and Taxes	12.63%	21.75%	25.96%	0.70%
Main Ratios
Current	11.88	5.97	7.56	0.98
Quick	8.12	4.92	6.73	0.65
Total Debt to Total Assets	70.39%	59.02%	43.49%	61.20%
Pre-tax Return on Net Worth	77.18%	89.19%	63.15%	1.70%
Pre-tax Return on Assets	22.86%	36.55%	35.69%	4.30%
Additional Ratios	FY 2002	FY 2003	FY 2004
Net Profit Margin	7.89%	14.93%	18.16%	n.a
Return on Equity	58.34%	66.89%	47.10%	n.a
Activity Ratios
Stock Turnover	10.91	10.12	10.65	n.a
Accounts Payable Turnover	63.04	12.17	12.17	n.a
Payment Days	13	18	29	n.a
Total Asset Turnover	2.19	1.84	1.47	n.a
Debt Ratios
Debt to Net Worth	2.38	1.44	0.77	n.a
Current Liab. to Liab.	0.05	0.15	0.20	n.a
Liquidity Ratios
Net Working Capital	£375,394	£582,217	£1,025,096	n.a
Interest Coverage	5.74	11.81	16.12	n.a
Additional Ratios
Assets to Sales	0.46	0.54	0.68	n.a
Current Debt/Total Assets	3%	9%	9%	n.a
Acid Test	8.12	4.92	6.73	n.a
Sales/Net Worth	7.40	4.48	2.59	n.a
Dividend Payout	0.00	0.00	0.00	n.a