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Plan Outline
Cafe Bistro Coffeehouse Business Plan
The Watertower Cafe
Financial Plan
We want to finance growth mainly through cash flow. We recognize that this means we will have to grow more slowly than we might like.
The most important indicator in our case is inventory turnover. We have to make sure that food inventory 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 | |||
| Year 1 | Year 2 | Year 3 | |
| 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 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.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| 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 | |||
| Sales Tax, VAT, HST/GST Received | £0 | £0 | £0 |
| New Current Borrowing | £0 | £0 | £29,559 |
| 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 | £2,186,601 | £2,351,541 | £2,602,583 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| 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 | |||
| Sales Tax, 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 |
| Long-term Liabilities Principal Repayment | £27,430 | £29,329 | £31,339 |
| Purchase Other Current Assets | £0 | £0 | £0 |
| Purchase Long-term 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 |
7.3 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 inventory 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.
7.4 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 | |
| Monthly Revenue Break-even | £122,179 |
| Assumptions: | |
| Average Percent Variable Cost | 62% |
| Estimated Monthly Fixed Cost | £46,841 |
7.5 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.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | £2,186,601 | £2,351,541 | £2,573,024 |
| Direct Cost of Sales | £1,348,308 | £1,277,010 | £1,340,860 |
| Other | £0 | £0 | £0 |
| Total Cost of Sales | £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 | £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% |
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.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | £280,231 | £576,483 | £1,052,498 |
| Inventory | £129,671 | £122,814 | £128,955 |
| Other Current Assets | £0 | £0 | £0 |
| Total Current Assets | £409,902 | £699,297 | £1,181,453 |
| Long-term Assets | |||
| Long-term Assets | £595,040 | £595,040 | £595,040 |
| Accumulated Depreciation | £6,900 | £13,800 | £20,700 |
| Total Long-term Assets | £588,140 | £581,240 | £574,340 |
| Total Assets | £998,042 | £1,280,537 | £1,755,793 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | £149,628 | £136,826 | £146,543 |
| Current Borrowing | £6,690 | (£19,745) | £9,814 |
| Other Current Liabilities | £0 | £0 | £0 |
| Subtotal Current Liabilities | £156,318 | £117,081 | £156,357 |
| Long-term Liabilities | £667,969 | £638,640 | £607,301 |
| Total Liabilities | £824,287 | £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 | £998,042 | £1,280,537 | £1,755,793 |
| Net Worth | £173,754 | £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.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 7.54% | 9.42% | 7.60% |
| Percent of Total Assets | ||||
| Inventory | 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% |
| Long-term Assets | 58.93% | 45.39% | 32.71% | 56.30% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 15.66% | 9.14% | 8.91% | 32.70% |
| Long-term Liabilities | 66.93% | 49.87% | 34.59% | 28.50% |
| Total Liabilities | 82.59% | 59.02% | 43.49% | 61.20% |
| Net Worth | 17.41% | 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 | 2.62 | 5.97 | 7.56 | 0.98 |
| Quick | 1.79 | 4.92 | 6.73 | 0.65 |
| Total Debt to Total Assets | 82.59% | 59.02% | 43.49% | 61.20% |
| Pre-tax Return on Net Worth | 131.28% | 89.19% | 63.15% | 1.70% |
| Pre-tax Return on Assets | 22.86% | 36.55% | 35.69% | 4.30% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 7.89% | 14.93% | 18.16% | n.a |
| Return on Equity | 99.24% | 66.89% | 47.10% | n.a |
| Activity Ratios | ||||
| Inventory Turnover | 10.91 | 10.12 | 10.65 | n.a |
| Accounts Payable Turnover | 11.72 | 12.17 | 12.17 | n.a |
| Payment Days | 28 | 31 | 29 | n.a |
| Total Asset Turnover | 2.19 | 1.84 | 1.47 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 4.74 | 1.44 | 0.77 | n.a |
| Current Liab. to Liab. | 0.19 | 0.15 | 0.20 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | £253,583 | £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 | 16% | 9% | 9% | n.a |
| Acid Test | 1.79 | 4.92 | 6.73 | n.a |
| Sales/Net Worth | 12.58 | 4.48 | 2.59 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |