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Plan Outline
Coffeehouse Business Plan
Dark Roast Java
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 standardize 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 | |||
| Year 1 | Year 2 | Year 3 | |
| 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 | |
| Monthly Revenue Break-even | £34,422 |
| Assumptions: | |
| Average Percent Variable Cost | 23% |
| Estimated Monthly Fixed Cost | £26,409 |
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.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | £606,579 | £786,613 | £1,020,314 |
| Direct Cost of Sales | £141,197 | £142,609 | £144,035 |
| Other Costs of Goods | £24,000 | £28,000 | £32,000 |
| Total Cost of Sales | £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 | £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% |
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.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| 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 | |||
| Sales Tax, VAT, HST/GST Received | £0 | £0 | £0 |
| New Current Borrowing | £0 | £0 | £0 |
| 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 | £606,579 | £786,613 | £1,020,314 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| 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 | |||
| Sales Tax, VAT, HST/GST Paid Out | £0 | £0 | £0 |
| Principal Repayment of Current Borrowing | £0 | £0 | £0 |
| Other Liabilities Principal Repayment | £0 | £0 | £0 |
| Long-term Liabilities Principal Repayment | £0 | £0 | £0 |
| Purchase Other Current Assets | £0 | £0 | £0 |
| Purchase Long-term 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 |
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.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | £131,139 | £195,703 | £443,761 |
| Inventory | £16,591 | £16,757 | £16,925 |
| Other Current Assets | £15,000 | £15,000 | £15,000 |
| Total Current Assets | £162,730 | £227,461 | £475,685 |
| Long-term Assets | |||
| Long-term Assets | £62,000 | £62,000 | £62,000 |
| Accumulated Depreciation | £6,000 | £10,000 | £14,000 |
| Total Long-term Assets | £56,000 | £52,000 | £48,000 |
| Total Assets | £218,730 | £279,461 | £523,685 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| 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 |
| Long-term 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.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 29.68% | 29.71% | 5.24% |
| Percent of Total Assets | ||||
| Inventory | 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% |
| Long-term 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% |
| Long-term 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 | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 16.42% | 11.60% | 26.07% | n.a |
| Return on Equity | 53.69% | 36.45% | 54.29% | n.a |
| Activity Ratios | ||||
| Inventory 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 |