Papa Geo’s – Restaurant Budget Proposal For 2012 - 2017 BUSN-278 [Term] Professor[name] DeVry University ------------------------------------------------- Table of Contents Section| Title| Subsection| Title| Page Number| 1. 0| Executive summary| | | | 2. 0| Sales Forecast| | | | | | 2. 1| Sales Forecast| | | | 2. 2| Methods and Assumptions| | 3. 0| Capital Expenditure Budget| | | | 4. 0| Investment Analysis| | | | | | 4. 1| Cash flows| | | | 4. 2| NPV Analysis| | | | 4. 3| Rate of Return Calculations| | | 4. 4| Payback Period Calculations| | 5. 0| Pro Forma Financial Statements| | | | | | 5. 1| Pro Forma Income Statement| | | | 5. 2| Pro-Forma Cash flow Statement| | | | 5. 3| Pro-Forma Balance Sheets| | 6. 0| Works Cited| | | | 7. 0| Appendices| | | | | | 7. 1| Appendix 1: [description]| | | | 7. 2| Appendix 2: [description] etc| | * 1. 0 Executive Summary 1. 0 Executive Summary * * This budget proposal is for the starting and running of a single location, sit-down Italian restaurant named Papa Geo’s.
The restaurant would be located in Orlando, Florida and would majorly target middle to lower-middle class families with children, as well as adults and seniors, thus making it a friendly and family place. The major product and service provided by the restaurant would be Italian food served buffet style with an all-you-can-eat format with a lot of variety including a salad bar, pizza, several different types of pasta with three or four types of sauces, soup, desserts, and a self-serve soda bar. There would also be a gaming area within the restaurant with gaming machines installed which would be of interest to children.
The business would provide wholesome and fresh food, in a simple format, with very good prices and is located in a densely populated area, all of which would help the restaurant to do well and establish itself as a popular and profitable business. * * * Also, provide a second paragraph which describes how the budget supports the company’s strategy. * * Finally, provide a third paragraph where you summarize the key points from your budget, including the planning horizon, the amount of up-front investment, the NPV, Payback and IRR of the project, as well as key figures from your income statement, cash flow statement, and balance sheet. * Remember, this is not a thesis or introduction of what you will talk about – it contains the major, specific content of each section. The second and third paragraph should be written after you have completed all other sections of this template. * * As you complete sections of this template, please remove all italicized text in all sections of this template and replace it with your own or you will lose points! * * 2. 0 Sales Forecast 2. 0 Sales Forecast * * This section forecasts the sales of Papa Geo’s restaurant over a five-year period.
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Section 2. 1 gives the estimated sales figures and a brief explanation on the changes in these figures over the planning period. * Section 2. 2 delves into the details of how this sales estimate has been arrived at, calculations involved and the methods and assumptions used in the process. * Overall, this section is useful is providing an estimate of how much the restaurant can make in sales, given its internal specifics and external environment. * 2. 1 Sales Forecast * * The yearly sales forecast for Papa Geo’s restaurant is given below.
In $ | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Sales | 933,504. 00 | 1,555,840. 00 | 1,616,517. 76 | 1,679,561. 95 | 1,745,064. 87 | * My methods and assumptions for arriving at the sales figures in the table are detailed in section 2. 2 The sales figure estimated per my calculations is taken as the sale figure for Year 2. This is because the sales figure arrived at from the calculations cannot be assumed to be sales for Year 1 as the restaurant might not be able to realize its full potential and attract the estimated number of customers from day one itself.
Also, teething problems with marketing, operations etc might not lead to optimum sales. Therefore, we will project only 60% of this figure as first year sales and use the estimated figure as the sales figure for Year 2. Over the planning period, starting from Year 2 onwards, sales are expected to grow at a rate of 3. 9% every year, in line with industry estimates of the average growth of the restaurant industry in the US (Source: Mintel International, cited in section 6. 0). * * 2. 2 Methods and Assumptions * According to the brief given on Papa Geo’s restaurant, there are about 10,000 families living within 15 minutes of the restaurant. Of these, between 3% and 5% are rich households (Phoenix marketing international, Wikipedia) and it is assumed that another 15% comprise of high income and upper middle class households. That leaves about 80% of the 10000 families in the area,that are the target market for the restaurant. * * According to a research paper (in restaurant. org), American families eat out about 4 times a week.
However, considering that our target market comprises of mostly middle and lower income families, I’ve assumed that they eat out only about 2 times a week on an average. This means that, about 16000 families [(80%*10,000)*2] eat out in a week in that area in Ohio, Florida. * * In terms of competition, although it is mentioned that McDonalds, Taco Bell and Wendy’s operate in the area, we assume there are other small places that people might visit to eat out. Also, people might venture out beyond their areas to eat out.
Keeping these in mind, we’ve assumed that these four places (Papa Geo’s, McDonald’s, Taco Bell and Wendy’s) will be able to capture only about 85% of these families. (16000*85%=13600/week). Of these four places, since the others are fast food and fast food restaurants generally command a larger footfall than other format restaurants we assume the following about their share in the pie of families: Taco Bell: 30%, McDonald’s: 30%, Wendy’s: 30% and Papa Geo’s: 10% * * i. e, Papa Geo’s can expect to capture 1360 (10%*13600) families per week.
Since this is a family dining place, we make another assumption about the composition of the family. We assume that out of a family of 4, two are kids and two adults. Which means that about 2720 (1360*2) kids and 2720 adults (1360*2) will eat from Papa Geo’s per week. * * Given that a meal (including drinks) cost about $7, we make the following assumptions: * Adults visiting the restaurant will have meals (@ $7), on an average. * Kids visiting the restaurants with their families will make a bill of about $4 per head. Given this, we now estimate the weekly sales for adults and kids. Therefore, d * Sales from Adults per week: 2720*7 = 19040 * Sales from Kids per week: 2720*4 = 10880 * * Now, the total sales (both adults and kids, as part of families) per week can be estimated at: 19040+10880 = $29920 * Therefore, average sales per year = 1,555,840 * The sales figure estimated by these calculations is taken as the sale figure for Year 2. This is because the sales figure arrived at from the calculations cannot be assumed to be sales for Year 1 as the restaurant might not be able to realize its full potential and attract the estimated number of customers from day one itself.
Also, teething problems with marketing, operations etc might not lead to optimum sales. Therefore, we will project only 60% of this figure as first year sales, and use the estimated figure as the sales figure for Year 2. Over the planning period, starting from Year 2 onwards, sales are expected to grow at a rate of 3. 9% every year, in line with industry estimates of the average growth of the restaurant industry in the US (Source: Mintel International, cited in section 6. 0). * * * * * * * * * * * * * * * * * * 3. Capital Expenditure Budget 3. 0 Capital Expenditure Budget * * Capital Expenditure Budget: * Item| Cost| Quantity| Total cost| Source| Notes and Assumptions| Cost of registering a business| 300| | 300| ehow. com| Cost of registering includes: actual cost of registering ($70), legal fees and misc expenses (approx $230)| Renovation of facility| 15000| 1| 15000| Given| This includes all kinds of beautification etc that the restaurant needs to start operations| Soda fountain bar| 3621| 1| 3621| Soda-dispenser. om| Prices quoted may or may not be the same at later dates| 2 pizza ovens| 849| 2| 1698| ebay| Prices quoted may or may not be the same at later dates| salad and Pizza/dessert bar| 1450| 1| 1450| ebay| Prices quoted may or may not be the same at later dates| Commercial Refrigerator| 3529| 1| 3529| Coldtechcommercial. com| Prices quoted may or may not be the same at later dates| Cash Register| 170| 2| 340| ebay| Prices quoted may or may not be the same at later dates| Video game vending machine| | | | | |
Type 1| 550| 2| 1100| ebay| Prices quoted may or may not be the same at later dates| Type 2| 750| 2| 1500| ebay| Prices quoted may or may not be the same at later dates| Laptop for management| 275| 1| 275| ebay| Laptop purchased with Warranty, Price quoted may or may not be the same at later dates| desk for mgmt| 25| 1| 25| ebay| Prices quoted may or may not be the same at later dates| Staff Microwave| 319| 1| 319| ebay| Prices quoted may or may not be the same at later dates| Staff cupboard| 100| 1| 100| Assumed| | taff refriferator| 700| 1| 700| ebay| Prices quoted may or may not be the same at later dates| Tables for the restaurant| 279| 20| 5580| tableschairsbarstools. com| Prices quoted may or may not be the same at later dates| Chairs for the restaurant| 55| 80| 4400| restaurant-services. com| Prices quoted may or may not be the same at later dates| Busing cart for restaurant| 50| 1| 50| ebay| Prices quoted may or may not be the same at later dates| Commercial dishwasher| 2500| 1| 2500| ebay| Prices quoted may or may not be the same at later dates| Restaurant signage| 124| 1| 124| brightledsigns. om| Although this is a form of advertising, this wouldn't be considered as an operating cost given the long term (more than a year) nature of its use| Total| | | 42611| | | * * The above table provides an estimate of the capital budget required for Papa Geo’s restaurant. For each item, sources and assumptions used are explained towards the right side of the table. Other generic assumptions beyond those already mentioned are provided below: * Miscellaneous cooking and handling equipment cost will be considered operational expenses and will not be capitalized given the short term (less than a year) use of such assets.
Cutlery, drinking cups etc would be considered to fall into the same category| * The total cost of registration is considered as capital expenditure due to its long term nature of use| * Any fixtures like lighting etc are considered as operational expenses and will not be capitalizedThe total capital budget required is US$ 42,611. Major component of this budget are renovation and equipment costs, which is true of restaurant businesses. | * * * * 4. 0 Investment Analysis 4. 0 Investment Analysis * 4. 1 Cashflows * Year 1| Year 2| Year 3| Year 4| Year 5| Sources of Cash| | | | | | Total income (from food and vending machines)| 9,38,944 | 15,61,492 | 16,22,390 | 16,85,664 | 17,51,404 | | | | | | | Uses of Cash| | | | | | Cost of Food| 282880| 294195. 2| 305963. 008| 318201. 5283| 330929. 5895| depreciation on equipment| 3069. 2| 3069. 2| 3069. 2| 3069. 2| 3069. 2| Salaries| 348636| 362581. 44| 377084. 6976| 392168. 0855| 407854. 8089| employee benefits| 21887. 2| 22762. 688| 23673. 19552| 24620. 2334| 25604. 92827| utilities| 24000| 24000| 24000| 24000| 24000| credit card fees| 23,473. 60 | 39,037. 30 | 40,559. 76 | 42,141. 59 | 43,785. 11 | inventory holding costs| 2,347. 36 | 3,903. 73 | 4,055. 98 | 4,214. 16 | 4,378. 51 | advertising and marketing| 15,000| 10000| 10000| 10000| 10000| Rent| 630000| 630000| 630000| 630000| 630000| Insurance| 1000| 1000| 1000| 1000| 1000| interest| 13320| 13320| 13320| 13320| 13320| ncome - opex (for purposes of tax calculation)| (4,26,669)| 1,57,623 | 1,89,665 | 2,22,929 | 2,57,462 | Taxes| - | 42,558. 10 | 51,209. 42 | 60,190. 80 | 69,514. 82 | add back depreciation (non-cash expense)| 3069. 2| 3069. 2| 3069. 2| 3069. 2| 3069. 2| | | | | | | Net Cash Flows| (4,23,600)| 1,18,134 | 1,41,524 | 1,65,807 | 1,91,017 | * * * Highlights and Assumptions: * For this cash flow analysis, only operating activities are considered nd it is assumed that there are no investing and financing cash flows that may have material impact on the business * Average meal cost $4 in materials and labor, costs expected to increase about 4 percent a year -- the same as increase in sales. From the sales forecast page, it is assumed that 1360 families eat at the restaurant per week * Equipment cost depreciated over a 5 year period, on a straight line basis * Salaries assumed to grow at about 4 percent per year * Cost of benefits to increase at 4 percent - in proportion to salaries * Utility bills assumed to average out for the year and over the years * Given : 2. % of sales * 10% of following month's sales is given. For the whole year, assumed at 10% of the year's sales of food only. Vending machine sales not included * Assumed to be higher in the first year and then average out at lesser cost over the next 4 years * Rent assumed to be 15 dollars per sq foot * It is assumed that the entrepreneur take a 100k loan * Assumed tax rate to be 27 percent. Actual tax rate is slab-based and may vary * Includes all capex items except costs of registration and renovation expenses 4. 2 NPV Analysis * Interest rate| 15%| | | | | | | | | | |
Year| 1| 2| 3| 4| 5| Cash Flow| (4,23,600)| 1,18,134 | 1,41,524 | 1,65,807 | 1,91,017 | PV factor| 100%| 87%| 76%| 66%| 57%| PV of cash flow| (4,23,600)| 1,02,725 | 1,07,013 | 1,09,021 | 1,09,214 | Cumulative PV| (4,23,600)| (3,20,875)| (2,13,863)| (1,04,842)| 4,373 | Net Present Value| 4,373 | | | | | * * Highlights and Assumptions: * As can be seen from the above table, the net present value for the project is positive which shows that the project should be pursued. Interest rate of 15% has been taken for calculation, assuming that the project would be financed with debt taken at the rate * 4. 3 Rate of Return * Cost of Capital| 6%| | | | | | | | | | | Year| 1| 2| 3| 4| 5| | | | | | | Net Cash Flow| (4,23,600)| 1,18,134 | 1,41,524 | 1,65,807 | 1,91,017 | PV Factor| 100%| 94%| 89%| 84%| 79%| PV of net cash flow| (4,23,600)| 1,11,447 | 1,25,956 | 1,39,215 | 1,51,303 | Cumulative PV| (4,23,600)| (3,12,153)| (1,86,197)| (46,982)| 1,04,321 | Net present value| 1,04,321 | | | | | | | | | | IRR (Internal rate of return)| 15%| | | | | * * Highlights and Assumptions: * The project presents a rate of return on 15% which can said to be attractive, as against a cost of capital rate of 6% * 4. 4 Payback Period * Provide a screen shot of your Excel calculation of the payback period for this venture. * Year| 0| 1| 2| 3| 4| Cash Flow| (4,23,600)| 1,18,134 | 1,41,524 | 1,65,807 | 1,91,017 | Payback| NA| N/A| N/A| N/A| 2. 99| * * Highlights and Assumptions: * The project has a payback period of 2. 9 years, essentially it would pay back for itself in about three years’ time. * * 5. 0 Pro-Forma Financial Statements 5. 0 Pro-Forma Financial Statements * * In this section, the future financial statements of Papa Geo’s restaurant are presented based on certain assumed events and transactions. They are an active planning tool and tend to give an indication of the company’s performance in the future based on certain assumptions. * * Pro-Forma Income Statement | Year 1| Year 2| Year 3| Year 4| Year 5| | | | | | |
Total Sales| 938,944 | 1,561,492 | 1,622,390 | 1,685,664 | 1,751,404 | Total Variable costs| 657,337 | 699,718 | 727,663 | 756,725 | 786,948 | Contribution Margin| 281,607 | 861,774 | 894,727 | 928,938 | 964,456 | Total Fixed Costs| 708,276 | 704,152 | 705,062 | 706,009 | 706,994 | Total Income before Tax| (426,669)| 157,623 | 189,665 | 222,929 | 257,462 | Tax Expense| 0| 42558. 014| 51209. 41996| 60190. 80097| 69514. 82326| Net Income| (426,669)| 115,064 | 138,455 | 162,738 | 187,947 | * * Assumptions and Highlights: * This Pro Forma Income Sheet is prepared in Contribution format. A contribution income statement breaks costs down between variable costs and fixed costs. Contribution income statement is only an internal financial planning tool and cannot be assumed to reflect accounting norms or procedures like IFRS etc. * All sources for figures are the same as mentioned in Cash flow analysis (section 4. ) * Although salaries calculated are based on specifics given in the project description of Papa Geo's, it is assumed that they will vary according to sales and that the company may hire or fire depending on business volumes * 5. 2 Pro-Forma Cash Flow Statement * Provide a screen shot of the cash flow statement and describe the impact of the budget on cash balances. * 5. 3 Pro-Forma Balance Sheets Provide a screen shot of your balance sheets, and describe key figures they contain. * 6. 0 Works Cited 6. 0 Works Cited Market Research portal: http://www. marketresearch. com/Mintel-International-Group-Ltd-v614/American-Families-Dining-6166418/ Restaurant. org: http://www. restaurant. org/tools/magazines/rusa/magarchive/year/article/? articleid=138 Wikipedia: http://en. wikipedia. org/wiki/American_upper_class Ehow. com Soda-dispenser. com Coldtechcommercial. com Ebay tableschairsbarstools. com restaurant-services. com brightledsigns. com * * * 7. 0 Appendices 7. 0 Appendices * * NOTE: Start this section at the top of a new page. This section of the budget proposal is where you’ll attach all of the supporting materials that you’ve referenced in the preparation of your plan, and that is too detailed or extensive to be included in the body of the report. Use this page to separate the appendices from the text in the body of your report. Make certain that you update the table of contents to include the title of each exhibit in the appendix and its page number. 7. 1 Appendix 1: [put a description here] 7. 2 Appendix 1: [put a description here] 7. 3 Appendix 1: [put a description here] * *
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