Pete spends most of the 20X7 calendar year preparing to open his new business. Having identified premises that he can afford to rent, he then spends some time standing about outside counting the number of passers-by. The premises are on the edge of the main town centre, but are on a road that is used quite frequently by students going to college. Having studied the foot traffic, Pete is fairly confident that he will be able to attract passing trade. As regards competition, there are two other coffee bars in town. One is in the shopping centre, attached to a large department store. It attracts quite a high volume of business and always seems to be busy despite the fact that the coffee is really not very good. The other coffee bar is on the opposite side of town from Pete and he doesn't regard it as a serious competitor.

Pete's accountant, Norris, has been helpful in advising him on a business plan, and in forcing Pete to think carefully about costs. Norris helps Pete prepare a budget, based on a set of assumptions and estimates explained below:

1. Volume of trade: Pete reckons that trade will increase as people get to know about his coffee bar, and about the good quality coffee he plans to serve. He estimates that he should attract somewhere between 70 and 90 customers on an average day once the business gets established. To be on the safe side he estimates 70 customers per day for the first month, 75 per day for the second and third months of trading, 80 per day for the fourth and fifth months of trading, 85 for the sixth month of trading and 90 thereafter. Each month contains, on average, 26 days when the coffee bar will be open.

2. Average spend per person: Pete estimates that most people will buy at least one coffee plus a posh Italian biscuit or cake. Average spend is estimated at £2.50.

3. Gross profit percentage is estimated at 72%.

4. Pete and Norris establish a list of expenses that the business will incur in its first year, and the estimated timings of their payment:

Category £
Estimated timing Legal fees 1 000 To be paid in month 1 Launch party 2 300 To be paid in month 1 Advertising 1 600 £1000 in month 1, £400 in month 3 and £200 in month 6 Wages 2 800 £233 or £234 per month Rental of premises 7 500 £1 875 in months 1, 4, 7 and 10 Business rates 2 600 £2 600 in month 3 Water rates 860 £71 or £72 per month Power, heat and light 800 £200 in months 3, 6, 9 and 12 Phone charges 400 £100 in months 3, 6, 9 and 12 Insurance 500 £500 in month 1 Accountant's fees 800 21 160 £400 in month 5 and £400 in month 12 Wages are payable to an assistant who will help Pete out on two days per week for 50 weeks of the year. He or she will be paid for 7 hours per day at a rate of £4.00 per hour.
5. The shop needs some refitting and decoration. The costs will be kept as low as possible because Pete and his brother Dave will do a lot of the work themselves. Estimated costs to be incurred before opening are:
£
Refurbishment and decoration 5 000 Fixtures and fittings (tables, chairs, cups, saucers etc.) 3 000 Coffee machine 5 000 13 000