Would you be able to put together another monthly cash flow analysis, this time for year 1?

INCOME STATEMENT Year 1 269,115.00 48,930.00 20,388.00 338,433.00 $ $ $ $ COGS $ 113,940.00 $ 125,940.00 $ 137,940.00 Gross Margin $ 224,493.00 $ 317,073.00 $ 409,736.00 Advertising Contract Labor Loan Interest Office Expenses Operating Supplies Professional Fees Rent Utilities Wages Depreciation $ $ $ $ $ $ $ $ $ $ Total Expenses $ 316,068.00 $ 316,932.00 $ 323,939.52 Gain on Sale of Assets $ Net Income $ (91,575.00) $ - $ $ $ $ $ $ $ $ $ $ $ 6,500.00 12,064.00 4,300.00 1,343.00 38,325.00 24,000.00 230,400.00 3,914.90 - $ $ $ $ Year 3 435,501.00 79,182.00 32,993.00 547,676.00 Sales - Meals Sales - Drinks Sales - Other Total Sales 6,500.00 4,000.00 12,000.00 5,500.00 1,343.00 4,000.00 38,325.00 24,000.00 220,400.00 3,914.90 $ $ $ $ Year 2 352,275.00 64,050.00 26,688.00 443,013.00 $ 6,500.00 $ $ 8,071.52 $ 4,300.00 $ 1,343.00 $ $ 38,325.00 $ 24,000.00 $ 241,400.00 $ 3,914.90 $ 141.00 $ 85,796.48 STATEMENT OF CASH FLOWS Net Income Year 1 $ (91,575.00) $ Add Depreciation $ Decrease/Increase in: Prepaid Expenses Inventory $ $ Purchase/Sale of: PP&E $ (78,298.00) $ Increase/Decrease in: Loan Payment Loan Payable Borrowing Capital Stock $ (46,205.00) $ (49,901.00) $ (49,582.00) $ 150,000.00 $ 47,000.00 $ $ 75,000.00 $ - $ - Change to Cash Beginning Cash Ending Cash $ $ $ 3,915.00 (2,000.00) $ (9,595.00) $ 1,242.00 $ - $ 1,242.00 $ Year 2 Year 3 141.00 $ 85,796.48 ### $ 3,915.00 - $ (1,000.00) $ (2,000.00) - $ - 155.00 $ 38,129.48 1,242.00 $ 1,397.00 1,397.00 $ 39,526.48 BALANCE SHEET Cash Prepaid Expenses Inventory Fixed Assets Total Assets $ $ $ $ $ Loan Payable Capital Stock Retained Earnings Total Liablilities & Equity $ $ $ $ Year 1 1,242.00 2,000.00 9,595.00 74,383.00 87,220.00 $ $ $ $ Year 2 1,397.00 ### 10,595.00 70,468.00 84,460.00 $ $ $ $ $ Year 3 39,526 2,000.00 12,595.00 66,553.00 120,674.48 103,795.00 $ 100,894.00 $ 51,312.00 75,000.00 ### $ 75,000.00 (91,575.00) $ (91,434.00) $ (5,637.52) 87,220.00 $ 84,460.00 $ 120,674.48 SCHEDULE OF CASH RECEIPTS Collection from the sale of Meals Collection from the sale of Drinks Collection from the sale of Other Items Total Cash Receipts during the Year Amount $435,501 $79,182 $32,993 $547,676 SCHEDULE OF CASH DISBURSEMENTS Cash Paid for Cost of Goods Sold Cash Paid for Inventory Cash Paid for Advertising Cash Paid for Loan Interest Cash Paid for Office Expenses Cash Paid for Operating Supplies Cash Paid for Rent Cash Paid for Utilities Cash Paid for Wages Cash Paid for Loan Repayment Less: Non Cash Expense (Dep.) Total Cash Disbursments Amount $137,940 $2,000 $6,500 $8,072 $4,300 $1,343 $38,325 $24,000 $241,400 $49,582 ($3,915) $509,547 CASH BUDGET Amount Beginning Balance of Cash Add: Cash Receipts Total Cash Available Less: Cash Disbursement Total Cash Disbursement Excess of Receipts over Disbursements $1,397 $547,676 $549,073 $509,547 $39,526 $0 Monthly Beginning Cash Balance Collection from the sale of Meals Collection from the sale of Drinks Collection from the sale of Other Items Total Cash Available Cash Disbursement Cash Paid for Cost of Goods Sold Cash Paid for Inventory Cash Paid for Advertising Cash Paid for Loan Interest Cash Paid for Office Expenses Cash Paid for Operating Supplies Cash Paid for Rent Cash Paid for Utilities Cash Paid for Wages Cash Paid for Loan Repayment Total Disbursement Excess/ (Deficiency) of Cash Ending Cash Balance January February $1,397 $4,473.88 $33,115.50 $33,693.00 $6,021 $6,126 $2,508.75 $2,552.50 $43,042.25 $46,845.38 March $10,719.10 $34,270.50 $6,231 $2,596.25 $53,816.85 10488.95 10671.87 10854.78 $1,000 0 0 $1,625 $0 $0 0 0 0 $32.08 $32.08 $32.08 $111.92 $111.92 $111.92 $3,193.75 $3,193.75 $3,193.75 $2,000 $2,000 $2,000 $20,116.67 $20,116.67 $20,116.67 0 0 0 38568 36126 36309 $4,473.88 $10,719.10 $17,507.64 $4,473.88 $10,719.10 $17,507.64 Assumptions: Cost of goods sold is paid in accordance with sales. Payment for inventory is done on half yearly basis in January and July. Advertising expenses are paid on quarterly basis. Interest on loan and repayment of loan is done at the end of year in December. All other expenses are evenly distributed. Office expenses include depreciation so cash paid for office expenses is calculated after deducting dep Monthly Cash Budget for Year 3: April $17,507.64 $34,848.00 $6,336 $2,640.00 $61,331.64 May $23,214.52 $35,425.50 $6,441 $2,683.75 $67,764.77 June $31,089.74 $36,003.00 $6,546 $2,727.50 $76,366.24 July August September October $39,508.29 $45,845.17 $55,350.39 $65,398.94 $36,580.50 $37,158.00 $37,735.50 $38,313.00 $6,651 $6,756 $6,861 $6,966 $2,771.25 $2,815.00 $2,858.75 $2,902.50 $85,511.04 $92,574.17 $102,806 $113,580.44 11037.70 11220.61 11403.53 11586.45 11769.36 11952.28 0 0 0 $1,000 0 0 $1,625 $0 $0 $1,625 $0 $0 0 0 0 0 0 0 $32.08 $32.08 $32.08 $32.08 $32.08 $32.08 $111.92 $111.92 $111.92 $111.92 $111.92 $111.92 $3,193.75 $3,193.75 $3,193.75 $3,193.75 $3,193.75 $3,193.75 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $20,116.67 $20,116.67 $20,116.67 $20,116.67 $20,116.67 $20,116.67 0 0 0 0 0 0 38117 36675 36858 39666 37224 37407 $23,214.52 $31,089.74 $39,508.29 $45,845.17 $55,350.39 $65,398.94 $23,214.52 $31,089.74 $39,508.29 $45,845.17 $55,350.39 $65,398.94 alculated after deducting depreciation. 12135.20 0 $1,625 0 $32.08 $111.92 $3,193.75 $2,000 $20,116.67 0 39215 $74,365.82 $74,365.82 November December Total $74,365.82 $85,501.04 $1,397 $38,890.50 $39,468.00 $435,501.00 $7,071 $7,176 $79,182.00 $2,946.25 $2,990.00 $32,992.50 $123,274 $135,135 $549,073 12318.11 12501.03 0 0 $0 $0 0 $8,072 $32.08 $32.08 $111.92 $111.92 $3,193.75 $3,193.75 $2,000 $2,000 $20,116.67 $20,116.67 0 $49,582 37773 95609 $85,501.04 $39,526.07 $85,501.04 $39,526 $137,940 $2,000 $6,500 $8,072 $385 $1,343 $38,325 $24,000 $241,400 $49,582 509546 $39,526 $39,526 ORGANIC RESTAURANT BUSINESS PLAN Presented to the Faculty of the Agribusiness Department California Polytechnic State University In Partial Fulfillment of the Requirements for the Degree Bachelor of Science By Jesse Adam Godsey June 2010 Jesse Godsey 2010 i APPROVAL PAGE TITLE: A Business Plan for an Organic Restaurant AUTHOR: Jesse Godsey DATE SUBMITTED: June 2010 Dr. Carol Sexton Senior Project Advisor Signature ii ABSTRACT This study was undertaken to determine if it is feasible to open an organic restaurant in San Luis Obispo, CA. All collected data went into the development of a bare bones business plan for the organic restaurant. The report utilizes two techniques for analysis of this data. A strategic analysis was used to determine if the restaurant could be a legitimate competitor among the many local restaurants of San Luis Obispo. Strengths, weaknesses, opportunities, and threats were outlined, given weights according to their impact, and used to develop a SWOT matrix. Strategic goals were set after reviewing the matrix and a QSPM, quantitative strategic planning matrix, was created to determine which goal was worth pursuing. The final step in determining if the organic restaurant could compete in San Luis Obispo was to perform a competitive analysis against what were determined to be the top local competitors. Following the strategic analysis, a financial analysis was executed to determine whether the operation offered a profitable investment. This included an examination of startup costs and funding, as well as the creation of an income statement, statement of cash flows, and a balance sheet that were based off of a thirty-six month sales forecast. These financial forms made it possible to perform a break even analysis that had the final say as to whether or not the restaurant could be a profitable investment. The organic restaurant failed to break even after three years of business operations. While the strategic analysis indicated the organic restaurant could not only compete, but overcome the competition, the financial analysis indicated that opening this restaurant would be unfeasible. If the methodology were altered to include more in depth financial planning and analysis this decision could be reversed. iii TABLE OF CONTENTS Chapter Page I. INTRODUCTION...................................................................................1 a. Statement of the Problem...................................................................2 b. Hypothesis.....................................................................................2 c. Objectives of the Study......................................................................2 d. Significance of the Study....................................................................3 II. REVIEW OF THE LITERATURE.................................................................4 a. Organic Food.................................................................................4 b. Organic Food in Restaurants................................................................8 c. Business Plans.................................................................................8 d. SWOT Analysis............................................................................10 III. METHODOLOGY..................................................................................12 a. Procedures for Data Collection............................................................12 b. Procedures for Data Analysis..............................................................14 c. Assumptions and Limitations.............................................................17 IV. DEVELOPMENT OF THE STUDY............................................................19 a. Data Collection.............................................................................19 b. Summary.....................................................................................19 i. The Restaurant.....................................................................19 ii. The Mission........................................................................20 iii. Location............................................................................21 iv. Management Summary...........................................................21 v. Products and Services.............................................................22 vi. Market Summary..................................................................22 vii. SWOT Analysis...................................................................24 viii. Financial Analysis.................................................................32 V. SUMMARY, CONCLUSIONS, & RECOMMENDATIONS..............................39 a. Summary....................................................................................39 b. Conclusions.................................................................................39 c. Recommendations..........................................................................40 References Cited.............................................................................................41 Appendix.....................................................................................................43 Business Plan.......................................................................................43 Equipment Costs....................................................................................63 Food Costs..........................................................................................64 iv LIST OF TABLES Table 2-1. 2-2. 4-1. 4-2. 4-3. 4-4. 4-5. 4-6. 4-7. 4-8. 4-9. 4-10. 4-11. 4-12. 4-13. 4-14. Page Organic Food Prices...............................................................................5 Comparison of Pesticide Residues..............................................................6 Joobilance Payroll.................................................................................22 SWOT Analysis - Strengths.....................................................................25 SWOT Analysis - Weaknesses.................................................................25 SWOT Analysis - Opportunities...............................................................26 SWOT Analysis - Threats......................................................................27 Quantitative Strategic Planning Matrix.......................................................29 Competitive Analysis - Strengths & Weaknesses...........................................31 Competitive Analysis - Opportunities & Threats............................................31 Startup Funding..................................................................................32 Sales Forecast....................................................................................34 Income Statement................................................................................35 Cash Flows.......................................................................................36 Balance Sheet....................................................................................36 Breakeven Analysis..............................................................................37 LIST OF FIGURES Figure 1-1. 3-1. 3-2. 4-1. 4-2. 4-3. 4-4. 4-5. 4-6. Page Organic Food Sales in the United States.....................................................1 SWOT Template................................................................................15 QSPM Template................................................................................16 San Luis Obispo Census Data................................................................23 SWOT Analysis - Strengths & Weaknesses.................................................26 SWOT Analysis - Opportunities & Threats.................................................27 SWOT Matrix...................................................................................28 Startup Funding.................................................................................33 Sales Forecast...................................................................................34 v Chapter 1 INTRODUCTION The organic food industry has experienced tremendous growth in the past two decades. Since 1990, sales of organic food have increased by nearly 20% annually. \"This rapid growth may be traced to increased consumer confidence in organic foods as well as to concern about possible health risks and environmental impacts of conventional food production methods.\" (Davis 2006: 1) Figure 1-1: Organic food sales in the U.S. (Davis 2006) According to the Organic Trade Association, organic and natural foods combined represent a $20 billion business. Restaurants that embrace these better quality, organic ingredients benefit by gaining the support of consumers concerned with eating well and preserving the environment. 1 The word \"organic\" is most often associated with fruits and vegetables, not with chicken, beef, and other protein sources. However, higher-quality meat is currently preferred by consumers. Animals raised organically are free of antibiotics, added hormones, genetically modified (GMO) feed, and other drugs (Davis 2006). Top restaurant chains such as Chipotle, Panera, and Arby's are already making the transition to these ingredients, and are seeing increased sales as a result, despite higher prices. \"The demand for natural and organic foods is a well-documented, chef- and consumer-driven trend that is nestling into a growing number of independent restaurants, college campuses and grocery stores\" (Leahy 2006). The success of an independent organic restaurant is entirely possible. Problem Statement Is it feasible to open a new organic restaurant in San Luis Obispo that can be profitable? Hypothesis An independent organic restaurant in San Luis Obispo can generate constant profit by the third year of operations. Objectives 1. Create a business plan for a new organic restaurant in San Luis Obispo 2. Conduct a SWOT analysis 3. Conduct a financial analysis of the first three years of business operations 2 Significance of the study/Justification Currently, there are no fully organic restaurants in San Luis Obispo, California. This project will show if it is feasible to open one capable of earning a profit. Due to the increasing popularity of organic food, evident in the market statistics provided by the Organic Trade Association, an independent organic restaurant has potential to be successful. This hypothesis will be carefully investigated by creating a business plan and performing a profitability study. 3 Chapter 2 LITERATURE REVIEW Organic Food Organic foods are made according to certain production standards. For the vast majority of human history, agriculture can be described as organic; only during the 20th century was a large supply of new synthetic chemicals introduced to the food supply. The USDA, United States Department of Agriculture, defines organic foods as products grown without the use of pesticides, synthetic fertilizers, sewage sludge, or genetically modified organisms (Dahm 2009). The market for organic foods continues to grow, and is driven by a number of factors. The establishment of a USDA standard has increased consumer acceptance and there is also an increasing interest in healthy foods (Knudson 2007). The market for organic foods is growing dramatically. It is estimated that organic sales of food products through supermarkets, mass merchandisers, and natural supermarkets was $3.6 billion in 2006 in the U.S., double the figure in 2000. The OTA, Organic Trade Association, estimates that the total global organic food and beverage sales were $13.8 billion in 2006. From 2004 through 2006, sales of organic food increased by 38.4 percent. Furthermore, it is estimated that sales of organic foods will increase by 71 percent from 2006 through 2011. Clearly, organic food has become mainstream (Knudson 2007). 4 The primary demand driver for the increased consumption of organic food is health concerns. Consumers are increasingly interested in foods that are free of pesticides, and other health risks (Knudson 2007). Surveys indicate that many consumers purchase organic foods because of the perceived health and nutrition benefits of organic products. In one survey, the main reasons consumers purchased organic foods were for the avoidance of pesticides (70%), for freshness (68%), for health and nutrition (67%), and to avoid genetically modified foods (55%). Such consumers appear to be willing to pay the typical 10% to 40% price premium that organic products command (Davis 2006: 7). Eating organic comes at a price, these foods can cost more than twice as much, but the increase in sales makes it worth it. Table 2-1: Organic food prices (Kuchment 2008) Produce Non-organic Apples, Red Delicious (lb) Bread, store-brand loaf Carrots (lb) Celery hearts (lb) Corn, branded can Eggs, large (doz.) Milk, 2% (half gallon) 1.49 1.39 0.99 2.99 1.29 1.89 2.79 Organic 1.99 3.49 1.49 3.99 1.49 3.99 4.39 There are many benefits to eating organic: higher nutrient levels, lower pesticide residues, and the absence of food additives, such as artificial sweeteners, colorings and flavorings, MSG, and hydrogenated fat. When compared to conventional food, organic has more dry matter on a pound-for-pound basis, providing higher nutrient levels. Research by nutritionist Virginia Worthington has shown that the differences in organic foods can be enough to help individuals achieve the recommended daily allowance for certain nutrients that they otherwise may not get (Heaton 2009). Higher quality protein and increased concentrations of antioxidants 5 and other phytonutrients have been found in organic food. Phytonutrients are molecules that remove the presence of free radicals, which are ions, atoms, and molecules that can damage human cells (Arvaniti 2003). This is because there is not a regular application of chemical pesticides and the plant must rely on increased production of these compounds within itself. Organic produce will contain 10-50% higher phytonutrients than conventional produce (Heaton 2009). Consuming organic foods is not the only way to increase nutrient consumption, but it may be the safest. Pesticide residues in conventional foods are known to be safe and within acceptable health limits. However, food monitoring programs are constantly showing that nearly one in three nonorganic food samples tested contained a variety of pesticide residues, at levels higher than those being found in and on organic produce. Most pesticide residue safety levels are set for individual pesticides, but most fresh produce can carry multiple pesticides that can have negative impacts on the reproductive, immune, and nervous systems (Heaton 2009). Table 2-2: Comparison of pesticide residues (Davis 2006) In order to make useful comparisons between organic and conventional food, quality should also be considered. In conventional practices, food quality is determined by properties that can easily be measured and quantified (i.e. nutrient content, texture, and microbiological properties). The quality of organic food includes social and environmental dimensions as well as the common measurements of conventional foods (Arvaniti 2003). Besides an individual's own personal health, organic foods are also contributing to the health of the environment in which 6 people live. Harmful chemicals are not used in organic farming. There is minimal soil, air, and water pollution, ensuring a safer world for our future generations to live in. Dr. Vyvyan Howard, a toxico-pathologist at the University of Liverpool, voiced her opinion on the move towards organic food by the new, and growing, health conscious market segment: "People are applying the precautionary principle to their own lives by purchasing food that has not been produced by industrial methods. From the simple stance of hazard avoidance, organically produced food is the best option that we have\" (Heaton 2009). Animal feeding experiments indicate that animal health and reproductive performance are improved when they are organically fed (Arvaniti 2003). Similar findings are yet to be identified in humans, but it will be assumed that these findings apply to both animals and humans. At the University of Wisconsin at Madison a study among college students was performed to examine their attitudes towards organic food. The objective of this study was to determine whether student awareness and attitudes about organic foods would predict their behaviors with regard to organic food consumption and other healthy lifestyle practices. New research, an increasing public interest, and a desire to become \"healthy\" have increased the global awareness of organic food products. The results of this study found that the younger students, less than twenty-two years old, were able to define organic and recognize the official USDA seal. Most students knew organic foods were available in grocery and health food stores, but few believed they were offered in restaurants. Nearly 50% of students in this study said that they accept organic foods, or eat only organic foods. Data analysis linked students who live a healthy lifestyle with regular consumption of organic foods (Dahm 2009). 7 Organic Food in Restaurants Chefs are also joining the organic craze by embracing the flavorful quality and incorporating organic foods into their restaurant menus. Food & Wine magazine's Chef's Survey found that 76 percent of the chefs surveyed said that they "actively seek out organically grown ingredients." And, according to the National Restaurant Association, 57 percent of restaurants with per person checks of $25 or more now offer organic items on their menus. Fast food chains like Panera and Chipotle have also started using organic ingredients. Chipotle carnitas were once the least popular meat at the restaurant, but once they began serving carnitas from pigs that received no antibiotics, ate a vegetarian diet, and were given access to open pasture the carnitas became the most popular meat selected, despite an increase in price. Since receiving an ecofriendly makeover, Chipotle's revenues have grown tenfold to reach $1.1 billion. Its stock price has more than doubled since January 2006, and it now operates more than 700 restaurants around the country and expects to open an additional 130 to 140 before the year-end. Organic food availability in restaurants is expected to increase dramatically over the coming years (McIver 2004). Business plans A business plan is a detailed blueprint used to identify a company's goals and to explain how a company will achieve financial success. Writing a business plan is an important part of forming and running a business. It is critical to acquiring funds and for charting a successful course of action (San Diego Public Library 2005). When starting a new business there are two roles an individual might play. The first is that of a franchisee, an individual who buys into an already successful company and builds his business off their already established, successful 8 business plan. The second role is that of an entrepreneur, an independent business owner who takes an idea, a conceptual dream, and transforms that vision into a working reality through the development of a unique business plan (Buzza 2009). Regardless of the chosen role, \"every business will benefit from the preparation of a carefully written business plan.\" (Pinson 2001) A business plan includes a summary, mission statement, keys to success, market analysis, and break-even analysis. A startup plan is good for deciding whether or not to proceed with an idea, it tells if there is a business worth pursuing, but it is not enough to run a business with (Berry 2004). Every business plan begins with an executive summary, the thesis statement of the business plan. The executive summary answers the questions who, what, where, when, why, how, and how much. It is not written until the business plan is completed as it is a summary that reflects the contents of the finished plan. A business plan is composed of four parts: the organizational plan, a summary description of the business followed by administrative information; the marketing plan, a discussion of all components contributing to the market strategy; financial documents, the quantitative interpretation of everything stated in the preceding sections; and supporting documents, the records to back up statements made in the previous first three sections (Pinson 2001). The business plan typically starts with a mission statement. The mission statement defines in a sentence or a paragraph an entity's reason for existence. It embodies the company's philosophies, goals, ambitions and moral. Any entity that attempts to operate without a mission statement runs the risk of wandering through the world without having the ability to verify that it is on its intended course. \"A good mission statement should accurately explain why your organization exists and what it hopes to achieve in the future\" (Radtke 1998: 1). The business description follows, it anticipates and provides answers to critical questions regarding the 9 business, product/service, marketing, and also provides an analysis of the target customer. The marketing plan describes what kind of product the company will provide and explains how the product is different from that of the competition. A comprehensive plan looks at four essential marketing tools - product, price, place, and promotions - and applies them to the development of a strength, weakness, opportunity, and threat analysis. The financial plan provides a detailed financial plan for profit and loss forecasts, and will forecast at least 24 months into the future. The balance sheet should include your company's total assets, liabilities, and total net worth. The total assets should be equivalent to the total liabilities plus total net worth. A summary of key ratios is also used to measure financial benchmarks of success (San Diego Public Library 2005). SWOT Analysis The SWOT analysis is a simple framework for generating strategic alternatives from the analysis of a business situation. It can be applied to the corporate level, as well as the level of individual business units. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Strengths are those potential factors that make a firm more competitive than its direct competitors. Weaknesses are potential limitations and defects in an organization and/or weak factors relative to direct competitors. Opportunities are future factors that allow the organization to improve its relative competitive position, while threats can reduce its competitive position. The three phases of the SWOT analysis are detect, determine, and implement/monitor the strategy (Clauson, J.G. 2001). The SWOT framework was first described in the 1960's by Edmund P. Learned, C. Roland Christiansen, Kenneth Andrews and William D. Guth in Business Policy, Text, and Cases. Kenneth Andrews went on to further discuss the topic in 1971 with his book The Concept 10 of Corporate Strategy. The General Electric Growth Council used this form of analysis in the 1980's. Because it concentrates on the issues that potentially have the most impact, the SWOT analysis is useful when a very limited amount of time is available to address a complex strategic situation. A SWOT analysis identifies and addresses strategic issues, provides an organization with a catalyst that stimulates positive activity, increases the likelihood of achieving goals, facilitates organizational change, and improves a company's competitive position (Clauson, J.G. 2001). 11 Chapter 3 METHODOLOGY Procedures for data collection To determine if a new organic restaurant can successfully generate profitable revenue in San Luis Obispo, a business plan must be created. The process of creating this business plan will require broad, comprehensive research on the public opinion towards organic food, population demographics within San Luis Obispo, startup and operation costs, and on competing businesses within the restaurant industry. Every business plan is built from the same basic structure: an executive summary, organizational plan, marketing plan, financial documents, and supporting documents. Data must be collected to develop the marketing plan and financial documents. To begin the business plan the offered products/services of the business must be described. For a restaurant this would involve a description of the available cuisine. To determine what dishes can be offered to customers, suppliers of organic food, preferably those located in the Central Coast area of California, will need to be contacted about what ingredients they can provide and at what prices. Foodsupplier.com provides a state by state directory of both broad line and specialty food distributors; local organic farms represent other potential food suppliers. Restaurant managers of San Luis Obispo will also be interviewed to identify additional possible sources of organic food and ingredients. 12 The financial documents are the quantitative parts of the business plan. These include a section on startup costs and operation costs. The cost of rent, labor, PP&E (plant, property, and equipment), initial inventory, renovation, marketing, advertising, supplies, furniture, and any other similar costs (e.g. bank loans) must be determined. Information on these costs will be needed to calculate the total cost of the first year of operation, and will come from many sources. The majority of this information can be found on websites selling the products that will be needed for start-up. To find a rental space for the business, websites like showcase.com contain listings of commercial real estate for rent in San Luis Obispo, and give the rent per square foot, and total rent per year. The desired size for this restaurant is between, 1,400 to 1,800 square feet. Approximately 60% of this space is used for dining, and 40% is used for cooking, preparation, and storage. If the property requires renovation, a contractor will be contacted and provide the information needed for estimating that aspect of the start-up costs. Contractors available for remodeling and restoration in San Luis Obispo include Beem Peterson Gen Contractors, Pro Builders, and Pacific Builders. Restaurantequipment.net has a huge selection of supplies and equipment, as well as links to other websites that can provide furniture for food service businesses. Labor costs will be set according to minimum wage laws, industry standards, and norms for the location. California minimum wage laws are available via the United States Department of Labor website. It must be determined if all employees are paid hourly, or if any receive a salary. An SBA 7(a), small business loan, will pay for the majority of startup costs. To produce a concrete marketing plan, the population must be researched. Census data will provide accurate details of the population demographics within San Luis Obispo, as well as per capita income and household income distribution. A strategic and competitive analysis will give an assessment of the strengths and weaknesses of current and potential local competitors, 13 which have been identified as Natural Caf and Evos. This analysis provides both an offensive and defensive strategic context to identify opportunities and threats to the business. Data on these competitors can be obtained via their websites, and possibly from interviewing managers and owners if they are willing. Additional information on Evos can be found via the LexisNexis database. LexisNexis describes itself as the "world's largest collection of public records, unpublished opinions, forms, legal, news, and business information." It provides a vast amount of information including SIC codes, up to 7 years of saleset income, securities, and the number of employees. Procedures for data analysis: Analysis of the collected data will be both qualitative and quantitative. A SWOT analysis will be developed from the competitive analysis and market data to identify the strengths, weaknesses, opportunities, and threats facing the restaurant. The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. These come from within the company's unique value chain. Internal factors are commonly the strengths and weaknesses, while external factors are opportunities and threats. A firm's strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. The absence of certain strengths may be viewed as a weakness. The external environmental analysis may reveal certain new opportunities for profit and growth. Changes in the external environment also may present threats to the firm. Most businesses use the same basic questions during a SWOT analysis. To get an idea of its strengths a business could ask itself many questions: what advantages does the company have; what does the company do better than anyone else; what unique resources does the company 14 have access to; or what do people in the market see as the strengths of the company. To identify weaknesses a business looks at what could be improved, and what should be avoided. Opportunities are usually identified by examining interesting trends in the market or by listing competitive advantages. Threats can be determined by a company making itself aware of obstacles, the competition's strategy, evolving technology, and cash flow problems (Slezak 2009a). After analyzing the SWOT data, a rank and weight is assigned to each factor. Weights are assigned values between 0, unimportant, and 1, very important. The weight indicates the importance of that factor in achieving success in the industry. The sum of all weights must equal 1. Rank measures how well the company is currently responding to the factor on a scale of 1 to 4. A 4 means the response is superior; 3 means above average; 2 means the response is average; and 1 means below average. Using the factors discussed in the SWOT analysis, strategies are formulated within a SWOT matrix that take advantage of strengths and available opportunities, while at the same time overcoming threats and weaknesses (Slezak 2009b). Figure 3-1: SWOT template Strengths Weaknesses Opportunities Threats Following the completion of the SWOT matrix, the final step of the competitive analysis will be to create a Quantitative Strategic Planning Matrix, or QSPM. The QSPM is referred to as a stage 3 management tool, SWOT is stage 2. It is an approach taken to compare feasible 15 alternative actions/strategies. The attractiveness of each strategy is computed by determining the cumulative impact of each external and internal factor. Figure 3-2: Quantitative Strategic Planning Matrix template Alternative 1 Key Factors Wei ght Strengths: a b c d Weaknesses: a b c d Sum Weights Opportunities: a b c d Threats: a b c d Sum Weights Sum Total Scores Ra nk Alternative 2 Total Score (Wei ght x Ra nk) 100% Wei ght Ra nk Total Score (Wei ght x Ra nk) 100% 100% 100% x y In a QSPM the rank is different from that of the SWOT analysis. It scores how acceptable a factor is for the strategic alternative being examined. A score of 0 means a factor has no effect; 1 is not acceptable; 2 is possibly acceptable; 3 is probably acceptable; and 4 is most acceptable. When assigning these ranks it is helpful to ask \"Does the factor affect the strategic choice?\" and \"Is the strategic choice attractive to dealing with the factor.\" Upon completion of the QSPM the alternative with the greater sum total score will be the action taken by the company (Slezak 2009b). Finally, to determine if the restaurant will be able to earn and maintain a profit, a profitability study will be performed. This study will take the form of a financial analysis. It 16 requires a sales forecast, balance sheet, statement of cash flows, income statement, and a breakeven analysis to determine if the restaurant is indeed profitable. The data collected for start-up costs will be represented in the first year of these statements. Sales forecasts will be created to help determine profit/loss per month and per year. To produce the forecasts an estimated unit value will be applied to meals, drinks, and other items (i.e. pre-bottled beverages) based on competitor prices, these values will be placed into a mathematical formula, ax+by+cz = total sales; where a, b, and c are representative of the unit values previously mentioned and x, y, and z are representative of total units sold. The statement of cash flows projects what the business plan means in terms of dollars. It shows cash inflow and outflow over a period of time and is typically used for internal planning. Cash flow statements show both how much and when cash must flow in and out of the business. The income statement shows projections for the restaurant over the next three years. It uses the revenue and expense totals from the cash flow of the restaurant for the first year's figures and projects for the next two years according to expected economic and industry trends; the income statement will provide an estimate of net income. The balance sheet is a projection of assets, liabilities, and equities of the company at the end of the fiscal year, and must follow the formula A=L+E (Assets=Liabilities+Equity). The breakeven point is the point at which a company's expenses exactly match the sales or service volume. Revenue and expense figures are drawn from the three-year income projection. Assumptions The assumption made in this business plan is that organic food, ingredients, can be easily obtained by the restaurant through distributors and suppliers. 17 Limitations The limitation of the business plan is that the estimated revenues, costs, and sales may not be accurate. With limited time and resources it is not possible to be certain these values are correct. Also, the fact that there are so few organic restaurants already operating in the country may indicate that it is not feasible to open one in San Luis Obispo, CA. 18 Chapter 4 DEVELOPMENT OF THE STUDY Data Collection The goal of this project was to determine if it is feasible to open an organic restaurant in San Luis Obispo. To determine the answer to this problem statement a business plan for a hypothetical organic restaurant, Joobilance, was created. The key information of this business plan is summarized in this chapter. Data used in the strategic analysis was collected by researching local restaurants via their websites. The figures used in the financial section were based off of food prices from the Cal Poly Organic Farm, New Frontiers Marketplace, and a buyer's catalog for the distributor, United Natural Foods Inc. All equipment costs are from websites that include ablekitchen.com, restaurantequipment.com, and bestbuy.com. This data, as well as the business plan, can be found in the appendix Summary The Restaurant Joobilance is going to be a new healthy, organic restaurant chain inspired by the increasing health conscious attitudes of Americans. Joobilance utilizes the freshest organic produce and lean cuts of meat to provide customers with meals of high nutritional value inspired by cultures across the globe. Every meal is to be freshly prepared for customers, meeting the individual dietary needs and preferences of each one. The location offers a relaxing atmosphere 19 for customers to enjoy their meal, also providing the option of takeout, delivery, and even catering for special events. The restaurant not only cares about its customer's health, but also that of the environment. The building will be LEED certified, commonly known as \"green,\" using sustainable, resource efficient models of renovation and operation. Green buildings are designed to reduce the overall impact of the built environment on human health and the natural environment by: efficiently using energy, water, and other resources; protecting occupant health and improving employee productivity; and reducing waste, pollution and environmental degradation. Joobilance will make use of alternate energy to run operations and decrease the location's carbon footprint. Alternate energy sources include, and are not limited to wind and solar energy. The restaurant will be established as a sole proprietorship initially by Jesse Godsey. Investors will be sought out when expansion becomes the desired goal. To help finance the startup of this restaurant an SBA 7(a) loan will be needed. The Mission The mission of Joobilance is to provide a unique, healthy, delicious dining experience from environmentally sustainable locations. Since it is located in a small college community, strong community ties and support are important to Joobilance. The majority of food to be used will come from local suppliers along the central coast, even using products of California Polytechnic State's organic farm. The employees are driven by a passion for the food they are serving while trained in providing the highest level of customer service to make each individual experience enjoyable. 20 Location After using www.showcase.com to view available property in the Central Coast, the first location was chosen to be 728 Marsh Street in San Luis Obispo, a location that gives the restaurant a strong chance for success. The location's potential lies in the fact it is a heavily trafficked area, downtown San Luis Obispo. This retail lot is 1,825 square feet and is available for rent at $21 per square foot per year, $38,325 per year. Management Summary Joobilance will be starting as a small business, so employee costs will be kept to a minimum. Positions to be filled include cashiers, bussers, line cooks, dishwashers/kitchen aid, and chefs. The founder will act as an overall manager, approving all hires and financial decisions. Assistant managers may be needed eventually to handle personnel, most day to day finances, and more importantly, the customers during the owner's absence. An accountant and marketing team will be hired and work separate from other restaurant employees. Annual salaries will be paid to an accountant and the owner. All other employees will be compensated using hourly rates for their specific job function. Hourly rates will be paid according to California Labor Code section 310: Any work in excess of eight hours in one workday and any work in excess of 40 hours in one workweek and the first eight hours worked on the seventh day of work in any one workweek shall be at the rate of one and one-half times the regular rate of pay. Any work in excess of 12 hours in one day and any work in excess of eight hours on any seventh day of a workweek shall be paid no less than twice the regular rate of pay (U.S. Department of Labor 2010). 21 Table 4-1: Joobilance payroll Owner/founder Cashiers/Bussers (3) Line/Prep Cooks (2) Chefs (2) Accountant Total Payroll Pay rate Year 1 per Year 2 per Year 3 per per hour Year 1 month Year 2 month Year 3 month Salary 40,000.00 3,333.33 45,000.00 3,750.00 50,000.00 4,166.67 8.00 10.00 12.00 Salary 60,000.00 5,000.00 61,000.00 42,000.00 3,500.00 50,400.00 4,200.00 28,000.00 2,333.33 220,400.00 18,366.67 5,083.33 62,000.00 43,000.00 3,583.33 51,400.00 4,283.33 30,000.00 2,500.00 230,400.00 19,200.00 5,166.67 44,000.00 3,666.67 52,400.00 4,366.67 33,000.00 2,750.00 241,400.00 20,116.67 To account for hourly employee raises and taxes an extra $1,000 will be added to payroll for each position's yearly payroll budget total. Products and Services The combination of organic products, the atmosphere, and the environment are what make this restaurant stand out among its competitors. Joobilance, as previously mentioned, provides freshly cooked meals and blended smoothies from organic ingredients. The manager of New Frontiers Marketplace, a local organic grocery store provided guidance to the organic food distributor UNFI, United Natural Foods, Inc. \"UNFI is the leading independent national distributor of natural, organic and specialty foods in the United States.... The product selection includes a broad array of natural and organic groceries, frozen, and perishable foods.\" This distributor, the New Frontiers Marketplace, and the Cal Poly Organic Farm provides Joobilance with every ingredient from herbs and spices to fruit, vegetables, and proteins. Marketing Summary San Luis Obispo census data was used to determine age demographics that would be looked at as the restaurant's client basis. 22 Figure 4-1: San Luis Obispo census data This figure shows that the key market demographic in San Luis Obispo will be the college students (20 to 24 years old) that make up over a quarter of the town's population. There are currently two institutions of higher learning in San Luis Obispo: California Polytechnic State University and Cuesta Community College. As of Fall 2007 the enrollment at CPSU was near 20,000 and Cuesta had just over 11,000 students. The combined age groups of adults (25 to 34, 35 to 44, and 45 to 54) working in the San Luis Obispo area makes up 33% of the population, an even larger proportion than the college age group. This demographic will be very important in achieving success as there is more disposable income available when compared to the college students. Engel's Law states, \"As income rises, the proportion of income spent on food falls, even if actual expenditure on food rises.\" Accompanying this change, the quality of food on which income is spent rises; this is typically where the move to organic food takes place because the bundle of characteristics with which the customer is concerned increases. The primary focus 23 of marketing for the restaurant is the growing health conscious group of Americans within these age demographics. SWOT analysis The strengths, weaknesses, opportunities, and threats of the organic restaurant are listed below along with their weighted impact on the mission. The strengths of this restaurant come from a combination of the menu and the building itself. By offering a variety of cuisines Joobilance can appeal to multiple tastes and bring in more customers. Whether someone is looking for a burrito, a salad, or pasta they will be able to choose from a selection that leaves him/her satisfied. Not only is the variety of the menu a notable strength, but the nutritional value of these items is as well. In fact, it is believed to be the reason people will come to the restaurant. The various health benefits of organic food have been discussed in the literature review and they appeal to various groups of San Luis Obispo residents. The building itself has been designed to provide a comfortable, inviting feel. People can come and not only enjoy a great meal, but a great atmosphere as well. Also, a fact that all individuals can appreciate is that the building is LEED certified, commonly referred to as \"green.\" LEED certification provides independent, third-party verification that a building project is environmentally responsible, profitable, and a healthy place to live or work. A branded image will also be designed to provide instant recognition of the business. A key to the success of any business is the quality of service provided, at Joobilance all employees are experienced with customer service and share a passion for the food they are serving. This quality service provides an enjoyable experience for any customer and will keep them coming back. 24 Table 4-2: SWOT Analysis - Strengths Rating 3 3 4 3 4 3 3 2.5556 Strengths: multiple cuisines/variety inviting appearance branded image quality service nutritional value meet special needs/diets green building Wgt Wgt Score 5% 0.15 6% 0.18 7% 0.28 8% 0.24 13% 0.52 5% 0.15 6% 0.18 50.00% The weaknesses of this business rest in the facts that this is a brand new, unknown business and that organic food can be quite expensive when compared to its conventional counterpart. These weaknesses can be overcome, but the key to achieving this lies in the marketing of the restaurant. A new business must initially build a public buzz and make a good amount of positive information available. The restaurant will build this buzz by marketing through social media, flyers posted around San Luis Obispo, and other public ads. The higher price of organic food is associated with its increased nutritional value, if this can be considered reasonable by consumers than this weakness can be overcome. As a new business, Joobilance must also overcome its initial startup debt and limited supply of funds. These will likely only be weaknesses, obstacles to success, during the first year of operations. Table 4-3: SWOT Analysis - Weaknesses Rating 4 3 2 1 2 Wgt Wgt Score 18% 0.72 14% 0.36 10% 0.2 8% 0.08 50.00% Weaknesses: newot established limited funds organic foods mean higher prices limited expansion possibilities 25 Figure 4-2: SWOT Analysis - Strengths & Weaknesses Various opportunities exist within San Luis Obispo, CA that can make Joobilance a successful restaurant. The numerous age groups supply a variety of potential clientele. There are also many demographics that exist within these groups, the most important being the student population of California Polytechnic State University and Cuesta Community College. The largest opportunity for success lies in the growing health conscious attitude of Americans, which continues to grow as a result of obesity statistics and television shows, such as The Biggest Loser. The building's location in a high traffic, both pedestrian and vehicular, area is an opportunity within itself, as it will give the business constant public exposure. Individuals who are not members of the sought after age demographics may provide business out of simple curiosity and walk-ins. Table 4-4: SWOT Analysis - Opportunities 26 rating Opportunities: 3 student population 4 increasing health conscious attitude 3 cal poly organic farm 3 appeal to many demographics 3 central coast suppliers 4 high traffic bldg locations 2.5 wgt wgt score 7% 0.21 15% 0.4 5% 0.15 8% 0.24 6% 0.18 9% 0.36 50.00% While there are only a few threats to the success of Joobilance, they must all be handled strategically or this business could fail. San Luis Obispo is populated by many small businesses, especially when it comes to restaurants. The main competitors to Joobilance out of all San Luis Obispo restaurants are EVOS and natural caf. Both restaurants are health oriented and serve food created from similar ingredients. Jooiblance must work to differentiate itself from these restaurants in order to become a thriving business. Table 4-5: SWOT Analysis - Threats rating 3 3 2 4 2.4 Threats: many local restaurants current economy industry high turnover rate EVOSatural caf wgt 16% 13% 7% 14% 50.00% Figure 4-3: SWOT Analysis - Opportunities & Threats 27 wgt score 0.48 0.3 0.14 0.56 After analyzing the SWOT data the next step is to create a SWOT matrix. The following strategies were formulated to take advantage of the restaurant's strengths and available opportunities, while at the same time overcoming threats and weaknesses. Figure 4-4: SWOT Matrix 28 Various goals were set to make this organic restaurant a success, the three most appealing were discussed and analyzed using the following Quantitative Strategic Planning Matrix. Table 4-6: QSPM 29 Quantitative Strategic Planning Matrix Strengths [S1] multiple cuisines/variety [S2] inviting [S3] branded image [S4]quality service [S5] nutritional value [S6] green building Weaknesses [W1] newot established [W2] limited funds [W3] organic foods mean higher prices [W4] limited expansion possibilities Opportunities [O1] student population [O2] increasing health conscious attitude [O3] cal poly organic farm [O4] appeal to many demographics [O5] central coast suppliers [O6] high traffic bldg locations Threats [T1] many local restaurants [T2] current economy [T3] industry high turnover rate [T4] EVOSatural caf Strategic score Strategic score ratio Wgt expansion overcome competitors community outreach AS Wgt Avg AS Wgt Avg AS Wgt Avg 5% 6% 7% 8% 11% 6% 0 0 4 2 3 0 0 0 0.28 0.16 0.33 0 3 3 4 4 3 0 0.15 0.18 0.28 0.32 0.33 0 0 3 3 4 1 4 0 0.18 0.21 0.32 0.11 0.24 16% 12% 3 4 0.48 0.48 4 2 0.64 0.24 3 1 0.48 0.12 10% 0 0 0 0 0 0 8% 4 0.32 2 0.16 0 0 7% 2 0.14 3 0.42 3 0.42 10% 3 0.3 3 0.3 1 0.1 5% 0 0 0 0 3 0.15 8% 1 0.08 4 0.32 2 0.16 6% 0 0 0 0 2 0.12 9% 3 0.27 3 0.27 1 0.09 16% 10% 1 4 0.16 0.4 4 2 0.64 0.2 3 1 0.48 0.1 7% 0 0 0 0 0 0 14% 2 0.28 3.68 1.046961 2 > 30 4.58 1.301104972 0.28 3.56 1 Using the tabulated data above, the goal Joobilance will be focused on is overcoming competitors in the market. San Luis Obispo has many restaurants competing for success, T1, but the direct competition for Joobilance comes from EVOS and Natural Caf, T4. EVOS is a \"healthy and environmentally sound fast food chain\" located on South Higuera in San Luis Obispo. While taking a similar stance on health and providing customers with organic ingredients, EVOS' short coming is the lack of variety and creativity in the menu, only offering a small choice of burgers, wraps, and salads. The variety of food offered by Joobilance is considered one of its top strengths, S1. Regarding its presentation, the restaurant is somewhat similar to Joobilance from a decorative interior to sustainable daily practices. Joobilance's location, O6, and its menu give it the competitive advantage in this situation. "The Natural Caf is focused on using fresh, regional ingredients to create healthy and delicious food. We're committed to providing a good value for your health and your budget." Joobilance overcomes this competitor in a somewhat opposite manner as the menu of Natural Caf is similar. We will depend on the restaurant's atmosphere and service, S2/S4, to give customers a significantly different and more enjoyable experience. Joobilance is also making more of an effort to live sustainably, S6. The website for Natural Caf does make some quality suggestions for how to \"live green,\" but the restaurant itself only recycles to make an impact. EVOS and Natural Caf have a slight advantage as they are not affected by W1, 2, and 4 because they have already been operating and possess multiple locations, across both California and the country. All three of these restaurants face the same threats - T1, T2, and T3. However, EVOS does not handle them as well as Natural Caf and Joobilance. The same opportunities exist for all restaurants, but EVOS and Natural Caf only capitalize on O2. The three competitors share 31 S2,3 ,4, and 5, however, at Joobilance the effort is made to go above and beyond what other restaurants in San Luis Obispo can offer, making it a top competitor for any restaurant in the area. A closer look was taken at these competitors, analyzing them with Joobilance's SWOT charts. The competitive analysis produced the following data: Table 4-7: Competitive Analysis - Strengths & Weaknesses Joobilance Competitive Profile Matrices Strengths and Weaknesses W W S W S W S S S S S Critical Success Factors newot established limited funds nutritional value organic foods mean higher prices quality service limited expansion possibilities branded image inviting appearance green building multiple cuisines/variety meet special needs/diets Joobilance EVOS Weight Rating Weighted Score Rating Weighted Score 18% 4 0.72 2 0.36 14% 3 0.42 3 0.42 13% 4 0.52 4 0.52 10% 2 0.2 3 0.3 8% 3 0.24 3 0.24 8% 1 0.08 4 0.32 7% 4 0.28 3 0.21 6% 3 0.18 3 0.18 6% 3 0.18 1 0.06 5% 3 0.15 1 0.05 5% 3 0.15 2 0.1 100% 3.12 2.76 Nautral Caf Rating Weighted Score 2 0.36 4 0.56 4 0.52 3 0.3 3 0.24 3 0.24 3 0.21 4 0.24 2 0.12 3 0.15 3 0.15 3.09 Table 4-8: Competitive Analysis - Opportunities & Threats Opportunities and Threats T T O T O O T O O O Critical Success Factors many local restaurants EVOSatural caf increasing health conscious attitude current economy high traffic bldg locations appeal to many demographics industry high turnover rate student population central coast suppliers cal poly organic farm Joobilance EVOS Weight Rating Weighted Score Rating Weighted Score 16% 3 0.48 1 0.16 14% 4 0.56 2 0.28 15% 4 0.6 4 0.6 13% 3 0.39 2 0.26 9% 4 0.36 1 0.09 8% 3 0.24 2 0.16 7% 2 0.14 2 0.14 7% 3 0.21 2 0.14 6% 3 0.18 3 0.18 5% 3 0.15 1 0.05 100% 3.31 2.06 Nautral Caf Rating Weighted Score 3 0.48 3 0.42 4 0.6 3 0.39 4 0.36 2 0.16 3 0.21 3 0.21 3 0.18 1 0.05 3.06 The competitive analysis shows the Natural Caf is the main competitor of Joobilance. The weighted scores of the identified strengths and weaknesses are very close, a difference of 0.03. 32 The weighted scores of Joobilance's opportunities and threats is much greater than Natural Caf and imply that Joobilance can overcome the competition. Financial Analysis The main goal, like any other business, was to turn a profit. The financial analysis determined whether or not the restaurant would become a profitable investment by its third year of operations. The startup funding table details all costs associated with opening the restaurant and its first month of operations. Table 4-9: Startup Funding Startup assets Cash and cash equivalents Leasehold improvements Equipment Fixtures 24V Sunwize wind turbine Mirage - Nanosat 5.0 Speaker System LG - 55" Class / 1080p / 120Hz / LED-LCD HDTV 2 year protection plan Full-Motion Wall Mount Geek squad installation 42 inch wall style booth x 4 4 seat island cluster seating x 2 Cluster unit (6 -8 seats) x 2 Website (flash website) 52,089.00 4,000.00 60,050.00 11,748.00 734.00 550.00 1,930.00 230.00 750.00 200.00 2,276.00 1,822.00 3,256.00 2,500.00 130,387.00 Total Startup Assets Startup expenses: Business license Rent Food inventory Advertising budget Office/Miscellaneous Expenses (cleaning supplies, uniforms, paper rolls, etc.) 2,000.00 38,325.00 9,595.00 6,500.00 5,500.00 33 Pre-opening Labor-staff/Mgmt/Trainers Customer needs (i.e. silverware, china, napkins, etc.) Payroll Utilities Total startup expenses Liabilities: Long term liabilities Total liabilities 4,000.00 1,343.00 25,350.00 2,000.00 94,613.00 150,000.00 150,000.00 Capital: planned investment Personal Total planned investment 75,000.00 75,000.00 Startup funding required: Startup assets to fund Startup expenses to fund Total funding required 130,387.00 94,613.00 225,000.00 Startup funds: Total capital Total liabilities Total funds 75,000.00 150,000.00 225,000.00 Figure 4-5: Startup Funding Startup Funding $160,000.00 $140,000.00 $120,000.00 $100,000.00 $80,000.00 $60,000.00 $40,000.00 $20,000.00 $0.00 Assets Expenses Loan Investment 34 The various categories of startup costs associated with this business are shown by the above figure. The restaurant's sales forecast predicted an increase in sales each month equal to 3% of its first month sales for three years. Table 4-9 provides the resulting sales totals. Table 4-10: Sales forecast 3% monthly increase in sales . Unit sales Meals Drinks Other Total Sales Unit prices Meals Drinks Other Meals Drinks Other Total Sales Year 1 Year 2 Year 3 24,465 12,233 4,078 40,775 32,025 16,013 5,338 53,375 39,591 19,796 6,599 65,985 $11 $4 $5 Year 1 $269,115 $48,930 $20,388 $338,433 $11 $4 $5 Year 2 $352,275 $64,050 $26,688 $443,013 $11 $4 $5 Year 3 $435,501 $79,182 $32,993 $547,676 *Please see appendix for the detailed thirty-six month forecast Figure 4-6: Sales Forecast Total Sales $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 Year 1 Year 2 Year 3 Using the data generated by the sales forecast an income statement was developed for the first three years. While the restaurant began generating positive income in its second year of operations, the statement of cash flows shows that the business will only experience minor cash inflow at the end of 35 year three. The balance sheet that follows is a projection of assets, liabilities, and equities of the company at the end of each fiscal year, and verifies the statement of cash flows with the proof that assets = liabilities + equity. Table 4-11: Income Statement Year 1 Year 2 Year 3 Sales - Meals 269,115.00 $352,275 $435,501 Sales - Drinks 48,930.00 $64,050 $79,182 Sales - Other Total Sales 20,388.00 338,433.00 $26,688 $443,013 $32,993 $547,676 COGS 113,940.00 125,940 $137,940 Gross Margin 224,493.00 317,073.00 409,736.00 Advertising Contract Labor Loan Interest Office Expenses Operating Supplies Professional Fees Rent Utilities Wages Depreciation 6,500.00 6,500.00 4,000.00 0.00 12,000.00 8,304.00 5,500.00 4,300.00 1,343.00 1,343.00 4,000.00 0.00 38,325.00 38,325.00 24,000.00 24,000.00 220,400.00 230,400.00 3,914.90 3,914.90 6,500.00 0.00 4,312.00 4,300.00 1,343.00 0.00 38,325.00 24,000.00 241,400.00 3,914.90 Total Expenses 316,068.00 313,172.00 320,180.00 Gain on Sale of Assets Net income 0.00 $0.00 $0.00 (91,575.00) 3,901.00 89,556.00 36 Table 4-12:Cash flows Net income Year 1 Year 2 Year 3 (91,575.00) 3,901.00 89,556.00 Add depreciation 3,915.00 3,915.00 3,915.00 (2,000.00) (9,595.00) 0.00 (1,000.00) 0.00 (2,000.00) (78,298.00) 0.00 0.00 Decrease/increase in: Prepaid expenses Inventory Purchase/Sale of: PP&E Increase/decrease in: Loan Payment Loan Payable Borrowing Capital Stock (46,205.00) (49,901.00) (49,582.00) 150,000.00 75,000.00 Change to cash Beginning cash Ending cash 0.00 0.00 0.00 0.00 1,242.00 (43,085.00) 41,889.00 0.00 1,242.00 (41,843.00) 1,242.00 (41,843.00) 46.00 Table 4-13: Balance Sheet Cash Prepaid expenses Inventory Fixed Assets Total Assets Loan Payable Capital Stock Retained earnings Total Liabilities and Equity Year 1 Year 2 1,242.00 (41,843.00) 2,000.00 2,000.00 9,595.00 10,595.00 74,383.00 70,468.00 87,220.00 41,220.00 Year 3 46.00 2,000.00 12,595.00 66,553.00 81,194.00 103,795.00 53,894.00 4,312.00 75,000.00 75,000.00 75,000.00 (91,575.00) (87,674.00) 1,882.00 87,220.00 41,220.00 81,194.00 37 Finally, the breakeven analysis calculates the point is the point at which the company's expenses exactly match the sales or service volume, the breakeven point. Costs are split into the categories of direct costs, those directly associated with sales volume, and indirect costs, those that remain the same over the range of sales. These numbers are used to determine the direct and indirect costs per unit, which allow the number of units to cover these costs to be calculated. The sum of these units is the breakeven point. Table 4-14: Breakeven analysis Indirect Costs Advertising Contract Labor Loan Interest Office Expenses Professional Fees Rent Utilities Indirect labor Depreciation # of products sold Meals Drinks Other Total Sales 19,500.00 4,000.00 24,616.00 14,100.00 4,000.00 114,975.00 72,000.00 409,000.00 11,744.70 96,081 48,041 16,014 160,135 average sales price per unit $8 Direct cost per unit Indirect cost per unit Total cost per unit $4.15 $4.21 $8.36 38 Direct Costs Operating expenses Perishable inventory Direct labor 4,029.00 377,820.0 0 283,200.0 0 Breakeven point # of units to cover direct costs # of units to cover indirect costs Total # of units to reach breakeven point 83132 84242 167374 According to this financial analysis Joobilance fails to not only generate a profit, but break even by the end of its third year of operations. 39 Chapter 5 SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS Summary The author created a bare bones business plan, and included a thorough SWOT analysis, which was further exa