The Reason For The High Tea Business

Published Date: 02 Nov 2017

A

Business Plan

For

High-Tea Café

Table of Contents

1.0 Executive Summary

High-Tea cafe is a new high-tea cafe in the Muscat, Oman. High-Tea cafe is a Limited Liability Company, managed and owned by 2 major shareholders. Mr. A owns 51% of the outfit while his wife Mrs. A owns the remaining percentage. high_tea.jpg3_tier_tea.gif

High-Tea cafe will target customers in Muscat, mainly ladies. According to our analysis there is an uptrend demand of high-tea cafes within Oman, whereas on the other hand supplies are very much limited in Muscat particularly. Therefore we are assuming high growth in this industry for future years.

The management of High-Tea cafe aims to find shop within Muscat, on lease with an area of around 5,000 square feet. High-Tea cafe will be open from Wednesday to Sunday, 10 am – 4 pm. In addition at weekends there will be two hour seating. Moreover, High-Tea cafe plans to serve two types of Tea sets (3 tier high tea with tea) which are:

Tea set A- at a price of RO 45 each.

Tea set B- at a price of RO 55 each.

In order to achieve and maintain sales, we will run aggressive marketing programs like SEO (Search Engine Optimization), SEM (Search Engine Marketing), Advertisements through local newspapers, Social media marketing, Discount schemes etc. Furthermore social programs will also be run by High-Tea cafe, as we will be providing high-tea by going directly to retirement homes village offering high tea function for senior citizens at half price.

High-Tea cafe will need funds of around RO 238,000 for start-up capital expenditures, which will be fund primarily by owners.

1.1 Shareholding Structure

High-Tea Cafe is a registered Limited Liability Company. It’s owned by 2 major shareholders. Mr. A owns 51% of the outfit while his wife Mrs. A owns the remaining percentage.

1.2 Objectives

To operate a successful high-tea cafe in Muscat, by employing two employees the first year.

To obtain a minimum of 100 regular sales of tea sets per week first year of operation.

Achieve first year sales of RO 240,000.

Maintain gross profit margin of around 65%.

To produce a reasonable net profit margin of around 20%, by the end of the fifth year of operation.

2.0 The Business Activity

High-Tea Cafe is a new high-tea cafe in the Oman. High-Tea Cafe is a Limited Liability Company, managed by its owners, Mr A and his wife with limited number of staffs.

High-Tea Cafe will target customers in Oman, mainly ladies. According to our analysis there is an uptrend demand of high-tea cafes within Oman, whereas on the other hand supplies are very much limited in Oman particularly. Therefore we are assuming high growth in this industry for future years.

3.0 Vision and Mission statement

Vision: Our vision is to provide a comfortable place for social gatherings for local residents of Oman.

Mission: Our mission is to provide high quality food at competitive prices, with having accommodation of high quality customer service and comfortable atmosphere within café to local residents of Oman.

3.1 Keys to Success

The keys to success in this business are:

Product quality/ Uniqueness: We serve only high quality high-tea with tea, as we have placed comprehensive internal controls from, purchasing of finest whole-leaf loose teas to serving it to end consumers within cafe.

The best location: The benefits of our café location will be of convenient access, better visibility, and high traffic pattern.

Service/ Hospitality: The management of High-tea café feels that, in order to succeed in café industry the service provided to customers should be of high level, hence we will hire experienced and highly skilled staff. The members of staff will be highly efficient in their work, attentive to customer’s queries and courteous.

Atmosphere: We feel that atmosphere is the one of the keys to success, which can create competitive advantage. Therefore we will make sure that overall atmosphere of the café can be pleasant, secure and comfortable for both families and individuals.

Marketing: The reputation of café plays an important role in success of any high-tea café. Therefore we will deploy extensive marketing strategies like word-of-mouth advertising, promotion of our community mission of charitable giving, advertise through local newspaper etc.

No direct competition: Instead of having very high demand of high-tea cafes, there are very limited supplies of these within Muscat, Oman currently. But it is expected that in future we may face high competition due to high growth and less capital required to enter compared to other businesses.

4.0 Government support and rules and regulations

Oman is the second largest country in Gulf after Saudi Arabia, with area of around 309,500 squares kms. The neighbor countries of Oman are Republic of Yemen to the southwest, United Arab Emirates to the north and the Kingdom of Saudi Arabia to the west.

The Oman’s economy is majorly based on oil and gas, with average daily population of around 757,000 barrels, which accounts for nearly 75% of overall government’s revenue, hence contributing around 51% of Gross Domestic Product (GDP). According to statistics published by Government, the GDP of Oman was RO 6,011 million in 1999, where it increased to RO 23,292 million in 2008.

In order to increase living standards of common citizens of Oman the Omani Government has continued to take various projects and has developed an economic diversification policy with main emphasis on areas like: public utilities, health, fisheries, mining, manufacturing and agriculture. The Omani government’s main aim is to make Oman one of the major economies in the global economy. Although the Oman is oil and gas based economy but government has also taken steps to increase its production capacity in manufacturing sector with emphasis on to decrease the imports and support local manufacturing industry, therefore the contribution from Non-oil sectors to GDP has increased during past few years and is increasing day by day.

5.0 The Reason for the High-Tea business

According to Govt stats and research, the tea market in Oman is growing on day to day basis. It is estimated that the tea sales has been increased by around 200% for last ten years, where on the other hand number of tea cafes are increasing as well.

Moreover, as the living standards of Omani citizens is growing day by day the gap of fulfilling local residents requirements are also increasing, because there are less number of cafes currently in Muscat city. Hence, we have come with very unique idea of High-tea café business with three tier high-tea. We believe that this new concept will not only fill the gap but will be according to requirements of local citizens/ potential customers.

High-Tea cafe will target residents of Muscat of all ages from 0-100 years old. High-Tea cafe will cater to people who want to get their daily cup of great-tasting tea in a relaxing and comfortable feeling atmosphere.

5.1 Industry Analysis Summary

Overall Industry can be analyzed by using five different forces identified by Michael Porter, which is called Porter five forces, and these are:

Threat of New Entrants

Threat of new entrants into the Cafes & Restaurants market within Muscat, Oman is high as there are very less product differences between high-tea’s provided by major cafes and hotels, furthermore cost to enter the market is relatively low. It is further assumed that skilled labor like chefs and hospitality staffs would be easily accessible at a reasonable cost.

By analyzing all factors including high growth in trends for cafes specifically for cafes providing high-tea’s has increased; therefore it can be take for granted that High-tea cafe may face further competition with new entrants.

Bargaining Power of Buyers

It is expected that consumers in Muscat do have some bargaining power in that they can choice what type of Cafes or Hotels they want to go to. Moreover because product is a type of commodity item and consumers have no choice but to continue consumption, in addition it is also a form of entertainment in Oman, as we can see high growth in cafes; therefore we can assume that large number of cafes and hotels are and will be providing similar products and services as High-tea cafe. Due to these reasons the overall industry looks more attractive and profitable.

On the other hand, location and varieties of high-tea provided may reduce this bargaining power. In addition the overall atmosphere, hospitality and location of the cafes would attract the consumers, considering on that fact that high-tea is almost provided similar in all cafes and hotels.

Threat of Substitutes

There are large numbers of substitutes available as many cafes and hotels also providing almost similar high-tea’s at competitive prices. However, the greater the cafes could create uniqueness for their products the greater the likelihood of success. Likewise already discussed the overall atmosphere, hospitality and location of the cafes would be the key factors, which could not only create sustainable competitive advantage but could add significant value in overall earnings of the High-tea cafe.

Bargaining Power of Suppliers

Bargaining power of suppliers within the cafes, particularly high-tea industry would be comparatively less, because the raw materials necessary are freely available in markets at competitive prices. Therefore High-tea cafe will not face any difficulty in finding best quality raw materials at competitive prices.

Determinants of Rivalry among Existing Competitors

The Café and Restaurant industry within Muscat city is growing rapidly, allowing room for competition. However, it does appear to be impacted by the economic stability of the country and by the political feelings towards the country of origin of the High-tea cafe. Furthermore industry has shown growth in the past, consequently it is expected that industry will show substantial growth in future as well, which obviously will lead to sever competition within existing and new cafes/ restaurants and hotels.

6.0 Market Size and Growth

High-Tea café will target local residents of Muscat by segmenting into male and female population. We have conducted local market research regarding customer needs and requirements. According to our research the potential customers needs better tasting tea with café having nice and comfortable atmosphere. In addition most of the customers, particularly females believe that cafes are nice and convenient places for social gatherings, where they can meet with friends and family comfortably. Therefore we believe that it shall provide us a unique opportunity in order to build our loyal client base; where our main emphasis will be to target ladies population in Muscat particularly.

7.0 The Choice of Location with reasons thereof

The High-Tea café is located at the heart of Muscat city near city’s main center, with convenient access, better visibility, and high traffic pattern. The property is located in an excellent condition, with only 5 minute drive from city’s main shopping center and 15 minute drive from University of Muscat. The property is 100% leased with owner Mr. A. The lease contract will be renewed every three years at a particular fixed rate depending on the growth of the High-Tea cafe business.

The main idea is to make use of majority of area as High-tea café bar; therefore café bar will be of around 4,000 square feet out of total 5,000 square feet. Whereas as rest of the portion will be used for café’s office, kitchen, and 3 bathrooms.

8.0 Proposed Customers

According to Oman Bureau of Statistics, the gender ratio will be around 51:49 Females to Males, for Muscat city specifically. Furthermore population will grow by approximately 3% each year from 2010 to 2015. Therefore estimated population will be as shown in below table:

High-Tea Cafe will segment its markets into local Muscat population of male and female. The table below shows market segments in more detail:

Market Analysis

Growth

No of Households

Potential Customers

2010

2011

2012

2013

2014

2015

 

 

 

 

 

 

 

Males Population

3.00%

380,180

391,586

403,333

415,433

427,896

440,733

Females Population

3.00%

395,698

407,569

419,796

432,390

445,361

458,722

Total

 

3.00%

775,878

799,154

823,129

847,823

873,258

899,455

9.0 Competitor Analysis

Instead of having very high demand of high-tea cafes, there are very limited supplies of these within Muscat, Oman currently. But it is expected that in future we may face high competition due to high growth and less capital required to enter compared to other businesses.

On the other hand, High-Tea café may face some competition from local hotels and restaurants, where according to our initial analysis we will overcome this competition by providing high quality products at affordable and competitive rates, while location and pleasant atmosphere of High-Tea café will play major role in creating competitive advantage over our future competitors.

10.0 Buying Patterns

One of the major reasons for the customers to come and visit any specific High-Tea café will be:

Pleasant and comfortable atmosphere

Good tasting and high quality products

Quick and responsive services

Therefore, High-Tea café will try to outperform in all of the above three factors, so that we are consistent in creating competitive edge over competitors. In addition, there is almost uniform consumption of tea across different income segments, but High-Tea café will target its customers by offering competitive prices. Furthermore, we are aware of the fact that in order to make and build new customers loyal clientele, we need to provide them with great customer services they could ever have before.

11.0 Strategy and Implementation Summary

The main purpose of implementing ongoing comprehensive marketing programs is to create awareness in local citizens regarding our High-tea café, so that new customers markets are captured while retaining existing customers and getting them to visit more often and spend more and more. Our main emphasis will be to create loyal client base as these customers will not only generate and contribute to overall sales leads but will also provide favorable referrals to new customers.

11.1 Self Analysis

The following SWOT analysis shows strengths, weaknesses, opportunities and threats within the High-tea café. The main emphasis of this analysis is to identify organizational strength so that external opportunities can be captured and capitalize as they arise. On the other hand contingency plans must be developed in order to deal with threats which may come in future.

Strengths

Strong relationships with third party suppliers will be our key strength as we will be able to purchase raw materials at discounted price with quick delivery, which shall lead to decrease our direct costs, and hence increase in profit margins.

It is mandatory for any restaurant or café that its staff should be highly experienced, who are highly trained and customer attentive. Because major customers see presentation and customer services at first sight which can surely convert new customers to loyal customers.

The High-Tea café will have comfortable and pleasant atmosphere, which always welcome new and existing customers.

High-Tea café will provide best quality high-tea for our customers at competitive prices within market.

Weaknesses

Initially, High-Tea café will have a limited marketing budget to develop brand awareness; therefore in order to overcome this weakness, we will be running aggressive marketing strategies within one year, which shall include internet marketing as well.

Initially we will have limited number of staff, but within six months of opening further new staffs will be hired according to requirements as business grows.

Opportunities

A growing market with a significant percentage of the of the target market still unaware of the High-Tea Café within Muscat city. Therefore we have solid plan to avail this opportunity by employing comprehensive marketing strategies mentioned earlier, so that unaware local residents market can be captured comfortably.

The ability to lower variable costs through efficiency gains by employing operational strategies which shall help in reducing variable costs and hence increase in profit margins.

Threats

Competition from other cafes & hotels providing high-tea in Muscat or surrounding area.

A slump in the economy which will decrease discretionary spending, which could affect High-Tea Cafe sales.

12.0 Competitive Advantage

The competitive advantages, which High-Tea Cafe will have over its main competitors within Muscat, are:

High-Tea Cafe will provide significantly higher quality and better tasting 3-tier high-tea to its existing and new customers which will surely help in building loyal client base.

Highly skilled and motivated staffs that always welcome and treat every customer equally, because we feel that serving client properly could be the main factor which will distinguish High-tea café with its existing and new competitors.

High-Tea Cafe’s location is at city’s main center therefore it can possibly be considered the best in the current market.

The only High-Tea cafe downtown to arrange regular weekend evening entertainment for customers, which shall assist in capturing local customers market particularly females.

13.0 Selling Arrangement and Marketing Strategies

There will be sales staff within High-Tea cafe, responsible for dealing with customer requirements. Where all sales data will be recorded in computerized system for accounting purposes.

In addition, High-Tea Cafe will conduct on-going aggressive marketing programs that will help in establishing profitability quickly and set the stage for continual growth within café industry in Muscat mainly. The marketing programs are explained in detail as below:

Website

High-Tea Cafe website created at least 6 months prior to opening. Furthermore comprehensive SEO (Search Engine Optimization) and SEM (Search Engine Marketing) programs will be run, which are detailed as follows:

SEO: We will hire the most renowned company in SEO, so that all the work related to search engines can be outsourced comfortably. The main programs will involve:

Writing of website content according to keywords, targeted for search engine searches.

Indexing of company’s website into major search engines and directories.

Creation of website back-links.

SEM: In order to create and maintain top rankings in major search engines, we will hire one the best firm/ company specialized in Search Engine Marketing specifically. The main programs will involve:

Activation and management of major online advertisement networks like Google Adwords.

Registration and then management of major restaurants review website in Oman.

Creation and publishing of marketing videos to major video channels like YouTube, MetaCafe etc

Advertisement

Once open High-Tea Cafe café will be advertised through local newspapers; furthermore renowned newspaper editors will be invited to write reviews regarding our café.

Discount schemes

At the time of opening, Grand opening vouchers will be distributed like – 100 x Complimentary of 1 x high tea set. In addition regular discount schemes will be run targeted to local residents of Muscat.

Social Media Marketing

We will create company’s pages on facebook & twitter. The main emphasis of using social media is to target younger generation.

Word by mouth

We will treat and provide high-quality services to all our customers equally, whether they are new or old. We feel that if customers are satisfied then, they shall refer High-Tea Cafe to others to visit as well. Furthermore we will use our own contacts also to generate maximum sales and achieve financial objectives.

Community Services

Upon successful running of High-tea café in Muscat city, we have plans to serve and conduct some community services. We believe that these types of services will not only generate café’s goodwill but will create opportunities to build important contacts with peoples as well. Some of these community services include:

Going direct to retirement homes village offering high tea function for senior citizens at half price on Monday &Tuesday, during non business hours or once a month.

14.0 Products and Pricing Strategy

High-Tea Cafe plans to serve two types of Tea sets, which are: 3-tier- hightea.bmp

Tea set A- at a price of RO 45 each.

Tea set B- at a price of RO 55 each.

Tea sets will be served with three tier high-tea (including tea). A three tier high tea includes:

Bottom tier - gourmet sandwiches and gourmet canapés

Middle tier - scones with jam and cream

Top tier - serviced petite for e.g., mini cakes, slices and dessert.

Furthermore tea will be served in pot. High-Tea Cafe will have different varieties to choose from, for its three tier high-tea.

High-Tea Cafe will arrange accommodating events as well by allocation separate room/ hall especially for occasions, like:

Bridal Shower

Baby shower

Birthday

15.0 Various sources of finance available and the source selected

The company will need around RO 238,000, total initial requirements for capital expenditures.

The Funding sources for High-Tea cafe will be mainly from the shareholder’s investments. . The Major shareholder, Mr. A will contribute around RO 121,380 whereas his wife will contribute RO 116,620 respectively.

The break-up of capital requirements is shown in the table below:

Table 1: Start-up

Start-up

 

 

 

Requirements

 

 

 

Start-up Expenses

 

Legal

5,000

Website

1,000

Insurance

1,000

Rent (Initial 5 months)

15,000

Computer

6,500

Start-up Payroll

4,400

Admin / Consultants

1,600

Marketing & Advertising

13,500

Other (decoration)

38,000

 

 

Total Start-up Expenses

86,000

 

 

 

 

Start-up Assets

 

Cash Required

32,000

Other Current Assets

0

Long-term Assets (kitchen, furniture & fixtures)

120,000

Total Assets

152,000

 

 

Total Requirements

238,000

Table 2: Start-up Funding

Start-up Funding

Start-up Expenses to Fund

86,000

Start-up Assets to Fund

152,000

Total Funding Required

238,000

Assets

Non-cash Assets from Start-up

120,000

Cash Requirements from Start-up

32,000

Additional Cash Raised

0.00

Cash Balance on Starting Date

32,000

Total Assets

152,000

Liabilities and Capital

Liabilities

Current Borrowing

0

Long-term Liabilities

0

Accounts Payable (Outstanding Bills)

0

Other Current Liabilities (interest-free)

0

Total Liabilities

0

Capital

Planned Investment

Mr. A

121,380

Mrs. A

116,620

All other investors

0

Additional Investment Requirement

0.00

Total Planned Investment

238,000

Loss at Start-up (Start-up Expenses)

(86,000)

Total Capital

152,000

Total Capital and Liabilities

152,000

Total Funding

238,000

16.0 Key People and Job Functions

High-Tea Cafe is a registered Limited Liability Company. It’s owned by 2 major shareholders. Mr. A owns 51% of the outfit while his wife Mrs. A owns the remaining percentage.

The owners will engage employees to help run their High-Tea cafe. A business Full time Manager will be hired. He will be overseeing the operations at the High-Tea cafe like supervising the staff, dealing with various suppliers, performing managerial jobs and developing marketing plans.

17.0 Financial Plan

The Financial Plan consists of Breakeven Analysis, Pro-forma Profit and Loss, Cash Flow Projections and Pro-forma Balance Sheet.

17.1 Important Assumptions

The assumptions applied while preparations of Pro-forma Financial Statements are as below:

Corporation Tax is 30% of earnings

Depreciation on long-term assets is applied 15% SLN (Straight Line Basis).

All payments except Rent will be paid in 30 days delay.

17.2 Sales Forecast

The assumption for sales and expenditures are as below:

Assumptions

At least 50 tea sets will be sold for each week (total 100 tea sets per week) for first year of operation, which then will grow by 5% each year.

Direct cost of sales- raw material will be 30% of total revenue for first year of operation, and 35% from year 2 to year 5.

Rent (lease related to premises/ shop) will be RO 35,000 per year.

Wages will be 12% of total revenue from year 1 to year 5.

Electricity will be 2% of total revenue from year 1 to year 5.

Advertisements will be 5% of total revenue from year 1 to year 5.

The table below shows sales forecasts and expenditures for five years.

Sales Forecast

 

 

 

 

 

 

Year 1

Year 2

Year 3

Year 4

Year 5

 

 

Unit Sales

 

Tea set A

2400

2520

2646

2778

2917

Tea set B

2400

2520

2646

2778

2917

Total Unit Sales

4,800

5,040

5,292

5,557

5,834

 

 

Unit Prices

 

Tea set A

45

45

45

45

45

Tea set B

55

55

55

55

55

 

 

Revenue

 

Tea set A

108,000

113,400

119,070

125,024

131,275

Tea set B

132,000

138,600

145,530

152,807

160,447

Total Revenue

240,000

252,000

264,600

277,830

291,722

 

 

Direct Cost & Expenditures

 

Direct cost of sales- Raw material

72,000

88,200

92,610

97,241

102,103

Rent

35,000

35,000

35,000

35,000

35,000

Wages

28,800

30,240

31,752

33,340

35,007

Electricity

4,800

5,040

5,292

5,557

5,834

Advertisement

12,000

12,600

13,230

13,892

14,586

Subtotal Cost & Expenditures

152,600

171,080

177,884

185,028

192,530

17.3 Break-even Analysis

The table below shows breakeven analysis. In order to cover its costs, High-Tea cafe needs to generate monthly revenue of around RO 11,738 (or annually, RO 11,738*12 = RO 140,856) to breakeven for initial year. Also it can be seen that High-Tea cafe will have variable costs of 30%, and estimated monthly fixed cost of RO 8,217.

Table 3: Break-even Analysis

Break-even Analysis

 

 

Monthly Revenue Break-even

11,738

 

Assumptions:

Average Percent Variable Cost

30%

Estimated Monthly Fixed Cost

8,217

17.4 Projected Profit and Loss

The Pro-forma Profit and Loss shows that, High-Tea cafe will be able to meet Net profit margin of around 20% throughout five years of operation.

Table 4: Profit and Loss

Pro Forma Profit and Loss

 

 

 

 

 

 

Year 1

Year 2

Year 3

Year 4

Year 5

Revenue

240,000

252,000

264,600

277,830

291,722

 

 

Direct Cost of Sales

 

Raw Material

72,000

88,200

92,610

97,241

102,103

Total Cost of Sales

72,000

88,200

92,610

97,241

102,103

 

 

Gross Profit

168,000

163,800

171,990

180,590

189,619

Gross Margin %

70%

65%

65%

65%

65%

 

 

 

Expenses

 

Rent

35,000

35,000

35,000

35,000

35,000

Wages

28,800

30,240

31,752

33,340

35,007

Electricity

4,800

5,040

5,292

5,557

5,834

Advertisement

12,000

12,600

13,230

13,892

14,586

 

 

 

 

 

 

Total Operating Expenses

80,600

82,880

85,274

87,788

90,427

 

 

 

 

 

Profit Before Interest, Taxes & Depreciation

87,400

80,920

86,716

92,802

99,192

 

 

Depreciation

18,000

18,000

18,000

18,000

18,000

Interest Expense

0

0

0

0

0

Taxes Incurred

20,820

18,876

20,615

22,441

24,358

 

 

Net Profit

48,580

44,044

48,101

52,361

56,834

Net Profit/Sales

20.24%

17.48%

18.18%

18.85%

19.48%

17.5 Projected Cash Flow

The Cash Flow projections for five years show that High-Tea cafe will be having significant amount of Cash Inflows, hence Cash Balance at the end of fifth year.

Table 5: Cash Flow

Pro Forma Cash Flow

 

 

 

 

 

 

 

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Cash Received

 

Cash from Operations

 

Sales

 

240,000

252,000

264,600

277,830

291,722

Subtotal Cash from Operations

240,000

252,000

264,600

277,830

291,722

 

 

 

Additional Cash Received from Investor/ Owner

238,000

-

-

-

-

Subtotal Cash Received

238,000

240,000

252,000

264,600

277,830

291,722

 

 

Capital Expenditures

 

Start-up Expenses

86,000

-

-

-

-

-

Long term assets

120,000

-

-

-

-

-

 

 

Direct Cost of Sales

 

Raw Material

66,082

86,868

92,248

96,860

101,703

 

 

Expenditures from Operations

 

Rent

35,000

35,000

35,000

35,000

35,000

Wages

26,433

30,122

31,628

33,209

34,870

Electricity

4,405

5,020

5,271

5,535

5,812

Advertisement

11,014

12,551

13,178

13,837

14,529

 

 

Corporation Tax

19,109

19,036

20,472

22,290

24,200

 

 

 

 

 

 

 

Subtotal Cash Paid

206,000

162,043

188,597

197,797

206,731

216,113

 

 

Net Cash Flow

32,000

77,957

63,403

66,803

71,099

75,608

Cash at beginning of year

0

32,000

109,957

173,360

240,163

311,262

Net Cash Flow for the year

32,000

77,957

63,403

66,803

71,099

75,608

Cash Balance at end of year

32,000

109,957

173,360

240,163

311,262

386,870

17.6 Projected Balance Sheet

Table 6: Balance Sheet

Pro Forma Balance Sheet

 

 

 

 

 

 

 

Beginning

Year 1

Year 2

Year 3

Year 4

Year 5

Assets

 

Current Assets

Cash

32,000

109,957

173,360

240,163

311,262

386,870

Other Current Assets

0

0

0

0

0

0

Total Current Assets

32,000

109,957

173,360

240,163

311,262

386,870

 

Long-term Assets

Long-term Assets

120,000

120,000

120,000

120,000

120,000

120,000

Accumulated Depreciation

0

18,000

36,000

54,000

72,000

90,000

Total Long-term Assets

120,000

102,000

84,000

66,000

48,000

30,000

Total Assets

152,000

211,957

257,360

306,163

359,262

416,870

 

Liabilities and Capital

 

Current Liabilities

Accounts Payable

0

11,377

12,736

13,438

14,176

14,950

Current Borrowing

0

0

0

0

0

0

Other Current Liabilities

0

0

0

0

0

0

Subtotal Current Liabilities

0

11,377

12,736

13,438

14,176

14,950

 

Long-term Liabilities

0

0

0

0

0

0

Total Liabilities

0

11,377

12,736

13,438

14,176

14,950

 

Paid-in Capital

238,000

238,000

238,000

238,000

238,000

238,000

Retained Earnings

(86,000)

(86,000)

(37,420)

6,624

54,725

107,086

Earnings

0

48,580

44,044

48,101

52,361

56,834

Total Capital

152,000

200,580

244,624

292,725

345,086

401,921

Total Liabilities and Capital

152,000

211,957

257,360

306,163

359,262

416,870

 

Net Worth

152,000

200,580

244,624

292,725

345,086

401,921

18.0 Appendix

Table 1: Profit and Loss

Pro Forma Profit and Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Sales

12,000

14,400

16,800

19,200

21,600

21,600

21,600

21,600

21,600

21,600

24,000

24,000

Direct Cost of Sales

3,600

4,320

5,040

5,760

6,480

6,480

6,480

6,480

6,480

6,480

7,200

7,200

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin

8,400

10,080

11,760

13,440

15,120

15,120

15,120

15,120

15,120

15,120

16,800

16,800

Gross Margin %

70.00%

70.00%

70.00%

70.00%

70.00%

70.00%

70.00%

70.00%

70.00%

70.00%

70.00%

70.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Rent

1,750

2,100

2,450

2,800

3,150

3,150

3,150

3,150

3,150

3,150

3,500

3,500

Wages

1,440

1,728

2,016

2,304

2,592

2,592

2,592

2,592

2,592

2,592

2,880

2,880

Electricity

240

288

336

384

432

432

432

432

432

432

480

480

Advertisement

600

720

840

960

1,080

1,080

1,080

1,080

1,080

1,080

1,200

1,200

Other

0

0

0

0

0

0

0

0

0

0

0

0

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

4,030

4,836

5,642

6,448

7,254

7,254

7,254

7,254

7,254

7,254

8,060

8,060

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

4,370

5,244

6,118

6,992

7,866

7,866

7,866

7,866

7,866

7,866

8,740

8,740

Profit Before Interest and Taxes

1,041

1,249

1,457

1,666

1,874

1,874

1,874

1,874

1,874

1,874

2,082

2,082

Interest Expense

0

0

0

0

0

0

0

0

0

0

0

0

Depreciation

900

1,080

1,260

1,440

1,620

1,620

1,620

1,620

1,620

1,620

1,800

1,800

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Profit

2,429

2,915

3,401

3,886

4,372

4,372

4,372

4,372

4,372

4,372

4,858

4,858

Net Profit/Sales

20.24%

20.24%

20.24%

20.24%

20.24%

20.24%

20.24%

20.24%

20.24%

20.24%

20.24%

20.24%

Table 2: Cash Flow

Pro Forma Cash Flow

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Cash Rcvd

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash from Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Sales

 

12,000

14,400

16,800

19,200

21,600

21,600

21,600

21,600

21,600

21,600

24,000

24,000

Subtotal Cash from Operations

 

12,000

14,400

16,800

19,200

21,600

21,600

21,600

21,600

21,600

21,600

24,000

24,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional Cash Received

 

 

 

 

 

 

 

 

 

 

 

 

 

New Current Borrowing

 

0

0

0

0

0

0

0

0

0

0

0

0

New Other Liabilities (interest-free)

 

0

0

0

0

0

0

0

0

0

0

0

0

New Long-term Liabilities

 

0

0

0

0

0

0

0

0

0

0

0

0

Sales of Other Current Assets

 

0

0

0

0

0

0

0

0

0

0

0

0

Sales of Long-term Assets

 

0

0

0

0

0

0

0

0

0

0

0

0

New Investment Received

238,000

0

0

0

0

0

0

0

0

0

0

0

0

Subtotal Cash Received

238,000

12,000

14,400

16,800

19,200

21,600

21,600

21,600

21,600

21,600

21,600

24,000

24,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures

 

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Expenditures from Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Spending

 

6,926

8,312

9,697

11,082

12,468

12,468

12,468

12,468

12,468

12,468

13,853

13,853

Bill Payments

 

220

264

308

352

396

396

396

396

396

396

441

441

Taxes

 

955

1,147

1,338

1,529

1,720

1,720

1,720

1,720

1,720

1,720

1,911

1,911

Subtotal Spent on Operations

 

8,102

9,723

11,343

12,963

14,584

14,584

14,584

14,584

14,584

14,584

16,204

16,204

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional Cash Spent

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal Repayment of Current Borrowing

 

0

0

0

0

0

0

0

0

0

0

0

0

Other Liabilities Principal Repayment

 

0

0

0

0

0

0

0

0

0

0

0

0

StartUp Expenses

86,000

0

0

0

0

0

0

0

0

0

0

0

0

Purchase Long-term Assets

120,000

0

0

0

0

0

0

0

0

0

0

0

0

Subtotal Cash Spent

206,000

8,102

9,723

11,343

12,963

14,584

14,584

14,584

14,584

14,584

14,584

16,204

16,204

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Cash Flow

32,000

3,898

4,677

5,457

6,237

7,016

7,016

7,016

7,016

7,016

7,016

7,796

7,796

Cash Balance

32,000

35,898

40,575

46,032

52,269

59,285

66,301

73,317

80,333

87,349

94,366

102,161

109,957

Table 3: Balance Sheet

Pro Forma Balance Sheet

Initial

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

32,000

35,898

40,575

46,032

52,269

59,285

66,301

73,317

80,333

87,349

94,366

102,161

109,957

Other Current Assets

0

0

0

0

0

0

0

0

0

0

0

0

0

Total Current Assets

32,000

35,898

40,575

46,032

52,269

59,285

66,301

73,317

80,333

87,349

94,366

102,161

109,957

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term Assets

120,000

120,000

120,000

120,000

120,000

120,000

120,000

120,000

120,000

120,000

120,000

120,000

120,000

Accumulated Depreciation

0

900

1,980

3,240

4,680

6,300

7,920

9,540

11,160

12,780

14,400

16,200

18,000

Total Long-term Assets

120,000

119,100

118,020

116,760

115,320

113,700

112,080

110,460

108,840

107,220

105,600

103,800

102,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

152,000

154,998

158,595

162,792

167,589

172,985

178,381

183,777

189,173

194,569

199,966

205,961

211,957

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts Payable

0

569

1,251

2,048

2,958

3,982

5,006

6,030

7,054

8,078

9,102

10,239

11,377

Current Borrowing

0

0

0

0

0

0

0

0

0

0

0

0

0

Other Current Liabilities

0

0

0

0

0

0

0

0

0

0

0

0

0

Subtotal Current Liabilities

0

569

1,251

2,048

2,958

3,982

5,006

6,030

7,054

8,078

9,102

10,239

11,377

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term Liabilities

0

0

0

0

0

0

0

0

0

0

0

0

0

Total Liabilities

0

569

1,251

2,048

2,958

3,982

5,006

6,030

7,054

8,078

9,102

10,239

11,377

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paid-in Capital

238,000

238,000

238,000

238,000

238,000

238,000

238,000

238,000

238,000

238,000

238,000

238,000

238,000

Retained Earnings

-86,000

-86,000

-83,571

-80,656

-77,256

-73,369

-68,997

-64,625

-60,253

-55,880

-51,508

-47,136

-42,278

Earnings

0

2,429

2,915

3,401

3,886

4,372

4,372

4,372

4,372

4,372

4,372

4,858

4,858

Total Capital

152,000

154,429

157,344

160,744

164,631

169,003

173,375

177,747

182,120

186,492

190,864

195,722

200,580

Total Liabilities and Capital

152,000

154,998

158,595

162,792

167,589

172,985

178,381

183,777

189,173

194,569

199,966

205,961

211,957

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Worth

152,000

154,429

157,344

160,744

164,631

169,003

173,375

177,747

182,120

186,492

190,864

195,722

200,580