Question

Assume yourself as an entrepreneur of a small scale business ( Restaurant )

Financial Plan

The financial plan consists of a 12‐month profit and loss projection, a cash‐flow projection, a projected balance sheet, and a break‐even calculation. Together they constitute a reasonable estimate of your company’s financial future.

Answer 1

1.0 Start-up Funding

Currently, the company is owned by the original 4 founders, who each will contribute $200,000 for the same amount of share, 25%. This will more than cover start-up requirements, and provide the business with a cash cushion to use for expansion over the first three years.

START-UP FUNDING
Start-up Expenses to Fund	$68,800
Start-up Assets to Fund	$50,000
TOTAL FUNDING REQUIRED	$118,800
Assets
Non-cash Assets from Start-up	$30,000
Cash Requirements from Start-up	$50,000
Additional Cash Raised	$681,200
Cash Balance on Starting Date	$731,200
TOTAL ASSETS	$761,200
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
Eric Yam	$200,000
Martin Ng	$200,000
David Lu	$200,000
Sagita Suwandi	$200,000
Additional Investment Requirement	$0
TOTAL PLANNED INVESTMENT	$800,000
Loss at Start-up (Start-up Expenses)	($68,800)
TOTAL CAPITAL	$731,200
TOTAL CAPITAL AND LIABILITIES	$731,200
Total Funding	$800,000

2.0 Break-even Analysis

Our break-even analysis shows that we need unit sales over 9,700 per month to break even. We do not expect to begin turning a profit until year three.

BREAK-EVEN ANALYSIS
Monthly Units Break-even	9,706
Monthly Revenue Break-even	$32,104
Assumptions:
Average Per-Unit Revenue	$3.31
Average Per-Unit Variable Cost	$0.73
Estimated Monthly Fixed Cost	$24,979

3.0 Projected Profit and Loss

As the Profit and Loss shows, Fresin Fries will run at a loss for the first two years, using up some of the cash reserves initially invested by the founders. As sales increase, we will expand into new locations to aggressively spread brand recognition. This increase in visibility will allow us to take up less expensive locations off of Orchard Road, while maintaining our flagship operation, the first store, in a prime spot.

PRO FORMA PROFIT AND LOSS
	YEAR 1	YEAR 2	YEAR 3
Sales	$279,163	$558,327	$1,116,654
Direct Cost of Sales	$61,957	$123,914	$247,827
Other Costs of Sales	$0	$0	$0
TOTAL COST OF SALES	$61,957	$123,914	$247,827
Gross Margin	$217,207	$434,413	$868,826
Gross Margin %	77.81%	77.81%	77.81%
Expenses
Payroll	$88,200	$262,000	$449,600
Marketing/Promotion	$10,000	$10,000	$10,000
Depreciation	$0	$0	$0
Rent	$174,000	$248,000	$298,000
Utilities	$2,550	$5,000	$8,000
New location setup	$25,000	$50,000	$50,000
Total Operating Expenses	$299,750	$575,000	$815,600
Profit Before Interest and Taxes	($82,543)	($140,587)	$53,226
EBITDA	($82,543)	($140,587)	$53,226
Interest Expense	$0	$0	$0
Taxes Incurred	$0	$0	$0
Net Profit	($82,543)	($140,587)	$53,226
Net Profit/Sales	-29.57%	-25.18%	4.77%

4.0 Projected Cash Flow

The following chart and table show the Projected Cash Flow for Fresin Fries.

PRO FORMA CASH FLOW
	YEAR 1	YEAR 2	YEAR 3
Cash Received
Cash from Operations
Cash Sales	$279,163	$558,327	$1,116,654
SUBTOTAL CASH FROM OPERATIONS	$279,163	$558,327	$1,116,654
Additional Cash Received
Sales Tax, VAT, HST/GST Received	$0	$0	$0
New Current Borrowing	$0	$0	$0
New Other Liabilities (interest-free)	$0	$0	$0
New Long-term Liabilities	$0	$0	$0
Sales of Other Current Assets	$0	$0	$0
Sales of Long-term Assets	$0	$0	$0
New Investment Received	$0	$0	$0
SUBTOTAL CASH RECEIVED	$279,163	$558,327	$1,116,654
Expenditures	Year 1	Year 2	Year 3
Expenditures from Operations
Cash Spending	$88,200	$262,000	$449,600
Bill Payments	$244,265	$430,245	$599,286
SUBTOTAL SPENT ON OPERATIONS	$332,465	$692,245	$1,048,886
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out	$0	$0	$0
Principal Repayment of Current Borrowing	$0	$0	$0
Other Liabilities Principal Repayment	$0	$0	$0
Long-term Liabilities Principal Repayment	$0	$0	$0
Purchase Other Current Assets	$0	$0	$0
Purchase Long-term Assets	$0	$0	$0
Dividends	$0	$0	$0
SUBTOTAL CASH SPENT	$332,465	$692,245	$1,048,886
Net Cash Flow	($53,301)	($133,918)	$67,767
Cash Balance	$677,899	$543,981	$611,748

5.0 Projected Balance Sheet

Fresin's projected company balance sheet follows. We expect to run at a loss for the first two years, decreasing our net worth slightly. As the operation becomes more profitable in the third year, our net worth rises again.

PRO FORMA BALANCE SHEET
	YEAR 1	YEAR 2	YEAR 3
Assets
Current Assets
Cash	$677,899	$543,981	$611,748
Other Current Assets	$0	$0	$0
TOTAL CURRENT ASSETS	$677,899	$543,981	$611,748
Long-term Assets
Long-term Assets	$0	$0	$0
Accumulated Depreciation	$0	$0	$0
TOTAL LONG-TERM ASSETS	$0	$0	$0
TOTAL ASSETS	$677,899	$543,981	$611,748
Liabilities and Capital	Year 1	Year 2	Year 3
Current Liabilities
Accounts Payable	$29,242	$35,911	$50,452
Current Borrowing	$0	$0	$0
Other Current Liabilities	$0	$0	$0
SUBTOTAL CURRENT LIABILITIES	$29,242	$35,911	$50,452
Long-term Liabilities	$0	$0	$0
TOTAL LIABILITIES	$29,242	$35,911	$50,452
Paid-in Capital	$800,000	$800,000	$800,000
Retained Earnings	($68,800)	($151,343)	($291,930)
Earnings	($82,543)	($140,587)	$53,226
TOTAL CAPITAL	$648,657	$508,070	$561,296
TOTAL LIABILITIES AND CAPITAL	$677,899	$543,981	$611,748
Net Worth	$648,657	$508,070	$561,296

6.0 Business Ratios

The following table outlines some of the more important ratios from the Fast Food Restaurants and Stands industry.

RATIO ANALYSIS
	YEAR 1	YEAR 2	YEAR 3	INDUSTRY PROFILE
Sales Growth	0.00%	100.00%	100.00%	8.67%
Percent of Total Assets
Other Current Assets	0.00%	0.00%	0.00%	37.31%
Total Current Assets	100.00%	100.00%	100.00%	45.97%
Long-term Assets	0.00%	0.00%	0.00%	54.03%
TOTAL ASSETS	100.00%	100.00%	100.00%	100.00%
Current Liabilities	4.31%	6.60%	8.25%	17.94%
Long-term Liabilities	0.00%	0.00%	0.00%	22.26%
Total Liabilities	4.31%	6.60%	8.25%	40.20%
NET WORTH	95.69%	93.40%	91.75%	59.80%
Percent of Sales
Sales	100.00%	100.00%	100.00%	100.00%
Gross Margin	77.81%	77.81%	77.81%	59.05%
Selling, General & Administrative Expenses	107.37%	102.99%	73.04%	39.24%
Advertising Expenses	0.00%	0.00%	0.00%	1.96%
Profit Before Interest and Taxes	-29.57%	-25.18%	4.77%	1.92%
Main Ratios
Current	23.18	15.15	12.13	1.04
Quick	23.18	15.15	12.13	0.66
Total Debt to Total Assets	4.31%	6.60%	8.25%	50.22%
Pre-tax Return on Net Worth	-12.73%	-27.67%	9.48%	6.90%
Pre-tax Return on Assets	-12.18%	-25.84%	8.70%	13.87%
Additional Ratios	Year 1	Year 2	Year 3
Net Profit Margin	-29.57%	-25.18%	4.77%	n.a
Return on Equity	-12.73%	-27.67%	9.48%	n.a
Activity Ratios
Accounts Payable Turnover	9.35	12.17	12.17	n.a
Payment Days	27	27	26	n.a
Total Asset Turnover	0.41	1.03	1.83	n.a
Debt Ratios
Debt to Net Worth	0.05	0.07	0.09	n.a
Current Liab. to Liab.	1.00	1.00	1.00	n.a
Liquidity Ratios
Net Working Capital	$648,657	$508,070	$561,296	n.a
Interest Coverage	0.00	0.00	0.00	n.a
Additional Ratios
Assets to Sales	2.43	0.97	0.55	n.a
Current Debt/Total Assets	4%	7%	8%	n.a
Acid Test	23.18	15.15	12.13	n.a
Sales/Net Worth	0.43	1.10	1.99	n.a
Dividend Payout	0.00	0.00	0.00	n.a