Cafe Paradiso Sample Business Plan

1.0 Executive Summary

1.1 Business Opportunity

Brendan and Margaret Elliott have entered into negotiations to purchase a café business, called Café Paradiso, because of its great location in the Mountain Glen Shopping Centre with the highest number of passing shoppers which is supported by a large and growing local population. There are a limited number of cafés within the centre and with both Brendan’s and Margaret’s experience with having successfully operated and owned a number of cafes in Australia and overseas they will be able to increase their market share from 35% to 40% in 12 months.

The competitive advantages of the business are:

location

quality of food and service

knowledge and experience of the industry

available financial resources

1.2 Product/Service Offering

The main activity of the company is the operation of the Café Paradiso. Business activities include purchasing, storing, preparing, selling and serving our products to our valued customers. We expect to serve over 6,000 customers (‘dine in’ and ‘take away’) per month.

The Café is open from 8:00am to 5:00pm Monday to Saturday and from 8:00am until midday on Sunday. The café comfortably seats 36 persons.

The mission of the business is to satisfy customers’ needs and wants for high quality coffee, delicious nutritious meals and excellent service. Our main point of differentiation from other cafes and coffee shops in the Centre is that one of the business owners is an internationally trained chef who will be able to produce fresh, light and healthy meals each day as well as develop new menu items to meet the changing needs and tastes of people who care about what they eat. The high quality coffee will target staff and shoppers in the Shopping Centre who enjoy good coffee that simply offers good value for money at highly competitive prices

1.3 Marketing Plan

The objectives of the company are to:

- maintain market share through the change of ownership then grow market share to 40%, and

- generate a before tax net margin of 20%.

The business will achieve these objectives by:

- retaining two key staff members of Café Paradiso to maintain continuity of customer relationships during the changeover

- upgrading signage to be more visually appealing

- maintaining the existing price levels and controlling costs

- undertaking more aggressive marketing and promotion.

1.4 Management Team

Brendan and Margaret Elliott, owners of Seaview Pty Ltd are both experienced Café owners/managers having successfully operated a number of cafes in Australia and overseas. Brendan is a qualified chef and has previously worked for the Hilton and the Sofitel groups before owning his own café. Margaret has a degree in Business Management (Hospitality) and she too has worked for the Hilton group of companies and for the Rydges group.

Brendan and Margaret will work full-time in the business, retain two key staff from the previous owner to maintain the continuity of relationships with customers during the transition, and will employ an additional four staff. Two of those staff will work on a part-time basis.

1.5 Financial Plan

Our projected performance is summarised below:

Turnover: Year 1 $536,650 Year 2 $580,000

Gross margin $378,690 (71%)

Net profit (before tax) of $109,869 in the first year, growing to $131,175 in the second year of operation.

The business is cash flow positive from the first month of operation

Break-Even is estimated at a monthly sales level of $30,869

Return on Total Assets: 37.3%

Return on Equity: 51.2%

The purchase price of the business is $170,000. Total start-up cost has been calculated at $209,810 and is to be funded by way of a $104,905 bank loan and equity injection of $104,905 from Brendan and Margaret. It is proposed that the loan be paid back over a two year period from cash flow.

2.0 Business Opportunity

2.1 Business Opportunity

Purchase of an established cafe within the Mountain Glen Shopping Centre that is part of a large, well developed master planned community which is still growing, incorporating a regional shopping centre, residential, retail and commercial development.

The business is ideally located for a Café, being situated on the main mall with a high passing trade due to its close proximity to two national supermarket chains and a number of well-known retail fashion clothing chains. There are a limited number of cafes within the centre and Café Paradiso has the best location, with the highest number of passing shoppers.

Café Parisdo’s primary customers are shoppers and staff within the Shopping Centre who take a break from their shopping or work and enjoy fine coffee or other beverages as well as for people wanting a light, quick and healthy meal that provide a good alternative to the fast food options. The success of the business is based on its excellent location, quality of management and staff, great ‘value for money’ coffee and meals and superior service.

2.2 Vision and Mission

Vision - The company’s vision is ‘to be the Café of preference for Mountain Glen Shopping Centre customers’.

Mission - The mission of the business is to satisfy customers’ needs and wants for high quality coffee, delicious nutritious meals and excellent service.

2.3 Goals and Objectives

Goal one: maintain continuity of customer relationships during the changeover by:

Retaining two key staff members of Café Paradiso

Maintaining the existing price levels

Goal two: maintain market share and sales through the change of ownership then grow market share to 40% in 18 months. The strategies to achieve this goal are:

Increase the number of customers

Increase the average sales size

Increase repeat trade from customers

Undertaking more aggressive marketing and promotion

Goal three: generate a before tax net margin of 20% for the next two financial years by:

Eliminating high cost purchases

Improving cost control

Improving stock control

2.4 Nature of the Business

Café Paradiso will serve take away beverages (especially fine coffee) and moderately priced good quality light meals to the casual dining market within the shopping centre precinct. The café is profitable, has a strong positive cash flow and may be seen as a strong viable and growing business.

Seaview Pty Ltd was recently established for the purpose of acquiring the existing café business known as Café Paradiso, located at the Mountain Glen Shopping Centre. Café Paradiso was one of the first shops to open at the centre and enjoys an excellent location from which to operate. Seaview Pty Ltd will be acquiring the business name Café Paradiso.

Brendan and Margaret Elliott, owners of Seaview Pty Ltd are both experienced Café owners/managers having successfully operated a number of cafes in Australia and overseas. Brendan is a qualified chef and has previously worked for the Hilton and the Sofitel groups before owning his own café. Margaret has a degree in Business Management (Hospitality) and she too has worked for the Hilton group of companies and for the Rydges group.

Brendan and Margaret will work full-time in the business and will employ an additional four staff. Two of those staff will work on a part-time basis.

3.0 Market Analysis

3.1 Situational & SWOT Analysis

Table 1: SWOT analysis and strategy development

See appendix for the situational analysis done on both the internal and external environments

3.2 Industry Analysis

The café market is a competitive market with franchised operators starting to emerge in the coffee shop segment (also offering light meals), which will over time increase concentration in this segment. While the level of competition is increasing, the shopping centre in which Café Paradiso will be located has capped the number of cafés and coffee shops within the complex (by covenant in the Lease Agreement). To this extent, there will be limited competition and it is anticipated that all cafés and coffee shops within the complex will be quite profitable.

Key points about the café and restaurant industry:

• Greater concentration in higher than average household income areas
• Sensitive to changes in real household disposable incomes
• Trend towards singles, families and business people meeting and eating out
• Growth with households increasing purchasing frequency and the amount spent in each transaction in this area

The current general trend is for cafes and restaurants to concentrate on offering value for money with an emphasis on family restaurants, as well as franchised opportunities. The industry will continue to benefit from higher incomes and time constraints on some households as well as lifestyle changes. This will include more dining out or take away food consumption.

There are three key success factors in the café industry that are essential for the business to do well in order to be competitive. These factors are based on the positioning of the business as well as its’ place and physical appearance:

• Location of café in terms of:
• Proximity to surrounding attractions
• Short distance to consumers
• Convenience and accessibility

• Physical appearance in terms of:
• Cleanliness of premises
• Quality of food
• Quality of service

• Clear market position

3.3 Competitor Analysis

Our two main competitors are Club Café and Coffee Extravaganza as they both have strong brand recognition, with high product quality and well-documented processes for how the business should be run which comes from being a national franchise business. However, they have the operating boundaries of the franchisor that doesn’t give them the flexibility to change menu items so easily. This flexibility is something Café Paradiso can take advantage of with having a chef who can develop new menu items to meet the changing preferences of customers. Zhavargo’s Café is able to be more flexible to market needs attracting the price conscious clientele with an average quality product but this is not the market space Café Paradiso is competing in.

Our competitors have no history of discounting and whilst the number of cafés within the centre is capped, pricing should remain very stable. The following tables outline an analysis of the café’s competitors, their products and targeted customers:

Table 2: Analysis of competitors

Table 3: Analysis of competitors’ products and services

Café Paradiso will need to maintain current marketing activities and a high level of service and product quality to ensure its competitiveness. It needs to have a clear market position to target and promote the quality and value for money of products and services.

4.0 Elements of Success

4.1 Target Market

There is substantial population growth in the area as residential development continues and commercial development commences. The master planned community attracts a high socio-economic demographic with high employment and higher than average per capita income.

Café Paradiso customers are the passing shoppers and shopping centre staff of all ages who enjoy a fine coffee (dine-in, or take away) and a healthy, value-for-money meal. The majority of the general public consulted in the shopping centre were families and young singles. The cafe will make it particularly easy for a young family to enjoy a meal by providing a range of children’s meals and activities. Our take away beverages will also appeal to this group and the segments made up largely of singles between the ages of 18 – 40 who shop or work within the shopping centre precinct. They tend to have moderate incomes with high discretionary spending.

The majority of customers who purchase coffee from Café Paradiso are ‘social drinkers’, followed by customers who want their daily fix or a pick me up. They are wanting a convenient, friendly and relaxing environment to ‘recharge their batteries’ or socialise over a fine coffee, choice of beverages and quality fresh, light and healthy meals that provide an alternative to fast food options. The market need being satisfied is based on convenience, quality and value for the coffee drinkers as well the health conscious consumer who is concerned about what they eat.

4.2 Competitive Advantage and Unique Selling Proposition

Our first and main competitive advantage that we possess is our location. Café Paradiso is in the best possible location for a café and has 3 years of the initial 5 year lease to run, plus the option of another 5 years.

Our second competitive advantage is the quality and value of the wide variety of light and healthy meals offered by the business that cannot be matched by other businesses in the centre. In addition, one of the owners is an International Chef who can create new menu items overnight which gives the business the flexibility to sell products to meet the changing preferences of customers.

Our third competitive advantage is the industry experience and expertise of both owners running successful café and restaurant businesses in the past.

These competitive advantages form the basis of our unique selling proposition with the slogan of “Paradiso’s – convenient, light and healthy” and will also include widely promoting the culinary skills of our International Chef.

5.0 Marketing Plan

5.1 Marketing Objectives

There are three key marketing objectives:

To achieve sales of $536,650 for the first year and $580,000 for the second year.

To achieve estimated 40% market share next 12 months.

To position the business as a convenient place to eat light and healthy meals

To be reviewed in 6 months.

5.2 Marketing Mix

PRODUCT

Healthy and light meals are the key point of differentiation for the business because the Café has the capabilities and flexibility to develop new menu lines to meet the changing needs and tastes of customers, whereas the two franchise businesses in the centre must conform to the requirements of the franchisor. While the other products, in particularly fine coffee, are not unique they do offer excellent ‘value for money’ that fill the price points between the high and low ends of the other coffee and café businesses in the centre.

The café will provide the relaxed and friendly environment that our customers seek when searching for a ‘dine in’ meals, beverages and cakes and desserts that offers excellent value for money, but do recognise that this is not unique as shown in table 4 below:

Table 4: Value Propositions

Rating: 1 = Low, 10 = High

PRICE

We propose to offer high quality food and service at a price comparative to our major competitors – we will meet the market on price to retain market share if we need to. Our clientele have a medium to high disposable income and seek high quality products and good service, pricing will reflect the value of our products and services.

The shopping centre has a ‘captive market’ and given the limited number of cafés in the centre, prices have not been discounted in the market. There is no intention to discount to buy market share as Café Paradiso currently holds the largest market share of approximately 35% and we intend to take it to 40%, whilst maintaining existing margins.

PLACE (i.e. DISTRIBUTION)

Customers access and purchase our products and services through our shop front. The location of the café is at the southern end of the Mountain Glen Shopping Centre. Mountain Glen is a very large regional shopping centre drawing customers from up to 15 kilometres away and is surrounded by a ‘market’ of approximately 250,000 persons.

It is situated on the main mall, near the major (national) supermarkets and retail fashion clothing chains. It has a high passing trade due to its close proximity to two national supermarket chains and a number of well-known retail fashion clothing chains. The café is 60 m² and there is three years to run on the current 5 year lease. An option to take another 5 years is available under the lease.

When the proposed commercial development goes ahead, the businesses located there are potential customers for a catering business. The business plan will be revisited at this time.

PROMOTION

In conjunction with Mountain Glen Centre Management we will be undertaking a range of promotions when we take over the cafe promoting the new ownership of the café. These promotions will include offers of discounted meals and coffee, but they will only run for two weeks. We estimate that this will be sufficient time to allow a smooth transition to ourselves as new owners.

Our regular advertising will consist of shopfront A-frame advertising boards, weekly newspaper advertising and a three monthly flyer drop in local mail boxes. As most of our business will be passing trade, shop front signage will be bright and appealing. We will develop and offer a loyalty card scheme to increase repeat business.

Word of mouth advertising is very important and the best advertising we will be providing is the quality of our products and service.

PEOPLE

Both Brendan and Margaret Elliott have been successful owners and managers of cafés. Brendan is a French trained chef and his skills will be used new product lines to meet the changing needs and preferences of consumers which will be a point of differentiation for the business Margaret with her business and hospitality background will be responsible for the day to day operations of the Café.

Two key staff member who worked with the previous owner will be retained to help with the continuity of existing relationships with customers.

PROCESS

Major processes are flow-charted in the café’s procedure manual that are geared to providing quality and responsive services to clients as well as efficient and effective operations of the cafe. This includes sufficient numbers of staff are working during the peak periods to make sure customers are served in a timely manner. Further information about the processes in place are detailed in section 8 of this business plan.

PHYSICAL EVIDENCE

The café is fully fitted out with table, chairs and décor that projects the desire image of quality and value as well as aligns with the USP of ‘Light and Healthy – Café Paradiso’. This also applies to uniforms for the staff. The cleanliness of the premise, tables and chairs will be maintained to a consistently high standard at all times.

5.3 Action Plan

In conjunction with Mountain Glen Centre Management we will be undertaking a range of promotions when we take over the cafe promoting the new ownership of the café. These promotions will include offers of discounted meals and coffee, but they will only run for two weeks. We estimate that this will be sufficient time to allow a smooth transition to ourselves as new owners.

Our regular advertising will consist of shopfront A-frame advertising boards, weekly newspaper advertising and a three monthly flyer drop in local mail boxes. As most of our business will be passing trade, shop front signage will be bright and appealing. We will develop and offer a loyalty card scheme to increase repeat business.

Word of mouth advertising is very important and the best advertising we will be providing is the quality of our products and service. In this area will be training the staff in customer service skills

When the proposed commercial development goes ahead, the businesses located there are potential customers for a catering business. The marketing plan will be revisited at this time.

5.4 Sales Analysis and Forecast

Our sales analysis has revealed that we can expect on average 6,000 customers (transactions) per month with a general mix of customers buying only coffee, usually ‘take away’ and those ‘dining in’ buying a light meal and coffee. Our sales forecast is based on an average industry selling price of $3.50 per cup for coffee and average light meal selling price of $13.00. We expect that the mix of coffee to meals will be approximately 1.5:1 and have based this on the cafés current figures. On this basis we have projected sales of $536,650 for the first year and $580,000 for the second year. Sales will spike in the build-up to Christmas and at times of seasonal celebration e.g. Mother’s and Father’s days, Easter etc. Our Sales Forecast by quarter is shown in the figure below.

Sales performance will be analysed on the basis of sales ($) per employee.

Figure 1 Sales forecast

6.0 Legal Matters and Risk Management

6.1 Business Structure and Business Name

Seaview Pty Ltd has been established to carry on the business Café Paradiso, with Brendan Elliott and Margaret Elliott being the shareholders and management of the company.

ACN. 111111111

ABN. 38 111111111

The Business Name Café Paradiso is an existing registered business name that is being acquired by Seaview Pty Ltd.

BN. xxxxxxx

Expires. September 2008

6.2 Registrations, Licences and Permits

Table 5: Listing of registrations, licences and permits

6.3 Contracts and Agreements

Table 6: Listing of contracts and agreements

6.4 Risk Management

Table 7 Risk assessment

(L=low, VL=very low, M=medium. H=high, VH=very high)

6.5 Insurances

Table 8 Listing of insurance policies

The business package will include public liability, fire, theft, burglary and business interruption insurance. The above is based on quotes obtained from our Insurance Broker. Insurances will be finalised once the contract has been signed.

Brendan and Margaret have life insurance and income protection policies already in place.

7.0 Human Resource Management

The management of the business comprises Brendan and Margaret Elliott who between them have significant experience in the hospitality industry. Brendan is a qualified chef and has successfully managed a number of restaurants both here and overseas. Margaret has experience in the ‘front’ and ‘back’ offices of resort hotels and is highly respected in the industry for her management skills.

The maximum staff requirement (including the owners) is estimated at 6 employees. Two of the employees will be employed on a part-time basis. The main skill sets required are food preparation, sales, customer service, front counter, stock control and management. It is planned to retain two staff members from the previous ownership and recruit two more appropriately qualified staff. We will be taking them through our in-house induction program prior to opening.

Salaries and wages in the first year are estimated at $182,000 and $200,000 in the second year of operation.

7.1 Organisational Chart

Staff at Café Paradiso will be organised into two teams. Team 1 will be headed by Margaret Elliott and will be responsible for customer service and administration. Brendan Elliott will head Team 2 which will be responsible for the food preparation and the kitchen.

Margaret will have primary responsibility for staff, accounting, sales, marketing, and managing the operation of the Café. Brendan will be responsible for HR, stock control, the kitchen and food preparation.

7.2 Owner/Operator Skills and Experience

Table 11: Summary of owners’ knowledge, skills, qualifications, and relevant experience

7.3 Industry Knowledge and Experience of Key Personnel

Table 12: Details of personnel with specific industry knowledge and experience

7.4 Human Resource Requirements

Table 13: Analysis of human resource requirements

The team of staff will be comprised of Brendan and Margaret, plus two service staff (counter and waiting), one assistant ‘chef’, and one ‘kitchen hand’. Two of these staff will be casual and will work on a part-time basis. This equates to 5 full time equivalents (FTEs).

Table 14: Staff and wages estimate

The above includes casual staff. Staff will be employed under the Hospitality Award.

7.5 Job Descriptions

Under review.

7.6 Employment Conditions

As per Hospitality Award.

7.7 Training and Development

Table 15: Analysis of qualifications/skills & competencies

The skills and competencies are largely covered by Brendan and Margaret and professional expertise will be provided by our external lawyer and accountant.

Table 16: External or internal on-the-job training courses

7.8 Workplace Health and Safety

The workplace health and safety plan is based on the advice and guidance provided by Workplace Health and Safety Queensland www.worksafe.qld.gov.au and their fact sheets for the restaurant and café industry.

8.0 Operations

8.1 Business Premises and Location

At present the only facility we will be using is the café. It is ideally located within the shopping centre to attract passing customers and is also relatively close to our main suppliers i.e. grocer and bakery. The café is fully fitted out and is fit for purpose.

There is no need for a separate operating location at this point in time. There is an opportunity to roast coffee beans and manufacture the café’s own blends at a later date. If this occurs, it may be necessary to acquire operating premises to implement the idea.

8.2 Plant and Equipment Requirements

Set out below is a listing of the minimum plant and equipment items that are required to successfully operate the Café. A schedule of the plant and equipment (and their values) contained in the purchase price will be included in the contract documentation and will be subject to due diligence. The purchase price of the plant and equipment items listed below is stated in the contract at $50,000.

The items to be acquired in the purchase price are two years old and will be subject to a Mortgage Debenture Charge as part collateral for the bank loan.

We will undertake routine maintenance and plan the replacement of plant and equipment items on the basis of annual condition assessments.

Table 17: Listing of plant and equipment

8.3 Purchasing and Supply

Brendan has contacted all existing suppliers and has negotiated supply arrangements on very attractive terms. At this point there are no written contracts although three suppliers have indicated that they are currently preparing contracts for execution. Where suppliers do not provide formal contracts we will be requesting an exchange of letters to confirm the basic arrangements.

In most instances local alternative suppliers exist. Where local alternative suppliers do not exist, we have identified alternative suppliers from nearby regions who have the capacity to meet the café’s needs in a timely manner at a reasonable cost.

Table 18: Listing of major suppliers

8.4 Operating and Production Processes

Our major processes are sales, food and beverage preparation, table service and stock control (ordering, storing, controlling). Major processes are flow-charted in the café’s Procedures Manual. A copy of this is appended to the business plan. The processing of Point of Sale (POS) transactions is electronic, with transactions being automatically posted into the accounting system (which incorporates a stock control system). The table below represents the current and the planned level of operation and the standard of these operations.

Table 19: Analysis of operating facilities and processes

8.5 Stock or Inventory

All stock at this stage will be stored ‘on site’ at the café. Fresh produce such as vegetables are purchased in vacuum sealed bags or cartons and meat in vacuum sealed packs. These will be stored in a small commercial refrigerator. Other items such as coffee beans, canned and packaged products will be kept in the storage cupboards.

Other perishables including cakes and cheese cakes will be kept in refrigerated display cabinets and will be stored for a maximum of three days.

On average, we expect to turn stock over once per week.

Stock will be controlled using our stock control system, which is a module of the accounting software package.

8.6 Information Communication Technology Systems

ICT systems include the computerised EFTPOS system, linked to the accounting system. The EFTPOS system will process Direct Debit, Credit Card, and Cash transactions directly to the bank and the accounting system. The accounting system will process the payroll, stock control, general ledger transactions and maintain the Human Resource records.

These systems effectively reduce manual accounting and processing to a minimum. They provide real time reports, thus enhancing productivity and management decision making.

8.7 Operational Forecast

We have projected sales transactions at 17,900 for QTR 1, 19,500 for QTR 2, 15,900 for QTR 3, and 18,600 for QTR 4. Our average sale price is estimated to be $7.46 with the average cost of sales at $2.20.

Our average number of employees is estimated at 5 with 6 required at peak times. This includes both full time and casual employees.

Profit per person is projected at $4,448 per month. Our target for client satisfaction is a rating of 85% for the first year.

Figure 2 Operational targets

Table 20: Analysis of operational performance (existing/planned)

The current rating is based on our observation of the existing operation under the current owner. We propose to lift standards significantly within a few months of taking over. We believe that this is necessary and achievable.

9.0 Financial Plan

Tables attached:

• Sales Forecast
• Start-up Budget
• Annual Profit Budget
• Profit and Loss Statement (2 years projected)
• Annual Cash Flow Budget
• Balance Sheet (2 years projected)
• Break-Even Analysis
• Financial Analysis

9.1 Start-Up Budget

The start-up budget is estimated at $ 209,810 broken up into ‘one off’ costs of $187,300 and monthly expenses in advance of $ 22,510. Included in the ‘one off’ costs is goodwill valued at $120,000 and plant and equipment of $ 50,000. The start-up budget is shown in Figure 3 below.

Figure 3 Start-up budget

The Start-up budget is to be funded by way of equity injection of $104,905 by the owners and a loan over two years from the bank. The bank loan will be repaid out of the business’ strong cash flow. If cash flow is reduced for any reason, Brendan and Margaret have personal financial resources to more than adequately cover the loan repayment. A Mortgage Debenture over the business is being offered as collateral along with the Directors personal guarantees.

9.2 Annual Profit Budget

The projected profit for the first year of operation is $109,869, with the second year projected at $131,175. These projections have been based on the Annual Profit Budget (copy attached).

Financial Highlights over the 2-year period are summarised in the figures below.

Figure 4 Year 1 financial highlights

Figure 5 Year 2 financial highlights

Gross Margin is calculated at 71% for Year 1 and 71.5% for Year 2. Net Profit Margin (Before Tax) is calculated at 20.5%. for Year 1 and 22.6% for Year 2.

The business is quite profitable and margins are sustainable over the medium to longer term.

9.3 Cash Flow Forecast

The Cash Flow Forecast projects a very healthy cash surplus on trading for each month with the end-of-year ‘cash from operations’ calculated at $105,847 and an ending cash balance of $145,657.

Brendan has negotiated very favourable credit terms of 30 days from all suppliers for the first 12 months, although in most cases these arrangements are not in writing. If all suppliers reduced their terms to 7 days cash flow for two trading months, the peak cash shortfall would be approximately $1,200 for about 2 months.

Brendan and Margaret have significant liquid assets to call upon should this eventuate.

On the figures provided and the arrangements negotiated, the business has a strong and positive cash flow. Figure 6 below shows the projected cash-flow by quarter.

Figure 6 Projected cash flow by quarter

9.4 Balance Sheet

The opening Balance Sheet shows an equity position of $104,905 growing to $214,774 at the end of Year 1 and to $345,949 at the end of Year 2. By the end of Year 2 the business will be clear of any debt and be ‘cashed up’ to take advantage of further opportunities in the market place.

Figure 7 Projected opening balance sheet and year-end balance sheet

9.5 Break-Even Analysis

The Break-Even point has been calculated at 4138 transactions at an average selling price of $7.46. This equates to a contribution margin of $6.38 per transaction and a Break-even sales point of $30,869 per month. The projected level of sales for each month is well above the Break-even level (approximately 30% above).

Figure 8 Break-even analysis

9.6 Financial Analysis

The Return on Owners Equity calculated on the projected end of year financial performance and position indicates a return on investment of 51.2%. Return on Total Assets is calculated at 37.3%. Gross Profit Margin over the period is estimated at 71% with the Net profit Margin estimated at 20.5%.

Figure 9 Financial ratio analysis

The above ratios indicate a very solid financial performance over the period.

The Current Ratio and the Quick Ratio (Acid Test) are both very high reflecting the fact that the business has a very strong and positive cash flow. This is due to sales being predominantly cash, whilst purchases are bought on largely on 30 day terms. Liquidity is sound.

The business also enjoys a sound financial position with the Debt to Equity ratio calculated at 37.2% and Debt to Total Assets at 27.1%.

Assumptions

Average sale price $7.46 per transaction

Average cost $2.20 per transaction

Sales transactions range from 5900 per month to 7500 in peak period

Historical gross profit margin of 70% will hold.

Seasonal fluctuations – Christmas and New Year are peak periods of sales activity (build up from November, the after New Year slow to February)

The business operates on a cash basis for reporting and paying tax.

PAYG (withholding) is remitted monthly on the Instalment Activity Sheet (IAS), with GST remitted quarterly in arrears on the Business Activity Statement (BAS).

10.0 Financial Worksheets

The following documents have been attached:

• Sales Forecast
• Start-up Budget
• Annual Profit Budget
• Profit and Loss Statement (2 years projected)
• Annual Cash Flow Budget
• Balance Sheet (2 years projected)
• Break-Even Analysis
• Financial Analysis

11.0 Action Plan

12.0 Refining the plan

This section would not be retained when presenting the business plan to other parties e.g. potential lenders and investors.

Appendices for Business Plan

Appendix 1: Situational analysis – external environment

Appendix 2: Situational analysis – internal environment

Rating: 1 = Low, 10 = High