BUSINESS PLAN 2009
Daniel Knudsen Dec 4, 2009
TABLE OF CONTENTS
EXECUTIVE SUMMARY
3
1.0 INTRODUCTION
1.1 Industry Overview
1.2 Mission Statement
1.3 Goals and Objectives
1.4 Financing
4
4
4
4
2.0 OPERATIONS PLAN
2.1 Location
2.2 Floor Plan
2.3 Quality Control Program
2.4 Organizational Strategy
5
5
6
6
3.0 MARKETING PLAN
3.1 Competition
3.2 Target Markets
3.3 Product & Pricing Strategy
3.4 Promotional Strategy
7
7
8
8
4.0 FINANCIAL PLAN
4.1 Debt and Dividends
4.2 Investment Analysis
4.3 Ratio Analysis
4.4 Risk Analysis
9
9
9
10
5.0 CONCLUSION
11
LIST OF FIGURES
Figure 1 Aerial View of Location
Figure 2 Floor Plan
Figure 3 Competitive Space Map
5
5
7
LIST OF APPENDICES
Appendix 1 Organizational Structure
Appendix 2 Draft Menu
Appendix 3 Weekly Schedule
12
12
13
LIST OF TABLES
Schedule 1 Dividend and Debt
Schedule 2 Sensitivity Analysis
Schedule 3 Income Statement
Schedule 4 Capital Budget
14
14
15
16
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EXECUTIVE SUMMARY
The proposed business plan is for a sandwich and fast-eats shop at the University of
Saskatchewan in Saskatoon. This incorporated business which is planned to be called Metro,
will be located at the north end of Place Riel tunnels. The chosen location is readily accessible
and receives a dense amount of traffic, and as such the most patrons will be aware of our
presence upon entry into the market. The model is different than all the other or current
options, as Metro will offer the quickest avenue to purchase food and will also offer a tastier
selection than the current alternatives. A coin slot operated cooler will be set-up on both walls,
thus allowing customers a total of four avenues in which to receive and pay for their food.
As the owner, I will oversee the marketing, accounting, and general strategy of the business,
while the cook would take on most of the responsibility to run day to day operations.
Estimates derived from the marketing, operations and human resources plan were used
for developing the financial model for Metro. The sales price of $8 is expected to grow at a
straight rate increase due to the nature of coin operated mechanisms. The business is to grow
by 15% in the first year, then 5% in the second, and 3% in the following two years. Similar stores
of this nature tend to serve up and around 200 customers per day. Current conservative
estimates signify a starting level of 150 customer base level throughout the first year. Worst
case scenario, with the ability to be extremely flexible in terms of service and product offerings,
would see levels of 120 customers. Meanwhile, for the best case scenario, capacity peaks at
around 220 customers. It’s hard to judge if this will be easily obtained given no franchise name,
but with a high quality and reliably convenient service it is easy to expect that Metro can get
the same projections.
The business intends to borrow $45,000 at 7%; this debt will be amortized over a five
year period. Dividends will be distributed to the owner from the second year and on. The
required rate of return on this business is for 20%. With the projected cash flows and an
investment of $45,000, the investment return will be a premium salary and dividend payout.
Given the ability of the operation to basically run itself and with less and less part-time hours to
oversee business operations, this is an enticing offer as long as the prerequisite sales levels are
obtained. The low start-up investment, easy exit ability, and a guaranteed level of sales make
this a relatively safe investment. The only real risk could be associated with the converted
machinery and subsequent costs associated in thereof. If the business were to go under, this
would still be considered a minimal loss.
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1.1 INDUSTRY OVERVIEW
Industry averages for gross profit margins are 50%, and wages as a ratio per sales are
usually 25%. Considering the streamlined format of Metro, these numbers can serve as a good
basis, but should vary minimally with gross profit margins being a bit higher and actual wages as
per sales a bit lower. As manager I have included my wage into the equation even though this
brings the total to an unusually high ratio of 32% wages per sales. As long as the market isn’t
overly saturated with competitors, a food retail outlet that serves quality food at a reasonable
price will be considered a low risk venture. As in the case at the university, line ups and
backlogs of consumers are a constant reality, so there is no doubt that another food outlet
would be welcomed.
1.2 MISSION STATEMENT
“ Serving healthy gourmet combos and alternatives to busy bodies. ”
1.3 GOALS AND OBJECTIVES





Fast and convenient means to satisfy hunger while offering a reliably consistent highquality and differentiated service
To achieve a substantial return within the first few years of operation
Build a reputable brand and successful business model that may be duplicated
Maintain a clean food handling environment
Run an effective and efficient inventory system
1.4 FINANCING
The opportunity would only need a $45,000 co-signed loan and would be repaid within
5 years. No partners are needed and hence I would be the sole proprietor of the business, if the
prospect came up for a partner, presumably a cook, a stake into the venture would then be
equated given the value of the current investment based on the sum of future revenues. The
financial projections for this and the return on investment look very promising, this is
considering the low initial start-up costs and ability to repay within the first few years. A big
portion of the loan cost would go to renovation expenses and equipment expenditures. Along
with wage based employees and a starting inventory that will be used before it has to be paid,
there will be enough sales and subsequent cash flow to cover all operating expenses.
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2.0 OPERATIONS PLAN
2.1 LOCATION North End of Place Riel Tunnels at the University of Saskatchewan
Figure 1
2.2 FLOOR PLAN 18’ X 28’ Lease
Figure 2
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2.3 QUALITY CONTROL PROGRAM
Adhering to University policies and guidelines, the treatment of employees, handling of
food, disposal of chemicals, and all other matters will be upheld. Quality control systems will be
put in place to ensure that the food and cleaning of the store will result in zero contamination.
Other such training programs would include; HACCP, WHMIS, customer service, and objective
training. Highly motivated employees whom will add value to the brand and image of the store
will be required. By offering premium incentives for employees through either offering a
partner type role or allocating bonuses, high employee involvement will be maximized. Hiring a
knowledgeable and courteous cook whom would be both accountable for inventory and
responsible for maintaining an enjoyable work environment would be a top priority.
2.4 ORGANIZATIONAL STRATEGY
There will be a full-time cook and two part-time cashier/prep workers being paid
premium wages, and as well myself as the manger being paid a salary and dividends which
would kick in presumably in the second year. There can presumably be a decline in sales during
the summer months as fewer students are attending classes. During this period a reduction of
hours and work needed would ensure the business is still profitable during this period. Other
than this summer decline, an average day would consist of 1) a part-time employee opening up,
cashing in, prep work, inventory stock, and serving customers 2) a cook coming in a little later
and continuing with prep work and setting up for the day 3) about half way through the day the
other part-time employee would show up, prep work, then take over customer and inventory
duties until cash out.
See Appendix 1 for a Work Schedule
SCOPE AND RESPONSIBILITIES
The Owner/Manager will oversee all major business functions. Accounting, marketing,
business strategy, and maintaining an adequate cash flow for the venture will be the main areas
of focus. Monthly duties would include financial reviews and an objective analysis which would
be used to see if the business has areas to improve. Other areas of interest would be in
operations and supply management which could see menu changes, human resource
consultation, etc)
The Cook/ Assistant Manager will oversee procurement, order supplies when needed,
and be responsible for the overall efficiency and quality of products. In effect the cook would
run the kitchen and its day-to-day operations (scheduling, inventory, menu, supply counts and
receiving).
Semi Full-Time Employee duties would include the service of customers, register
operation, cashing in and cashing out, stocking and prep work. These part-time employees,
whose hours would be flexible depending on how busy the business day would also have daily
duties including the cleaning of store counters, floors, kitchen, and the re-stocking of inventory.
See Appendix 2 for Organizational Chart
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3.0 MARKETING PLAN
3.1 COMPETITION
The food retail market in and around university grounds is very intensive. There are
roughly a dozen direct and indirect competitors for the university population to choose their
food purchases from. As reflected in figure 3 below; service, price, and the overall quality of
food differs to a degree. The businesses within the model are one’s that are in direct
competition for market share with the proposed venture. Given that there are only two
competitors in the specific area where the business is poised to set up, there is an opportunity
to seize a proportionate market share. A lack of service and an apparently high number of
backlogged customers will assure the projected targets. A differentiated menu will offer unique
and healthy combinations which will help establish a repeat consumption among students.
Figure 3
3.2 TARGET MARKETS
There are 8000 Arts and Science students on campus, this is a considerably large
population and accounts for 45% of the overall population. Even though marketing efforts will
be geared to the whole population, these 8000 will serve as the main target market. Similar
shops serve over 200 sandwiches a day, and achieve gross margins averaging 50%. This is a solid
opportunity considering the minimal capital requirement and the low integration costs
involved. The target market will mainly be the Arts and Sciences University population. There is
an opportunity to attract more of total university base, and will attempt to do so with
awareness and marketing campaigns. We will not target any specific group, as the products and
service will appeal to everyone. The store’s format and design will garner the attention of the
younger segments, but nonetheless there should be a reliable and reoccurring purchase across
all segments young and old. As mentioned before, the store will offer the quickest means to
obtain food. This is the biggest advantage against the uniformly slow competition in the
market. With two coin-operated slot coolers, the customers can receive a meal within seconds
of entering our location. As compared to the usual 5 to 10 minute wait amongst other
locations; our business will be the avenue to serve time crunched customers.
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3.3 PRODUCT & PRICING STRATEGY
Metro’s main success will be in the layout and format in which it will serve customers.
Line-ups and backlogs continue to be a problem for students who need to get food and eat
quickly. Metro will offer the fastest and most convenient means to satisfy hungry time
crunched students, while offering a reliably consistent and differentiated service. In relation to
the other direct competitors; Metro will serve high quality food, offer the lowest line ups, and
establish a moderate availability compared to all relevant competitors. Selection of a high
traffic area will bring consumers to the outlet and a suggested price of $8 for combos would be
the base charge. For sandwiches in the coolers, a straight base rate of $8 would be wise. There
is a lot of flexibility in this store’s format in case or in need to reconfigure, but given the coin
slot operation of the machines this straight rate is quite functional. The menu which will be
later determined, will border on the higher end offerings currently available. Further research
using focus groups, questionnaires, and most notably an involved discussion with the main cook
will solidify the end menu.
See Appendix 3 for a Draft Menu
3.4 PROMOTIONAL STRATEGY
Since the business will be brand new and will offer a new interesting service, I plan to
get free press from The Sheaf and Planet S via new business forum. Contacts that have been
established with these editors and writers guaranteeing an insert into these University based
magazines. In addition to this free advertising, a plan to distribute menus, flyers, logos, and
stickers around campus will ensure that the store will be known and familiar to those who go to
the university. Over time with highly regarded and efficient service, I hope to establish a brand
which can effectively compete with all the other competitors. Word of mouth will undoubtedly
be an integral part of success. An ability to re-configure product/service offerings, provide an
extended 24 HR availability, and serve customers using the most efficient means should
correlate into positive brand image and consequent referral to the store. No significant
investment will be made into marketing except for the store’s signs, brand, and design. There is
no need to go off campus to target customers as the University is the only segment for the
store will target.
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4.0 FINANCIAL PLAN
The financial plan includes 5 year projections utilizing an income statement, balance
sheet, and cash flows. The estimates have been derived from the following: cost of goods sold,
revenue estimates, operating expenses, and a capital budget. The inflation rate has been taken
as 3% and the growth in sales prices will roughly match this inflation but on a straight base
increase every two years. Metro’s location alone will be it’s most advantageous element.
Consumers pass by the shop by means of a highly dense and traffic orientated position. To
supplement this obvious advantage, a moderate advertising campaign in and around the
campus will help to draw the projections garnered in the financial plan. After starting off at a
modest 150 customers per day, the business will grow by 15% in the first year. After that, the
sales growth will start stabilizing at 5% to 3%, and eventually meeting a figurative capacity of
220.
4.1 DEBT SCHEDULE AND DIVIDEND POLICY
I will be borrowing $45,000 at a rate of 7%. The current rate of borrowing is low and can
be counted on to remain constant for Metro. The debt will be amortized over a 5 year time
period. The total payments for each year over the projected five years schedule can be seen in
Schedule 1 of the financial section. The business will start distributing dividends in the second
year of operations. Since I will be the only owner, all excess cash in the system will be divvied
up during the appropriate times.
4.2 INVESTMENT ANALYSIS
A more unorthodox approach was taken when analyzing the return on investment for
Metro. The value and worth of operating this business will come down to the amount of time
needed to manage and a mix of premium salary/ dividend payouts. The investment analysis as
shown in Schedule 2 of the financial section shows the wage per hour rates to be achieved
given the base level of sales. Considering this as a less risky business, the required rate of return
would be 20%. With the projected cash and an equity investment of $45,000, projected cash
flows would produce a value of $117,885 (Net Present Value).
4.3 RATIO ANALYSIS
Metro will have a positive net profit margin in the first year of 2%. This figure improves
throughout the years, increasing to 6% in the second year and then eventually to 9%. On a
capital investment of $45,000, the return on assets and return on equity produce positive
figures in all years. Within the 2nd year return on equity peaks at just over 2, while the return
on assets peaks at just over 1 in the 5th year. However, the most functional of financial statistics
would be the relative wage per hour.
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4.4 RISK ANALYSIS
For analyzing the risk of this business, some critical factors have been identified which
would effectively determine the health of the business. The three most critical factors are;
number of customers, prices, and maintaining an above average profit margin on meals. In
order to cover the risk from the first critical factor, Metro will offer a great value to customers.
The business will provide healthy, proportionate, and delicious gourmet combos at a
reasonable price. Word of mouth and referral amongst friends will entrench the business as a
mainstay and preferred choice amongst the competition. For the next critical factor, the
business would be able to re-configure product and price offerings in an attempt to utilize paid
employees on site. Prices will be on par with the competition and wages which would be
directly correlated to the amount of service needed, could be either increased or decreased
given the amount of customers being served. Lastly, an efficient inventory management system
will be needed to achieve the above average profit margin.
SCENARIO ANALYSIS
Scenario analysis has been performed on the critical factors and the best case, base
case, and the worst case have been studied with varying impact. A worst case scenario with 120
customers would result in a loss of $10,000. However, if the number of customers drops this
low a wage savings could in theory be obtained. Base case allows for a conservative estimate at
150, and this would provide an average return for the owner/manager. A best case scenario of
220 customers a day and at capacity, would return a very high premium for the owner. A
wage/salary correlation of $80 per hour would be achieved at this state.
SENSITIVITY AND BREAKEVEN ANALYSIS
A breakeven analysis has also been done. Critical variables and levels have been
calculated for the quantity breakeven of the business. In order to meet the breakeven on a
quantity level, the business would have to only attract 136 customers per day instead of 150. A
price level reduction to $7.14 for the starting base year per customer levels would also obtain
this break even mark. If gross margins on meals were to decrease to 50%, a loss of $5000 could
accumulate in the first year.
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5.0 CONCLUSION
This is an excellent opportunity because there appears to be a market imperfection.
Routine line-ups are a sure sign that customers can be better served. The flexible and compact
format of the store can cut cost inefficiencies and wait times. There has been a gradual increase
of service, but over the years at the U of S, I have noticed that service and food could be
improved. By building a strong image and brand equity through a higher quality experience,
Metro has a significant chance to gain a proportionate share of the market. Business longevity
will hinder on; gaining the 136 customers per day, maintaining high gross margins on meals,
and the retention of a motivated cook. If for the above or other reasons I am forced to
withdraw from the venture, selling of the assets and closing down the business could only take
2 weeks. In addition to the initial investment being quite low, there will be a chance to sell most
of the equipment albeit at a reduced price. A very high wage rate per actual hour worked is the
greatest value to me as an investor. Considering the premium return on the risk, this is an
enticing opportunity.
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APPENDIX 1
APPENDIX 2
WEEKLY SCHEDULE (HOURS)
OWNER/ MANAGER
CHEF/ ASSISTANT
SEMI FULL-TIME 1
SEMI FULL-TIME 2
8:00 AM- 6PM
7:00 AM- 2:00 PM
12:00 PM-7PM
TUESDAY
8:00 AM- 6PM
7:00 AM- 2:00 PM
12:00 PM-7PM
WEDNESDAY
8:00 AM- 6PM
7:00 AM- 2:00 PM
12:00 PM-7PM
8:00 AM- 6PM
7:00 AM- 2:00 PM
12:00 PM-7PM
8:00 AM- 6PM
7:00 AM- 2:00 PM
12:00 PM-7PM
( SALARY/PROFIT)
MONDAY
10AM-4PM
THURSDAY
10AM-4PM
FRIDAY
SATURDAY
SUNDAY
TOTAL HOURS
12
(AT LOCATION)
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47.5
32.5
32.5
APPENDIX 3
METRO MENU: PROPOSAL DRAFT
READY
•
•
•
•
•
MADE - COOLER
B.A.L.T – bacon, avocado, lettuce, tomato, mayo and lemon tinge
Shrimp and Vegetable Wrap – romaine, mushroom, onion, olives
Crab Salad Sandwich – herb oil, shredded cabbage, herbs
Chicken Pepper – red and green pepper, cajun spices
Club Classic – honey ham, turkey, roast beef
MADE TO GO - KITCHEN
• Fig and Prosciutto – mozza or fontina, arugula
• Fish Sandwich – cabbage, cilantro, tomato, lime juice and chilli powder, garlic
• Honey Garlic Roast – simmered beef and bbq sauce melt
• Grilled Cheese – pear slices and bacon
• Stir Fry – rice beef or chicken
•
•
•
Breads: Toast, Whole Grain, Sub, Panini grilled, Ciabatta, Croissant
Sauces: Ranch, Italian, BBQ, Mayo, Hummus, Dijon and Honey Mustard
Cheeses: Provolone, Mozza, Cheddar, Swiss, Pepper Jack
•
Combos: filled w/ side frites and/or veg pkg
DRY/ COOL SHELF
• Apple Crisp, Lemon Meringue, Saskatoon Berry Pie
• Double Dark Forest Cake
• Italian, Greek and Caesar Salad
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SCHEDULE 1
DIVIDENDS
& SALARY
Hours
$35,000.00
30
Average
$56,000.00
$55,000.00
20
$60,000.00
18
$65,000.00
18
$65,000.00
18
0.75
0.5
0.45
0.45
0.45
Hours
(Year)
1410
940
846
846
846
Salary
Rate
$24.82
$58.51
$70.92
$6.83
$76.83
2012
2013
DEBT AMORTIZATION SCHEDULE
Year
Term
5
2011
Beginning Balance
Addition
45,000
37,175
-
28,802
-
19,843
-
10,257
-
Payment
10,975
10,975
10,975
10,975
10,975
Interest
3,150
2,602
2,016
1,389
718
Princ. Reduction
7,825
8,373
8,959
9,586
10,257
Ending Balance
37,175
28,802
19,843
10,257
2014
2015
0
SCHEDULE 2
SENSITIVITY ANALYSIS
Customers
Net Income
120
-10,605
136
0
150
7,384
173
23,666
181
27,863
187
35,560
192
38,661
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55%
Gross on Meals
120
-10,605
136
0
150
7,384
173
23,666
181
27,863
187
192
35,560
38,661
50%
120
136
150
173
181
-21,287
-12,394
-4,613
10,477
13,235
187
192
19,610
22,226
SCHEDULE 3
INCOME STATEMENT
For the Year Ended
2011
2012
2013
2014
2015
Revenues
303,750
368,564
387,155
419,820
432,350
Cost of Goods Sold
130,183
159,720
168,018
182,464
188,012
Gross Profit
173,567
57%
208,843
57%
219,137
57%
237,357
57%
244,337
57%
Lease
22,680
23,360
24,061
24,783
25,527
Wages
101,825
116,084
120,174
127,360
130,117
Repairs/Maintenance
2,000
2,000
2,000
2,000
2,000
Employee Benefits
General Supplies
Marketing
Incorporation Fees
10,024
16,500
5,500
250
12,163
18,000
2,000
100
12,776
19,200
2,000
100
13,854
20,500
2,000
100
14,268
21,000
2,000
100
Insurance
900
927
955
983
1,013
Capital Cost Allowance
2,000
3,600
2,880
2,304
1,843
Interest Expense
3,150
2,602
2,016
1,389
718
Total Expenses
164,829
180,836
186,162
195,274
198,585
Operating / Marketing Expenses
Net Income B4 Taxes
8,739
28,007
32,974
42,082
45,752
Income Taxes
1,355
4,341
5,111
6,523
7,092
Net Income
7,384
23,666
27,863
35,560
38,661
-
7,384
11,050
13,913
19,473
7,384
23,666
27,863
35,560
38,661
-
20,000
25,000
30,000
30,000
7,384
11,050
13,913
19,473
28,134
Beg RE
Net Income
Dividends
End RE
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SCHEDULE 4
CAPITAL BUDGET
Equipment:
2 Large Coolers Converted
15,000
2 Med Dry Shelves
3,000
Full Size Refrigerator
Counter-Top Freezer
Electric Grill and Deep Fryer
Oven
Dishwasher
Cash Register/ Debit
Counsel
Industrial Microwave
2 Cash/Coin Machines
Kitchen Ware
1,500
1,300
1,000
1,000
800
Drink Machine
1,000
Sinks
400
400
1,300
1,100
400
28,200
Building Design and
Modifications:
Signs, Panels, Wall
14,000
6 Sections Counters
1,800
Cupboards
1,000
16,800
Total Capital Costs
45,000
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