Business Plan for a
Drive-up Coffee Shop Business:
Coffee2Go
Joe Cuppalino
Lottie Macchiato
This plan is designed for use in the 123’s of Financial Literacy for Small Business Series presented
by the Western New England University Center for Innovation & Entrepreneurship. This
document has been substantially revised and modified by Eric J. Gouvin, Dean and Professor of
Law, based on a composite of two sample plans (“The Daily Perc” and “Java Culture”) available on
the website Bplans.com, home of the software program Business Plan Pro®. This copyrighted
material is used by permission of Palo Alto Software, Inc.
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Introduction to Fact Pattern for Small Business Financial Literacy Series:
Joseph (“Joe”) Cuppalino and Charlotte (“Lottie”) Macchiato share a deep love of coffee. They
both grew up in Rhode Island where “coffee milk” is one of the State’s official beverages and is
available in school lunch programs. Coffee is also the most popular flavor of ice cream in the
state. The Providence metro area has the highest ratio of coffee shops per capita of any city in
the United States (25.3 per 100,000 population). You get the picture.
By coincidence, they both attended college in western Massachusetts and met, appropriately, at
Raos’ Coffee Shop in Amherst, where they both worked. They became good friends during
those years of working as baristas. After finishing college they travelled around the world
together on various social impact projects, sampling coffee in every country they visited. Upon
returning to the United States five years ago, they both settled in the Pioneer Valley and started
working for Starbucks, where they became managers of busy stores – Joe of the Longmeadow
store and Lottie of the Springfield location.
Over a cup of espresso about a year ago, they both expressed a desire to pursue a dream they had
discussed many times over the years – to start a truly distinctive coffee business catering to
commuters. Since then they have been systematically putting everything in place to realize their
dreams: a plausible business plan, a network of suppliers, an appealing menu, start-up capital
from their own personal savings and from “family and friend” investors, and a name they really
like: Coffee2Go (C2G).
The packet of materials that follows is the draft business plan for C2G. It will form the basis of
the discussions throughout the series of Financial Literacy for Small Business programs that we
will present during our year-long examination of Joe and Lottie’s business development process.
These materials roughly approximate what a business plan for this venture might look like.
Throughout the year, however, it may turn out that some of the plans laid out in these materials
might not work or need to be adjusted, but that’s how plans work.
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Coffee2Go
BUSINESS PLAN
1. Executive Summary
Coffee2Go (C2G) plans to become a daily necessity for local coffee addicts on their way to and
from work, school, or daily errands. With the growing demand for high-quality gourmet coffee
and great service, C2G will capitalize on its convenient locations along key traffic routes,
providing safe and easy access to thousands of people on the go. C2G uses a proprietary system
that is new to the beverage and food service industry to provide hot and cold beverages in a
convenient and time-efficient way. C2G provides its customers the ability to drive up and order
their choice of a custom-blended espresso drink, freshly brewed coffee, or other beverage. C2G
is offering a convenient, high-quality alternative to fast-food, gas station, or institutional coffee.
C2G offers its patrons the finest hot and cold beverages, specializing in specialty coffees,
blended teas, and other custom drinks. In addition, C2G will offer soft drinks, fresh-baked
pastries and other confections. Seasonally, C2G will add beverages such as hot apple cider, hot
chocolate, frozen coffees, and more.
C2G will focus on the “daily commuter” market – someone traveling to/from work, out
shopping, delivering goods or services, or just out for a drive. While C2G kiosks will allow for
walk-up service, there will be no sit-down service.
C2G will penetrate the commuter market by deploying drive-thru facilities in the most logical
and accessible locations. The drive-thru facilities will be designed to handle two-sided traffic and
dispense customer designed, specially ordered cups of premium coffees in less time than
required for a visit to the locally owned cafe or one of the national chains.
In addition to providing a quality product and an extensive menu of delicious items, to ensure
customer awareness and loyalty, as well as good publicity coverage and media support, we will
be donating up to 7.5% of revenue to local charities based upon customer choices.
C2G's financial picture is quite promising. Since C2G is operating a cash business with relatively
modest equipment and inventory requirements, the initial cost is significantly less than many
other start-ups. On the other hand, the business is labor-intensive and C2G recognizes that a
higher level of talent will be required to execute the business plan.
The financial investment in its employees will be one of the greatest differentiators between it
and C2G's competition. For the purpose of this pro-forma business plan, the capital expenditures
of facilities and equipment are financed. There will be minimum inventory on hand so as to keep
the product fresh and to take advantage of price drops, when and if they should occur.
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C2G anticipates the initial combination of investments and long term bank financing of $250,000
to carry it without the need for any additional equity or debt investment, beyond the purchase of
equipment or facilities, which we anticipate will be financed at commercial rates. This will mean
growing a bit more slowly than might be otherwise possible, but it will be a solid, financiallysound growth based on customer request and product demand.
Long term, C2G could become the drive-thru version of Starbucks by scaling up the concept and
expanding across the country. In a sense, the start-up version of the company described in this
plan would be the “proof of concept” phase necessary to the process of building the company
into a regional- and then into a national- player. To do so would take several million dollars,
most likely raised through an initial public or private offering that would allow the company to
open twenty to thirty facilities per year in all metropolitan communities east of the Mississippi
River with a population of over 150,000. This is the preferred exit strategy of the Management
Team. The danger in this is that competitors could arise and establish a foothold on a community
before – or in the midst of – the arrival of C2G, causing a potential for a drain on revenues and a
dramatic increase in advertising expenditures to maintain market share. Knowing these risks –
and planning for them – gives C2G the edge needed to make this scenario work.
The pro-forma balance sheet for the company estimates a Net Worth of 1,138,952 for the third
year, cash balances of $428,315 and earnings of $794,109, based on 10 drive-thrus. At that
point, given that similar companies are trading at multiples of four to ten times earnings, it would
not be unrealistic to put a market value of between $3 and $8 million on the company.
1.1 Objectives
C2G has established three firm objectives it wishes to achieve in the next three years:
1. Ten drive-thru locations by the end of the third year.
2. Gross Margin of 40% or more.
3. Net After-tax Profit above 15% of Sales.
1.2 Mission
C2G’s Mission is three-fold, with each being as integral to our success as the next.
•
Product Mission – Quickly provide customers the finest quality beverage.
•
Community Mission - Provide community support through customer involvement.
•
Economic Mission - Operate and grow profitably through sound economic decisions.
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1.3 Keys to Success
There are four keys to success in this business, three of which are virtually the same as any food
service business. It is our fourth key – the Community Mission – that will give us that extra
measure of respect in the public eye.
1. The best locations: visibility, high traffic pattern, convenient access.
2. The best products: freshest beans, premium serving containers, consistent flavor.
3. The best servers: knowledgeable, cheerful, skilled, professional, articulate.
4. The best reputation: word-of-mouth advertising, promotion of community mission.
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2. Company Summary
C2G is a specialty beverage retailer that uses a proprietary system new to the beverage and food
service industry to provide hot and cold beverages in a convenient and time-efficient way. C2G
provides its customers the ability to drive up and order from a trained barista their choice of a
custom blended espresso drink, freshly brewed coffee, or other beverage. C2G offers a high
quality option to the fast-food, gas station, and institutional coffee.
2.1 Company Ownership
C2G is a Massachusetts Limited Liability Company. Joe Cuppalino and Lottie Macchiato
currently own all of the membership interests in the Company. The initial start-up loss of the
company is projected to be approximately $25,708. The business plan calls for the sale of
membership units in the company to family members, friends, and angel investors to raise
additional equity and to borrow needed working capital from a bank.
Each membership unit in the company is priced at $1,000. There are 200 authorized units, with a
minimum of five units per membership certificate, or a minimum investment of $5,000 per
investor. If all funds are raised, based on the pricing established in the financial section of this
plan, Joseph Cuppalino and Charlotte Machiato will each invest $75,000 for 75 units apiece and
thereby retain ownership of no less than 75% of the company.
2.2 Start-up Summary
The start-up expenses include:
•
Legal expenses for obtaining licenses and permits as well as the accounting services
totaling $12,500.
•
Marketing and promotion expenses for the grand opening of C2G in the amount of
$15,000 and as well as flyer printing and radio spots (an additional $3,000) for the total
amount of $18,000.
•
Insurance (general liability, workers' compensation and property casualty) coverage at a
total premium of $12,570.
•
Pre-paid rent expenses in the total amount of $16,800.
•
Other start-up expenses including webhosting ($1,000) and phone and utility bills
($9,640).
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The required start-up assets of $139,752 include:
•
Operating capital in the total amount of $53,123, which includes employees and owner's
salaries of $12,000 for the first two months and cash reserves for the first three months of
operation (approximately $14,400 per month).
•
Start-up inventory of $35,159, which includes:
o
o
o
o
•
Coffee beans (12 regular brands and five decaffeinated brands) - $16,000
Coffee filters, baked goods, salads, sandwiches, tea, beverages, etc. - $15,732
Retail supplies (napkins, coffee bags, cleaning, etc.) - $2,840
Office supplies - $587
Equipment for the total amount of $51,470:
o
o
o
o
o
o
o
o
o
o
Espresso machine - $6,000
Coffee maker - $900
Coffee grinder - $200
Food service equipment (microwave, toasters, dishwasher, refrigerator, blender,
etc.) - $16,000
Storage hardware (bins, utensil rack, shelves, food case) - $3,720
Counter area equipment (counter top, sink, ice machine, etc.) - $7,500
Serving area equipment (plates, glasses, flatware) - $2,500
Store equipment (cash register, security, ventilation, signage) - $11,750
Office equipment (PC, fax/printer, phone, furniture, file cabinets) - $2,600
Other miscellaneous expenses - $500
The funding for the company comes from three major sources – the founders’ original capital
contributions, additional investor equity investments and a bank loan. The two founders, Joe
Cuppalino and Lottie Macchiato, have contributed $75,000 apiece. The company plans to raise
another $50,000 from other “friends and family” investors. The remaining $50,000 needed to
cover the start-up expenses and assets will come from a bank loan – a five-year loan in the
amount of $50,000 at a rate of 10%. Thus, total start-up loss is assumed in the amount of
$25,708.
The chart on the following page summarizes the start-up assumptions for the first six months of
operations.
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Table: Start-up
Start-up Requirements
Initial Start-up Expenses
Legal
Office Equipment
Drive-thru Labor (6 months)
Drive-thru Finance Payment (6 months)
Drive-thru expenses (6 months)
Land Lease (6 months)
Administration Labor (6 months)
Website Development & Hosting
Other
Total Start-up Expenses
$ 1,500
$ 3,000
$ 58,000
$ 10,300
$ 7,520
$ 5,000
$ 16,000
$ 2,600
$ 2,500
$ 106,420
Start-up Assets
Cash Required
Start-up Inventory
Other Current Assets
Long-term Assets
Total Assets
$ 20,000
$ 12,000
$
0
$ 51,470
$ 83,470
Total Initial Requirements
$ 189,890
2.3 Company Locations and Facilities
C2G will open its first drive-thru facility on Boston Road in an outparcel in the Eastfield Mall
Shopping Center. Nine more drive-thru facilities will be placed throughout the Pioneer Valley
over the next three years.
The demographic and physical requirements for a drive-thru location are:
• Traffic of 20,000+ on store side.
• Visible from roadway.
• Easy entry with light if less than 10,000 cars.
• Established retail shops in area.
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3.0 Products
C2G provides its patrons the finest hot and cold beverages, specializing in specialty coffees and
custom blended teas. In addition, C2G will offer select domestic soft drinks, Italian sodas, freshbaked pastries, and other confections. Seasonally, C2G will add beverages such as hot apple
cider, hot chocolate, frozen coffees, and more. For clients who prefer to prepare coffee at home,
C2G will also sell coffee beans.
3.1 Product Description
C2G provides its customers the ability to custom order a coffee beverage that will be blended to
their exact specifications. Each of C2G's baristas will be trained in the fine art of brewing,
blending, and serving the highest quality hot and cold beverages, with exceptional attention to
detail.
The menu of C2G will be built around espresso-based coffee drinks such as lattes, mochas,
cappuccinos, etc. Each of the espresso-based drinks will be offered with whole, skimmed, or soy
milk. Each of these coffee beverages is based on a 'shot' of espresso, which is prepared in the
espresso machine by forcing heated water through ground coffee at high pressure. Such espresso
shots are combined with steamed milk and/or other additives like cocoa, caramel, etc., to prepare
the espresso-based beverages. Proper preparation techniques are of paramount importance for
such drinks. A minor deviation from the amount of coffee in the shot, the size of the coffee
particles, the temperature of milk, etc., can negatively affect the quality of the prepared drink.
Besides coffees, C2G will offer teas, domestic and Italian sodas, frozen coffee beverages,
seasonal specialty drinks, pastries, and other baked goods. Through the website and certain
locations, C2G will market premium items such as coffee mugs, T-shirts and sweatshirts, ball
caps, and more.
3.2 Competitive Comparison
U.S. coffee consumption has shown steady growth for a number of years, with gourmet coffee
having the strongest growth. Coffee drinkers in New England are among the most demanding
ones. They favor well-brewed gourmet coffee drinks and demand great service. C2G will strive
to build a loyal customer base by offering a great tasting coffee in the most convenient setting
possible. C2G considers itself to be a player in the retail coffee house industry. However, it
knows that competition for its products range from soft drinks to milk shakes to adult beverages.
C2G's primary competition will come from three sources:
•
•
•
National coffee houses such as Starbucks, Dunkin Donuts, and Panera.
Locally owned and operated cafes.
Fast food chains and convenience stores.
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Two things will make C2G stand out from all its competitors:
1. C2G will be providing products in the most convenient and efficient way available at a
two-sided drive-thru shops. This separates C2G from the competition in that its
customers won't need to find a parking place, wait in a long line, jockey for a seat, and
clean up the mess left by a previous patron. C2G customers can drive or walk up, order
their beverage, receive and pay for the beverage, and drive off.
2. The second differentiator is C2G's focus on providing a significant benefit to the
community through a possible 7.5% contribution to customer-identified charities,
schools, or other institutions.
3.3 Sourcing
C2G purchases its coffees from Dean’s Beans, a well-known and well-respected fair trade coffee
roaster located in the Pioneer Valley region of Western Massachusetts. C2G also has wholesale
purchasing agreements for other products with major brands including, Coca-Cola, Nantucket
Nectars, Wheatberry Bagels, Atkins Farms, and the Henion Bakery.
The drive-thru facilities are manufactured by City Stations of West Springfield, MA. Fulfillment
equipment suppliers include Kittridge Equipment, City Stations, and Balise Ford. C2G's
computer equipment and internet connectivity is provided by Crocker Communications.
3.4 Technology
C2G's delivery system is based on its technology. C2G is using state-of-the-art, two-sided, drivethru facilities to provide convenience and efficiency for its clientele. An architectural exterior
diagram of the Drive Thru building can be found on the following page.
3.5 Future Products
As seasons change, C2G will be offering products that will enhance sales and satisfy its
customers' desires. During summer months, C2G will subsidize lower hot beverage sales with
frozen coffee drinks, as well as soft drinks, and other cold beverages. C2G will also have special
beverages during holiday seasons, such as egg nog during the Christmas season and hot apple
cider in the fall. C2G's primary desire will be to listen to its customers to ascertain what they are
looking for most, and provide it.
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Prototype kiosk, based on model used by “A Cup of Joe to Go” in Boulder, CO
Typical kiosk floor plan
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4.0 Market Analysis Summary
Coffee2Go will focus on a market a we call “The Daily Commuter.” This customer is someone
traveling to or from work, out shopping, delivering goods or services, or just out for a drive.
Commuters are defined as any one or more individuals in a motorized vehicle traveling from
point "A" to point "B." Our greatest concentration will be on commuters heading to or from
work, or those out on their lunch break.
There are well over 250,000 commuters in the Pioneer Valley area, as well as visitors,
vacationers, and others. It can also be assumed that these commuters do not make only one
purchase in a day, but in many cases, two and even three beverage purchases.
4.1 Target Market Segment Strategy
C2G's target market is the mobile individual who has more money than time and excellent taste
in a choice of beverage, but no time to linger in a cafe. By locating the drive-thru kiosks in high
traffic/high visibility areas, this consumer will seek Coffee2Go out and become a regular
customer.
4.2 Market Trends
Nearly twenty years ago, a trend towards more distinctive coffees began to develop in the U.S.
There had always been specialty coffee stores, but people began to buy espresso machines for
their homes and offices, and people began to have coffee tastings. Then espresso bars began to
appear and, inevitably, along came Starbucks . . . the quintessential bastion of the upwardly
mobile professional who wanted to take control over how their beverage would taste and smell.
At the same time, however, we have also become more rushed for time during that same period.
Those same consumers who helped push Starbucks to $13.3 billion in global sales are now
rushing kids to soccer and basketball games, running to the grocery and trying to get to work on
time and back home in time for dinner . . . or to get to the next soccer game. Yet, they still have
the desire for that refreshing, specially blended coffee each morning.
Lately, we've seen the introduction of beverage dispensers at convenience stores that spit out
overly-sweet, poorly blended cappuccinos in flavors such as French vanilla or mocha, and
consumers are paying as much as $3.00 for these sub-standard beverages.
The market is primed for the introduction of a company that offers a superior quality, specially
blended product in a convenient, drive-thru environment at a price that is competitive to the
national coffee houses.
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4.2.1 Market Growth
According to industry statistics, the consumption of coffee and flavored coffee products is
growing rapidly. The segment of that market we are targeting is the commuter and that number
is increasing. In the Pioneer Valley, as with many metropolitan areas in the country, there is a
migration away from the cities.
It is estimated that there are well over 250,000 commuters driving to and from work each day in
our market. Statistically, at least 50% of those are coffee drinkers. That gives C2G a significant
daily target for its products.
4.2.2 Market Needs
Our market is made up of consumers who have busy schedules, a desire for quality, and
disposable income. As much as they would like the opportunity to sit in an upscale coffee house
and sip a uniquely blended coffee beverage and read the morning paper, they don't have the time.
However, they still have the desire for the uniquely blended beverage as they hurry through their
busy lives.
4.3 Industry Analysis
The coffee industry has grown by tremendous amounts in the U.S. over the past five years.
Starbucks, the national leader, had revenues in fiscal 2012 of $13.3 billion. That is an increase of
14% over Fiscal 2011.
Dunkin Donuts showed revenue growth of 6.1% in its first year as a publicly-traded company,
but more importantly, they delivered nearly 40 percent adjusted operating income growth and
nearly 40 percent adjusted earnings per share growth year-over-year. Since their IPO in July
2011, their stock has outperformed both the general market and their industry group.
Even general coffee sales have increased with international brands such as Folgers, Maxwell
House, and Safari coffee reporting higher sales and greater profits. America is definitely a
coffee drinking country and the coffee industry is reaping the rewards.
4.3.1 Distribution Patterns
The cafe experience comes from the Italian origins of espresso. The customer comes in to a
beautifully decorated facility, surrounded by wondrous aromas and finds himself involved in a
sensory experience that, more often than not, masks an average product at a premium price.
However, the proliferation of cafes in the United States proves the viability of the market. It is a
duplication of the same delivery process as currently exists in Europe.
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4.3.2 Competition and Buying Patterns
There are four general competitors in C2G's drive-thru market. They are the national specialty
beverage chains, such as Starbucks, Dunkin Donuts, and Panera, local coffee houses – or cafes –
with an established clientele and a quality product, fast food restaurants, and convenience stores.
There is a dramatic distinction among the patrons of each of these outlets.
Patrons of a Starbucks, or to one of the local cafes, are looking for the "experience" of the coffee
house. They want the ability to "design" their coffee, smell the fresh pastry, listen to the soothing
music, and read the local paper or visit with an acquaintance. It is a relaxing, slow paced
environment.
Patrons of the fast food restaurants or the convenience stores are just the opposite. They have no
time for idle chatter and are willing to over-pay for whatever beverage the machine can spit out,
as long as it's quick. They pay for their gas and they are back on the road to work. Although they
have the desire and good taste to know good from bad, time is more valuable to them.
4.3.3 Main Competitors
When measuring head-to-head, direct competitors, we have found that there are none in the
Pioneer Valley. C2G will be the first double-sided, drive-thru coffee house in the Pioneer Valley
area. However, there is significant competition from traditional coffee houses and other retailers.
a. National Chains:
Starbucks, the national leader, had revenues in fiscal year 2012 of $13.3 billion. That is
an increase of 14.4% over fiscal year 2011. In 2012, Starbucks had 10,924 stores in the
United States. At the end of that year, they announced an accelerated growth strategy to
open 3,000 new stores in the Americas by 2017.
When Dunkin Donuts went public in July 2011, it set a 20-year target for 15,000 U.S.
Dunkin' Donuts stores. That target would give the chain more domestic outlets than
Starbucks and more than double its 2011 presence in the United States. By the end of
2012, the chain was ahead of its projections for new store openings.
Panera had total revenues of $2.1 billion from its corporate-owned and franchised
locations in fiscal year 2012. That revenue was an increase of 17% over fiscal year 2011.
C2G believes it has a significant competitive advantage over these chains because of the
following benefits:
•
Drive-thru Service
•
More Substantial Customer Service
•
Community Benefit
•
Selection
•
Higher Product Quality
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b. Local Cafes:
The toughest competitor for C2G is the established locally owned cafe. C2G knows the
quality and pride that the local cafe has in the product purchase by their customers. Any local
cafe has a customer base that is dedicated and highly educated. The quality of beverages
served at an established cafe will surpass any of the regional or national chains.
The competitive edge C2G has on the local cafes is based on the attributes of:
•
Drive-thru Service
•
Supply Discounts
•
Consistent Menu
•
Community Benefit
•
Quality Product
c. Fast Food and Convenience Stores:
These are two industries where C2G will experience a certain level of competition. The
national fast food chains and national convenience store chains already serve coffee, soda,
and some breakfast foods. The national fast food chains obviously know the benefits and
value to customers of drive-thru. C2G knows that within the specialty coffee and tea market,
the quality of the products sold will be much greater than what can currently be purchased at
fast food and convenience stores. The addition of domestic soda sales for these stores is a
large part of revenue. C2G knows the quality of our products, along with the addition of
domestic soda and the ease of drive-thru, gives it a competitive edge over fast food and
convenience stores.
d. Other competition:
C2G knows that once it has entered the market and established a presence, others will try to
follow. However, C2G believes that the corporate missions and even the organizational
design will be imitated, but never duplicated. C2G will constantly evaluate its products,
locations, service, and corporate missions to ensure that it remains a leader in the specialty
beverage industry.
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5.0 Strategy and Implementation Summary
Coffee 2 Go will penetrate the commuter consumer market by deploying drive-thru facilities in
the most logical and accessible locations. The drive-thrus are designed to handle two-sided
traffic and dispense customer-designed, specially ordered cups of specialty beverages in less
time than required for a visit to the locally owned cafe or one of the national chains.
The C2G has identified its market as busy, mobile people whose time is already at a premium,
but desire a refreshing, high quality beverage or baked item while commuting to or from work or
school.
In addition to providing a quality product and an extensive menu of delicious items, to ensure
customer awareness and loyalty, as well as positive public and media support, The C2G could be
donating up to 7.5% of revenue from each cup sold to the charities of the customers' choice.
5.1 Strategy Pyramid
The C2G's strategy is to show people that C2G has an excellent product, convenient
accessibility, and with a community benefit. To execute on this strategy, C2G is placing the
drive-thrus at easily accessible locations throughout the Pioneer Valley. C2G is pricing its
product competitively and training the production staff to be among the best baristas in the
country. Then, through coupons and display ads at the locations, C2G will involve the customers
in community support efforts by explaining that a portion of their purchase price will be donated
to a charity of their choosing.
In so doing, C2G will:
a. Provide the customer with a quality product at a competitive price.
b. Provide the customer with a more convenient method for obtaining their desired product.
c. Demonstrate how it appreciates their loyal patronage by donating money to their personal
cause.
5.2 Value Proposition
The drive-thru facilities provide a substantial value proposition in that the customer does not
have to find a parking place, exit the vehicle, stand in line to order, wait for the beverages ahead
of him to be produced, pay a premium price for average product, find a place to sit, clean up the
previous patron's mess, then enjoy their coffee . . . assuming they have sufficient time to linger
over the cup.
The C2G concept is that the customer drives up, places the order, receives a high quality product
at a competitive price, and drives away, having wasted little time in the process. C2G is also
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providing a significant community value to patronizing C2G. For every purchase a customer
makes from us, C2G will donate up to 7.5% of the sale to the local charity selected by the
customer.
5.3 Competitive Edge
The C2G's competitive edge is simple. C2G provides a high quality product at a competitive
price in a drive-thru environment that saves time.
5.4 Marketing Strategy
First and foremost, C2G will be placing its drive-thru facilities in locations of very high visibility
and great ease of access. They will be located on high traffic commuter routes and close to
shopping facilities in order to catch customers going to or from work, or while they are out for
lunch, or on a shopping expedition. The drive-thru design is distinctive and eye-catching, which
will be a branding feature of its own.
C2G will be implementing a low cost advertising/promotion campaign which could involve
drive-time radio, but not much more.
C2G will rely on building relationships with schools, charities, and corporations to provide
significant free publicity through our community support program. By giving charitable
contributions to community institutions, customers will get the word out to their
students/faculty/employees about C2G. Word of mouth has always proven to be the greatest
advertising program a company can develop. In addition, the media should be willing to promote
the charitable aspects of C2G and provide the opportunity for more exposure every time C2G
writes a check to another organization.
5.4.1 Promotion Strategy
The long-range goal is to gain enough visibility to leverage the product line into other regions
and generate inquiries from potential inventors. To do that, The C2G needs:
•
Public relations services at $750 per month for the next year intended to generate
awareness by editors of local papers and product information insertions, reviews, etc. It is
anticipated that the school fundraising program will generate a fair amount of publicity
on its own and will, perhaps, minimize--or even eliminate--the need for a publicist.
•
Advertising at $750 per month concentrating on drive time radio. The C2G will
experiment with different stations, keeping careful track of results. As with the school
fundraising program, C2G expects the facilities and signage to be a substantial portion of
our advertising. However, in the start-up phase, C2G needs to let people know where to
look for the facilities.
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5.4.2 Distribution Strategy
C2G will locate drive-thru facilities in high traffic areas of the city where it knows working
commuters will be passing.
5.4.3 Marketing Programs
a. Distinctive Logo:
The descriptive name along with the distinctive Coffee2Go trademark with its subscript “2”
and its speedy italicization is designed to catch the attention of consumers. The prototype
logo features the red/green color scheme of a traffic light to subtly reinforce the idea of stopand-go:
b. Distinctive Buildings:
C2G is using attractive buildings for its drive-thru facilities. C2G has worked closely with
the manufacturer to make the building distinctive, so that they are both easy to recognize and
functional. An example of the prototype is included on page 13 of this plan.
c. Advertising and Promotion:
In the first year, The C2G plans to spend moderately on advertising and promotion, with the
program beginning in September, after the opening of the first drive-thru. This would not be
considered a serious advertising budget for any business, but C2G feels the exposure will
come from publicity and promotion, so most of the funds will be spent on a good publicist
who will get the word out about the charitable contribution program and how it works in
conjunction with the website. C2G also believes that word-of-mouth advertising and free
beverage coupons will be better ways to drive people to the first and second locations.
In the second year, The C2G is increasing the budget, since it will need to promote several
locations, with particular emphasis on announcing these openings and all the other locations.
C2G will continue to use publicity as a key component of the marketing program, since C2G
could be contributing over $70,000 to local schools and charities.
In the third year, The C2G will double its advertising and promotion budget, with the
majority of the advertising budget being spent on drive time radio. As in the previous years,
19
C2G will get substantial publicity from the donation of nearly $200,000 to local schools and
charities.
5.4.4 Positioning Statement
For busy, mobile people whose time is already at a premium, but desire a refreshing, high quality
beverage or baked item while commuting to or from work or school.
5.4.5 Pricing Strategy
The C2G pricing will be comparable to the competition, but with the value-added feature of
immediate, drive-thru service and convenience and the “warm-and-fuzzy” satisfaction of making
a purchase that also supports a local charity.
5.5 Sales Strategy
There will be several sales strategies put into place, including posting specials on high-profit
items at the drive-up window. The baristas will also hand out free drink coupons to those who
have purchased a certain number of cups or something similar. C2G will also develop window
sales techniques such as the baristas asking if the customer would like a fresh-baked item with
their coffee.
5.5.1 Sales Forecast
In the first year, The C2G anticipates having two drive-thru locations in operation. The first
location will open in the third month of this plan and be fully operational beginning on the 1st
day of September. The second drive-thru will open six months later. C2G is building in a certain
amount of ramp-up for each facility while commuters become familiar with its presence.
The drive-thrus will generate 288,000 tickets in the first year of operation. In the second year,
The C2G will add two more drive-thrus and, in the third year, C2G will add an additional six
drive-thru facilities. The addition of these facilities will increase the revenue from drive-thrus
with a total of over 1,000,000 tickets in the second year and 2,500,000 tickets in the third.
In addition to the drive-thrus, C2G is showing revenue from the commerce portion of our
website, where it will sell "C2G" t-shirts, sweatshirts, insulated coffee mugs, pre-packaged
coffee beans, and other premium items. C2G is not expecting this to be a significant profit
center, but it is an integral part of the marketing plan -- as a function of developing our brand and
building product awareness. C2G expects revenues from this portion, to begin in the second
fiscal year, to reach as much as $3,000 per month in the third fiscal year.
Total first year unit sales should reach 298,402. The second year will see unit sales increase to
1,027,400. The third year, with the addition of such a significant number of outlets, we will see
unit sales increase to 2,503,000. Details of the sales forecast are broken out on the following
table.
20
Table: Sales Forecast
Sales Forecast
Year 1
Year 2
Year 3
Drive-thru #1
Drive-thru #2
Drive-thru #3
Drive-thru #4
Drive-thru #5
Drive-thrus #6 & #7
Drive-thrus #8, #9, & #10
Website Sales/Premium Items
Total Unit Sales
202,913
85,489
0
0
0
0
0
0
288,402
300,000
300,000
275,000
150,000
0
0
0
2,400
1,027,400
325,000
325,000
325,000
325,000
300,000
450,000
450,000
3,000
2,503,000
Unit Prices
Drive-thru #1
Drive-thru #2
Drive-thru #3
Drive-thru #4
Drive-thru #5
Drive-thrus #6 & #7
Drive-thrus #8, #9, & #10
Website Sales/Premium Items
Year 1
$1.85
$1.85
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
Year 2
$1.90
$1.90
$1.90
$1.90
$1.90
$1.90
$1.90
$11.00
Year 3
$1.95
$1.95
$1.95
$1.95
$1.95
$1.95
$1.95
$12.00
Drive-thru #1
Drive-thru #2
Drive-thru #3
Drive-thru #4
Drive-thru #5
Drive-thrus #6 & #7
Drive-thrus #8, #9, & #10
Website Sales/Premium Items
Total Sales
$375,389
$158,154
$0
$0
$0
$0
$0
$0
$533,543
$570,000
$570,000
$522,500
$285,000
$0
$0
$0
$26,400
$1,973,400
$633,750
$633,750
$633,750
$633,750
$585,000
$877,500
$877,500
$36,000
$4,911,000
Direct Unit Costs
Drive-thru #1
Drive-thru #2
Drive-thru #3
Drive-thru #4
Drive-thru #5
Drive-thrus #6 & #7
Drive-thrus #8, #9, & #10
Website Sales/Premium Items
Year 1
$0.64
$0.64
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
Year 2
$0.61
$0.61
$0.61
$0.61
$0.61
$0.61
$0.61
$6.50
Year 3
$0.59
$0.59
$0.59
$0.59
$0.59
$0.59
$0.59
$6.50
$129,864
$54,713
$0
$0
$0
$0
$0
$0
$184,577
$183,000
$183,000
$167,750
$91,500
$0
$0
$0
$15,600
$640,850
$191,750
$191,750
$191,750
$191,750
$177,000
$265,500
$265,500
$19,500
$1,494,500
Unit Sales
Sales
Direct Cost of Sales
Drive-thru #1
Drive-thru #2
Drive-thru #3
Drive-thru #4
Drive-thru #5
Drive-thrus #6 & #7
Drive-thrus #8, #9, & #10
Website Sales/Premium Items
Subtotal Direct Cost of Sales
21
6.0 Management Summary
Coffee2Go is a relatively flat organization. Overhead for management will be kept to a
minimum and all senior managers will also be "hands-on" workers. There is no intention of
having a top-heavy organization that drains profits and complicates decisions.
At the end of this three-year business plan, there will be four "executive" positions: chief
operating officer, chief financial officer, chief information officer, and director of marketing.
There will be other mid-management positions, such as district managers for every five
drive-thrus, and a facilities manager to oversee the maintenance, stocking and replacement of
equipment in the drive-thru facilities.
6.1 Management Team
C2G has selected Mr. Joe Cuppalino to perform the duties of chief operating officer. Joe has
a highly entrepreneurial spirit and has already successfully managed a busy coffee business.
Combine his experience, leadership, and desire with three years of research in specialty
drinks and drive-thru service, and C2G knows that Joe is the individual who will get the
company out of the gate and up to full speed for a long time to come.
Ms. Lottie Macchiato has been selected to fulfill the position of chief financial officer. Lottie
also has a highly entrepreneurial spirit and she, too, has already successfully managed a busy
coffee business. C2G considers Lottie to be a great addition to the team.
Mr. Carmello Macchiato has been selected to fill the position of facilities manager. Carmello
has been working for Nabisco, Inc. as a service representative for over ten years. His
experience in account services, merchandising, and inventory control is a welcome addition
to C2G team. Carmello will use his knowledge in conjunction with the rest of the team to
establish inventory and warehouse policies. The facilities manager is responsible for
inventory of all products sold by C2G. Some merchandising experience is a welcome
addition. Training in the First In First Out (FIFO) style of inventory control is a requirement.
Also, knowledge of ergonomics and health issues would be important. Carmello's domain
will be the headquarters and the drive-thrus--ensuring that minimum and maximum
inventories are maintained. Working with the baristas will be integral to his task as well.
6.2 Management Team Gaps
C2G knows that it is going to require several quality management team members over the
next three years, beginning with a district manager for every five drive-thrus. This person
will oversee the quality of product, the training of the baristas, the inventory management,
and customer satisfaction. Ideally, as C2G grows, it will be able to promote from within for
this position. This individual will be responsible for the operation of up to four drive-thrus
under his/her management. They will be required to visit between locations and possibly
even join administrative personnel on training or marketing travel.
22
By the beginning of the third year, C2G will hire two more key senior managers. They are: a
chief information officer and a director of marketing. The role of each of these individuals
will be discussed in subsequent sections of this plan.
6.3 Organizational Structure
The organization will be a relatively flat one, since the majority of personnel are also
involved in production and there will be a relatively low headcount in management.
There are three functioning groups within the company: Production, Sales and Marketing,
and General and Administrative. For purposes of this plan – and to show the details of adding
senior level management – C2G has broken management down as a separate segment, but it
is an integral part of the General and Administrative function.
Production involves the baristas, or customer service specialists, who will be manning the
drive-thrus, blending the beverages for the customers. Sales and Marketing will handle the
promotion of the drive-thrus and the Community Contribution program. General and
Administrative manage the facilities, equipment, inventory, payroll, and other basic,
operational processes.
6.4 Personnel Plan
C2G expects the first year to be rather lean, since there will only be two locations, neither of
which will be open for the entire year. The total headcount for the first year, including
management, administrative support, and customer service (production), will be 15, with a
payroll and payroll burden total expenditure as shown in the following table and in the
monthly breakdowns appendices.
The second year, with the addition of two drive-thrus, C2G will add customer service
personnel, as well as a district manager and some additional support staff at headquarters,
including an Inventory Clerk, Equipment Technician, and administrative support. The
headcount will increase by nearly 100% in the second year to 29, with a proportional increase
in payroll of and payroll burden.
The third year will see the most dramatic growth in headcount, due to the addition of six
drive-thrus. In the third year, there will also be an increase of 180% over the previous year.
Total payroll and payroll burden for the third year will reflect this, as well as the significant
increase in the senior management team, with the addition of a chief information officer and
a director of marketing. There will also be a second district manager, and a corporate events
sales executive. Total personnel will reach 80.
The chief information officer will be brought in to help us with the deployment of a Point-ofSale computerized cash register system that will make tracking and managing receipts and
charitable contributions more robust. Ideally, this individual will have a large amount of
point of sale and Internet experience. Specifically, how to tie in POS systems to the Internet
23
and inventory controls. Also, knowledge in establishing technology guidelines for the
company and franchisees in the future. This individual will also be added in fiscal year three.
The director of marketing will be charged with managing the relationships with advertising
agencies, public relations firms, the media, and our website. Details about the personnel plan
are set out in the following table.
Table: Personnel
Personnel Plan
Year 1
Year 2
Year 3
$135,474
$0
$0
$135,474
$439,250
$22,000
$12,000
$473,250
$1,098,650
$77,000
$24,000
$1,199,650
$0
$0
$0
$0
$22,000
$0
$0
$22,000
$44,000
$35,000
$0
$79,000
$24,500
$7,000
$0
$0
$31,500
$26,000
$35,000
$20,000
$6,000
$87,000
$28,000
$37,000
$24,000
$12,000
$101,000
$33,000
$33,000
$0
$0
$66,000
$36,000
$36,000
$0
$0
$72,000
$39,000
$39,000
$35,000
$0
$113,000
15
29
80
$232,974
$654,250
$1,492,650
Production Personnel
Drive-thru Team
Equipment Care Specialist (Headquarters)
Other
Subtotal
Sales and Marketing Personnel
District Manager (Five Drive-thrus)
Director of Marketing
Other
Subtotal
General and Administrative Personnel
Bookkeeper/Office Administrator
Warehouse/Site Manager
Inventory Clerk
Other
Subtotal
Other Personnel
Chief Operating Officer
Chief Financial Officer
Chief Information Officer
Other
Subtotal
Total People
Total Payroll
24
7.0 Financial Plan Summary
C2G's financial picture is quite promising. Since C2G is operating a cash business with relatively
modest equipment and inventory requirements, the initial cost is significantly less than many
other start-ups. On the other hand, the business is labor-intensive and C2G recognizes that a
higher level of talent will be required to execute the business plan.
The financial investment in its employees will be one of the greatest differentiators between it
and C2G's competition. For the purpose of this pro-forma business plan, the capital expenditures
of facilities and equipment are financed. There will be minimum inventory on hand so as to keep
the product fresh and to take advantage of price drops, when and if they should occur.
C2G anticipates the initial combination of investments and long term bank financing of $250,000
to carry it without the need for any additional equity or debt investment, beyond the purchase of
equipment or facilities, which will be financed in subsequent years. This will mean growing a bit
more slowly than might be otherwise possible, but it will be a solid, financially-sound growth
based on customer request and product demand.
7.1 Important Assumptions
The financial plan depends on important assumptions, most of which are shown in the following
table. The key underlying assumptions are:
•
•
•
A slow-growth economy, without major recession.
No unforeseen changes in public health perceptions of its general products.
Access to equity capital and financing sufficient for its financial plan.
Table: General Assumptions
General Assumptions
Plan Month
Current Interest Rate
Long-term Interest Rate
Tax Rate
Other
Year 1
Year 2
Year 3
1
10.00%
9.00%
0.00%
0
2
10.00%
9.00%
0.00%
0
3
10.00%
9.00%
0.00%
0
7.2 Key Financial Indicators
The projected growth in sales is almost 270% from year one to year two and 150% from year
two to year three. C2G expects to keep gross margin above the 38% projected for the first year,
but it doesn't anticipate anything higher than 46%, since our payroll expenses will increase
substantially as it grows into new areas and faces new competition.
25
The projections for inventory turnover show that C2G will maintain a relatively stable amount of
inventory in its headquarters warehouse so that it has no less than two weeks of inventory on
hand, but no more than three weeks, in order to keep products fresh. The only time it would
consider holding larger stores of inventory is if there was some catastrophic event that could
cause a dramatic rise in the price of its coffees or teas.
7.3 Break-even Analysis
To arrive at the average monthly fixed costs, C2G calculated the fixed costs for the drive-thru.
Using the average price per unit, less the average cost per unit, divided into the fixed costs of
operation, C2G concludes that we will need to sell at least the number of units shown in the
following table and chart to reach break-even each month.
Table: Break-even Analysis
Break-even Analysis
Monthly Units Break-even
Monthly Revenue Break-even
15,817
$29,580
Assumptions:
Average Per-Unit Revenue
Average Per-Unit Variable Cost
Estimated Monthly Fixed Cost
$1.87
$0.64
$19,457
7.4 Projected Profit and Loss
C2G is expecting some dramatic growth in the next three years, reaching healthy sales and Gross
Profit Margin by the end of the first year. Expenses during the first year will, however, leave a
Net After-tax loss. This loss will provide C2G with a tax loss carry-forward for the second year.
Aside from production costs of 60%, which include actual production of product and other costs
of sales, the single largest expenditures in the first year are in the general and administrative
(G&A) area, totaling 24% of sales. G&A includes expenses for rents, equipment leases, utilities,
and the payroll burden for all employees.
Sales increase by nearly 370% in the second year, due to the addition of two more drive-thrus.
Although operating expenses will more than double in the second year, C2G should realize a Net
After-tax profit. In that same year, C2G will make substantial charitable contributions.
The third year is when C2G has the opportunity to break into markets outside the Springfield
metropolitan area. C2G will see six additional Drive-thru facilities open in the third year, which
will drive sales, increase in production costs, and help improve Gross Profit Margin. Several
expenses take substantial jumps this year – advertising increases and donations increase as well –
and C2G will be adding two key management team members. These increases, as well as those
26
for increased equipment leases and rents, raise our operating expenses, nevertheless leaving a
respectable Net After-tax profit. The single largest expense sector in the third year, outside of
production, is still G&A costs, but it is down from 24% in the first year and 21% in the second
year to just 15.69%.
Table: Pro Forma Profit and Loss
Pro Forma Profit and Loss
Year 1
Year 2
Year 3
Sales
Direct Cost of Sales
Production Payroll
Other COS (e.g. Commissions)
Total Cost of Sales
$533,543
$184,577
$135,474
$1,416
$321,467
$1,973,400
$640,850
$473,250
$35,234
$1,149,334
$4,911,000
$1,494,500
$1,199,650
$90,344
$2,784,494
Gross Margin
Gross Margin %
$212,076
39.74%
$824,066
41.76%
$2,126,506
43.30%
$0
$18,000
$1,000
$4,000
$3,332
$26,332
4.94%
$22,000
$36,000
$15,000
$7,500
$70,467
$150,967
7.65%
$79,000
$72,000
$22,000
$15,000
$180,689
$368,689
7.51%
$31,500
$21,085
$0
$9,640
$12,570
$16,800
$36,356
$0
$127,951
23.98%
$87,000
$91,310
$6,000
$22,800
$27,620
$20,400
$119,015
$0
$374,145
21.19%
$101,000
$190,095
$18,000
$31,100
$53,410
$94,000
$283,138
$0
$770,743
15.69%
$66,000
$0
$12,500
$78,500
14.71%
$72,000
$0
$24,000
$96,000
4.86%
$113,000
$0
$30,000
$143,000
2.91%
Total Operating Expenses
$232,783
$621,112
$1,282,432
Profit Before Interest and Taxes
EBITDA
Interest Expense
Taxes Incurred
($20,707)
$378
$5,001
$0
$202,954
$294,254
$20,612
$0
$844,074
$1,034,169
$49,965
$0
Net Profit
Net Profit/Sales
($25,708)
-4.82%
$182,342
9.24%
$794,109
16.17%
Operating Expenses
Sales and Marketing Expenses
Sales and Marketing Payroll
Advertising/Promotion
Website
Travel
Donations
Total Sales and Marketing Expenses
Sales and Marketing %
General and Administrative Expenses
General and Administrative Payroll
Depreciation
Leased Offices and Equipment
Utilities
Insurance
Rent
Payroll Taxes
Other General and Administrative Expenses
Total General and Administrative Expenses
General and Administrative %
Other Expenses:
Other Payroll
Consultants
Legal/Accounting/Consultants
Total Other Expenses
Other %
27
7.5 Projected Cash Flow
Cash flow will have to be carefully monitored, as in any business, but C2G is also the
beneficiary of operating a cash business. After the initial investment and start-up costs are
covered, the business will become relatively self-sustaining. With the exception of seasonal dips,
which C2G has attempted to account for, through changes in the menu items.
Assuming an initial investment and financing, which would include operating capital, C2G
anticipates no cash flow shortfalls for the first year or beyond. March and May are the greatest
cash drains, since C2G will be experiencing the cost of second drive thru. Again, C2G sees
heavier than normal drains of cash in December and January, as there will be certain accounts
payable coming due.
Table: Cash Flow
Pro Forma Cash Flow
Year 1
Year 2
Year 3
$533,543
$533,543
$1,973,400
$1,973,400
$4,911,000
$4,911,000
$0
$0
$0
$50,000
$0
$0
$200,000
$783,543
$0
$0
$0
$100,000
$0
$0
$0
$2,073,400
$0
$0
$0
$250,000
$0
$0
$0
$5,161,000
Year 1
Year 2
Year 3
$263,865
$273,191
$537,056
$677,580
$1,036,069
$1,713,649
$1,067,174
$2,680,058
$3,747,232
$0
$0
$0
$2,615
$0
$223,250
$0
$762,921
$0
$2,000
$0
$27,000
$0
$259,700
$0
$2,002,349
$0
$6,000
$0
$64,000
$0
$1,007,126
$0
$4,824,358
$20,622
$20,622
$71,051
$91,673
$336,642
$428,315
Cash Received
Cash from Operations
Cash Sales
Subtotal Cash from Operations
Additional Cash Received
Sales Tax Received
New Current Borrowing
New Other Liabilities (interest-free)
New Long-term Liabilities
Sales of Other Current Assets
Sales of Long-term Assets
New Investment Received
Subtotal Cash Received
Expenditures
Expenditures from Operations
Cash Spending
Bill Payments
Subtotal Spent on Operations
Additional Cash Spent
Sales Tax Paid Out
Principal Repayment of Current Borrowing
Other Liabilities Principal Repayment
Long-term Liabilities Principal Repayment
Purchase Other Current Assets
Purchase Long-term Assets
Dividends
Subtotal Cash Spent
Net Cash Flow
Cash Balance
28
7.6 Pro Forma Balance Sheet
C2G's projected balance sheet shows an increase in net worth in the second year, at which point
it expects to be making after-tax profit on sales. With the present financial projections, C2G
expects to build a company with strong profit potential, and a solid balance sheet that will be
asset heavy and flush with cash at the end of the third year. C2G has no intention of paying out
dividends before the end of the third year, using the excess cash for continued growth.
Table: Pro Forma Balance Sheet
Pro Forma Balance Sheet
Year 1
Year 2
Year 3
$20,622
$35,159
$0
$55,761
$91,673
$134,826
$0
$226,499
$428,315
$228,253
$0
$656,568
$223,250
$21,785
$201,465
$257,226
$482,950
$114,695
$338,255
$594,754
$1,490,076
$310,790
$1,179,286
$1,835,854
Year 1
Year 2
Year 3
Accounts Payable
Current Portion of Long-term Borrowing
Other Current Liabilities
Subtotal Current Liabilities
$39,724
$5,001
$0
$44,725
$83,510
$16,401
$0
$99,911
$248,402
$48,500
$0
$296,902
Long-term Liabilities
Total Liabilities
$50,000
$94,725
$150,000
$249,911
$400,000
$696,902
Paid-in Capital
Retained Earnings
Earnings
Total Capital
Total Liabilities and Capital
$200,000
($11,791)
($25,708)
$162,501
$257,226
$200,000
($37,499)
$182,342
$344,843
$594,754
$200,000
$144,843
$794,109
$1,138,952
$1,835,854
Net Worth
$162,501
$344,843
$1,138,952
Assets
Current Assets
Cash
Inventory
Other Current Assets
Total Current Assets
Long-term Assets
Long-term Assets
Accumulated Depreciation
Total Long-term Assets
Total Assets
Liabilities and Capital
Current Liabilities
7.7 Business Ratios
Standard business ratios are included in the following table. The ratios show a plan for balanced,
healthy growth. C2G's position within the industry is typical for a heavy growth startup
company. Industry profile ratios based on the Standard Industrial Classification (SIC) code 5812,
Eating Places, are shown for comparison. Comparing the ratios in the third year with the
industry, this pro-forma plan appears to be within an acceptable difference margin.
29
C2G's return on net worth and net worth number differ from the Industry Profile due to the lack
of overhead when compared to a typical walk-in cafe. The drive-thru business model is lean thus
allowing for increase return ratio and providing a lower Net Worth.
Table: Ratios
Ratio Analysis
Year 1
Year 2
Year 3
Industry Profile
n.a.
269.87%
148.86%
7.60%
Inventory
Other Current Assets
Total Current Assets
Long-term Assets
Total Assets
13.67%
0.00%
21.67%
78.33%
100.00%
22.67%
0.00%
38.08%
61.92%
100.00%
12.43%
0.00%
35.76%
64.24%
100.00%
3.60%
35.60%
43.70%
56.30%
100.00%
Current Liabilities
Long-term Liabilities
Total Liabilities
Net Worth
17.39%
19.44%
36.83%
63.17%
16.80%
25.22%
42.02%
57.98%
16.17%
21.79%
37.96%
62.04%
32.70%
28.50%
61.20%
38.80%
100.00%
39.75%
25.54%
3.37%
-3.88%
100.00%
41.76%
24.76%
1.82%
10.80%
100.00%
43.30%
21.74%
1.47%
17.45%
100.00%
60.50%
39.80%
3.20%
0.70%
1.25
0.46
36.82%
-15.82%
-9.99%
2.27
0.92
42.02%
52.88%
30.66%
2.21
1.44
37.96%
69.73%
43.26%
0.98
0.65
61.20%
1.70%
4.30%
Additional Ratios
Year 1
Year 2
Year 3
Net Profit Margin
Return on Equity
-4.82%
-12.85%
9.24%
52.87%
16.17%
69.72%
n.a
n.a
15.18
7.16
51
2.07
14.64
8.79
42
3.32
21.52
6.94
52
2.66
n.a
n.a
n.a
n.a
0.59
47.22%
0.29
39.98%
0.61
42.60%
n.a
n.a
$11,036
0.75
$126,588
14.28
$359,666
20.70
n.a
n.a
0.48
3.28
0.00
0.30
5.72
0.00
0.37
4.31
0.00
n.a
n.a
n.a
Sales Growth
Percent of Total Assets
Percent of Sales
Sales
Gross Margin
Selling, General & Administrative Expenses
Advertising Expenses
Profit Before Interest and Taxes
Main Ratios
Current
Quick
Total Debt to Total Assets
Pre-tax Return on Net Worth
Pre-tax Return on Assets
Activity Ratios
Inventory Turnover
Accounts Payable Turnover
Payment Days
Total Asset Turnover
Debt Ratios
Debt to Net Worth
Current Liab. to Liab.
Liquidity Ratios
Net Working Capital
Interest Coverage
Additional Ratios
Assets to Sales
Sales/Net Worth
Dividend Payout
30
7.8 Exit Strategy
There are three scenarios for the investors and management to recover their investment--two
with significant returns on each dollar invested.
1. Scenario One:
C2G becomes extremely successful and has requests from other communities for
Coffee2Go operations to be opened there. This opens the door for franchising
opportunity. When one looks at the wealth that has been created by the likes of
McDonald's, Wendy's, Kentucky Fried Chicken, Burger King, and Taco Bell, the value of
franchising a great idea cannot be dismissed. However, developing a franchise can be
extremely costly, take years to develop, and be destroyed by one or two franchisees who
fail to deliver the consistency or value on which the founding company had built its
reputation.
2. Scenario Two:
C2G chooses to become the drive-thru version of Starbucks, obtaining several million
dollars through an initial public or private offering that would allow the company to open
twenty to thirty facilities per year in the region of the country between the mountain
ranges, in both major and small metropolitan communities. This is the preferred Exit
Strategy of the Management Team. The danger in this is that competitors would rise up
and establish a foothold on a community before – or in the midst of – the arrival of C2G,
causing a potential for a drain on revenues and a dramatic increase in advertising
expenditures to maintain market share. Knowing these risks – and planning for them –
gives C2G the edge needed to make this scenario work.
3. Scenario Three:
By the third year, the growth and community support for C2G will have made the news
in more than just the Pioneer Valley. It can be assumed that competitors, such as
Starbucks or Panera, will have seen the press and realized the value proposition in C2G's
business plan. This will make C2G an attractive target for buyout. The company could be
purchased by a much larger competitive concern by the end of the third year.
Taking a conservative approach to valuation and estimating that C2G would be valued at four
times earnings, the purchase price would be $3,176,436. Assuming that all 200 units of
ownership in C2G are outstanding, a cash purchase of C2G at that price would net each unit
$15,882. With each unit initially selling at $1,000, that constitutes a return on investment of
1,588% over the three years. However, any buyout will most likely involve a cash/stock
combination. A cash/stock buyout would be favorable, since the buying company would pay a
higher price and the transaction would not have such severe tax consequences to the sellers.
Conclusion:
Of the three scenarios, the management team prefers Scenario #2. The same numbers would
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relate to a public or private offering as are used in Scenario #3, but to make an offering available,
there would be a dilution of shares that would provide additional shares for sale to the new
investors.
Assuming the capital acquisition described in this plan is completed, there will be 200 units of
the company in the hands of investors, constituting 100% of the authorized and issued units. For
purposes on future fundraising, it may necessary to authorize additional units.
Using the balance sheet for the third year, which estimates Net Worth, Cash Balances and
Earnings, based on 10 drive-thrus, it is not unrealistic to put a market value of $3 million to $8
million on the company. At present, such companies are trading in multiples of 4 to 10 times
earnings, and it is simple mathematics to multiply the success of C2G by the number of
commuter heavy metropolitan areas in the United States.
With a corporate valuation of $8,000,000, each of the new units would have a market value of
$40,000 per unit. By authorizing an additional 200 units, there would be a total of 400
outstanding units which would raise an additional $8,000,000 in expansion capital, which, in
turn, would be sufficient to open locations in an additional three to five cities.
32