Second Cup Business Plan
Business Plan
Second Cup Franchise
Prepared By
Robert Daniels
Shankar Das
Josephine McKay
Edmund Mupondwa
February 2008
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
Table of Contents
EXECUTIVE SUMMARY
1.0 Introduction
1.1 Industry Overview
1.2 Mission Statement
1.3 Goals and Objectives
1.4 Financing
2.0Operations Plan
2.1Location
2.2Second Cup Plan
2.3 Floor Plan
3.4 Average Business Cycle
3.4.1Average Business Day
3.0Human Resources
4.1Organizational Strategy
4.2Training
5. Marketing Plan
5.1 Industry Overview and Current Markets
5.2 Competition
5.2.1 Direct Competitors
5.2.2 Indirect Competition
5.3 Customers and Target Markets
5.4 Product and Service Features
5.4.1 Product Quality
5.5 Pricing Strategy
5.6 Promotion Strategy
5.7 Distribution
5.8 Sales Objectives
5.8.1 Sales Projections
5.8.1 Marketing Expenses
5.9 SWOT Analysis
5.9.1 Strengths (Internal Factors)
5.9.2 Weaknesses (Internal Factors)
5.9.3 Opportunities (External Factors)
5.9.4 Threats (External Factors
6. Financial Plan
6.1 Sales Revenue and Net Income:
6.2 Total Operating Expenses
6.3 Working Capital Estimates
6.4 Cost of Capital
6.5 Debt Amortization Schedules
6.6 Risk analysis
6.7 Financing Budget
6.8 Dividend Policy
6.9 Ratio Analysis
6.10 Financial and Investment Analysis
6.11 Risk Analysis
7. Conclusion
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
LIST OF TABLES
Table 1.1 Summary of Financial Results
Table 2.1: Shift Schedule by Hours
Table 2.2: Total Hours of Work
Table 2.3 Capital Budget
Table 2.4 Operating Expenses
Table 6.1 Sales Revenue
Table 6.3 Risk Variables and Level of Importance
Table 6.4 Financing Structure
Table 6.5 Dividend Projections
Table 6.6 Ratio Analysis
Table 6.7 Summary of Financial Results
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LIST OF FIGURES
Figure 2.1 Site Location
Figure 2.2 Aerial View of Location
Figure 2.3 Floor Plan
Figure 2.4 Daily Work Schedule
Figure 4.1 Organizational Chart
APPENDIX 1 Financials
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Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
EXECUTIVE SUMMARY
Introduction
This report presents a comprehensive business plan for a Second Cup franchise to be established in
Saskatoon, Saskatchewan. The Second Cup franchise (referred to as Second Cup for the remainder of the
report) will be located at the new University Heights Shopping complex called The Village Square. This
location is also home to one of Saskatoon’s fastest growing areas in the city, with an estimated population
of 30,000 and expected to double to 62,000 by 2015. This area has homeownership of approximately
93.5%. The average value of a dwelling is $218,357; average family income of $81,774; average
household size is 3.2. The Village Square includes a strip mall with street-front coffee shops, boutiques,
and other retail and community services. The area has two elementary schools and two high schools, with
an additional high school recently announced. This location is adjacent to the world class SaskTel Indoor
and Outdoor Artificial Turf Soccer Centre. The SaskTel Soccer Centre is a great magnet for ancillary
business development in this area. Second Cup will provide high quality specialty product lines in four
categories: coffee, specialty beverages, food, and cooler beverages
The operating and marketing strategy is backed by a sound financial analysis that demonstrates the
viability of this plan. Key financial projections are as follows:

Total revenue for 2008 is projected to reach $527,850. This is expected to double by 2013.

The gross margin from total revenue is estimated at 63%, this margin is expected to be remain
consistent year over year.

Net income, after taxes, in the first year of operations is expected to be $7,030 however by 2013
this will grow to $112,392.

Ratio analysis shows that the business is able to meet its current liabilities 4 times over within the
first year.

The ROI after taxes is 13%, for every $1 invested there is an earning of $0.13.

The Net Present Value is $176,326.

The expected internal rate of return on this investment is 94.4%.

These are very positive returns given an initial equity investment of $40,000.
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
1.0 Introduction
1.4 Industry Overview
The specialty coffee and beverage industry is dominated by three main companies, namely, Tim Hortons,
Starbucks, and Second Cup. Starbucks has a market share of over 40% of the specialty coffee market.
Overall, the coffee segment is growing very fast. Industry is already benefiting, in terms of increasing
sales and higher prices, from the product differentiation, improved quality and price premiums of
specialty coffees. Coffee quality rather than price, customer demand, or convenience of supply is
considered to be the principal criterion for industry purchasing decisions. According to the International
Coffee Organization (ICO), most potential specialty coffee markets are far from saturated. Specialty
coffee sales continue to expand by 5% to 10% per year. The North American specialty market therefore
represents one of the largest and most vibrant coffee markets in the world. Second Cup has an opportunity
to benefit from this market.
1.5 Mission Statement
To be the leading Canadian Second Cup franchise of specialty coffee and beverages in Saskatchewan,
with a commitment to providing community support, while achieving growth through core competencies
of our people.
1.6 Goals and Objectives

To provide fresh coffee and beverages seven days a week for the neighbourhood

To achieve a return on investment of not less than 15% per annum
1.4 Financing
Mary and Ken Hatch are preparing for a significant career change and are willing to become their own
boss. Ken is a supervisor Caretaker at the local school and Mary has worked in a coffee shop for eight
years. The Hatches have savings of $20,000 and will be required to raise another $20,000 to become the
equity owners of a Second Cup franchise in Saskatoon. Right now there is no other Second Cup franchise
in Saskatoon, so the opportunity looks even more attractive for the Hatches. The Hatches will be 50 – 50
shareholders in this private corporation. The financial projections summarized above look very promising
for the Hatches (Table 1.1 below).
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
Table 1.1 Summary of Financial Results
Year
Sales
Cost of Goods Sold
Gross Margin
Expenses
2008
527,850
192,948
334,902
326,483
2009
594,570
222,141
372,429
314,233
Income Before Taxes
Income Taxes
Net Income(Loss)
8,420
1,389
7,030
58,196
9,602
48,594
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
2010
2012
849,730
317,473
532,257
427,938
957,136
357,602
599,535
464,934
56,889
78,601
104,319
9,387
12,969
17,213
47,502
65,632
87,106
Net Present Value of Equity Investment
Internal Rate of Return on Equity Investment at 20%
134,601
22,209
112,392
176,326
94.4%
669,724
250,220
419,504
362,615
2011
754,377
281,847
472,530
393,928
2013
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Second Cup Business Plan
2.0
Operations Plan
The Second Cup Franchise is a café style coffee shop that will serve a selection of hot and cold beverages
with a value added component of sandwiches and baking products. The manager and the full time staff
will monitor the day to day operations with a part time staff controlling the front end of the operation of
sales and service of coffee products. The objective for Second Cup in Saskatoon is to provide quality
coffee at reasonable prices. The atmosphere is also crucial along with the location of the café. The
chosen location is in the University Heights area of Saskatoon. This area is developing quite fast and
high sales volumes are expected, this is explained further in the marketing plan. Figure 2.1 is an aerial
photo of a 1 kilometre circumference of the actual site of building.
2.1
Location
Figure 2.1 Site Location
The basis for this location was the accelerated development of the area that includes new homes,
condominiums, two new high schools, and the major soccer centre. Figure 2.2 is a close-up aerial photo
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
of the site of the new franchise. The site is easily accessible and there is plenty of room to accommodate
a minimal 1000 sq.ft building.
Figure 2.2 Aerial View of Location
2.2
Second Cup Plan
The option to have Second Cup construct the building is be highly beneficial to the plan. The franchiser’s
experience and expertise is crucial in this venture in the development of this new structure that will be
leased from Second Cup for a minimum 10 years.
2.3
Floor Plan
The floor plan, seen in Figure 2.3, will accommodate 10 tables and 40 chairs. The layout includes an
office, washroom, and small kitchen area for minimal food preparation and inventory storage. This is the
floor plan that was recommended to Second Cup, and actual blueprint drawings are not available at this
time for confidentiality reasons.
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
Figure 2.3 Floor Plan
EXIT
RESTROOMS
Dining
OFFICE
Service Counter
KITCHEN
STORAGE
Entrance
3.4
Average Business Cycle
3.4.1
Average Business Day
The average business day is scheduled in such a way that it is user friendly, and that includes making sure
fresh hot and cold beverages are produced so that the customer will return for more “Second Cups”. The
diagram provides the activity schedule that will transpire from opening time (6:30 am) to closing (11:30
pm).
Figure 2.4 Daily Work Schedule
Opening of the store
front
Make fresh coffee
Administration and float
Two staff works counter
on
Manager
assist close are explained further
Cashbelow
drop by
The
above components
as Manager
follows:
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
Fresh goods on display
4 part time shifts
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Second Cup Business Plan

The manager will open the store along with the full time (f.t.) employee who is the partner.

The manager will attend to any administration duties including staff schedule, inventory, and
prepare the day’s cash float.

Fresh foods like subs or sandwiches and baked products will be put into the display unit for
the customers to view. Any other preparation of the food items will take place at this time to
ensure accessibility for staff throughout the day.

The f.t. employee will get the fresh coffee brewing and ready to open for 6:30 am.

The first p.t. employee starts their shift at 7:00 am, so until this time the manager and the f.t.
employee work the counter.

Throughout the day three more part time shifts will start with at least two employees at any
given time. See Table 3.1 for a break down of the shift schedule, including start and end
times. The schedule has been formatted to ensure safety and a smooth running operation.

At 8:00 pm the Manager returns assist with the closing the store front and deal with any
issues that may arisen during the day. Inventory is assessed and orders are place as soon as
possible the following day.

The cash drop occurs after closing at the Bank located next door.
To support these hours of operation time schedules was determined to show how this the shifts will be
formatted and could be adjusted for part time employees on a rotation for preferences of evenings or days
or even after school for employees attending school.
Table 2.1: Shift Schedule by Hours
Full Time Staff
Wednesday
Manager
6am - 10am
8pm - 10pm
6am - 10am
8pm - 10pm
6am - 10am
8pm - 10pm
Thursday
2pm-10pm
6am - 1pm
Friday
2pm-10pm
6am - 10am
6pm - 10pm
6am - 10am
6pm - 10pm
6am - 1pm
Monday
Tuesday
Saturday
Sunday
6am - 1pm
6am - 1pm
6am - 1pm
10am -2pm
10am - 2pm
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
Part Time Staff
7am- 3pm (1)
2pm-9:30pm (2)
7am- 3pm (1)
2pm-9:30pm (2)
7am- 3pm (1)
2pm-9:30pm (2)
7am- 3pm (1)
2pm-9:30pm (2)
7am- 3pm (1)
2pm-9:30pm (2)
7am- 3pm (1)
2pm-9:30pm (2)
7am- 3pm (1)
2pm-9:30pm (2)
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Second Cup Business Plan
Table 2.2: Total Hours of Work
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
TOTAL
HOURS
Manager
(Salary)
8
8
8
4
4
8
8
48
Shift #'s ( )
Total Part Time Hours
Total Full Time Hours
Total Manager Hours
Total Hours of Work
Full
Part time Part time
Time
1
2
7
7.5
7
7.5
7
7
7
7
7
7
2.5
7.5
2.5
7.5
40
30
(1) = 7am-3pm
101.5
40
48
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Part time
3
7
7
Part time
4
7.5
7.5
7.5
7
7
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22.5
Daily
Total
14.5
14.5
14.5
14.5
14.5
14.5
14.5
101.5
(2) = 2pm-9:30pm
Hourly
Hourly
Salary
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Second Cup Business Plan
Table 2.3
Capital Budget
Capital Budget
Equipment:
Full Size Refrigerator
Mini Refrigerator
Freezer
2 Blenders
10 Table ($300 per), 40 Chairs
($60 per)
Cups (36 tall: 36 short)
Plates (36: 6.5 inch)
Silverware
2 Coffee Maker (dbl)
Espresso Machine
Cappacino Machine
Frozen Drink Machine (dbl)
Coffee Grinder
Frothing Pitchers
Dishwasher
Cash Register (2)
Pastry Display Case
Refrigerated Deli Case
Office Equipment
Total Capital Costs
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
2008
2009
2010
2,500
600
3,500
2,000
5,400
160
35
4
6,000
10,000
1,500
2,200
1,100
130
3,800
5,000
209
2,748
3,098
49,984
2011
2012
2013
80
18
80
18
98
98
1140
80
18
80
18
98
98
80
18
1,238
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Second Cup Business Plan
Table 2.4 Operating Expenses
Operating and Marketing Expenses
2008
2009
2010
2011
2012
2013
Advertising Royalty
52,785
59,457
66,972
75,438
84,973
95,714
Local Advertising
9,285
9,285
9,285
9,285
9,285
9,285
Rent ($30 @ 1000)
30,000
30,720
31,457
32,212
32,985
33,777
Insurance
5,000
5,120
5,243
5,369
5,498
5,629
Repairs & Maintenance
4,950
5,069
5,190
5,315
5,443
5,573
Telephone & Utilities
15,000
15,360
15,729
16,106
16,493
16,888
Compensation
127,728
128,730
160,951
174,190
187,971
202,313
General Supplies
52,785
59,457
66,972
75,438
84,973
95,714
Incorporation Fees
250
40
40
40
40
40
Franchise Fee
27,500
Interest on Long Term Debt
1,200
995
775
536
278
0
Total Expenses
326,483
314,233
362,615
393,928
427,938
464,934
3.0
-
-
-
-
-
Human Resources
Ken and Mary Hatch are the equity owners of the company. Mary brings extensive experience of the
coffee industry, while Ken comes with supervisory experience. The staff mix of Second Cup will as
follows:
1. One Manager (Co-owner: Mary Hatch)
2. One Full Time Employee (Co-Owner: Ken Hatch)
3. Six Part Time employees.
With the exception of the Manager’s position, the positions are entry level jobs with a focus on customer
service experience and safe food handling certification. These positions will require some shift work, but
there is some flexibility to meet the needs of the individual. The initial expected volume does not require
a large number of employees, until further growth. The overall plan is to recruit happy, energetic
employees who are committed to providing great customer service.
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
4.1
Organizational Strategy
Figure 4.1 Organizational Chart
4.2
Training
Part of the franchise agreement with Second Cup includes a 3 week training program for new owners at
the Second Cup coffee college. On the job training will be provided for employees to ensure Second Cup
commitment to service is maintained.
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
5. Marketing Plan
5.1 Industry Overview and Current Markets
According to the Coffee Association of Canada, Canadians drink over 15 billion cups of coffee a year,
making coffee Canada's favourite hot beverage. The most recent estimates show that per capita
consumption of coffee increased from 4.27 kg (beans) in 1990 to 4.52 kg in 1999. The average coffee
drinker consumes three cups per day. Of all coffee consumed, 74% is roast and ground, 20% is instant,
and 6% is specialty. Decaffeinated coffee represents 9% of total coffee consumption. From 1990 to 1999,
per capita consumption of tea increased from 0.54 kg (tea leaves) to 0.86 kg. Presently, about 90% of
Canadians drink tea and consume about 7 billion cups per year. The tea and coffee industry represented
1.9% of the total value of food and beverage shipments, 1.1% of employment in the sector, and 1.1% of
the number of food and beverage plants in 1999. The combined sector accounted for 28% on a volume
basis of all non-alcoholic beverages sold at retail in 1998-99 (A.C. Nielsen).
In 1999, manufacturing shipments of tea and coffee combined totalled $1,110 million. The Canadian
market absorbed the remaining $832 million in domestic shipments and a volume of imports worth
$486 million. This industry continues to be a net importer. The specialty coffee sector accounts for 15%
of the retail coffee market. In the US for instance, the retail coffee market recorded a growth of 157% in
value between 2000 ($3,258 million) and 2005 ($8,372 million). This growth was driven by American
consumer demand up-market and premium-priced coffees. Over the 2005-2010 period, coffee sales are
expected to grow by a further 125% to reach $18,839 million in 2010.
Starbucks has a market share of over 40% of the specialty coffee market. The expected growth in this
category will offer the company opportunities for expanding its revenue base. Overall, the coffee segment
is growing very fast. Industry is already benefiting, in terms of increasing sales and higher prices, from
the product differentiation, improved quality and price premiums of specialty coffees. Coffee quality
rather than price, customer demand, or convenience of supply is considered to be the principal criterion
for industry purchasing decisions. According to the International Coffee Organization (ICO), most
potential specialty coffee markets are far from saturated. Specialty coffee sales continue to expand by 5%
to 10% per year. The North American specialty market therefore represents one of the largest and most
vibrant coffee markets in the world. Second Cup has an opportunity to benefit from this market.
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
5.2 Competition
On a product basis, tea and coffee beverages compete with a variety of other beverages including
flavoured soft drinks, milk, fruit juices, bottled water, vegetable juices, soy beverages, hot chocolate, low
alcohol wine coolers, and ciders. Retail sales of tea made up about 3.9% of all non-alcoholic beverages in
1998 and 1999, while sales of coffee constituted 8.3% of all non-alcoholic beverages in 1998 and 7.7% in
1999. This decrease in the value of retail sales has been due to falling prices for traded coffee.
(Agriculture and Agri-Food Canada 1999)
At the segment level, there is intense competition in coffee beverage segment from other specialty coffee
shops, restaurants, and doughnut shops. Whole bean coffees sold through coffee shops compete directly
with specialty coffees sold through supermarkets, specialty retailers, and a growing number of boutique
specialty coffee stores. In addition, regional specialty coffee companies also sell whole bean coffees in
supermarkets. Increasing competition has adverse effects a company’s revenue.
5.2.1 Direct Competitors
Second Cup faces direct competition from Starbucks and Tim Horton’s, which are the established
national coffee houses. It also faces direct competition from other locally-owned and operated coffee
shops such as The Broadway Roastery, The Co-op and local restaurants. Other forms of direct
competition include McDonald’s and other fast food chains such as Dairy Queen, Burger King, and
Subway. Convenience stores such as 7-Eleven also provide direct competition.
5.2.2 Indirect Competition
Supermarkets such as Safeway that purchase whole bean coffees directly from suppliers offer indirect
competition by enabling consumers access to specialty coffee for home consumption. Second Cup will
differentiate itself by leveraging its brand identity to provide a high quality product backed by high
quality service. It is the intention of the Second Cup franchise owners will also contributor to local
community activities, especially the Soccer Association, schools, and other charities.
5.3 Customers and Target Markets
Second Cup will be located at the new University Heights Shopping complex called The Village Square.
This area is also home to one of Saskatoon’s fastest growing parts of the city, with an estimated
population of 30,000 and expected to more than double to 62,000 by 2015. These areas include Erindale,
Silverspring, Arbor Creek, and the new Willowgrove estate.
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
Willowgrove is an exciting new neighbourhood. Homeownership is approximately 93.5%, and the
average value of dwelling is $218,357, with an average family income of $81,774. Average household
size is 3.2. Second Cup will locate in The Village Square, which is considered to be the heart of the
community, providing residents a central location with a relaxing ambience where they can meet
informally or hold community events. The Village Square includes a strip mall with street-front coffee
shops, boutiques, and other retail and community services. It has two elementary schools (Forest Grove
School and St. Volodymyr School) and two high schools (St. Joseph High School and Centennial
Collegiate), with an additional high school recently announced.
This location is adjacent to the world class new SaskTel Indoor and Outdoor Artificial Turf Soccer Centre.
The SaskTel Soccer Centre is a great magnet for ancillary business development in this area. The Centre
is attached to the Centennial Collegiate and the city operates a walking track on the perimeter of the
indoor turf field, with a future civic facility planned in 5 to 10 years. The Centre was built as a partnership
with the Saskatoon Public School Board and the City of Saskatoon, making it one of a kind in Saskatoon
and in Canada. Since 1998, the SaskTel Soccer Centre has been home to more almost 10,000 soccer
players. Provincially, Saskatchewan Soccer Association enjoys approximately 30,000 members including
players, coaches, referees, managers, administrators, clubs, leagues, and districts. There are
approximately 178 adult teams in the indoor season alone, or over 4,200 adult games. There
approximately 200 youth teams with over 8,000 youth games. There are 7,000 registered players in
Saskatoon.
Second Cup is quite confident that it has identified a location that provides an important prerequisite for
success when it comes to the food service business. This location has great visibility, high traffic pattern,
convenient access, established retail shops in the area, enabling Second Cup to consolidate its already
well-known brand supported by its well-known line of fresh African, Colombian, and Brazilian coffee
beans and other beverages served in cleanest equipment, premium serving containers, and consistent
flavours.
Second Cup will implement a low cost but effective advertising and promotion campaign and forge strong
relationships with the Saskatoon Soccer Association, schools, charitable organizations, civic
organizations, and corporations by offering programs that support Saskatoon communities. This
relationship will provide significant free publicity for Second Cup.
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
5.4 Product and Service Features
Second Cup’s franchise products are well established. Its product line has also grown from simple whole
bean coffee to more than 30 premium coffees, specialty beverages, complementary foods and
merchandise items. Our proposed location in The Village Square location will provide our patrons with
114 main beverage lines and a line of deserts and prepared deli sandwiches (Appendix 3.1). The lines
include:

Line 1: Specialty Coffee & Lattes

Line 2: Flavoured Lattes

Line 3: Specialty Tea

Line 4: Hot Chocolate

Line 5: Hot Milk Steamers

Line 6: Cider

Line 7: Soda

Line 8: Blended Sensations

Line 9: Creamy Fruit Smoothies

Line 10: Coffee Chillers

Line 11: Chocolate Chillers

Line 12: Tea Chillers

Line 13: Chocolate Vanilla Chillers

Line 14: Athletic Power Smoothies

Line 15: Specialty dry cake, desserts muffins, pastries, sandwiches
5.4.1 Product Quality
Second Cup prides itself for product quality based on the authentic sources of its coffee beans. It will
offer highly differentiated coffee blends sourced from prime coffee growing regions. African blends
include Ethiopian Limu Roast and Rwandan Cup of Hope Roast. Both blends reflect the exotic nature of
Africa in the taste and variety of its coffees, with tastes ranging from fruity citrus to delicate chocolate.
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
Ethiopia is considered the birthplace of coffee, with its highly respected Limu coffee bean, carefully
picked and processed to preserve its sweet and smooth flavour. Additional diversity in the product line
comes from Asian blends such as Sumatra Mandheling, a truly exotic coffee prized for its unique and
well-concentrated sweet flavour. Finally, Second Cup provides a product line based on Latin American
blends La Minita Tarrazu from Costa Rica. This is a premium, hand-picked, and estate-grown coffee. La
Minita Tarrazu is exclusive to Second Cup in Canada. La Minita Tarrazu is one of the most carefully
processed and highly sought-after coffees in the world.
Second Cup’s other prized blends come from Panama (El Toucan), Brazil (Fazenda Vista Alegre),
Colombia (San Agustin and Colombia Supremo; Continental Dark, Colombian Supremo Swiss Water
Decaf). The Decaf blends are gently decaffeinated using a 100% chemical-free method of decaffeination
without removing the coffee flavour. Second Cup’s multi-region blends are intended to integrate flavours
from the four regions. The blends include Espresso Forte used to make all of our Specialty Lattes and
Cappuccinos; Espresso Forte Swiss Water Decaf used for all of our Decaffeinated Specialty Lattes and
Cappuccinos; Caffé Venice blending different coffee beans from Latin America and Africa to create a
sweet coffee with a rich aroma; Paradiso, which is Second Cup’s signature blend of unique coffees from
around the world and one of the company’s most popular blends. Second Cup will also offer flavoured
coffee, including:

Butter Pecan: Smooth, medium-bodied, sweet scent

Caramelo: Rich, inviting aroma with a subtle caramel flavour

French Vanilla: Aromatic, clean after-notes, medium body

Hazelnut Crème: Full-bodied, enticing aroma, nutty taste

Hazelnut Crème Swiss Water Decaffeinated: Full-bodied, enticing aroma, nutty taste

Irish Cream: Clean, aromatic and refreshing

Spiced Eggnog: Rich and creamy with a hint of nutmeg
Second Cup’s commitment to product quality comes from understanding the importance of four key
attributes that make a particular coffee or blend unique. These are aroma, acidity, flavour, and body.
Aroma is maintained to evoke an expectation on the part of the customer without being artificial or
overwhelming. Acidity is used to ensure that coffee does not taste flat and lifeless.
Flavour refers to
how a drinker’s tongue will interpret the aromatic attributes of the coffee. Second Cup maintains body to
ensure volume and texture as opposed to competitors who offer light-bodied coffees that are watery.
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Second Cup Business Plan
Indeed, the company has a quality competitive advantage over some coffee retailers who disguise the
taste of low grade coffee with flavoured sugar syrup, resulting in an inconsistent cup as the amount of
syrup added varies. Second Cup uses only high-quality coffee beans and has the distinct ability blend a
customer’s coffee beverage according to a customer’s exact specifications. Our employees will be welltrained in coffee brewing, blending, and serving.
Apart from its high-quality aromatic coffees, Second Cup will also offer specialty teas, chilled coffee
beverages, power sports drinks, deserts and deli sandwiches, and seasonal specialty drinks. Premium
Second Cup merchandize will be offered at the store and via the web site. These include coffee mugs,
soccer balls, caps, T-shirts, bunny hugs, sweatshirts.
5.5 Pricing Strategy
Second Cup prices will be competitive and comparable to major competitors such as Starbucks and Tim
Hortons. However, the highly differentiated nature of its product based on product origin and target,
location advantage, and image will provide distinctive value-added benefits to Second Cup customers.
The pricing structure is provided in the appendix. Summary prices per cup are as follows: coffee at $1.50,
other specialty beverages at $3.50, food items at $2.50, and cooler beverages at $2.00. Credit terms will
be offered only in the form of valid credit card purchases such as Visa or MasterCard. This policy makes
it easy for patrons who prefer to use credit cards as a means of keeping track of expenditures, say as a
business expense.
5.6 Promotion Strategy
Second Cup will implement a low cost but effective advertising and promotion campaign and forge strong
relationships with the Saskatoon Soccer Association, schools, charitable organizations, civic
organizations, and corporations by offering programs that support Saskatoon communities. This
relationship will provide significant free publicity for Second Cup. In addition to this effort, Second Cup
will advertise in the local newspapers as well as use via direct mail ads which will include discount
coupons. A "frequent drinkers club" discount will be offered to regular customers. Second Cup
merchandize will be offered at the store and via the web site. These include coffee mugs, soccer balls,
caps, T-shirts, bunny hugs, sweatshirts. This will be an indirect way to promote the company. We will
allocate $1,000 per month for the next year towards advertising in local papers. An additional $1,000 per
month will be spent on radio and TV advertising. We will institute and sponsor a new annual City and
Provincial soccer tournament called Second Cup Soccer Tournament. We will also run an annual Second
Edwards School of Business, University of Saskatchewan
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Second Cup Business Plan
Cup school fundraising program. These events will generate significant publicity without the need for
incremental spending on professional public relations services. The total marketing expense is $10,999.
5.7 Distribution
Second Cup will have a lot of traffic owing to its prime location as described above. Well trained food
servers will distribute the product in the coffee shop. All the coffee blends will be mixed on site. Pastries
and cakes will be served fresh. Second Cup does not have a kitchen. However, its pastries, cakes, and
sandwiches will be supplied fresh by a highly reputed local food catering service. Supplies will be
coordinated to ensure that peak-hour demand is met. Our well trained servers will always greet patrons
and proceed to take the order. It is the duty of the server to ensure that every patron receives first-class
service.
5.8 Sales Objectives
Second Cup has set a 10% annual sales growth objective.
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Second Cup Business Plan
5.8.1 Sales Projections
5.8.1 Marketing Expenses
Marketing Expenses
Advertising Royalty
Local Advertising
Total Expenses
52,785
59,457
66,972
75,438
84,973
95,714
9,285
9,285
9,285
9,285
9,285
9,285
62,070
68,742
76,257
84,723
94,258
104,999
5.9 SWOT Analysis
We present an analysis of Second Cup’s strengths, weaknesses, opportunities, and threats (SWOT),
looking both at internal factors (strengths and weaknesses) and external factors (opportunities and threats).
5.9.1 Strengths (Internal Factors)

Strong brand identity

Canadian leader, with more than 400 coffee houses, 43 of them in Quebec

Robust financial performance

Large scale of operations

Agreements with Air Canada, Via Rail and Delta Hotels, under which it serves over 26 million
cups of coffee a year
5.9.2 Weaknesses (Internal Factors)
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Second Cup Business Plan

Second Cup prefers franchises or owner-operators who pay royalties on sales. Owner-operators
may have difficulty raising required start-up equity financing, unlike Starbucks which usually
prefers to set up company-owned outlets, sometimes in partnership.

Second Cup has signed a long-term agreement with a coffee multi-national for supply of coffee
beans. Competitors like Van Houtte and Starbucks have their own roasting plants.

Narrow product mix. Any reduction in consumer consumption of coffee for any reason would
have a negative impact company’s performance.
High dependence upon a single product
represents a commercial risk.
5.9.3 Opportunities (External Factors)

New markets

Growing specialty coffee market

Growing demographic segment in new location

Prime location close to highly visible and active residential area

New health benefits of coffee

Organic coffee segment

Speciality teas expected to attain strong sales growth. Currently, specialty teas account for only a
small share of consumer purchases.
5.9.4

Threats (External Factors)
Intense competition from established players like Starbucks which has over 13,000 locations in
39 countries and a total of more than 44 million customer visits per week; revenues of $7,787
million in 2006 against its competitors like Diedrich Coffee ($59.5 million) and GMCR ($225.3
million) during the same period. Large economies of scale provide a cost advantage to Starbucks
in the marketplace and pose a threat to Second Cup.

Highly volatile coffee commodity prices

Coffee industry faces social and environmental concerns associated with coffee supplies,
including child labour in developing countries and exploitative prices paid to developing country
coffee producers. Corporate image can be eroded.
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Second Cup Business Plan

Emergence of low cost of brewers such as coffee presses (Bodum), mocha coffee-makers and
filter coffee systems (Melitta) will likely influence the purchase of whole beans and speciality
coffees by prime target market of the 18 – 50 year age group.

Rivalry reaction from multinational coffee companies (e.g. Kraft and Nestlé) who aware of
current market trends and have implemented a strategy to reposition themselves more
aggressively in the gourmet coffee market. The sale of coffee beans in grocery stores from majorleague players like Kraft, Proctor & Gamble (Folgers) and Nestlé.

Kraft and Starbucks announced the formation of a long-term partnership to sell Starbucks brand
coffee beans and ground coffee in stores throughout the U.S. and possibly internationally.

Strong competition and market leadership in the tea segment by the multinationals such as
Unilever and Nestlé that dominate the market. (Unilever and Nestlé).
6. Financial Plan
This section reports detailed financial projections for the next 6 years.
6.1 Sales Revenue and Net Income:
All products and services are furnished in four categories: coffee, specialty beverages, food, and cooler
beverages (Table 6.1).
Table 6.1 Sales Revenue
Sales Revenue
Coffee
Other Hot beverages
Food
Cooler Beverages
Total
2008
114,750
160,650
191,250
61,200
527,850
2009
129,254
180,956
215,424
68,936
594,570
2010
145,592
203,829
242,654
77,649
669,724
2011
163,995
229,593
273,325
87,464
754,377
2012
184,724
258,614
307,873
98,519
849,730
2013
208,073
291,302
346,788
110,972
957,136
Total revenue for 2008 is projected to reach $527,850. It is also projected to double in 2013. The gross
margin from the total revenue is estimated to be 63% in 2008 meaning that 37% is accounted for cost of
goods sold in this year.
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Second Cup Business Plan
As expected, net income after tax is very low, at $7,030 in the first year of operations. However it will
grow to more than $112,392 by 2013. However, this increase will result from reduced expenses and
increased sales in the second year.
6.2 Total Operating Expenses
Total operating expenses are estimated to be approximately $326,483 in 2008 followed by a decline in
2009 to a just over $314,233 given that expected cash on hand will be greater than $25,000 dividends will
be paid.
6.3 Working Capital Estimates
As far as inventories are concerned, the store will carry a 7-day inventory of all the products. All sales
are on cash basis. Therefore, there are no account receivables. Accounts payable are also paid within 7days.
The store’s net working capital for year 2009 is as follows:
Cash + inventories + accounts receivable – accounts payable
= $7,030 + $4,522 + 0 – $4,522
=$7,030 this amount is not enough to run the store for one year. Therefore, an Operating Line of Credit is
required.
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Second Cup Business Plan
6.4 Cost of Capital
As shown in the Operations Plan Section 2.5 Capital budget, the total capital cost in 2008 is a major
expenditure ($49,984) on equipment and related items in the year of establishment subsequent years have
little additional capital spending. As shown in Schedule 9 of the Financial Plan in the average capital cost
allowance (C.C.A.) or depreciation is 20% on all equipment. The items will be depreciated to two-thirds
of their original prices in five years.
6.5 Debt Amortization Schedules
Long term debt will be paid at a fixed amount every year for next five years at a interest rate of 8.00%,
resulting in paying-off all the debts by 2012.
6.6 Risk analysis
The risk analysis provides a list of critical success variables which determine the success of the shop in
both short and long run. The critical variables are: units of sales, selling prices, supply and/or cost of
direct material inputs. As shown in Table 6.3, units of sales and selling prices of the products are the most
critical success factors, while the cost of direct materials is important for financial performance.
Table 6.3 Risk Variables and Level of Importance
Variables
Level of Importance
Units of sales
Selling price
Cost of direct materials
1
1
2
Where, 1 = most critical for success
2 = important for success but not critical
Both units of sales and selling price will determine if the shop will be financially viable in the long run. In
addition, several intangible factors such as quality and the environment are also equally important for
success as the shop will compete with other competing shops such as Starbucks and Tim Hortons.
6.7 Financing Budget
Two –thirds, or $40,000, of the financial commitment will come from an equity investment from the
owners Ken and Mary Hatch. An additional $15,000 will be obtained from a bank loan at 8% over 5
years.
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Second Cup Business Plan
Table 6.4 Financing Structure
Long Term Debt
$ 15,000
Owner’s Equity
$ 30,000
Total Financing
$ 45,000
6.8 Dividend Policy
Dividends will be paid to equity investors when cash on hand exceeds $25,000. This will ensure within
the first couple years, that there is an adequate supply of cash to keep up the operations or cover any
unexpected events. No dividend will be paid in the first year of operations. Dividend projections are
presented in Table 6.5.
Table 6.5 Dividend Projections
2008
2009
2010
2011
2012
2013
$ 20,158
$ 33,059
$ 47,616
$ 67,448
6.9 Ratio Analysis
In the first year of operations, the current ratio for Second Cup is 4 (Table 6.6). This ratio indicates that
the business is able to meet its current liabilities 4 times over. In addition, keeping within industry levels,
compensation or wages as a portion of sales is at 24%. The ROI after taxes is 13%, the equity owners
earn $0.13 for every $1 invested.
Table 6.6 Ratio Analysis
Liquidity Ratios
Current Ratio
Operating Expenses
Compensation/Sales
Marketing/Sales
Operating/Sales
Total Expenses/Sales
Profitability Ratios
Return on Equity
Return on Equity *
* Using net income before tax
Edwards School of Business, University of Saskatchewan
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4
24%
12%
27%
62%
13%
15%
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Second Cup Business Plan
6.10 Financial and Investment Analysis
Second Cup’s financial analysis is positive (Table 6.7). The NPV shows a value of $176,326 in future
cash flows, these are very positive returns given an initial investment of $40,000. The expected return on
this investment is 94.4%.
Table 6.7 Summary of Financial Results
Year
Sales
Cost of Goods Sold
Gross Margin
Expenses
2008
527,850
192,948
334,902
326,483
2009
594,570
222,141
372,429
314,233
Income Before Taxes
Income Taxes
Net Income(Loss)
8,420
1,389
7,030
58,196
9,602
48,594
2010
2012
849,730
317,473
532,257
427,938
957,136
357,602
599,535
464,934
56,889
78,601
104,319
9,387
12,969
17,213
47,502
65,632
87,106
Net Present Value of Equity Investment
Internal Rate of Return on Equity Investment at 20%
134,601
22,209
112,392
176,326
94.4%
669,724
250,220
419,504
362,615
2011
754,377
281,847
472,530
393,928
2013
6.11 Risk Analysis
Second Cup’s initial year will be running near the break-even point. Break-even is 391 customers. If the
sales forecasts are achieved then the first year net income is minimal at $4310. However, in this year
99% of all capital costs are incurred, as a result second year will realize a more substantial gain in next
income.
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Second Cup Business Plan
Apply a portion of the cash on hand to the long term debt, this will increase net income.
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Second Cup Business Plan
7. Conclusion
This business plan has presented an operating and marketing strategy backed by a sound financial
analysis that demonstrates the viability of establishing a successful Second Cup franchise in Saskatoon. .
Key financial projections show that total revenue for 2008 is projected to reach $527,850. This is
expected to double by 2013. The gross margin from total revenue is estimated at 63%, this margin is
expected to be remain consistent year over year. Net income, after taxes, in the first year of operations is
expected to be $7,030 however by 2013 this will grow to $112,392. Additional ratio analysis shows that
the business is able to meet its current liabilities 4 times over within the first year. The ROI after taxes is
13%, for every $1 invested there is an earning of $0.13. The Net Present Value is $176,326. The
expected internal rate of return on this investment is 94.4%. These are very positive returns given an
initial equity investment of $40,000. These results are projected against sound market research and
SWOT analysis that recognizes both internal and external factors that Second Cup needs to be aware of in
order to achieve a sustainable competitive advantage.
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
APPENDIX 1 FINANCIALS
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Second Cup Business Plan
APPENDIX 1 FINANCIALS
Second Cup
Financial Projections 2008 - 2013
Statement of Income and Retained Earnings
For the year ended December 2008
2008
2009
2010
2011
2012
2013
Sales Revenue:
Coffee
114,750
129,254
145,592
163,995
184,724
208,073
Other Specialty Beverages
160,650
180,956
203,829
229,593
258,614
291,302
Food
191,250
215,424
242,654
273,325
307,873
346,788
Cooler Beverages
61,200
68,936
77,649
87,464
98,519
110,972
Total
527,850
594,570
669,724
754,377
849,730
957,136
Cost of Goods Sold
192,948
222,141
250,220
281,847
317,473
357,602
Gross Margin
334,902
372,429
419,504
472,530
532,257
599,535
Gross Profit Margin
63%
63%
63%
63%
63%
63%
Operating and Marketing Expenses
Advertising Royalty
52,785
59,457
66,972
75,438
84,973
95,714
Local Advertising
9,285
9,285
9,285
9,285
9,285
9,285
Rent ($30 @ 1000)
30,000
30,720
31,457
32,212
32,985
33,777
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Second Cup Business Plan
Insurance
5,000
5,120
5,243
5,369
5,498
5,629
Repairs & Maintenance
4,950
5,069
5,190
5,315
5,443
5,573
Telephone & Utilities
15,000
15,360
15,729
16,106
16,493
16,888
Compensation
127,728
128,730
160,951
174,190
187,971
202,313
General Supplies
52,785
59,457
66,972
75,438
84,973
95,714
Incorporation Fees
250
40
40
40
40
40
Franchise Fee
27,500
-
-
-
-
-
Interest on Long Term Debt
1,200
995
775
536
278
Total Expenses
326,483
314,233
362,615
393,928
427,938
464,934
Income Before Taxes
8,420
58,196
56,889
78,601
104,319
134,601
Income Taxes
1,389
9,602
9,387
12,969
17,213
22,209
Net Income(Loss)
7,030
48,594
47,502
65,632
87,106
112,392
7,030
55,624
60,886
78,279
100,653
48,594
47,502
65,632
87,106
112,392
42,240
48,239
64,732
86,742
60,886
78,279
100,653
126,303
Beg Retained Earnings
Net Income(Loss)
7,030
Dividends
End Retained Earnings
Dividend Policy
Edwards School of Business, University of Saskatchewan
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7,030
55,624
-
-
0
86,742
33
Second Cup Business Plan
42,240
48,239
64,732
Balance Sheet
For the year ended December 2008
2008
2009
2010
2011
2012
2013
Assets
Current Assets:
Cash
15,727
67,240
73,239
89,732
111,742
136,438
Total Inventories
4,805
5,412
6,096
6,867
7,735
Total Current Assets
20,532
72,653
79,335
96,599
119,477
145,151
Equipment
49,984
50,082
50,179
51,417
51,514
51,612
Accumulated C.C.A.
(6,238)
(12,016)
(15,832)
(19,391)
(22,603)
Equipment
43,746
38,065
34,347
32,026
28,911
26,108
Total Assets
64,278
110,718
113,682
128,625
148,388
171,258
4,805
5,412
6,096
6,867
7,735
12,443
9,682
6,699
3,479
8,712
Capital Assets:
(25,504)
Liabilities
Current Liabilities:
Accounts Payable
8,712
Noncurrent Liabilities
Long Term Debt
Total Liabilities
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0
(3,757)
4,956
34
Second Cup Business Plan
17,248
15,094
12,796
10,345
7,735
Owner's Equity
40,000
40,000
40,000
40,000
40,000
40,000
Retained Earnings
7,030
55,624
60,886
78,279
100,653
126,303
Total Shareholder's Equity
47,030
95,624
100,886
118,279
140,653
166,303
Total Liabilities and
64,278
110,718
113,682
128,625
148,388
171,258
Shareholders' Equity
Shareholder's Equity
Statement of Cash Flow
For the year ended December 2008
2008
2009
2010
2011
2012
2013
Cash from (used in) Operating Activities:
Net Income(Loss)
7,030
48,594
47,502
65,632
87,106
Depreciation
6,238
5,778
3,816
3,558
3,212
Inventory
(4,805)
(607)
(684)
(771)
(868)
Accounts Payable
4,805
607
684
771
868
Net Cash Flow from Operations
13,268
54,372
51,319
69,190
90,319
112,392
2,901
(978)
978
115,293
Cash from (used for) Financing Activities:
Owner's Equity
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
40,000
-
-
-
-
-
35
Second Cup Business Plan
Long Term Debt
12,443
Dividends
(2,761)
-
Net Cash Flow from Financing
-
(2,982)
(3,221)
(3,479)
(3,757)
(42,240)
(48,239)
(64,732)
(86,742)
52,443
(2,761)
(45,223)
(51,460)
(68,211)
(90,499)
Equipment
(49,984)
(98)
(98)
(1,238)
(98)
(98)
Net Cash Flow from Investing
(49,984)
(98)
(98)
(1,238)
(98)
(98)
Increase(decrease) in Cash
15,727
51,513
5,999
16,493
22,010
24,696
15,727
67,240
73,239
89,732
111,742
67,240
73,239
89,732
111,742
136,438
Cash from (used for) Investing Activities:
Cash beginning of year
0
Cash end of year
15,727
Supporting Schedules
Schedule 1: Economic Forecast
2008
2009
2010
2011
2012
2013
Long Term Debt Rate
input
8.00%
8.00%
8.00%
8.00%
8.00%
8.00%
Rate of Inflation
input
2.40%
2.40%
2.40%
2.40%
2.40%
2.40%
2008
2009
2010
2011
2012
2013
2.40%
2.40%
2.40%
2.40%
2.40%
2.40%
Schedule 2: Revenues
Growth in Selling Prices
Coffee
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
input
36
Second Cup Business Plan
Other Specialty Beverages
input
2.40%
2.40%
2.40%
2.40%
2.40%
2.40%
Food
input
2.40%
2.40%
2.40%
2.40%
2.40%
2.40%
Cooler Beverages
input
2.40%
2.40%
2.40%
2.40%
2.40%
2.40%
Quantity of Sales
input
425
Coffee
0.5
Other Speciality Beverages
468
514
566
622
76,500
84,150
92,565
101,822
112,004
123,204
0.3
45,900
50,490
55,539
61,093
67,202
73,922
Food
0.5
76,500
84,150
92,565
101,822
112,004
123,204
Cooler Beverages
0.2
30,600
33,660
37,026
40,729
44,801
49,282
2008
2009
2010
2011
684
2012
2013
Selling Prices (per unit)
Coffee
input
1.50
1.54
1.57
1.61
1.65
1.69
Other Hot beverages
input
3.50
3.58
3.67
3.76
3.85
3.94
Food
input
2.50
2.56
2.62
2.68
2.75
2.81
Cooler Beverages
input
2.00
2.05
2.10
2.15
2.20
2.25
Coffee
114,750
129,254
145,592
163,995
184,724
208,073
Other Hot beverages
160,650
180,956
203,829
229,593
258,614
291,302
Food
191,250
215,424
242,654
273,325
307,873
346,788
Cooler Beverages
61,200
68,936
77,649
87,464
98,519
110,972
Sales Revenue
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
37
Second Cup Business Plan
Total
527,850
594,570
669,724
754,377
849,730
957,136
Schedule 3: Cost of Goods Sold
2008
2009
2010
2011
2012
2013
Direct Material Purchases
Coffee
input
25%
25%
25%
25%
25%
25%
Other Specialty Beverages
input
25%
25%
25%
25%
25%
25%
Food
input
45%
45%
45%
45%
45%
45%
Cooler Beverages
input
70%
70%
70%
70%
70%
70%
2008
2009
2010
2011
2012
2013
Schedule 4: Cost of Goods Sold
Beginning Inventory
0
4,805
5,412
6,096
6,867
Purchases
197,753
222,748
250,904
282,618
318,341
Ending Inventory
4,805
5,412
6,096
6,867
7,735
Cost of Goods Sold
192,948
222,141
250,220
281,847
317,473
7,735
358,579
8,712
357,602
Schedule 5: Compensation, Operating and Marketing
Expenses
2008
2009
2010
2011
2012
2013
Compensation Expenses
Staffing
Manager
input
1
1
1
1
1
1
Full time employee
input
1
1
2
2
2
2
Part time employee
input
4
5
6
7
8
9
6
7
9
10
11
12
Total staff
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
38
Second Cup Business Plan
Total Annual Salary
Manager Salary
input
Total Manager Salary
55,000
56,320
57,672
59,056
60,473
61,924
55,000
56,320
57,672
59,056
60,473
61,924
9.00
9.22
9.44
9.66
9.90
Hourly Workers
Full Time Employee Wage
input
Hours per Employee
input
Total Full Employee
Part Time Employee Wage
input
Hours per Employee
input
1950
1950
3900
3900
3900
17,550
17,971
36,805
37,688
38,593
8.25
8.45
8.65
8.86
9.07
5100
4875
5850
10.13
6825
3900
39,519
9.29
7800
8775
Total Part Time
42,075
41,184
50,607
60,458
70,754
81,508
Total Hourly Workers
59,625
59,155
87,412
98,147
109,346
121,027
Benefits for Wage-Earning Employees
EI
2.42%
2,776
2,797
3,514
3,807
4,113
4,431
CPP
4.95%
5,674
5,716
7,182
7,782
8,406
9,056
Holiday Pay
6%
3,300
3,379
3,460
3,543
3,628
3,715
Workers Compensation
1.18%
1,353
1,363
1,712
1,855
2,004
2,159
13,103
13,255
15,868
16,987
18,151
19,361
Total Benefits
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
39
Second Cup Business Plan
Total Compensation
127,728
Marketing Expenses
128,730
2008
160,951
2009
174,190
2010
187,971
2011
202,313
2012
2013
Advertising Royalty
10%
52,785
59,457
66,972
75,438
84,973
95,714
Local Marketing
input
9,285
9,285
9,285
9,285
9,285
9,285
62,070
68,742
76,257
84,723
94,258
52,785
59,457
66,972
75,438
84,973
95,714
Insurance
5,000
5,120
5,243
5,369
5,498
5,629
Rent ($30 @ 1000)
30,000
30,720
31,457
32,212
32,985
33,777
Total Marketing Expense
104,999
Operating Expense
General Supplies
10%
Maintenance & Repairs
17%
4,950
5,069
5,190
5,315
5,443
5,573
Telephone & Utilities
50%
15,000
15,360
15,729
16,106
16,493
16,888
Incorporation Initial & Annual Fees
250
40
40
40
40
40
Start-up Franchise Fee
27,500
-
-
-
-
-
Total Operating Expenses
135,485
115,766
124,632
134,480
145,431
Compensation Expenses
127,728
128,730
160,951
174,190
187,971
202,313
Marketing Expenses
62,070
68,742
76,257
84,723
94,258
104,999
157,622
Summary of Compensation, Operating and Marketing
Expenses
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
40
Second Cup Business Plan
Operating Expenses
135,485
115,766
124,632
134,480
145,431
Interest on Long term Debt
1,200
995
775
536
278
Total Expenses
326,483
314,233
362,615
393,928
427,938
157,622
0
464,934
Schedule 6: Capital Budget
2008
2009
2010
2011
2012
2013
Equipment:
Full Size Refrigerator
input
2,500
Mini Refrigerator
input
600
Freezer
input
3,500
2 Blenders
input
2,000
10 Table ($300 per), 40 Chairs ($60 per)
input
5,400
Cups (36 tall: 36 short)
input
160
Plates (36: 6.5 inch)
input
35
Silverware
input
4
2 Coffee Maker (dbl)
input
6,000
Espresso Machine
input
10,000
Cappacino Machine
input
1,500
Frozen Drink Machine (dbl)
input
2,200
Coffee Grinder
input
1,100
Frothing Pitchers
input
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
1140
80
80
80
80
80
18
18
18
18
18
41
Second Cup Business Plan
130
Dishwasher
input
3,800
Cash Register (2)
input
5,000
Pastry Display Case
input
209
Refrigerated Display Case
input
2,748
input
3,098
Office Equipment
Total Capital Costs
49,984
Working Capital
2008
98
98
2009
2010
1,238
2011
98
98
2012
2013
Inventory
4,805
5,412
6,096
6,867
7,735
8,712
Accounts Payable
4,805
5,412
6,096
6,867
7,735
8,712
Total Working Capital
9,610
10,824
12,193
13,734
15,470
17,425
Average Days Inventory
Inventory
input
7
7
7
7
7
7
Average Days Payables
input
7
7
7
7
7
7
2008
2009
2010
2011
2012
2013
Schedule 7: Financing Budget
Long Term Debt
input
15,000
0
0
0
0
0
Owner's Equity
input
40,000
0
0
0
0
0
Total
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
55,000
-
-
-
-
-
42
Second Cup Business Plan
Schedule 8: Long Term Debt
2008
Interest Rate
8.00%
Payment Period (Years)
5
Beginning Balance
-
2009
12,443
2010
9,682
-
2011
6,699
-
2012
2013
3,479
Addition
15,000
-
Interest
1,200
995
775
536
278
Debt Payment
3,757
3,757
3,757
3,757
3,757
Ending Balance
12,443
9,682
6,699
3,479
0
-
0
3,757
0
(3,757)
Schedule 9: Capital Cost Allowance
2008
Equipment
Input Rate
2009
2010
2011
2012
2013
20%
Beginning Balance
-
42,197
38,065
Capital Cost Allowance
4,689
4,229
3,816
3,558
3,212
2,901
Ending Balance
42,197
38,065
34,347
32,026
28,911
26,108
98
98
100%
Beginning Balance
Additions
1,238
28,911
46,886
Input Rate
98
32,026
Additions
Office Equipment
98
34,347
3,098
1,549
-
-
-
-
-
-
-
-
-
Capital Cost Allowance
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
43
Second Cup Business Plan
1,549
Ending Balance
1,549
Total CCA Expense
6,238
1,549
-
-
5,778
-
3,816
-
3,558
-
3,212
2,901
Schedule 10: Income Tax
2008
Income Before Taxes
8,420
2009
58,196
2010
56,889
2011
78,601
2012
2013
104,319
134,601
Accumulated Loss Carryforward
-
-
-
-
-
-
Loss Carryforward Used
-
-
-
-
-
-
Taxable Income
8,420
58,196
56,889
78,601
104,319
134,601
Federal Tax @ 28%, 21%
2,357
16,295
15,929
22,008
29,209
37,688
Small Bus Tax Credit @ 16%
(1,347)
(9,311)
(9,102)
(12,576)
(16,691)
Provincial Tax @ 5%, 10%
379
2,619
2,560
3,537
4,694
6,057
Total Taxes
1,389
9,602
9,387
12,969
17,213
22,209
(21,536)
Schedule 11: Ratio Analysis
Cash Conversion Cycle
2008
2009
2010
2011
2012
2013
0
0
0
0
0
0
4
13
13
14
15
17
Liquidity Ratios
Current Ratio
Activity and Operating Ratios
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
44
Second Cup Business Plan
Total Asset Turnover
8
5
6
6
6
6
Inventory Turnover
38
39
39
39
39
82
Average Days Inventory
10
9
9
9
9
4
Compensation/Sales
24%
22%
24%
23%
22%
21%
Marketing/Sales
12%
12%
11%
11%
11%
11%
Operating/Sales
26%
19%
19%
18%
17%
16%
Total Expenses/Sales
62%
53%
54%
52%
50%
49%
Debt Ratio
84%
21%
16%
11%
6%
3%
Debt to Equity
37%
16%
13%
9%
5%
3%
63%
63%
63%
63%
63%
63%
Operating Expenses
Leverage Ratios
Profitability Ratios
Gross Profit Margin
Net Profit Margin
1%
8%
7%
9%
10%
12%
Return on Total Assets
11%
44%
42%
51%
59%
66%
Return on Equity
15%
51%
47%
55%
62%
68%
2%
10%
8%
10%
12%
14%
Return on Total Assets *
13%
53%
50%
61%
70%
79%
Return on Equity *
18%
61%
56%
66%
74%
81%
2008
2009
2010
2011
2012
2013
-
-
-
-
-
Net Profit Margin *
* Using net income before tax
Schedule 12: Investment Analysis
Required Return on Equity
input
20%
Present Value of Equity Investment
Equity Investment
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
40,000
45
Second Cup Business Plan
Present Value of Equity Investment
40,000
-
-
-
-
-
Present Value of Equity Returns
Net Cash Flows to Equity
15,727
Dividends
51,513
-
Salvage Value
0
Total Net Cash Flow to Equity
15,727
Present Value of Net Cash Flows
216,326
Total Cash Flows to Equity
5,999
(40,000)
Net Present Value of Equity Investment
15,727
16,493
42,240
22,010
48,239
0
24,696
64,732
0
86,742
0
0
107,894
51,513
48,239
64,732
86,742
219,333
51,513
48,239
64,732
86,742
219,333
176,326
Internal Rate of Return on Equity Investment
94.4%
External Rate of Return on Equity Investment
2008
2009
Dividends
-
-
Salvage Value
-
-
-
-
Equity Investment
Total to Equity Investor
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
2010
2011
2012
2013
(40,000)
(40,000)
42,240
48,239
-
42,240
64,732
-
48,239
86,742
-
64,732
107,894
194,637
46
Second Cup Business Plan
External Rate of Return on Equity Investment
Edwards School of Business, University of Saskatchewan
Daniels, R., Das, S., McKay, J. Mupondwa, E. 2008
55.8%
47