Italian Restaurant Business Plan:
This business plan for The Pasta House Co. – Fenton (PHC) aims to acquire the assets and leasehold improvements of the restaurant currently operating as JD Drews. The current owner wants to sell the operations due to unsatisfactory volume and incurred debt.
The goal is to submit this business plan to the bank in the event of loan or rent payment default. We plan to take over the SBA loan, and with additional funds, convert this location into a profitable Pasta House Co. franchise restaurant.
The location is 1/4 mile away from Gravois Bluff’s, the largest land moving project in Missouri for a major shopping complex. The rent is half of that of retail shops in Gravois Bluff’s, yet the sales opportunity remains the same. Highway 141, recently completed, attracts hundreds of thousands of local residents, out-of-area shoppers, and travelers. Fenton lacks Italian restaurants, and there is a significant demand for an upscale family restaurant serving both children and adults.
This turnkey operation accommodates 170 customers, making it the ideal size for a PHC family operation. With minimal upgrades, the current leasehold improvements and quality kitchen equipment can align with the legendary PHC winning formula. The number of high-income families in Fenton is projected to grow by over 30%, creating a need for a family fine dining restaurant. PHC would fill that gap as a neighborhood restaurant.
Dennis Boldt, who has successfully operated a franchise unit in High Ridge, Missouri for 20 years, will oversee the second PHC location in Fenton. The Pasta House Co. is a St. Louis-based company with 34 successful locations in the United States and Mexico.
PHC Fenton benefits from a prime location, great food, a proven concept, super franchise support, no competition, a senior management and crew, a fantastic neighborhood marketing program, a vast catering base, personalized service in a warm Italian imported grocery store atmosphere, and the support of the community. These factors will result in a highly profitable PHC restaurant in Fenton.
1.1 Mission
The Pasta House Co. aims to be a family Italian restaurant that offers affordable, high-quality Italian cuisine based on authentic family recipes. Our goal is to exceed customer expectations by enhancing their dining experience with recommended add-on items. Our restaurant prioritizes cleanliness and consistently delivers high-quality food.
We value our employees, as they play a crucial role in maintaining the restaurant’s cleanliness, providing excellent service, and attracting customers. By hiring friendly managers and crew members, we create a positive work environment and ensure long-term employment.
1.2 Objectives
– Purchase the current assets and leasehold improvements of JD Drews restaurant and convert it into a profitable and successful Pasta House Co. franchise.
– Replicate the success of The Pasta House Co. location in High Ridge, which I have owned and operated for over 20 years.
– Implement the same strategies and have a dedicated management crew to ensure outstanding results at the new location.
– Provide the same high-quality food and service that the community has enjoyed at the High Ridge location for over 20 years.
– Foster a team-oriented atmosphere with clear goals and high standards.
– Utilize both corporate and personal marketing strategies to quickly build volume.
– Achieve first-year sales between $1.5 and $2 million with 10% growth in subsequent years.
– Maintain high gross margins and consistent food and labor costs.
– Preserve and expand our outstanding reputation.
– Retain our identity as a neighborhood family restaurant.
– Establish the first fine dining Italian Restaurant in Fenton, the fastest-growing community in Missouri.
1.3 Keys to Success
– Leverage the well-known name and reputation of The Pasta House Co. in the St. Louis area, where the food is consistently voted a favorite.
– Serve high-quality products while providing excellent service and a welcoming atmosphere.
– Benefit from the extensive experience of our current management staff and crew.
– Take advantage of the excellent location at the intersection of Hwy 30 and 141 in Fenton, the fastest-growing community in Missouri.
– Capitalize on the popularity of the shopping center, with its filled spots and Dierbergs grocery store as the main anchor.
– Offer private rooms for reservations, catering to the party and bulk food concept.
– Implement a frequent diner program and birthday club to promote repeat customers and track sales.
– Cultivate a workplace where all employees are treated equally and enjoy their work while earning a good income.
– Attract and retain great employees to maintain the quality of our restaurant.
The Pasta House Co. has been successfully serving the High Ridge and Fenton area for 20 years. We have actively participated in the community, including sponsoring little league teams, donating to events, collaborating with schools and churches, catering various gatherings, and hiring and working with numerous individuals and families. Our sales growth rate over the past 20 years showcases our remarkable success, and this year is expected to be another record year.
Our "Frequent Diner Program" at the High Ridge location has over 6,000 customers. This loyalty program rewards customers with a $25.00 Gift Certificate for every $250.00 spent and includes birthday and anniversary cards for special celebrations. The program has been highly successful, fostering repeat business and solidifying our reputation in the Fenton community.
The Pasta House Co. was established in 1974 and has expanded to 34 locations in Missouri, Illinois, Kentucky, Mexico, and The Dominican Republic.
The Fenton restaurant will capture the intimate charm of an Italian Grocery Store, with framed Italian prints and Italian American pop art. The menu and ambiance will appeal to both upscale customers and families.
Below are the current PHC company-owned locations:
– 15601 Manchester Rd., Ellisville, MO. 63011
– 8213 Delmar, University City, MO 63124
– 300 Crestwood Plaza, Crestwood, MO 63126
– 11202 West Florissant Rd., Florissant, MO 63033
– 280 Northwest Plaza, St. Ann, MO 63043
– 6214 South Lindbergh, St. Louis, MO 63123
– 14 St. Louis Galleria, Richmond Heights, MO 63117
Below are the PHC franchise-owned locations:
– 1245 East Main, Carbondale, IL. 62901
– 1020 Lincoln Ave., Jacksonville, IL. 62650
– 12 Chesterfield Mall, Chesterfield, MO 63017
– 12445 Dorsett Rd., Maryland Heights, MO 63043
– 6570 North Illinois St., Fairview Heights, IL 62208
– 180 East Center Dr., Alton, IL 62002
– 1623 Big Bill Road, Arnold, MO 63010
– 9012 Gravois Rd., St. Louis, MO 63123
– 3985 South Service Road, St. Peters, MO 63376
– 4517 Highway 30, High Ridge, MO 63049
– 309 North Euclid, St. Louis, MO 63108
– Concourse D. 10701 Lambert Int’l Airport, St. Louis, MO
– 700 N. Ballas Rd., St. Louis, MO 63141
– 2800 Southwest Plaza Drive, Springfield, IL 62704
– 300 South 44th St., Mt. Vernon, IL 62864
– 205 Kentucky Oaks Mall, Paducah, KY 42001
– 4204 Highway 54, Osage Beach, MO 65065
– 155 West Park Mall, Cape Giradeau, MO 63701
– 931 Valley Creek Dr., Farmington, MO 63640
– 1100 Knipp St., Columbia, MO 65203
– 318 East Washington, Belleville, IL 62221
– 4109 S. National, Springfield, MO 65804
– Ens Naco, Santa Domingo, R.D. Dominican Republic
– St. Louis University Campus
Franchise restaurants are independent franchisees of The Pasta House Company Franchises, Inc. Each of the above franchise restaurants is independently owned and operated.
2.1 Company Ownership
The existing Pasta House Co. franchise in High Ridge is owned by Dennis and Janice Boldt, with Dennis serving as President. It was established in 1983 under Delex Corporation DBA/The Pasta House Co. in Gravois Village Center, High Ridge, Missouri.
The proposed Fenton franchise will also be owned and operated by Dennis and Janice Boldt, with Dennis as President and Janice as Secretary/Treasurer. The new location will operate under the name Delex Corp. (second location) DBA/ The Pasta House Co. Fenton.
2.2 Start-up Summary
The JD Drews facility will come with all equipment, food, liquor, leasehold improvements, employees, and management staff.
We will assume the current SBA loan of $325,000 and start-up expenses of $350,000. With $75,000 in interest-free loans from three different parties, the loan balance using an SBA secured loan will be $600,000 at 9.5% interest over a 15-year term.
As collateral for the loan, we will use Delex Corp. dba The Pasta House Co. 4517 Gravois Village Center in High Ridge and our home if necessary.
A starting bank account of $90,000 will be used only for unexpected start-up costs.
The start-up equipment list includes:
1. Twenty-quart Hobart mixer
2. Steam kettle
3. Refrigerated 4-drawer system
4. Refrigerated 2-drawer system
5. Pizza box refrigerated standalone box
6. Dessert display case
7. Eight-burner commercial gas stove
8. Commercial Parmesan cheese grinder
9. Meat slicer
10. Flip-top refrigerated 6-foot sauté box
11. Stand-up Freezer
12. Kitchen and dining room smallwares
13. Potential trade-in or sale of used equipment not needed in current operations.
The Pasta House Co. menu offers 30 pasta varieties and 15 specialty chicken, veal, and seafood dishes. They also serve appetizers, sandwiches, salads, wines, cocktails, and desserts. The menu includes low-fat, low-calorie, low-cholesterol options as well. A children’s menu is available with kid-friendly dishes. The restaurant works to continuously improve existing dishes and develop new ones to meet the demands of customers who want high-quality Italian food. In addition to the food, The Pasta House Co. has a full bar area where customers can enjoy drinks while waiting or socializing before their meal. They cater to families and are not known as a "Bar" for late-night drinking.
In the Fenton area, there are 48 restaurants, including 6 Chinese restaurants, 2 barbecue restaurants, and 1 upscale full-service restaurant. The Pasta House Co. aims to be a fine dining, full-service, family restaurant where customers can enjoy a great meal at a reasonable price. They target local neighborhood marketing, customer loyalty programs, suggestive selling, birthday and anniversary mailings, and community outreach to attract customers. The Fenton area has seen tremendous growth in upper-level family income, and The Pasta House Co. aims to serve this customer base. They primarily cater to families, as 98% of households within a three-mile radius are families. The Fenton area has seen income increases across various income brackets, indicating potential growth in upper-income families who enjoy dining out.
Year 1 Year 2 Year 3 Year 4 Year 5 CAGR
Potential Customers Growth
Population in Families 5% 113,793 119,710 125,935 132,484 139,373 5.20%
Population in Non-families 5% 13,698 14,410 15,159 15,947 16,776 5.20%
Population in Group Quarters 5% 1,348 1,415 1,486 1,560 1,638 4.99%
Total 5.20% 128,839 135,535 142,580 149,991 157,787 5.20%
4.2 Target Market Segment Strategy
Our focus is upper-income level families living and shopping in the area. The Pasta House Co. will target families with an income of at least $60,000 and above, and 98% of families living and shopping in the area.
We focus on these specific groups because they are the ones who frequent The Pasta House Co. They are willing to spend their money on good dining and service at a value price.
4.3 Service Business Analysis
In the St. Louis market, competition for the upper-level income business has been intense. National chains that were not here 10 years ago have poured into St. Louis. The number of new restaurants has increased dramatically over the last several years and should continue to expand, all with the intent of capturing a portion of the upper-level market. Below is a list of new and expanding restaurants in St. Louis:
Macaroni Grill
Dave & Buster’s
Hard Rock Cafe
Hooters
Lone Star Steak House
Max & Erma’s
Outback Steak House
Ruby Tuesday
St. Louis Bread Company
Bandana
Chevy’s
Friday’s
O’Macaroni
Olive Garden
California Pizza Kitchen
Tippins (out of business December 2002)
Chili’s
Crazy Fish (Closed July 2003)
Red Robin (Opened July 2002)
The Cheese Cake Factory (Opened November 2002)
Smoky Bones (Opened January 2003)
P. F. Chang’s (Opened December 2002)
In 2002, McDonald’s no longer held the title as having the most locations in the United States. There are now more Subway restaurants in the U.S. than McDonald’s. Many of the above restaurant chains will find the St. Louis area a very competitive market. The surviving restaurants will be the ones who provide customers with the best product, at the best price and consistently exceed their expectations. The Pasta House Co. plans to be a major player in St. Louis regardless of the competition.
4.3.1 Competition and Buying Patterns
PHC High Ridge: Owned and Operated by Dennis Boldt for 20 years. (Sister Store to Fenton)
Located only four miles away, this Pasta House Co. location is in Jefferson County and seems to be outside the normal traffic patterns of the customers who live in the Fenton area. Increases in business have shown steady growth and should continue. We have found that over 90% of our customers come from west, south, and east of the store. Because the store is located in Jefferson County, most customers who live in Fenton do not travel west toward rural Jefferson County. With our Frequent Diner customer base, we estimate a loss in business from the customers who would go to the new location would be about 5% of sales. This would be only a short-lived loss as the entire area is growing at a tremendous rate.
O’Charles: Opened in 2002, located 1/4 of a mile away in the new Gravois Bluffs Shopping Center
O’Charles has a better location with a freestanding building in the new Gravois Bluff’s Shopping Center. They offer full-service fine dining in a family atmosphere. This national chain offers a complete menu, including a children’s menu. The inside of the restaurant is very nice, with fine woods and a warm atmosphere. Local community involvement is limited. They seem to market more towards adults than children. Given the choice, kids will choose Pasta House every time. Untested long-term growth and management abilities.
Red Robin: Opened in 2002, located 1/4 of a mile away in the new Gravois Bluffs Shopping Center
Red Robin is an upscale burger restaurant with a big name and big look inside. It took over two years to open this store because of franchise problems. Food items are served in plastic baskets, making this more of an upscale fast food establishment than a fine dining concept. Limited adult menu, lots of noise, high-priced drinks, no local marketing, and lack of a long-term track record in St. Louis all limit this restaurant as real competition.
Smoky Bones: To open in 2003 in the Gravois Bluffs Shopping Center
This is a new concept restaurant backed by the Red Lobster Corporation. Not much is known about this restaurant except they have a big name behind them and a great freestanding location. Limited menu, no local marketing, and lack of a long-term track record also limit this restaurant as real competition.
Strategy and Implementation Summary
Every customer who has eaten at a Pasta House Co. is a potential customer. The better we run this Pasta House location, the more business we will do. Customers will know that they can get better quality PHC food at this location. They will know that the service is better, and the people are better. The new location will have a fresh and clean look. The area needs a fine dining family restaurant. The area needs a big-name local operation with a home-grown name like The Pasta House Co.
5.1 Competitive Edge
This is what gives us the competitive edge to ensure a profitable home-grown expansion:
Proven Pasta House Co. concept since 1974
Proven track record of PHC High Ridge serving the area for over 20 years
Best home-grown training in the industry
Senior PHC High Ridge management and crew to open with
Local marketing in all age ranges
Known costs with the purchase of a turnkey restaurant
Current staff and management from JD Drew’s
Close and strong support of PHC President and Senior Management
Strong food and supply vendors with high-quality products
Ongoing support from PHC Corporation
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We at The Pasta House Co., including all management, crew personnel, supervisors, vendors, design people, family and friends, and new hires, will put forth 100% effort to ensure a profitable opening and ongoing operations.
A fine-tuned advertising campaign and new store opening have been developed by The Pasta House Co. President Kim Tucci. Construction is handled by Joe Fresta, who has built and opened over 31 locations.
5.3 Sales Strategy
The sales strategy is to sign up as many frequent diner customers as possible at the new location as well as High Ridge. Using the Frequent Diner Program in place at High Ridge for three years, we plan to further cement the loyal customers in the area. We will honor 6,000 club members with points at both locations.
We plan on taking advantage of The Pasta House Co.’s market saturation in St. Louis. We will build and expand on that customer base by exceeding customers’ expectations. This will bring back old customers and bring in new customers to the Fenton location.
We plan on upselling customers with our current suggestive selling program. From the hostess to the waiters and waitresses, our staff has successfully increased the average check for add-on sales from 5% of the average check three years ago to over 13%. This ensures an increase in profit without depending on an increase in customer counts or price increases.
5.3.1 Sales Forecast
A sales forecast of a 5.0% increase in volume over the current High Ridge location is based on the following:
Increased visibility and known area of St. Louis. Everyone knows where Fenton is, and few know where High Ridge is located.
Increased traffic flow with the intersection of Highways 141 and 30, with over double the traffic in the area.
Increased customers staying in the area to shop. Two major shopping centers compared to a 20-year-old strip center.
Increased retail employee business.
26% larger space inside, with 30% more customer seating.
Outside seating area during the spring through fall seasons increases seating by 60% over HR.
Brand-new PHC look inside.
Private rooms available to cater private parties.
Closer to the eight hotels in the area.
Better location closer to St. Louis, where the action is.
Below is a sales volume list showing the sales increase in The Pasta House Co. High Ridge from 1984 to 2002:
2003 est $1,633,349
2002 $1,575,900
2001 $1,555,866
2000 $1,521,927
1999 $1,354,347
1998 $1,232,094
1997 $1,160,898
1996 $1,140,184
1995 $1,167,583
1994 $1,094,791
1993 $1,061,775
1992 $988,664
1991 $912,302
1990 $840,152
1989 $817,058
1988 $780,510
1987 $714,808
1986 $703,269
1985 $685,232
1984 $651,897
Sales Forecast:
| Sales Forecast | |||
| Year 1 | Year 2 | Year 3 | |
| $1,638,070 | $1,703,593 | $1,771,737 | |
| $5,478 | $5,533 | $5,588 | |
| $37,700 | $38,831 | $39,996 | |
| $1,681,248 | $1,747,957 | $1,817,321 | |
| Year 1 | Year 2 | Year 3 | |
| $421,053 | $429,474 | $438,064 | |
| $0 | $0 | $0 | |
| $421,053 | $429,474 | $438,064 | |
5.4 Milestones
I have full confidence in all the managers, designers, and PHC personnel who will ensure this project’s success.
– SBA loan and Business Plan
– Bank Account
– Franchise Purchase
– Legal and lease review
– Equipment Purchase
– Sign Purchases and installation
– Software POS system installation
– Corporation setup, Insurance, Deposits, Liquor License
– PHC Design Work with Joe Fresta of The Pasta House Co.
– Oversee transformation and operations of the group
– Crew and manager hiring and training
– New equipment installation
– Food & liquor purchases delivery and stocking
– Crew and manager scheduling
– Maintenance and repairs
– Advertising
JAN BOLDT/CAROLYN FINCH AND COMPANY (team of 6 designers from Tulsa, OK)
– PHC design work walls and floors design with Joe Fresta of PHC
– Shelving and displays in place
– Design of dining room
– Record keeping of purchases and budget
– Permits, liquor licenses, start-up requirements paperwork
Joe Fresta, Vice President of The Pasta House Co.
– PHC design work and construction
– Oversee display of dining room
– Oversee kitchen equipment purchase and layout
– Advise owner as needed
Milestones
Purchase of PHC Franchise
Start Date: 3/1/2003
End Date: 3/3/2003
Budget: $50,000
Manager: Dennis
Department: Owner
Kitchen Equipment Purchase
Start Date: 1/1/2003
End Date: 1/15/2003
Budget: $16,000
Managers: Dennis & Vince
Department: GM
Set up Bank Account
Start Date: 1/1/2003
End Date: 1/2/2003
Budget: $90,000
Manager: Dennis
Department: Owner
Purchase of Smallwares
Start Date: 1/1/2003
End Date: 1/5/2003
Budget: $3,000
Manager: Vince
Department: Web
Signs Purchase
Start Date: 1/17/2003
End Date: 1/22/2003
Budget: $10,000
Manager: Dennis
Department: Owner
Product Displays
Start Date: 2/25/2003
End Date: 2/28/2003
Budget: $2,000
Manager: PHC Corp Office
Department: Corporate Office
Apply Liquor Licence ETC
Start Date: 1/6/2003
End Date: 1/9/2003
Budget: $400
Manager: Dennis
Department: Owner
Corporation Start-up Fees
Start Date: 1/4/2003
End Date: 1/10/2003
Budget: $1,500
Manager: Dennis
Department: Owner
Attorney’s Fees Paid
Start Date: 2/1/2003
End Date: 2/26/2003
Budget: $5,000
Manager: Dennis
Department: Owner
Set up Insurance & Deposits
Start Date: 2/19/2003
End Date: 2/22/2003
Budget: $3,000
Manager: Dennis
Department: Owner
First Month Rent Deposit
Start Date: 3/1/2003
End Date: 3/1/2003
Budget: $9,500
Manager: Dennis
Department: Owner
Set up Office/ Computer
Start Date: 3/10/2003
End Date: 3/14/2003
Budget: $1,300
Manager: Vince
Department: GM
Install Kitchen Equipment
Start Date: 3/2/2003
End Date: 3/7/2003
Budget: $2,000
Manager: Denise
Department: MGT
Food & Liquor in Place
Start Date: 3/9/2003
End Date: 3/13/2003
Budget: $300
Manager: Denise
Department: MGT
Food and Liquor Ordered
Start Date: 3/8/2003
End Date: 3/8/2003
Budget: $7,000
Manager: Denise
Department: MGT
Advertizing Opening
Start Date: 2/20/2003
End Date: 2/20/2003
Budget: $1,000
Manager: Vince
Department: GM
Crew Training MGRs at HR
Start Date: 1/10/2003
End Date: 4/15/2003
Budget: $10,000
Manager: Janet
Department: HIGH RIDGE PHC
Pay and Install Software POS System
Start Date: 3/1/2003
End Date: 3/5/2003
Budget: $6,500
Manager: Dennis
Department: Owner
Construction PHC
Start Date: 3/1/2003
End Date: 3/5/2003
Budget: $23,000
Manager: Joe Fresta
Department: VP PASTA HOUSE
Walls and Floors by Finch Inc.
Start Date: 3/6/2003
End Date: 3/9/2003
Budget: $8,000
Managers: Jan & Carolyn
Department: DESIGN TEAM
Opening Night Trial Run
Start Date: 3/15/2003
End Date: 3/15/2003
Budget: $500
Team: All
Department: ENTIRE TEAM
Totals:
Budget: $250,000
Web Plan Summary
The Pasta House Co. corporation has a website at www.pastahouse.com. In 2004, we plan on setting up websites for PHC High Ridge and PHC Fenton that will be linked to the corporate website. Our site will include information about our local franchise units and expand the marketing to customers and the crew.
In this age of communication, customers look to websites for information and assistance in purchasing products. We will be part of that great communication tool used by everyone every day.
Website Marketing Strategy
Marketing in an Internet retail business depends on recognition for expertise. It starts with our existing customer base, informing them of our Internet presence and encouraging word-of-mouth recommendations. Our website will serve the following needs:
– Provide local information about our PHC locations to the community
– Allow new customers to sign up for our frequent diner/birthday programs
– Enable customers to check their Frequent Diner points online
– Provide catering information and contacts
– Showcase successful catering jobs with references and pictures
– Allow crew members to check their schedules with a special password
– Offer gift certificates and gift cards for purchase online
– Provide retail items for online purchase and shipping as gifts
– Share information about gift baskets (available at High Ridge and Fenton locations only)
– Provide employment information online
– Update on company-wide promotions and new store openings
– Offer promotional coupons online
– Announce new food items in the restaurant
– Provide information on other events in the area
Development Requirements
We plan on working closely with the Web designer from corporate PHC. Using reputable sources, we will enhance our website to be a simple yet effective tool to increase sales. The site’s development will adapt to our customers’ needs and new ideas for communication.
Management Summary
The management team for the new location will include Dennis Boldt, Vince Laratta, Denise Shaw, an additional dining room manager, and a kitchen manager. The High Ridge managers will include Dennis Boldt, Janet Boxx, two new managers, and a kitchen manager.
People are the most important element in our operations. We value managers and staff as they contribute to the quality of our operation. From the crew comes the next generation of managers and a quality operation. In the past 19 years, we have had eight crew members become managers at other Pasta House locations and other restaurants.
Possible employees to promote to management include Al Fillenwarth, Ryan Mulligan, Janet Koth, Sara Armstrong, Anna Minney, Steve Bewig, Bill Hobbs, and Ron Caputa. Our management personnel will be selected based on suitability for the position.
Personnel Plan
Management Salaries:
– Year 1: $186,000
– Year 2: $228,968
– Year 3: $235,837
Kitchen Labor (11.3% of Sales):
– Year 1: $185,604
– Year 2: $198,211
– Year 3: $204,157
Dining Room Labor (6.1% of Sales):
– Year 1: $99,834
– Year 2: $101,601
– Year 3: $104,649
Total Payroll:
– Year 1: $471,438
– Year 2: $528,780
– Year 3: $544,643
Our financial plan includes the following assumptions:
1. Moderate growth and steady cash flows
2. Sales increase at a rate of 4% per year
3. Costs increase at a rate of 1% to 2% per year
4. Residual profits will be invested in financial markets rather than company expansion
5. General maintenance and repairs will be kept up
6. Future cash investments will use NPV projections for maximum return with limited risk
Important assumptions include:
– JD Drews will default on their loans and we will acquire their assets and leasehold improvements
– Equipment is in good working order
– Slow-growth economy without major recession
– No unforeseen changes in the popularity of our candidates
– Access to loans and financing is sufficient
– Landlord will allow us to take over the current lease
– The Pasta House Co. will approve our leasehold improvements and budget
Projected Profit and Loss
The most important assumption is the gross margin. Over time, the restaurant will develop its customer base and reputation, leading to faster growth in the fourth and fifth years.
The month-by-month assumptions for profit and loss can be found in the appendix.
Pro Forma Profit and Loss
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $1,681,248 | $1,747,957 | $1,817,321 |
| Direct Cost of Sales | $421,053 | $429,474 | $438,064 |
| Other Costs of Goods | $0 | $0 | $0 |
| Total Cost of Sales | $421,053 | $429,474 | $438,064 |
| Gross Margin | $1,260,195 | $1,318,483 | $1,379,257 |
| Gross Margin % | 74.96% | 75.43% | 75.90% |
| Expenses | |||
| Payroll | $471,438 | $528,780 | $544,643 |
| Sales and Marketing Promotions | $0 | $0 | $0 |
| Depreciation | $66,144 | $66,144 | $66,144 |
| Credit Card Discounts | $21,692 | $21,930 | $22,172 |
| Royality & Advertising Fees | $104,142 | $105,288 | $106,446 |
| Rent Fixed Rate with Cam | $112,200 | $113,434 | $114,682 |
| Utilities 2.4% of Sales | $40,350 | $40,794 | $41,243 |
| Insurance | $35,304 | $35,692 | $36,085 |
| Paper Costs | $30,262 | $32,881 | $36,169 |
| Coupons | $158,555 | $160,299 | $162,062 |
| Trash Disposal | $1,500 | $1,517 | $1,533 |
| Uniforms | $3,000 | $3,033 | $3,066 |
| Telephone | $3,000 | $3,033 | $3,066 |
| Maintaince & Repairs | $13,500 | $13,649 | $13,799 |
| Smallwares | $1,500 | $1,517 | $1,533 |
| Outside Services | $3,000 | $3,033 | $3,066 |
| Cleaning & Dishwashing | $11,769 | $11,898 | $12,029 |
| Menus & Guest Checks | $1,200 | $1,213 | $1,227 |
| Linen & Laundry | $1,500 | $1,517 | $1,533 |
| Music & Entertainment | $1,500 | $1,517 | $1,533 |
| Advertising | $1,500 | $1,517 | $1,533 |
| Over/Short | ($180) | ($182) | ($184) |
| Professional Fees | $4,500 | $4,550 | $4,600 |
| Taxes & Licenses | $1,980 | $2,002 | $2,024 |
| Bank Charges | $936 | $946 | $957 |
| Pest Control | $1,500 | $1,517 | $1,533 |
| Payroll Taxes | $70,716 | $79,317 | $81,696 |
| Office Expense | $3,900 | $0 | $0 |
| Other | $2,100 | $2,123 | $2,146 |
| Total Operating Expenses | $1,168,508 | $1,238,956 | $1,266,337 |
| Profit Before Interest and Taxes | $91,687 | $79,527 | $112,920 |
| EBITDA | $157,831 | $145,671 | $179,064 |
| Interest Expense | $56,050 | $53,200 | $50,667 |
| Taxes Incurred | $7,868 | $5,607 | $13,711 |
| Net Profit | $27,769 | $20,719 | $48,542 |
| Net Profit/Sales | 1.65% | 1.19% | 2.67% |
8.3 Projected Cash Flow
The cash flow depends on assumptions for inventory turnover, payment days, and accounts receivable management. Our projected same-day collections is critical, and is reasonable and customary in the restaurant industry. We do not expect to need significant additional support even when we reach the less profitable months, as they are expected. The first six months of PHC openings have shown huge sales volumes. We expect this volume, however our projections do not reflect this high volume. We have done this in the event there is normal sales during the first six months.
Month-by-month assumptions for projected cash flow are included in the appendix.
Pro Forma Cash Flow
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Sales | $1,681,248 | $1,747,957 | $1,817,321 |
| Subtotal Cash from Operations | $1,681,248 | $1,747,957 | $1,817,321 |
| Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
| New Current Borrowing | $0 | $0 | $0 |
| New Other Liabilities (interest-free) | $0 | $0 | $0 |
| New Long-term Liabilities | $0 | $0 | $0 |
| Sales of Other Current Assets | $0 | $0 | $0 |
| Sales of Long-term Assets | $0 | $0 | $0 |
| New Investment Received | $0 | $0 | $0 |
| Subtotal Cash Received | $1,681,248 | $1,747,957 | $1,817,321 |
| Cash Spending | $471,438 | $528,780 | $544,643 |
| Bill Payments | $1,053,685 | $1,135,251 | $1,157,087 |
| Subtotal Spent on Operations | $1,525,123 | $1,664,031 | $1,701,730 |
| Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
| Principal Repayment of Current Borrowing | $0 | $0 | $0 |
| Other Liabilities Principal Repayment | $7,500 | $7,500 | $7,500 |
| Long-term Liabilities Principal Repayment | $26,664 | $26,664 | $26,664 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $1,559,287 | $1,698,195 | $1,735,894 |
| Net Cash Flow | $121,961 | $49,761 | $81,426 |
| Cash Balance | $211,961 | $261,723 | $343,149 |
Projected Balance Sheet
The projected Balance Sheet is solid. We anticipate no difficulty meeting our debt obligations as long as we achieve our goals.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Cash | $211,961 | $261,723 | $343,149 |
| Inventory | $39,382 | $44,187 | $45,071 |
| Other Current Assets | $10,000 | $10,000 | $10,000 |
| Total Current Assets | $261,344 | $315,909 | $398,219 |
| Long-term Assets | $547,600 | $547,600 | $547,600 |
| Accumulated Depreciation | $66,144 | $132,288 | $198,432 |
| Total Long-term Assets | $481,456 | $415,312 | $349,168 |
| Total Assets | $742,800 | $731,221 | $747,387 |
| Current Liabilities | $91,595 | $93,462 | $95,250 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $67,500 | $60,000 | $52,500 |
| Subtotal Current Liabilities | $159,095 | $153,462 | $147,750 |
| Long-term Liabilities | $573,336 | $546,672 | $520,008 |
| Total Liabilities | $732,431 | $700,134 | $667,758 |
| Paid-in Capital | $0 | $0 | $0 |
| Retained Earnings | ($17,400) | $10,369 | $31,088 |
| Earnings | $27,769 | $20,719 | $48,542 |
| Total Capital | $10,369 | $31,088 | $79,629 |
| Total Liabilities and Capital | $742,800 | $731,221 | $747,387 |
| Net Worth | $10,369 | $31,088 | $79,629 |
Business Ratios
We expect our net profit margin and gross margin to steadily increase over the three years. Our net working capital will also increase by year three, demonstrating our ability to generate and manage cash flows. The table below shows these important financial ratios. Industry profile ratios based on the Standard Industrial Classification (SIC) code 5812.0108, Italian restaurant, are shown for comparison.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 3.97% | 3.97% | 6.96% |
| Percent of Total Assets | ||||
| Inventory | 5.30% | 6.04% | 6.03% | 3.90% |
| Other Current Assets | 1.35% | 1.37% | 1.34% | 28.39% |
| Total Current Assets | 35.18% | 43.20% | 53.28% | 37.68% |
| Long-term Assets | 64.82% | 56.80% | 46.72% | 62.32% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Liabilities and Capital | ||||
| Current Liabilities | ||||
| Accounts Payable | 21.42% | 20.99% | 19.77% | 19.17% |
| Long-term Liabilities | 77.19% | 74.76% | 69.58% | 29.21% |
| Total Liabilities | 98.60% | 95.75% | 89.35% | 48.38% |
| Net Worth | 1.40% | 4.25% | 10.65% | 51.62% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 74.96% | 75.43% | 75.90% | 59.31% |
| Selling, General & Administrative Expenses | 72.17% | 73.20% | 72.15% | 39.09% |
| Advertising Expenses | 0.00% | 0.00% | 0.00% | 2.75% |
| Profit Before Interest and Taxes | 5.45% | 4.55% | 6.21% | 1.59% |
| Main Ratios | ||||
| Current | 1.64 | 2.06 | 2.70 | 1.26 |
| Quick | 1.40 | 1.77 | 2.39 | 0.87 |
| Total Debt to Total Assets | 98.60% | 95.75% | 89.35% | 54.38% |
| Pre-tax Return on Net Worth | 343.69% | 84.68% | 78.18% | 3.27% |
| Pre-tax Return on Assets | 4.80% | 3.60% | 8.33% | 7.17% |
| Additional Ratios | ||||
| Net Profit Margin | 1.65% | 1.19% | 2.67% | n.a |
| Return on Equity | 267.81% | 66.65% | 60.96% | n.a |
| Activity Ratios | ||||
| Inventory Turnover | 10.91 | 10.28 | 9.82 | n.a |
| Accounts Payable Turnover | 12.50 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 30 | 30 | n.a |
| Total Asset Turnover | 2.26 | 2.39 | 2.43 | |
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