Company Description.
The Sultan’s Cove International Recovery Cafe, a California Company, will operate a single unit, contemporary Mediterranean style recovery themed restaurant/cafe more about RECOVERY ACTIVITIES AT THE SULTAN’S COVE at the end of this document. The restaurant/cafe will be located in San Jose California We are currently searching for a location locally. The goal will also be to educate, promote understanding between east and west in a relaxing, fun atmosphere.
The restaurant will also feature Arabic singing and music, belly dancers etc…in addition to an Arabic, Mexican, Peruvian, Salvadoran , wild meats, as well as vegetarian and raw food menu. .It will also offer healing teas, cold and hot healthy, medicinal drinks, and will be a place for relaxation, good exotic bursting with flavor cuisine.
The Sultan’s Cove International Recovery Café will have a dinner theatre atmosphere and a stage that will also feature Arabic music artists presenting Tarab style singing and music, as well as belly dancers who present the true Arabic tradition.
It will also feature on alternating dates Mexican Mariachi bands and singers, as well as Peruvian, Salvadoran and other International entertainers, Jazz shows etc...
Mission Statement
The company's goal is that of a multi-faceted success. Our first responsibility is to the financial well-being of the restaurant. We will meet this goal while trying to consider; 1) the effect of our products on the health and well-being of our customers (and our staff), 2) the impact that our business practices and choices will have on the environment, and 3) the high quality of attitude, fairness, understanding, and generosity between management, staff, customers, and vendors. Awareness of all these factors and the responsible actions that result will give our efforts a sense of purpose and meaning beyond our basic financial goals.
Development & Status
The company is not yet incorporated .
The founder is Nazem Kamel Elmasri.
Future Plans
If the business is meeting its projections by month nine, we will start scouting for a second location and develop plans for the next unit. Our five year goal is to expand The Sultan’s Cove International café, into a chain and eventually a franchise.
Industry Analysis
Although the restaurant industry is very competitive, the lifestyle changes created by modern living continue to fuel its steady growth. More and more people have less time, resources, and ability to cook for themselves. Trends are very important and The Sultan’s Cove International Recovery Café is well positioned for the current interest in lighter, healthier exotic foods at moderate to low prices. The biggest asset of course is the bay area location.
The Restaurant Industry Today
The food service business is the third largest industry in the country. It accounts for over $240 billion annually in sales. The independent restaurant accounts for 15% of that total. The average American spends 15% of his/her income on meals away from home. This number has been increasing for the past seven years. In the past five years the restaurant industry has out- performed the national GNP by 40%. The reasons given by the Folkney Report (November 1994) are 1) lifestyle changes, 2) economic climate, and 3) increase of product variety.
There are 600 new restaurants opening every month and over 200 more needed to keep pace with increasing demand.
Future Trends & Strategic Opportunities
The predicated growth trend is very positive both in short and long-term projections. Folkney states again that as modern living creates more demands, people will be compelled to eat more meals away from home. The DMR Industrial Report (April 1995) estimates this as high as 30% over the next five years.
In 1988 The National Restaurant Association released the Foodservice Industry 2000 report that forecasted how the industry might look in the year 2000. Some highlights from the panel's findings:
∙ "Consumers will spend a greater proportion of their food dollar away from home.
∙ Independent operators and entrepreneurs will be the main source of new restaurant concepts.
∙ Nutritional concerns will be critical at all types of foodservice operations, and food flavors will be important.
∙ Environmental concerns will receive increased attention."
Products & Related Services
The Sultan’s Cove International Cafe will be offering a menu of food and beverages with a distinctive image. There will be three ways to purchase these products; table service at the restaurant, take-out from the restaurant, and delivery to home or office.
The Menu
The Sultan’s Cove International Recovery Café menu is moderate sized, and moderate-low priced offering a collection of Arabic, Mexican, Salvadoran, Peruvian foods, as well as raw and vetgerian dishes, all -- healthy (low-fat, low cholesterol, natural ingredients), flavorful, and familiar. Our goal is to create the image of light satisfying and still nutritious exotic food.
There has been an increased awareness of nutritional and health concerns in recent years and a growing market of people who now eat this style of cooking regularly.
Production
Food production and assembly will take place in the kitchen of the restaurant. Fresh vegetables, meat and dairy products will be used to create most of the dishes from scratch. The chef will exercise strict standards of sanitation, quality production, and presentation or packaging over the kitchen and service staff.
Service
There will be three ways a customer can purchase food. They may sit down at one of the 48 seats in the dining room and get full service from a waitperson. A separate take-out counter will service those who wish to pick up their food. Most take-out food will be prepared to order with orders coming from either the telephone or fax. Delivery (an indirect form of take-out) will be available at certain times and to a limited area.
Future Opportunities
There is a market segment that prefers to eat this type of cooking at home although they do not have the time to cook. There are already caterers and even mail order companies that provide individuals and families with up to a month's supply of pre-prepared meals.
This opportunity will be researched and developed on a trial basis. If successful, it could become a major new source of income without creating the need for additional staff or production space.
The Target Market
The market for The Sultan’s Cove International Recovery Café products covers a large area of diverse and densely populated groups. Although it will be located in a downtown urban setting, it is an area where people travel to eat out and one that is also frequented by tourists. It is also an area known for and catering to the demographic group we are targeting.
Market Location & Customers
The most frequented shopping location ..downtown and the university of San Jose California. The customer base will come from 3 major segments;
∙ Local population – in San jose California including tourists and other visiting guests.
∙ Colleges and Universities – University of California in San Jose as Evergreen, San Jose City College and De Anza College in Cupertino CA are some of the colleges where most of clients n addition to the University will come and enjoy the food and atmosphere of The Sultan’s Cove.
∙ Tourism -- between hotels, motels, bed & breakfast rooms and inns, there are over 62,500 rooms available. Last year they were at 89% occupancy.
∙ Local businesses -- The Chambers of Commerce in town lists over 8400 businesses with an average of 100 employees: all perspective customers.in the area.
∙ For more information about San jose please go to :
https://www.sanjoseca.gov/index.aspx?NID=1154
The food concept and product image of The Sultan’s Cove International Recovery Café will attract 3 different customer profiles;
∙ The Tourist : Over 20 million visitors visit the bay area in addition to the 5 million residents annually a huge market potential.
∙ The student -- more and more young people have developed healthy eating habits. Some also go through a "health food phase" while in college.
∙ The health conscious person of any age or sex -- this includes anyone on a restricted or prescribed diet or those who have committed to a healthy diet.
∙ The Culturally curious and open-minded -- "if you try it, you will like it." Through marketing, publicity, and word-of-mouth, people will seek out a new experience and learn that nutritious food can be tasty, fun, convenient, and inexpensive.
Market Trends & The Future
The population and demographics of san jose and the greater bay area re constantly growing. Tourism has increased over the last 3 years and is predicted to keep growing. Local businesses are increasing as well and the prosperity .
The idea of a health consciousness through nutritional awareness and dietary change has been slowly building for the last 7 years. The extensive government studies and new Food Guide Pyramid have given everyone a new definition of a balanced, healthy diet. This is not a fad but a true dietary trend.
We all know about the notoriety of the Mediterranean diet and specifically Arabic food, rates way up there in health benefits and quality, healing meals.
That in addition to the other menus offer a secure a robust steady business
Backed by the scientific and medical community, the media, the government, and endorsed by the big food manufacturers. As the Foodservice 2000 report stated, this trend will be even more important by the turn of the century.
As people want to stay home more and cook less our strategy of delivering prepared meals on a weekly or monthly arrangement may be a widespread accepted new way of eating.
The Competition
There are many in San Jose, that sell food at similar prices. Although this presents an obvious challenge in terms of market share, it also indicates the presence of a large, strong potential. The newest competitors have made their successful entry based on an innovative concept or novelty. The Sultan’s Cove International cafe will offer an innovative product in a familiar style at a competitive price as well as entertainment. Our aggressive plans of take-out and delivery will also give us an advantage to create a good market share before the competition can adjust or similar concepts appear.
Competitor's Profile
Competing with The Sultan’s Cove International Recovery Café for the target market are these categories of food providers:
∙ Independent table service restaurants of similar menu and price structure.
∙ Chain " " " " "
∙ Commercial foodservice companies serving students directly.
Competitive Strategy
There are three major ways in which we will create an advantage over our competitors; ∙ product identity, quality, and novelty
∙ high employee motivation and good sales attitude
∙ innovative and aggressive service options.
The Sultan’s Cove International Café be the only clean and sober healthy nightclub among all the competition which focuses the entire menu on healthy, low-fat cooking, in addition to all the entertainment. Once new customers have tried the restaurant, their experience will be reinforced by friendly, efficient, knowledgeable service. Return and repeat business will be facilitated by accessible take-out and delivery options.
Marketing Plan & Sales Strategy
Market Penetration
Entry into the market should not be a problem. We will have high visibility with heavy foot traffic all day long. The local residents and students always support new restaurants and the tourists do not have fixed preferences. In addition, $100,000 has been budgeted for a pre-opening advertising and public relations campaign.
Marketing Strategy
Focusing on the unique aspect of the product theme (healthy, tasty foods) a mix of marketing vehicles will be created to convey our presence, our image, and our message.
∙ Print media -- local newspapers, magazines and student publications
∙ Broadcast media -- local programming and special interest shows
∙ Hotel guides, concierge relations, Chamber of Commerce brochures
∙ Direct mail -- subscriber lists, offices for delivery
∙ Misc. -- yellow pages, charity events
A public relations firm has been retained to create special events and solicit print and broadcast coverage, especially at the start-up.
The marketing effort will be split into 3 phases;
1) Opening -- An advanced notice (press packet) sent out by the PR firm to all media and printed announcement ads in key places. Budget - $100,000
2) Ongoing -- A flexible campaign (using the above media), assessed regularly for effectiveness. Budget - $10,000
3) Point of sale -- A well-trained staff can increase the average check as well as enhancing the customer's overall experience. Word-of-mouth referral is very important in building a customer base.
Future plans and Strategic Opportunities
Catering to offices (even outside of our local area) may become a large part of gross sales. At that point a sales agent would be hired to directly market our products for daily delivery or catered functions.
Operations
Facilities & Offices
Currently we are still seeking location in San Jose area, once we find a location the licenses and codes' issues will all be in order. New equipment and dining room furnishings will be purchased and installed by the general contractor. Offices of the corporation are presently at Jack Morton's home but will be moved to the restaurant after opening.
Hours of Operation
The restaurant will be open 24/7.
Employee Training & Education
Employees will be trained not only in their specific operational duties but in the philosophy and applications of our concept. They will receive extensive information from the chef and be kept informed of the latest information on healthy eating.
Systems & Controls
A big emphasis is being placed on extensive research into the quality and integrity of our products. They will constantly be tested for our own high standards of freshness and purity. Food costs and inventory control will be handled by our computer system and checked daily by management.
Food Production
Most food will be prepared on the premises. The kitchen will be designed for high standards of sanitary efficiency and cleaned daily. Food will be made mostly to order and stored in large coolers in the basement.
Delivery & Catering
Food for delivery may be similar to take-out (prepared to order) or it may be prepared earlier and stocked. Catering will be treated as deliveries.
Management & Organization
Key Employees & Principals
Nazem Kamel Elmasri , as well as other potential interested qualified individuals.
Nazem brings with him a track 25 year record of success in the hospitality industry. His management style is innovative and in keeping with the corporate style outlined in the mission statement.
Compensation & Incentives
The Sultan’s Cove International Café will offer competitive wages and salaries to all employees with benefit packages available to key personnel only.
Board of Directors
An impressive board of directors will be assembled that represents some top professional from the area. They will be a great asset to the development of the company.
Consultants & Professional Support Resources
At the present, no outside consults have been retained, excepting the design department at Best Equipment.
Management to be Added
We are presently searching for an additional general manager and executive chef. These key employees will be well chosen and given incentives for performance and growth.
Management Structure & Style.
A work in progress.
Long-Term Development & Exit Plan
Goals
The Sultan’s Cove International café is an innovative concept that targets a new, growing market. We assume that the market will respond, and grow quickly in the next 5 years. Our goals are to create a reputation of quality, consistency and security (safety of food) that will make us the leader of a new style of dining, and become a chain and eventually a franchise..
Strategies
Our marketing efforts will be concentrated on take-out and delivery, the areas of most promising growth. As the market changes, new products may be added to maintain sales.
Milestones
After the restaurant opens, we will keep a close eye on sales and profit. If we are on target at the end of year 1, we will look to expand to a second unit.
Risk Evaluation
With any new venture, there is risk involved. The success of our project hinges on the strength and acceptance of a fairly new market. After year 1, we expect some copycat competition in the form of other independent units. Chain competition will be much later.
Exit Plan
Ideally, The Sultan’s Cove International café will expand to three units in the next 5 years. At that time, we will entertain the possibility of a buy-out by a larger restaurant concern or actively seek to sell to a new owner.
Industry Analysis
Although the restaurant/nightclub industry is very competitive, the lifestyle changes created by modern living continue to fuel its steady growth. However, what makes us unique is the clean and sober health oriented basis of our operations.
More and more people have less time, resources, and ability to cook for themselves. Trends are very important and The Sultan’s Cove international café is well positioned for the current interest in lighter, healthier foods at moderate to low
backed by the scientific and medical community, the media, the government, and endorsed by the big food manufacturers. As the Foodservice 2000 report stated, this trend will be
Delivery & Catering
Food for delivery may be similar to take-out (prepared to order) or it may be prepared. The Financial Plan
The Financial Plan includes:
∙ Important Assumptions
∙ Risk Analysis & Mitigation Plan
∙ Sales Forecast (5.3.1, above)
∙ Break Even Analysis
∙ Profit and Loss Statement
∙ Cash Flow Statement
∙ Balance Sheet
Investment Opportunities
The Sultan’s Cove Investment Program allocates equity position of 20% for a total of $200,000 in investor capital. The Investment structure is as follows:
Investment Opportunity
Total Investor Funding Opportunity: $200,000Minimum Investment Amount $15,000Investment Term (Investor Selection) 3-5 Years
Total Equity Offering (1% per $15,000 Investment) 20% MaxStarting Year 2 Silver: Projected Annual IRR on Investment of $15,000 - $49,000 10%Gold: Projected Annual IRR on Investment of $50,000 - $99,000 11%Platinum: Projected Annual IRR on Investment of $100,000 or more 12% + Residuals
Investor Payback Program
Each Investor will receive equity shares as a part owner, with a non-managerial interest in the Restaurant. Based on financial estimates, the maximum annual IRR is 12%. Over and above the interest and principal repayment, Investors contributing $100,000 or more will receive residuals for the life of the business as a bonus incentive.
As with our investors, our primary goal is to earn real profits and not ‘Paper Profits'. As such we will focus on expediting
returns to investors where possible. Our existing payback structure will begin paying dividend every quarter, starting in Year 2 of business operations. Investors will receive quarterly interest and annual principal reduction payments over the full term of the investment. Payback to Financial and Private investors will take priority over any profit shares to the owners,
Important Assumptions
The financial plan depends on important assumptions, most of which are reflected in the financial statements that follow. We have been cautious with our projections, and incorporate a mitigation for all manageable risks. The key underlying assumptions are:
Economy
Slow Economic Recovery. We anticipate a slow-growth economy, recovering from an economic recession. Business Growth
Annual Growth Rate Percentage. We anticipate modest growth over the coming years. The financials account for the following growth projections:
◦ Year 2: 6% Year 4: 4%
◦ Year 3: 5% Year 5: 4%
Weekly Sales Variance. Saturday will typically be our best sales for the week. The sales volume for all other days is represented as a percentage relative to Saturday. Therefore our weekly sales will vary as follows:
Monday: 55% Thursday: 95%Tuesday: 60% Friday: 90%Wednesday: 75% Saturday: 100%
Seasonal Sales Variance. In Las Cruces where the first Sultan’s Cove restaurant/café/nightclub will open ; October through the late season is the most productive sales period, while the summer months tend to be the slowest restaurant period. This trend is reflected in the financials though a seasonal variance as follows (where October is targeted to be our most successful sales month):
June: 70% October: 100% February: 95%July: 75% November: 95% March: 85%August: 80% December: 95% April: 90% September: 85% January: 85% May: 90%
Industry & Start-Up
Fiscal Year-1 Ramp-up. Our experience in the industry confirms a longer ramp-up stage for restaurants over other retail/service businesses. Our Annual Sales Growth is based on attaining the following seating capacity percentage per dining period:
∙ Year 1: After-Hours = 53%, Lunch = 70%, Dinner = 88%
∙ Year 2: After-Hours = 70%, Lunch = 82%, Dinner = 100% (implied wait period)
∙ Year 3: After-Hours = 80%, Lunch = 87%, Dinner = 100% (implied wait period)
Six-Month Start-Up Stage. As a new restaurant entry to the Midtown market, the ramp-up in customer draw is expected to extend over 6 months. This is reflected in a higher than average monthly sales variance shown as follows (Worst-case / Expected-case):
∙ Month 1: 32% / 51% Month 4: 64% / 75%
∙ Month 2: 41% / 58% Month 5: 80% / 90%
∙ Month 3: 52% / 66% Month 6: 90% / 92%
Market Analysis findings are static. We assume that there are no unforeseen changes in findings outlined in the Market Analysis.
Pricing & Cost Control
Competitive Pricing Model. Revenue calculations are based upon competitive price comparisons and established menu values in the current marketplace. The following are baseline assumptions on Average Check Totals, and Average Seat Turns:
Daily average for lunch spending is $10.50 per person, dinner at $27.50 per person; and $17.50 per person for After-Hours dining (All check totals include Beverages, but not Bar). Seat Turn averages are modestly estimated at:
∙ Year 1: After-Hours = 0.7, Lunch = 1.0, Dinner = 1.0
∙ Year 2: After-Hours = 0.7, Lunch = 1.0, Dinner = 1.0
∙ Year 3: After-Hours = 1.0, Lunch = 1.0, Dinner = 1.25
Cost Control. Cost of goods sold have been calculated as a percentage of sales and will be monitored on a daily basis in order to keep Cost of Food within the range of 31 - 33%, Bar Costs within 28 - 31%, and Cost of Beverages (Non Alcohol) below 9%. With a focus on Cost Control, we anticipate 6 months to fine tune the restaurant operations and manage our costs within the defined tolerance range.
Inventory turnover and Accounts Payable. Accounts receivable turnover is calculated to be 0 days, as payment is rendered with service. Inventory is turned on a 7 day cycle as inventory is used daily within all categories, and accounts payable are projected to be 30 days.
Risk Analysis/Mitigation
1. How do we allow an adequate startup period and capital to launch the concept and grow our customer base in a competitive sector?
Our financial plan is budgeted to support the Worst-Case business scenario. We addressed the financial risk as follows:
∙ We looked at our monthly break-even.
∙ We calculated worst-case monthly financial shortfall based on the ramp-up sales percentages outlined in our financial assumptions.
∙ We budgeted operational shortfall in an operational contingency budget that we will utilize if the need arises.
2. How do we ensure we have addressed all resource gaps, and have the right industry knowledge?
We will have sufficient funds on reserve status.
We will be recruiting a seasoned chef (national search) whose style is in accord with the Restaurant concept and our market segment. We will be offering an equity interest to our select Chef to maintain the industry knowledge.
Our Accounting service will be contracted to a firm specializing in Restaurant accounting.
3. The current Economic slowdown and recovery state was a key consideration in our restaurant concept. How do we manage a successful restaurant in current market conditions?
Our original effort was to open a restaurant twice the proposed size. As we are in the midst of an economic recovery, we have scaled back the size to reduce business overhead, startup requirements, and business operating capital.
Another mitigation has been our overall Restaurant concept. We have the menu priced at a mid-tier level with no entrée over $20. In addition, we have an extended Maza and Appetizer selection priced between $3.50 - $9.50, allowing budget dining in a distinguished restaurant.
4. How do we confirm that our Funding Requirement is sufficient?
Nazem Kamel Elmasri has an extensive background in restaurant startup. He was involved in various restaurant ventures, and we will use his expertise in past projects as a comparative basis.
We have leveraged our membership with the National Restaurant Association to look at industry averages for this market segment for Restaurant startup and Operations. Additionally, we included a contingency buffer in the financial estimates to account for any potential cost variance.
We have worked with our Restaurant Consulting firm to validate our cost estimates to their industry knowledge. 5. How do we know we have selected the right location for this concept?
Again we will draw on the Consulting group that has the expertise in site selection and lease negotiation. In all, there are no guarantees with location, but we took a very objective approach with our concept. Instead of going in with a predefined business concept, we let the Market Analysis define the need. Based on the results, the Sultan’s Cove International Recovery cafe concept was formed specific to the Bay area that has an environment conducive to the success of such an endeavor.
6. What if there is an additional need for Business Capital after the Restaurant has exhausted its 6-month buffer?
Our intent is to be a self-sufficient business far in advance of the 6-month probation period, and have at least 100.000 USD saved for contingencies. We have looked at this risk. We have accounted for an operational contingency budget that will be used to supplement any slow periods. Our next step would be to approach our private investors for capital by extending their return on investment. We would also look to the partners' capital reserves as another source of funds.
General Assumptions
Year 1 Year 2 Year 3 Year 4 Year 5
Plan Month 1 2 3 4 5Current Interest Rate 6.00% 6.00% 6.00% 6.00% 6.00% Long-term Interest Rate 7.00% 7.00% 7.00% 7.00% 7.00% Tax Rate 30.00% 30.00% 30.00% 30.00% 30.00% Other 0 0 0 0 0
Profit and Loss Statement
The most important assumption in the Projected Profit and Loss statement is the gross margin. We show an adjustment increase in Year 2 as we exit our start-up phase of the business and move into our expected annual sales forecast.
This transition shows the restaurant managing through its start-up period, and gaining efficiency and customer loyalty. In summary, the restaurant will develop its customer base and reputation and the growth will pick up more rapidly towards the second and third years of business. Month-by-month assumptions for Profit and Loss are included in the appendices.
Pro Forma Profit and Loss
Year 1 Year 2 Year 3 Year 4 Year 5
Sales $1,073,769 $1,211,088 $1,279,204 $1,341,260 $1,406,670 Direct Cost of Sales $371,416 $398,407 $406,976 $415,276 $423,597 Other $0 $0 $0 $0 $0
Total Cost of Sales $371,416 $398,407 $406,976 $415,276 $423,597 Gross Margin $702,353 $812,681 $872,228 $925,984 $983,072 Gross Margin % 65.41% 67.10% 68.19% 69.04% 69.89% Expenses
Payroll $399,588 $400,788 $429,828 $431,128 $432,728 Marketing/Promotion $18,656 $22,000 $25,000 $15,000 $15,000 Depreciation $6,500 $6,500 $6,500 $6,500 $6,500 Leased Equipment $12,000 $12,000 $12,000 $12,000 $12,000 Accounting/Payroll Processing $6,600 $6,600 $6,600 $6,600 $6,600 Legal Retainer Fees $2,400 $2,400 $2,400 $2,400 $2,400 Business Licenses & Permits $6,000 $6,000 $6,000 $6,000 $6,000 Credit Card Expense $18,576 $19,983 $21,107 $22,131 $23,210 Bank Fees $1,200 $1,200 $1,200 $1,200 $1,200 Music & Entertainment $3,744 $3,744 $3,744 $3,744 $3,744 Training / Employee Retention Programs $0 $5,008 $6,008 $6,008 $6,008 Repairs & Maintenance $9,000 $9,000 $9,000 $9,000 $9,000 Utility Services (Gas/Electric/Water/Sewer) $24,996 $26,496 $27,821 $28,933 $30,091
Telephone/Communication Expense $1,800 $1,800 $1,800 $1,800 $1,800 Insurance: Fire/Theft/Liability/Liquor/Product $20,400 $21,624 $22,705 $23,613 $24,558 Restaurant Occupancy Cost (Lease) $75,000 $77,250 $79,568 $81,955 $84,413
Payroll Taxes (FICA/FUTA/SUTA) & Employee
Benefits $0 $0 $0 $0 $0 Exterminator/Trash Removal $4,800 $4,800 $4,800 $4,800 $4,800 Dishware/Uniforms/Cleaning Supplies/Decor $11,760 $12,466 $13,089 $13,612 $14,157 Printing/Paper/Postage/Subscriptions $9,156 $9,500 $9,500 $9,500 $9,500
Facility (Exterior Cleaning/Grease
Trap/Hood/Windows,etc.) $3,333 $3,640 $3,640 $3,640 $3,640 R&D Meals $2,200 $2,400 $2,400 $2,400 $2,400 General Business Comps $12,400 $22,850 $23,125 $23,125 $23,125 Owner Comps $2,124 $2,124 $2,124 $2,124 $2,124 Other Expenses (ComAreaMaint, etc.) $4,200 $4,200 $4,200 $4,200 $4,200 Total Operating Expenses $656,433 $684,372 $724,158 $721,414 $729,198 Profit Before Interest and Taxes $45,920 $128,309 $148,070 $204,571 $253,875 EBITDA $52,420 $134,809 $154,570 $211,071 $260,375 Interest Expense $19,189 $15,984 $12,640 $9,296 $5,952
Taxes Incurred $8,020 $33,698 $40,629 $58,582 $74,377
Net Profit $18,712 $78,628 $94,801 $136,692 $173,546 Net Profit/Sales 1.74% 6.49% 7.41% 10.19% 12.34%
Break-even Analysis
For our First Year Break-Even Analysis, we have an average running fixed costs of $50.000 per month which includes our full payroll, rent, and utilities, and an estimation of other running costs. With direct cost of goods (inventory, in this plan) at 35% of sales, our monthly break-even point will be about 75.000 USD. We will surpass our break-even point in October of our first year.
As we exit the start-up phase of the business and focus on cost control, we will drive the Cost of Goods Sold (COGS) down, dropping our break-even value, and increasing our Gross Margin.
Break-even Analysis
Monthly Revenue Break-even $83,630 Assumptions:
Average Percent Variable Cost 35%
Estimated Monthly Fixed Cost $54,703
Cash Flow Statement
The cash flow depends on assumptions for inventory turnover and payment days. We have no sales on credit, so our cash flow does not track accounts receivable. Our projected same-day collection is critical, and is reasonable and customary in the restaurant industry. We do not expect to need any additional financial support, even when we reach the less profitable months, as the downturns are incorporated into the monthly revenue variance figures. Month-by-month assumptions for
projected cash flow are included in the appendices.
Pro Forma Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5
Cash Received
Cash from Operations
Cash Sales $1,073,769 $1,211,088 $1,279,204 $1,341,260 $1,406,670
Subtotal Cash from Operations $1,073,769 $1,211,088 $1,279,204 $1,341,260 $1,406,670
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0 $0 $0 New Current Borrowing $0 $0 $0 $0 $0 New Other Liabilities (interest-free) $0 $0 $0 $0 $0 New Long-term Liabilities $0 $0 $0 $0 $0 Sales of Other Current Assets $0 $0 $0 $0 $0 Sales of Long-term Assets $0 $0 $0 $0 $0 New Investment Received $0 $0 $0 $0 $0 Subtotal Cash Received $1,073,769 $1,211,088 $1,279,204 $1,341,260 $1,406,670 Expenditures Year 1 Year 2 Year 3 Year 4 Year 5
Expenditures from Operations
Cash Spending $399,588 $400,788 $429,828 $431,128 $432,728 Bill Payments $601,114 $724,989 $745,324 $765,976 $792,442 Subtotal Spent on Operations $1,000,702 $1,125,777 $1,175,152 $1,197,104 $1,225,170 Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0 $0 $0 Other Liabilities Principal Repayment $0 $0 $0 $0 $0 Long-term Liabilities Principal Repayment $47,772 $47,772 $47,772 $47,772 $47,772 Purchase Other Current Assets $0 $0 $0 $0 $0 Purchase Long-term Assets $0 $0 $0 $0 $0 Dividends $0 $20,000 $10,000 $10,000 $15,000 Subtotal Cash Spent $1,048,474 $1,193,549 $1,232,924 $1,254,876 $1,287,942 Net Cash Flow $25,295 $17,539 $46,280 $86,384 $118,727 Cash Balance $172,276 $189,815 $236,095 $322,479 $441,206
Balance Sheet Statement
The projected Balance Sheet is quite solid. We do not anticipate difficulty meeting our debt obligations based on achieving the specific goals outlined in this plan. On a linear projection, Zara Restaurant & Lounge has a positive Net Worth beginning in Year 3.
Pro Forma Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
Assets
Current Assets
Cash $172,276 $189,815 $236,095 $322,479 $441,206 Inventory $37,839 $39,175 $38,109 $38,843 $39,608 Other Current Assets $73,311 $73,311 $73,311 $73,311 $73,311 Total Current Assets $283,426 $302,300 $347,514 $434,633 $554,125 Long-term Assets
Long-term Assets $65,000 $65,000 $65,000 $65,000 $65,000 Accumulated Depreciation $6,500 $13,000 $19,500 $26,000 $32,500 Total Long-term Assets $58,500 $52,000 $45,500 $39,000 $32,500 Total Assets $341,926 $354,300 $393,014 $473,633 $586,625 Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5
Current Liabilities
Accounts Payable $58,194 $59,713 $61,398 $63,097 $65,315 Current Borrowing $0 $0 $0 $0 $0 Other Current Liabilities $0 $0 $0 $0 $0 Subtotal Current Liabilities $58,194 $59,713 $61,398 $63,097 $65,315
Long-term Liabilities $252,228 $204,456 $156,684 $108,912 $61,140
Total Liabilities $310,422 $264,169 $218,082 $172,009 $126,455 Paid-in Capital $440,000 $440,000 $440,000 $440,000 $440,000 Retained Earnings ($427,209) ($428,496) ($359,869) ($275,068) ($153,375) Earnings $18,712 $78,628 $94,801 $136,692 $173,546 Total Capital $31,504 $90,131 $174,932 $301,625 $460,171 Total Liabilities and Capital $341,926 $354,300 $393,014 $473,633 $586,625
Net Worth $31,504 $90,131 $174,932 $301,625 $460,171
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Business Ratios
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 5812, Ethnic Food Restaurants, are shown for comparison.
The following table outlines some of the more important ratios from the Ethnic Food Restaurants industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 5812.01.
Net Worth 9.21% 25.44% 44.51% 63.68% 78.44% 51.62% Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Gross Margin 65.41% 67.10% 68.19% 69.04% 69.89% 59.31% Selling, General & Administrative Expenses 62.09% 59.39% 59.95% 58.34% 57.31% 39.09% Advertising Expenses 1.74% 2.07% 2.00% 0.00% 0.00% 2.75%
Expansion, Payback & Exit Strategy
In addressing this question we look at the Exit Strategy as a definition of our business vision and goals, as well as a contingency in the event the business is unsuccessful. We have addressed this question at several levels:
Expansion as a Business Goal
We have set multiple financial goals to grow the success of the Sultan’s Cove concept, and compound the profit return for our Investors.
1. Expansion (Option 1): Our overall goal to maintain the Sultan’s Cove as a unique and eclectic concept. We are starting in Las Cruces NM because it takes a lot less capital to get started here than both Santa Fe and Albuquerque NM.
2. Based on projections, the business has captured market share by the end of the first year. In addition Year 2 brings an increased sales and profit margin to sustain the addition of a full-time General Manager. By second quarter of Year 2, the owners will look to launch the Santa Fe NM Sultan’s Cove location. This is not a chain, but another unique restaurant concept with strong growth potential. Expansion will be considered with our Financial backers and Investor partners.
3. Expansion (Option 2): Throughout our business plan we have stayed focus that The Sultan’s Cove would be successful as a larger venue, with greater sales capacity and revenue potential. Our objective with the site selection and lease negotiation is to have the opportunity to expand the restaurant as a logical growth and profit plan.
4. Private Sale: We are in the business of making money. At the close of Year 3, we see The Sultan’s Cove as meeting 80.4% of its optimum sales potential with the current seating and space allocation. At this stage the business debt is reduced, profit margins are increasing, and The Sultan’s Cove has established market share. We will look at the private sale of the majority interest via A) Leveraged Buyout, or B) A larger Restaurant consortium. In both cases, our interest is in delivering healthy profits to our Investors and Financial backers. Sales and profit margins will be based on the restaurant valuation in Year 3.
5. Financial Solvency: The financial projections indicate that exit will be achievable over 3 years for the operating capital line of credit. Under a realistic scenario. We should have over $70,000 in cash in the bank after income taxes the second year. The entire financial debt would be retired by Year 7.
Exit Strategy to Retire the Business
We at The Sultan’s Cove are committed to our concept and its viability. We step into this venture with confidence and the success of our respective prior business efforts. No one will attempt a business anticipating failure, however sometimes ventures do not fulfill their promise.
(continued)
In the event that our venture cannot achieve profitability and retire the encumbrances, we will first attempt to sell the operation and use the proceeds to clear all outstanding balances. If we are unable to sell the operation for sufficient proceeds we will forced to default whereby the SBA loan will be in senior standing. Any further outstanding balances will be borne by the investors on a weighted percentage basis of the total amounts due.
RECOVERY ACTIVITIES AT THE SULTAN’S COVE INTERNATIONAL RECOVERY CAFE INCLUDE:
1- AA and NA meetings
2-SSA meetings
3-Over eating meetings.
4-Vegan eating.
5-Healthy relationships
6-Marriage counseling.
7-Estate planning
8- Theater games for fighting addiction.
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