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Papa Geo�s � Restaurant Budget Proposal For 2012-2017 DeVry University

Budget proposal for a restaurant.

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    Papa Geo’s – Restaurant Budget Proposal For 2012 - 2017 BUSN - 278 [Term] Professor [name] DeVry University Papa Geo’s restaurant, how does the sales forecast evolve over the five - year period, and what methods and assumptions were used to estimate these figures? Additionally, discuss the impact of these sales forecasts on the overall financial viability of the restaurant. Include in your response the expected annual sales growth rate, the factors considered for initial sales estimates, and how vending machine sales contribute to total revenue. Your response should be approximately 500 words.

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    Your Company Name 2 Table of Contents Section Title Subsection Title Page Number 1.0 Executive summary 3 2.0 Sales Forecast 2.1 Sales Forecast 4 2.2 Methods and Assumptions 5 3.0 Capital Expenditure Budget 7 4.0 Investment Analysis 4. 1 Cash flows 10 4. 2 NPV Analysis 12 4. 3 Rate of Return Calculations 12 4.4 Payback Period Calculations 13 5.0 Pro Forma Financial Statements 5.1 Pro Forma Income Statement 14 5.2 Pro - Forma Cash flow Statement 15 5.3 Pro - Forma Balance Sheets 17 6.0 Works Cited 1 8 7.0 Appendices 7.1 Appendix 1: Pro Forma Income statement Breakdown 19

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    Your Company Name 3 This budget proposal is for the starting and running of a single location, sit - down Italian restaurant named Papa Geo’s . The restaurant would be located in Orlando, Florida and would majorly target middle to lower - middle class families with children, as well as adults and seniors, thus making it a friendly and family place . The major product and service provided by the restaurant would be Italian food served buffet style with an all - you - can - eat format with a lot of variety including a salad bar, pizza, several different types of pasta with three or four types of sauces, soup, desserts, and a self - serve soda bar. There would also be a gaming area within the restaurant with gaming machines installed which would be of interest to children. The business would provide wholesome and fresh food, in a simple format, with very good prices and is located in a densely populated area, all of which would help the restaurant to do well and establish itself as a popular and profitable business. The detailed budget outlined below provides information on the finances needed to la unch Papa Geo’s restaurant. The revenues forecast, prepared on a conservative basis, indicates that there is potential to run a profitable, Italian style family restaurant in this area. Further details on the key aspects of the budget are detailed below. The budget has been planned for a five - year period, taking year 1 as the first year of operations of the company. For this project, it has been assumed that the owner pools in about 500k of his own money as capital and becomes the 100% stockholder of the company. Further, it is also expected that to further support the running of the operations, he takes a 100k commercial loan from the bank. The IRR, NPV and the Payback period analyses of the project reveal that the project has a healthy IRR (9%) and a positive NPV, indicating that it is indeed profitable to run this business. Also, the short payback period, 4.34 years, indicates that owner can expect to recover his investments into the business within a short time frame. Pro forma financial analysis reve a ls that the restaurant will start generating profits from the second year itself, with healthy gross and net margins. The following sections will delve into each aspect of the budget proposal in detail. 1.0 Executive Summary

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    Your Company Name 4 This section forecasts the sales of Papa Geo’s restaurant over a five - year period. Section 2.1 gives the estimated sales figures and a brief explanation on the changes in these figures over the planning period. Section 2.2 delves into the details of how this sales estimate has been arrived at, calculations involved and the methods and assumptions used in the process. Overall, this section is useful is providing an estimate of how much the restaurant can make in sales, given its internal specifics and external environment. 2.1 Sales Forecast The yearly sales forecast for Papa Geo’s restaurant is given below. Year 1 Year 2 Year 3 Year 4 Year 5 Food Sales 933,504 1,555,840 1,616,518 1,679,562 1,745,065 Vending Machine Sales 5440 5652 5873 6102 6340 Total Sales 938,944 1,561,492 1,622,390 1,685,664 1,751,404 My methods and assumptions for arrivi ng at the sales figures in the table are detailed in section 2.2 Th e sales figure estimated per my calculations is taken as the sale figure for Year 2. This is because t he sales figure arrived at from the calculations cannot be assumed to be sales for Year 1 as the restaurant might not be able to realize its full potential and attract the estimated number of customers from day one itself. Also, teething problems with marketing, operations etc might not lead to optimum sales. Therefore, we will project only 60% of this figure as first year sales and use the estimated figure as the sales figure for Year 2. Over the planning period, starting from Year 2 onwards, sales are expected to grow at a rate of 3.9% every year, in line with industry estimates of the average growth of the restaurant industry in the US (Source: Mintel Int ernational ). Also, Vending machine sales forecasts are based on information given that the average family spends $4.00 on vending machine tokens. 2.0 Sales Forecast

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    Your Company Name 5 2. 2 Methods and Assumptions According to the brief given on Papa Geo’s restaurant, there are about 10,000 families living within 15 minutes of the restaurant. Of these, between 3% and 5% are rich households (Phoenix marketing international, Wikipedia) and it is assumed that another 15% comprise of high income and upper middle class households. That leaves about 80% of the 10000 families in the area,that are the target market for the restaurant. According to a research paper (in restaurant.org) , American families eat out about 4 times a week. However, considering that our target market comprises of mostly middle and lower income families, I’ve assumed that they eat out only about 2 times a week on an average. This means that, about 16000 families [(80%*10,000)*2] eat out in a week in that area in Ohio, Florida. In terms of competition, although it is mentioned that McDonalds, Taco Bell and Wendy’s operate in the area, we assume there are other small places that people might visit to eat out. Also, people might venture out beyond their areas to eat out. Keeping these in mind, we’ve assumed that these four places (Papa Geo’s, McDonald’s, Taco Bell and Wendy’s) will be able to capture only about 85% of these families. (16000*85%=13600 /week ). Of these four places, since the others are fast food and fast food restaurants generally command a larger footfall than other format restaurants we assume the following about thei r share in the pie of families: Taco Bell: 30%, McDonald’s: 30%, Wendy’s: 30% and Papa Geo’s: 10% i.e, Papa Geo’s can expect to capture 1360 (10%*13600) families per week. Since this is a family dining place, we make another assumption about the composition of the family. We assume that out of a family of 4, two are kids and two adults. Which means that about 2720 (1360*2) kids and 2720 adults (1360*2) will eat from Papa Geo’s per week. Given that a meal (including drinks) cost about $7, we make the following assumptions :  Adults visiting the restaurant will have meals (@ $7), on an average.  Kids visiting the restaurants with their families will make a bill of about $4 per head. Given this, we now estimate the weekly sales for adults and kids.  Therefore, d Sales from Adults per week : 2720*7 = 19040 Sales from Kids per week : 2720*4 = 10880 Now, the total sales (both adults and kids, as part of families) per week can be estimated at: 19040+10880 = $29920 Therefore, average sales per year = 1,555,840 Th e sales figure estimated by these calculations is taken as the sale figure for Year 2. This is because t he sales figure arrived at from the calculations cannot be assumed to be sales for Year 1 as the restaurant might not be able to realize its full potential and attract the estimated number of customers from day one itself. Also, teething problems with marketing, operations etc might not lead to optimum sales. Therefore, we will project only 60% of this figure as first year sales , and use the estimated figure as the sales figure for Year 2.

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