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

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Papa Geo’s–RestaurantBudget ProposalFor2012-2017BUSN-278[Term]Professor[name]DeVry UniversityPapa Geo’s restaurant, how does the sales forecast evolve over the five-year period, and what methods andassumptions were used toestimate these figures? Additionally, discuss the impact of these sales forecasts on theoverall financial viability of the restaurant. Include in your response the expected annual sales growth rate, thefactors considered for initial sales estimates, and how vending machine sales contribute to total revenue. Yourresponse should be approximately 500 words.

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Your Company Name2Table of ContentsSectionTitleSubsectionTitlePage Number1.0Executive summary32.0Sales Forecast2.1Sales Forecast42.2Methods andAssumptions53.0Capital ExpenditureBudget74.0Investment Analysis4.1Cash flows104.2NPV Analysis124.3Rate of ReturnCalculations124.4Payback PeriodCalculations135.0Pro Forma FinancialStatements5.1Pro Forma IncomeStatement145.2Pro-Forma Cash flowStatement155.3Pro-Forma BalanceSheets176.0Works Cited187.0Appendices7.1Appendix 1:Pro FormaIncome statementBreakdown19

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Your Company Name3This budget proposal is for the starting and running of a single location, sit-down Italianrestaurant namedPapa Geo’s. The restaurantwould be located in Orlando, Florida and wouldmajorly targetmiddle 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 therestaurant would be Italian food served buffet style with an all-you-can-eat format with a lot ofvariety includinga salad bar, pizza, several different types of pasta with three or four types ofsauces, soup, desserts, and a self-serve soda bar. There would also be a gaming area within therestaurant with gaming machines installed which would be of interest to children.The businesswould provide wholesome and fresh food, in a simple format, with very good prices and islocated in a densely populated area, all of which would help the restaurant to do well andestablish itself as a popular and profitable business.The detailed budget outlined below provides information on the finances needed to launch PapaGeo’s restaurant. Therevenues forecast, prepared on a conservative basis, indicates that there ispotential to run a profitable, Italian style family restaurant in this area. Further details on the keyaspects of the budget are detailed below.The budget has been planned for a five-year period, taking year 1 as the first year of operationsof the company.For this project, it has been assumed that the owner pools in about 500k of hisown money as capital and becomes the 100% stockholder of the company. Further, it is alsoexpected that to further support the running of the operations, he takes a 100k commercial loanfrom the bank. The IRR, NPV and the Payback period analyses of the project reveal that theproject has a healthy IRR(9%)and a positive NPV, indicating that it is indeed profitable to runthis business. Also, the short payback period, 4.34 years, indicates that owner can expect torecover his investments into the business within a short time frame. Pro forma financial analysisreveals that the restaurant will start generating profits from the second year itself, with healthygross and net margins. The following sections will delve into each aspect of the budget proposalin detail.1.0 Executive Summary

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Your Company Name4This section forecasts the sales of Papa Geo’s restaurant over a five-year period.Section 2.1gives the estimated sales figures and a brief explanation on the changes in these figures over theplanning period.Section 2.2 delves into the details of how this sales estimate has been arrived at, calculationsinvolved 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 insales, given its internal specifics and external environment.2.1Sales ForecastThe yearly sales forecast for Papa Geo’s restaurant is given below.Year 1Year 2Year 3Year 4Year 5FoodSales933,5041,555,8401,616,5181,679,5621,745,065VendingMachineSales54405652587361026340TotalSales938,9441,561,4921,622,3901,685,6641,751,404My methods and assumptions for arriving at the sales figures in the tableare detailed in section2.2The sales figure estimated per mycalculations is taken as the sale figure for Year 2. This isbecause the sales figure arrived at from the calculations cannot be assumed to be sales for Year 1as the restaurant might not be able torealize its full potential andattract the estimated number ofcustomers from day one itself. Also, teething problems with marketing, operations etc might notlead to optimum sales. Therefore, we will project only 60% of this figure as first year sales anduse theestimatedfigure as the sales figure for Year 2.Over the planning period, starting fromYear 2 onwards, sales are expected to grow at a rate of 3.9% every year, in line with industryestimates of the average growth of the restaurant industry in the US (Source: MintelInternational).Also,Vending machine sales forecasts are based on information given that the average familyspends $4.00 on vending machine tokens.2.0 Sales Forecast

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Your Company Name52.2Methods and AssumptionsAccording to the brief given on Papa Geo’s restaurant, there are about 10,000 familieslivingwithin 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 ofhighincome and upper middle class households. That leaves about 80% of the 10000families 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 aweek. However, considering that our target market comprises of mostly middle and lowerincome 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 inOhio, Florida.In terms of competition, although it is mentioned that McDonalds, Taco Bell and Wendy’soperate 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’veassumed that these four places (Papa Geo’s, McDonald’s, Taco Bell and Wendy’s) will beable to capture only about 85% of these families. (16000*85%=13600/week). Of these fourplaces, since the others are fast food and fast food restaurants generally command a largerfootfall than other format restaurants we assume the following about their share in the pie offamilies: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 afamily dining place, we make another assumption about the composition of the family. Weassume 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 nowestimate the weekly sales for adults and kids.Therefore, dSales from Adults per week: 2720*7 = 19040Sales fromKidsper week: 2720*4 = 10880Now, the total sales (both adults and kids, as part of families) per week can be estimated at:19040+10880 = $29920Therefore, average sales per year = 1,555,840The sales figure estimated by thesecalculations is taken as the sale figure for Year 2. This isbecause the sales figure arrived at from the calculations cannot be assumed to be sales for Year 1as the restaurant might not be able torealize its full potential andattract the estimated number ofcustomers from day one itself. Also, teething problems with marketing, operations etc might notlead to optimum sales. Therefore, we will project only 60% of this figure as first year sales,anduse theestimatedfigure as the sales figure for Year 2.

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