Question 10: Franks business plan in the Appendix (Chapter 16 "Appendix: A Sample Business Plan") provides projected income statements and balance sheets for a five-year forecast horizon. Compute the same ratios as in Exercise 8 and comment on your results.

CHAPTER 16

APPENDIX: A SAMPLE BUSINESS PLAN

The following business plan for Franks All-American BarBeQue was built using Business Plan

Pro software. It is for the purpose of illustration and does not represent the full capabilities of

the software.

16.1 EXECUTIVE SUMMARY

Franks All-American BarBeQue has operated for decades in the southern Connecticut shore

region. With a tradition of superlative food at fair prices served in a family-friendly atmosphere,

the owners now believe it is time to open a second restaurant and expand the production and

the distribution of Franks signature barbecue sauces. This second restaurant will be in Darien,

Connecticut, and will be nearly twice as large, in terms of seating capacity, as the current

Fairfield restaurant. The company also plans to ramp up production of its sauces and increase

their sales fourfold in the next three years.

OBJECTIVES

The owners of Franks All-American BarBeQue and other investors plan to put $160,000 of their

own money into the second restaurant and expand the production of the signature sauces. They

seek to raise an addition $175,000 from a bank loan that will be repaid in two years.

MISSION

VISION STATEMENT

To produce the best barbecue food in New England.

MISSION STATEMENT

The mission of Franks All-American BarBeQue is to provide the southern Connecticut shore

region with the finest barbecue food in four major regional styles at affordable prices in a family

friendly setting. As we grow, we will never forget and remain faithful to those factors that have

made us a success.

KEYS TO SUCCESS

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Franks All-American BarBeQue has been in business for nearly forty years. It has weathered

good times and bad times through all types of economic conditions. We have survived because

Franks has remained committed to several principles.

The only objective of a restaurant is to serve the finest food it can prepare. Good foodnot more gimmicks

or advertisingbrings in customers and, more importantly, KEEPS customers.

Preparing the finest foods means a commitment to excellence, which means obtaining the best

ingredients and a dedication to cooking barbecue properly, which means cooking carefully and SLOWLY.

In addition to providing the finest food, we remain committed to providing excellent service. To us, this

means friendly and knowledgeable staff members who make the customers feel like they are dining with

family.

We provide the right atmosphere. Our goal is to have a setting that says barbecue. We do not provide a

fancy setting; our basic setting complements the food we serve.

COMPANY SUMMARY

Franks All-American BarBeQue has been a highly successful restaurant in Fairfield,

Connecticut, for nearly forty years. It was started and is still managed by Frank Rainsford. Its

food and sauces have won awards at both regional and national barbecue cook-offs. In addition,

Franks has been voted the best barbecue establishment in Connecticut numerous times by

many local newspapers and magazines.

The management team of Franks All-American BarBeQue has decided thatNOW is the time to

expand to an additional location. After careful analysis, a second Franks All-American

BarBeQue can and should be opened in Darien, Connecticut. This restaurant will be larger and

geared to better tap into the growing premade, take-home dinner market.

In the last few years, Franks has been selling its four signature barbecue saucesTexan,

Memphis, Kansas City, and Carolinain local supermarkets. Although this represents a small

portion of overall revenues, sales have been growing at a remarkable pace. This market must be

exploited. Preliminary market research indicates that this segment of the business will grow at

20 percent per year for the next five years.

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COMPANY OWNERSHIP

Presently, Franks All-American BarBeQue is a limited liability partnership with Frank

Rainsford and his wife Betty as owners. Each has a 50 percent share in the business.

The plans for expansion will bring in capital from three other investors: Robert Rainsford, Susan

Rainsford Rogers, and Alice Jacobs. Robert Rainsford and Susan Rainsford Rogers are the son

and daughter of Frank and Betty. Both have extensive work experience at Franks. Alice Jacobs

has been the restaurants accountant for over twenty years.

To assist the financing of the expansion, Robert Rainsford and Susan Rainsford Rogers will each

invest $50,000, while Alice Jacobs will invest $60,000.

The new limited liability partnership will result in the investors holding the following equity

percentages:

Frank Rainsford 40.00%

Betty Rainsford 40.00%

Robert Rainsford 6.25%

Susan Rainsford Rogers 6.25%

Alice Jacobs 7.50%

COMPANY HISTORY

Franks All-American BarBeQue was founded in 1972 by Frank Rainsford. Although a native

New Englander, Frank learned about cooking barbecue while serving in the US Air Force.

During his twelve years of service, he traveled across the country and learned about the four

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major styles of American barbecueTexas, Memphis, Kansas City, and Carolina. His plan was to

introduce people in southern Connecticut to REAL barbecue that entailed high-quality meats

properly cooked and smoked over an appropriate length of time.

In the beginning, Franks All-American BarBeQue was a small facility; it could seat about thirty

people. It was located near the Fairfield railroad station and was the first full-service barbecue

restaurant in Fairfield. Franks placed an emphasis on featuring the food; it had a highly

simplified decor where the tables were covered with butcher paper, not linen tablecloths. The

restaurant was an immediate hit, received considerable local press, and won several food

awards. This success enabled Franks to move to a larger facility in Fairfield on the towns main

thoroughfareBoston Post Road. The new location was a midsize restaurant of about eighty

seats. Frank has built this location into a relatively successful and locally well-known enterprise.

It has been at the present location since the early 1980s. It shares a parking lot with several

other stores in the small mall in which it is located.

Franks has won many awards at regional and national barbecue cook-offs (for both the food and

the sauces), which is unusual for a barbecue business in New England. The restaurant has been

written up, repeatedly, in the local and New York papers for the quality of its food and its four

signature barbecue sauces. In the last few years, Franks has sold small lots of these sauces in

local supermarkets. They have been distributed because of Franks personal connections with

the store managers. Frank Rainsford has been approached by a major regional supermarket to

sell his sauces. The supermarket is willing to find a facility that could produce Franks sauces in

significantly larger volumes, which would represent a substantial increase in the sales of

sauces. Table 16.1 "Past Performance of Franks All-American BarBeQue" provides a summary of

key financial figures for the last three years2008 to 2010. Figure 16.1 "Past Performance

Chart" illustrates these key numbers for that period of time.

Table 16.1 Past Performance of Franks All-American BarBeQue

Past Performance 2008 2009 2010

Sales $1,637,610 $1,696,564 $1,793,268

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Gross margin $851,557 $909,358 $943,259

Gross margin % 52.00% 53.60% 52.60%

Operating expenses $542,080 $577,315 $600,408

Inventory turnover 13.20 12.10 12.90

Balance Sheet 2008 2009 2010

Current Assets

Cash $102,665 $125,172 $102,665

Inventory $391,238 $331,045 $345,678

Other current assets $278,372 $230,074 $278,372

Total current assets $772,275 $686,291 $726,715

Long-Term Assets

Long-term assets $504,580 $388,820 $423,675

Accumulated depreciation $180,856 $135,739 $145,765

Total long-term assets $323,724 $253,081 $277,910

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Total assets $1,095,999 $939,372 $1,004,625

Current Liabilities

Accounts payable $155,534 $132,206 $145,321

Current borrowing $170,000 $150,000 $135,000

Other current liabilities (interest free) $81,888 $63,972 $74,329

Total current liabilities $407,422 $346,178 $354,650

Long-term liabilities $220,000 $190,000 $175,000

Total liabilities $627,422 $536,178 $529,650

Paid-in capital $75,000 $75,000 $75,000

Retained earnings $281,838 $234,377 $287,114

Earnings $111,739 $93,817 $112,861

Total capital $468,577 $403,194 $474,975

Total capital and liabilities $1,095,999 $939,372 $1,004,625

Other Inputs

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Payment Days 30 30 30

Figure 16.1 Past Performance Chart

COMPANY LOCATIONS AND FACILITIES

Franks All-American BarBeQue has been in Fairfield, Connecticut, for decades. It has a

reputation throughout the southern Connecticut shore region for excellent food and has received

numerous awards. The management team determined that a second location could tap into this

local name recognition. Several towns in the region were evaluated for total population,

population density, family income, and home value. These factors were considered because of

their impact on generating traffic and consumers being able to pay for meals that are priced

slightly higher than typical fast-food outlets. In addition, the average family size and the

percentage of family households were considered because Franks is a family restaurant. Lastly,

data were gathered on the average travel time to and from work for residents and the real estate

tax rate. Because the new location of Franks will emphasize prepared meals, we felt that

individuals with longer commutes would be more likely to order meals and pick them up at

Franks. A summary of these data is provided in Table 16.2 "Demographic Data for Selected

Connecticut TownsPart 1" and Table 16.3 "Demographic Data for Selected Connecticut

TownsPart 2".

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After thorough analysis, it was concluded that Darien, Connecticut, would be the best location

for the new branch of Franks All-American BarBeQue. It has a high-income population and a

high population density, and a large percentage of its inhabitants are members of family

households. They have longer commuting times, which increase the potential need for prepared

meals.

Table 16.2 Demographic Data for Selected Connecticut TownsPart 1

Item Fairfield Westport Easton Darien Norwalk

Population 57,578 25.884 7,383 19,375 83,802

Population density 1,917 1,293 269 1,508 3,675

Income $108,209 $155,322 $162,688 $180,474 $79,693

House value $589,179 $1,169,081 $868,622 $1,430,589 $504,100

Percentage of family households 72.6% 74.6% 84.3% 81.7% 64.1%

Travel time (minutes) 31.3 39.4 34.8 36.4 25.4

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Item Fairfield Westport Easton Darien Norwalk

Real estate tax rate 1.3% 0.9% 1.3% 0.8% 1.1%

Family size 3.07 2.70 3.0 3.0 2.50

Table 16.3 Demographic Data for Selected Connecticut TownsPart 2

Item Stamford Weston Wilton Trumbull State of Connecticut

Population 121,026 10,199 17,771 34,422 3,574,097

Population density 3,206 515 659 478 739/sq. mile

Income $81,206 $190,080 $183,252 $103,019 $68,595

House value $612,900 $1,198,615 $1,044,316 $492,623 $306,000

Percentage of family households 63.8% 84.9% 82.3% 81.5% 67.7%

Travel time (minutes) 24.0 41.6 39.2 27.1

Real estate tax rate 0.7% 1.1% 1.2% 1.5% 1.8%

Family size 2.50 3.0 3.25 2.80

A specific location has been identified in Darien for the second Franks All-American BarBeQue.

It is in a small mall and is large enough to have a seating capacity of 150160 plus takeout

facilities. The mall has more than adequate parking for future customers. The mall is located

three blocks from the Metro-North Darien railroad station and is four blocks from the I-95 exit.

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It is therefore well positioned to attract traffic from both car and rail commuters. The lease fee

for a three-year contract is very reasonable for a property of this size.

PRODUCTS AND SERVICES

Franks All-American BarBeQue specializes in the finest barbecue served in a family-friendly

format. It uses the finest cuts of meats that are free of any growth hormones. It is known for a

variety of slow-smoked and slow-cooked meats, such as ribs, beef, pulled pork, and chicken.

These are served with Franks famous and award-winning sauce varieties, which represent the

four major styles of barbecue cooking. Franks is also noted for its side dishes and desserts.

Our goal is to expand operations to a second location in Darien, Connecticut. This outlet will be

significantly larger and will have a section devoted to takeout meals.

COMPETITIVE COMPARISON

There are approximately forty specialty barbecue restaurants in Connecticut. They are spread

throughout the state, but only four (including Franks All-American BarBeQue) are in the

southern shore region. The three competitors are smaller operations. None of the barbecue

restaurants in Connecticut have the history, reputation, acclaim, or awards that match Franks

All-American BarBeQue. It is not an exaggeration to say that Franks is the preeminent barbecue

restaurant in Connecticut. It has a loyal following that reaches as far as New York City.

Franks is the only barbecue restaurant in Connecticut where supermarkets are vying for the

right to market Franks signature barbecue sauces. This sideline business promises to be

extremely profitable and support the overall marketing efforts for both locations of Franks All

American BarBeQue.

FULFILLMENT

Franks All-American BarBeQue has always been committed to providing the absolute best in

barbecue food. This has meant assuring the highest quality ingredients in food preparation.

Frank has established a decades-long relationship with suppliers in the New York and

Connecticut areas. He selects nothing but the choicest selections of beef, pork, and chicken. He

has always made sure that his meats come from suppliers who are committed to quality

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ingredients and who never use growth hormones. This long-term relationship with a variety of

key suppliers enables Frank to secure the best cuts at reasonable prices. Frank is equally careful

in using the finest spices for his barbecue sauces. The same is true for all the side dishes that

Franks All-American BarBeQue offers its customers.

This commitment to quality is not limited to the selection of meats and ingredients. Frank and

his staff recognize that top-quality barbecue food requires a knowledgeable and deep

commitment to cooking the food properly. All meats must be cooked and smoked slowly. This

requires time, effort, expense, and commitment, but the results are spectacular. Some cuts of

meat at Franks may require as many as eleven hours of preparation and cooking. Excellence is

not achieved without a commitment to effort. This effort has been recognized with numerous

awards at national barbecue cook-offs. Frank has clearly recognized that the meal is clearly a

function of the quality of the meat, quality ingredients, and careful preparation.

FUTURE PRODUCTS AND SERVICES

Franks All-American BarBeQue is ready to accept new challenges. Opening a second restaurant

will significantly increase sales, but the second location is only the beginning of new directions

for Franks. Although Frank has been selling his regional barbecue sauces in local outlets for

years, he is now ready to sign a contract with a major regional supermarket chain to market and

sell these sauces throughout New England. Preliminary studies indicate that Frank can

anticipate a 20 percent annual growth rate in the sales of sauces for the next five years.

With the growth of two-income families, less and less time is available to prepare meals at home.

Recognizing this simple fact, Franks All-American BarBeQue plans to offer a variety of

prepackaged barbecue meals that can be picked up at the restaurant and reheated at home. As

part of its new commitment to a web-based presence, customers will be able to order these

meals by regular phone, with smartphones, or through the Internet. Customers will be able to

select from a list of prepackaged dinner meals or any combination of items. Customers can

designate the time to pick up the meals, and the meals will be ready for them. This service

promises significant revenue growth.

MARKET ANALYSIS SUMMARY

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Since the 1930s, the American public has spent at least 5 percent of its disposable income on

eating out. Even with annual fluctuations, this is a strong indicator of the viability of this

industry. This can be best illustrated by reviewing industry results for the last few years.

Both 2009 and 2010 were difficult years for the restaurant industry. In 2008, sales increased by

3.8 percent. However, sales fell by nearly 0.75 percent in 2009. THIS WAS THE FIRST YEAR

IN THE HISTORY OF THE INDUSTRY THAT SALES ACTUALLY DECLINED. The

restaurant industrys sales in 2009 were $566 billion, down from over $570 billion. Prices rose

by 2.2 percent in 2009. The increase in sales for 2010 was 0.5 percent, and price increases

stabilized at 0.75 percent.

It is anticipated that there will be significant price competition in every segment of the

restaurant industry. Some analysts argued that the poor performances for the restaurant

industry in both 2009 and 2010 could be attributed to declines in both business and personal

travel. Hotel occupancy rates in 2009 were down by nearly 10 percent. A study conducted by the

National Restaurant Association argued that 20 percent of the sales in casual dining restaurants

might be due to travelers and visitors. Franks All-American BarBeQue relies to a far lesser

extent on travelers as customers. A rough estimate based on credit card receipts, for the period

20062010, indicated that travelers represented less than 2 percent of Franks sales. The

pressure on the restaurant industry has been felt by many chain restaurants, which significantly

curtailed their expansion plans.

Even though the recession was in full bloom in 2009, many food prices rose and rose

significantly. Beef prices rose between 4 percent and 12 percent, while pork prices rose between

5 percent and 13 percent. Numerous studies have indicated that the increase in commodity

prices will not be a transitory phenomenon.

With 925,000 food service locations in operation in the United States, this translates into 1

restaurant for every 330 Americans.

The health-care reform bill passed in 2010 should, in the near future, provide some relief for

restaurants by creating a system that will assume greater responsibility by individuals to pay for

their own health-care coverage.

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Restaurants must also be much more cautious in the future about the possibility of hiring illegal

aliens. As a whole, the National Restaurant Association supports immigration reform. However,

it is concerned that any legislation should not limit a restaurants ability to hire workers. It is

also concerned about the cost to assure worker eligibility.

The Mintel Group, a market research firm, found that consumers who are interested in quality

opt for independent restaurants over chain outlets. An increasing consumer focus on health

translates into an emphasis on natural ingredients. In the barbecue industry, this translates into

naturally raised meats (i.e., the avoidance of artificial growth hormones in cattle), which are a

hallmark of Franks All-American BarBeQue.

The National Restaurant Association estimated that sales in full-service restaurants in 2010

would exceed $184 billionan increase of 1.2 percent from 2009 sales.

Several macroeconomic factors make opening a restaurant in Darien attractive, including the

following:

Increases in the growth domestic product (GDP). The GDP is estimated to grow 1.7 percent in

2011 and 1.5 percent in 2012. The estimates for Fairfield County are significantly higher.

Disposable personal income. The national level of personal income should rise nearly 4 percent in

2011, and there is an expectation of 3 percent growth in 2012. These numbers appear to be much stronger

in the Fairfield County area.

Although 2010 was not a banner year for the restaurant industryit was one where more

restaurants closed than opened each monththere was one bright spot: Chain barbecue

restaurants grew between 2 percent and 3 percentan auspicious sign even for independent

operators.

The home meal replacement market and the existing investment in restaurant equipment

provide a nice growth opportunity for restaurants. It is been estimated that takeout sales in

limited service chain restaurants might be as large as 60 percent of total sales. The same study

found that takeout food has been growing twice as fast as the overall restaurant industry.

Natural competitors in this market are supermarkets that offer prepackaged meals. However, we

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feel that fewif anysupermarkets provide the quality barbecue food that can be found at

Franks.

MARKET SEGMENTATION

Franks All-American BarBeQue views its major market segment as suburbanites in the south

shore region of Connecticut. One way of further segmenting the market is by the type of meal

being provided. Table 16.4 "Market Analysis" provides estimated growth rates for each type of

meal (plus sauce sales) and projected number of meals (and jars of sauce) for the period 2011 to

2015. Figure 16.2 "Market Analysis" illustrates the relative contributions.

Table 16.4 Market Analysis

Potential Customers Growth 2011 2012 2013 2014 2015

Lunch 8% 17,000 18,275 19,646 21,119 22,703

Dinner 5% 40,000 42,000 44,100 46,305 48,620

Takeout 20% 10,000 12,000 14,400 17,280 20,736

Sauces 15% 12,000 13,800 15,870 18,251 20,989

Total 9.37% 79,000 86,075 94,016 102,955 113,048

Figure 16.2 Market Analysis

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MARKET NEEDS

We believe that the market centers on excellent barbecue food served at reasonable prices and

served in a family-friendly manner. We further believe that a growing segment of the market will

want prepared meals that can be conveniently picked up and served at home. Table 16.4 "Market

Analysis" provides a projected breakdown of the potential customers for the next five years. This

breakdown is predicated on the type of meals served and includes the sale of sauces. We provide

estimated growth rates and forecasted sale of meals (and bottles of sauces) for the period 2011 to

2015.Figure 16.2 "Market Analysis" shows the breakdown of the number of meals by type in

2015.

WEB PLAN SUMMARY

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Presently, Franks All-American BarBeQue has a very simple website. The website provides

minimal informationlisting some of the menu items and the restaurants telephone number. It

was created eight years ago by a college student who was working at Franks.

Robert Rainsfords professional expertise is in the area of website development. After

graduating from college, Robert was hired by a firm that specialized in developing web and

social media presences for other companies. He worked for that firm in New York City for seven

years. Robert rose rapidly through the companys ranks, eventually becoming one of its vice

presidents. His expertise in this area will enable Franks All-American BarBeQue to significantly

enhance its web presence. Rather than just having a website that identifies the restaurants

location and telephone number, along with a brief summary of its menu, the new website will be

far richer in content and capability. It will provide a complete menu listing, identifying all items

with corresponding images. The new website will enable customers to place orders through the

Internet for lunch, dinner, or takeout items. The section devoted to takeout items will enable a

customer to purchase prepared meals or choose from all items on the menu to develop a

prepackaged meal. Customers will be able to identify the time that they will arrive for the

pickup.

The website will have links to the Facebook and Twitter accounts of Franks All-American

BarBeQue. These connections will enhance its social media presence. Customers will be asked to

post comments about their dining experience and suggestions on how Franks can improve its

operations and service. It will enable Franks to expand operations and still maintain the same

close customer relationship that currently exists at the Fairfield restaurant.

WEBSITE MARKETING STRATEGY

The new web presence for Franks All-American BarBeQue will be geared to developing a new

level of customer relationships. Customers at both restaurants will be asked to fill out forms

where they will supply an e-mail address and a birthdate. (This information can also be supplied

through Franks new website.) This information will enable Franks to keep customers informed

of specials and offer coupons and the new rewards card program for special occasions, such as

holidays or birthdays.

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We view the website of Franks All-American BarBeQue as a major component of enhancing our

relationship with our customers. It should provide convenience to customers through their

ability to see what is on the menu, identify new specials, and order meals and pick them up at

their convenience. The use of social media will expand awareness of Franks and enable it to

develop closer relationships with present and future customers.

DEVELOPMENT REQUIREMENTS

Robert Rainsford tapped into his expertise in social media and has already developed a far more

sophisticated website for Franks All-American BarBeQue. He has secured the necessary server

capacity to handle additional traffic on the website. In addition, he has set up several social

media accounts for Franks All-American BarBeQue, including Facebook and Twitter. Robert

also created a program linked to a database that will monitor customer purchases through the

rewards card program. This program will send out birthday notices and discounts to customers

and will inform them of their current status in the rewards card program.

Robert contacted several former colleagues at his former place of employment and has identified

several candidates for the role of website manager. This individual will be responsible for

updating the website and the social media sites on a daily basis. He or she will also be

responsible for analyzing the flow of information that comes through these sites and preparing

management reports.

STRATEGY AND IMPLEMENTATION SUMMARY

The core strategy of Franks All-American BarBeQue is to continue what has made it a success at

a new location. Simply put, our strategy is to provide our customers with the finest barbecue

food in Connecticut, at reasonable prices, in a family-friendly environment. In addition, we hope

to improve our ability to meet customer needs by making life more convenient for our

customers. We believe that these fundamentals are universally applicable.

SWOT ANALYSIS

A strengths, weaknesses, opportunities, and threats (SWOT) analysis was undertaken for

Franks All-American BarBeQue.

STRENGTHS

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The key strength of Franks All-American BarBeQue is the quality of its food and service. It has

been the recipient of numerous local and national awards for its foods and sauces. Other

strengths include a highly knowledgeable management team with expertise in operating a

barbecue restaurant, a close working relationship with suppliers of premier cuts of meats, and a

loyal clientele in the south shore region.

WEAKNESSES

The weaknesses associated with this business plan center on operating an additional restaurant

with a much larger capacity than the Fairfield, Connecticut, restaurant. The second location will

require an experienced restaurant manager. This plan calls for a significant increase in prepared

(takeout) meals. Orders will be placed either by phone or through the website. Current

personnel have little experience in ratcheting up the takeout portion of the business.

OPPORTUNITIES

This business plan offers significant opportunities for Franks All-American BarBeQue. A

second, larger location will translate into a significant increase in sales. Finalizing a business

relationship with the regional supermarket chain will enable Franks to significantly increase the

production and the sales of its signature sauces. The sales of sauces are expected to increase by

20 percent per year for the next five years.

THREATS

Any expansion with the opening of a new location always entails some risk. The principals of

Franks All-American BarBeQue will be investing a significant amount of capital and will be

borrowing money from a bank to open a second location. It is strongly believed that the second

location will capitalize on the success of the Fairfield restaurant and will become a success.

COMPETITIVE EDGE

The competitive edge of Franks All-American BarBeQue resides mainly in the quality of its food

and its commitment to serve the food in a family-friendly environment. The quality of its food is

unmatched in the entire state. No other barbecue restaurant has received the awards and the

accolades that Franks All-American BarBeQue has received for the past forty years. Its

reputation for quality gives it an edge that no other barbecue restaurant or chain can match.

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MARKETING STRATEGY

The target market for Franks All-American BarBeQue is essentially suburban families in the

south shore region of Connecticut. These people appreciate the finest barbecue food at

reasonable prices. It is expected that an important group within this target market will be

families with two incomes whose busy schedules would make prepared meals a very attractive

option. We further assume that this market is technically sophisticated and will appreciate the

convenience of ordering these meals via the Internet.

A key component of the marketing strategy of Franks All-American BarBeQue is to use the

Internet and technology to enhance the relationship with its customer base. Franks will use the

website, Facebook, Twitter, and e-mails to inform customers of special food items or discounts

based on holidays and customers birthdays. We intend to use the website as a mechanism to

gain an improved insight into customer needs and wants.

Franks All-American BarBeQue will also initiate a rewards card program. Customers will sign

up for the rewards card program either at the two locations or online. They can use this program

every time they make a purchase either at the restaurants or online. After a set number of visits

(seven), customers will be entitled to either discounts or free items. The rewards card program

will enable Franks All-American BarBeQue to track customers buying patterns and anticipate

the ways in which they can better serve their customers.

SALES FORECASTS

We provide a five-year forecast of the dollar value of sales broken down by the two restaurants

and the sauces in Table 16.5 "Sales Forecast". Figure 16.3 "Monthly Sales for Two Restaurants

and Sauces" illustrates a forecast for the breakdown of sales on monthly basis in 2011,

and Figure 16.4 "Five-Year Forecast of Sales for Two Restaurants and Sauces" illustrates the

breakdown of sales for the next five years.

Table 16.5 Sales Forecast

Sales 2011 2012 2013 2014 2015

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Franks (Fairfield) $1,907,183 $1,954,863 $2,003,734 $2,053,827 $2,105,173

Franks (Darien) $2,222,000 $2,555,300 $2,810,830 $3,091,913 $3,401,104

Sauces $62,500 $75,000 $90,000 $108,000 $130,000

Total sales $4,191,683 $4,585,163 $4,904,564 $5,253,740 $5,636,277

Direct Cost of Sales 2011 2012 2013 2014 2015

Franks (Fairfield) $953,594 $977,430 $1,001,867 $1,026,914 $1,052,587

Franks (Darien) $1,111,000 $1,277,650 $1,405,415 $1,545,957 $1,700,552

Sauces $31,250 $37,500 $45,000 $54,000 $64,800

Subtotal direct cost of sales $2,095,844 $2,292,580 $2,452,282 $2,626,871 $2,817,939

Figure 16.3 Monthly Sales for Two Restaurants and Sauces

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Figure 16.4 Five-Year Forecast of Sales for Two Restaurants and Sauces

MANAGEMENT SUMMARY

Currently, Frank Rainsford is the CEO and chief operating officer of Franks All-American

BarBeQue. He is also the restaurant manager at the Fairfield restaurant. During the week, his

daughter (Susan Rainsford Rogers) often replaces Frank as the restaurant manager. The

Fairfield restaurant has a full-time cook who operates under Franks supervision, and two other

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full-time employees function as waiters and waitresses. These full-time employees are

supplemented by six part-time employees.

Under the new management structure, Frank Rainsford will hold the position of CEO. His wife,

Betty Rainsford, will be designated the president and chief operating officer. Their daughter,

Susan Rainsford Rogers, will be given the title vice president for operations. She will be

responsible for the day-to-day operations of the Darien, Connecticut, restaurant. Robert

Rainsford will have the title of vice president of marketing. He will be responsible for all

marketing activities and the operation of the website. Alice Jacobs will be the vice president of

finance and the comptroller of Franks All-American BarBeQue.

ORGANIZATIONAL STRUCTURE

The new management structure of Franks All-American BarBeQue is a basic functional layout

appropriate for this type of business and is shown inFigure 16.5 "Organizational Chart".

Figure 16.5 Organizational Chart

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PERSONNEL PLAN

Table 16.6 "Forecasts of Personnel" is a five-year breakdown of the types and costs of personnel.

Table 16.6 Forecasts of Personnel

Personnel Plan 2011 2012 2013 2014 2015

Cooks Personnel

Cook (Fairfield) $54,000 $54,600 $55,000 $55,500 $56,000

Cook (Darien) $66,000 $66,000 $66,500 $67,000 $67,500

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Personnel Plan 2011 2012 2013 2014 2015

Subtotal $120,000 $120,600 $121,500 $122,500 $123,500

Servers Personnel

Full-time servers (Fairfield) $28,800 $28,800 $16,000 $17,500 $18,000

Full-time servers (Darien) $57,600 $57,600 $24,500 $25,000 $2,600

Part-time servers both locations $192,000 $192,000 $192,000 $192,000 $192,000

Subtotal $278,400 $278,400 $232,500 $234,500 $212,600

General and Administrative Personnel

Restaurant manager (Fairfield) $42,000 $42,000 $43,000 $43,500 $44,000

Restaurant manager (Darien) $54,000 $54,600 $56,000 $56,500 $57,000

Subtotal $96,000 $96,600 $99,000 $100,000 $101,000

Total people 39 39 39 39 39

Total payroll $494,400 $495,600 $453,000 $457,000 $437,100

FINANCIAL PLAN

Franks All-American BarBeQue will be financing the creation of a second restaurant through a

combination of private investment and a bank loan. The private investment will raise $160,000,

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and Franks will seek another $175,000 as a two-year loan. These funds will be used to pay for

equipment and leasing expenses associated with opening a second restaurant.

IMPORTANT ASSUMPTIONS

The assumptions associated with the grow rates of sales each year for the next five years are the

keys to the financial planning process. We began with very modest assumptions of 8 percent

growth in lunch sales and 5 percent growth in dinner sales. We anticipate fairly vigorous growth

in takeout meals (20 percent) and sauces (15 percent). Although these are large growth rates, we

do not feel that they are unrealistic.

KEY FINANCIAL INDICATORS

Figure 16.6 "Key Financial Indicators" provides historical (20082010) and forecasted (2011

2015) values for the key financial indicators.

Figure 16.6 Key Financial Indicators

BREAKEVEN ANALYSIS

In Table 16.7 "Breakeven Analysis" and Figure 16.7 "Breakeven Analysis", we show the results of

our breakeven analysis for Franks All-American BarBeQue. The results indicate that with sales

of approximately $110,000 each month, Franks All-American BarBeQue will break even.

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Table 16.7 Breakeven Analysis

Monthly revenue $112,627

Assumptions

Average variable cost 50%

Estimated monthly fixed cost $56,313

Figure 16.7 Breakeven Analysis

PROJECTED PROFIT AND LOSS

Our analysis anticipates significant growth in profits in the next five years with the opening of a

second Franks All-American BarBeQue in Darien. The profit margins should increase from in

excess of $850,000 in 2011 to nearly $1,600,000 by 2015 and should be in excess of 20 percent

for all five years. A complete analysis of the profit and loss statements is in Table 16.8 "Profit

and Loss". The annual profits are illustrated in Figure 16.8 "Yearly Profits".

Table 16.8 Profit and Loss

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Pro Forma Profit and Loss 2011 2012 2013 2014 2015

Sales $4,191,683 $4,585,163 $4,904,564 $5,253,740 $5,636,277

Direct cost of sales $2,095,844 $2,292,580 $2,452,282 $2,626,871 $2,817,939

Cooks payroll $120,000 $120,600 $121,500 $122,500 $123,500

Other costs of sales $0 $0 $0 $0 $0

Total cost of sales $2,215,844 $2,413,180 $2,573,782 $2,749,371 $2,941,439

Gross margin $1,975,839 $2,171,983 $2,330,782 $2,504,369 $2,694,838

Gross margin % 47.14% 47.37% 47.52% 47.67% 47.81%

Operating Expenses

Servers payroll $278,400 $278,400 $232,500 $234,500 $212,600

Advertising/promotion $0 $0 $0 $0 $0

Other servers expenses $0 $0 $0 $0 $0

Total servers expenses $278,400 $278,400 $232,500 $234,500 $212,600

Servers % 6.64% 6.07% 4.74% 4.46% 3.77%

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Pro Forma Profit and Loss 2011 2012 2013 2014 2015

General and Administrative Expenses

General and administrative payroll $96,000 $96,600 $99,000 $100,000 $101,000

Marketing/promotion $12,000 $0 $0 $0 $0

Depreciation $0 $0 $0 $0 $0

Rent $180,000 $0 $0 $0 $0

Utilities $13,200 $0 $0 $0 $0

Insurance $22,000 $0 $0 $0 $0

Payroll taxes $74,160 $74,340 $67,950 $68,550 $65,565

Other general and administrative expenses $0 $0 $0 $0 $0

Total general and administrative expenses $397,360 $170,940 $166,950 $168,550 $166,565

General and administrative % 9.48% 3.73% 3.40% 3.21% 2.96%

Other Expenses

Other payroll $0 $0 $0 $0 $0

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Pro Forma Profit and Loss 2011 2012 2013 2014 2015

Consultants $0 $0 $0 $0 $0

Other expenses $0 $0 $0 $0 $0

Total other expenses $0 $0 $0 $0 $0

Other % 0.00% 0.00% 0.00% 0.00% 0.00%

Total operating expenses $675,760 $449,340 $399,450 $403,050 $379,165

Profit before interest and taxes $1,300,079 $1,722,643 $1,931,332 $2,101,319 $2,315,673

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) $1,300,079 $1,722,643 $1,931,332 $2,101,319 $2,315,673

Interest expense $43,755 $34,995 $30,980 $30,980 $30,980

Taxes incurred $376,897 $506,294 $570,106 $621,102 $685,408

Net profit $879,427 $1,181,354 $1,330,246 $1,449,237 $1,599,285

Net profit/sales 20.98% 25.76% 27.12% 27.58% 28.37%

Figure 16.8 Yearly Profits

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PROJECTED CASH FLOW

Table 16.9 "Cash Flow Forecast" is a five-year forecast of cash flows for Franks All-American

BarBeQue. The forecast shows extremely strong and positive cash flows for each year.

Table 16.9 Cash Flow Forecast

Pro Forma Cash Flow

Cash Received 2011 2012 2013 2014 2015

Cash from Operations

Cash sales $4,191,683 $4,585,163 $4,904,564 $5,253,740 $5,636,277

Subtotal cash from operations $4,191,683 $4,585,163 $4,904,564 $5,253,740 $5,636,277

Subtotal cash received $4,366,683 $4,585,163 $4,904,564 $5,253,740 $5,636,277

Expenditures 2011 2012 2013 2014 2015

Expenditures from Operations

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Pro Forma Cash Flow

Cash spending $494,400 $495,600 $453,000 $457,000 $437,100

Bill payments $2,500,504 $2,911,392 $3,085,406 $3,338,682 $3,587,794

Subtotal spent on operations $2,994,904 $3,406,992 $3,538,406 $3,795,682 $4,024,894

Other liabilities principal repayment $54,000 $54,000 $54,000 $0 $0

Long-term liabilities principal repayment $87,600 $87,600 $0 $0 $0

Subtotal cash spent $3,296,504 $3,548,592 $3,592,406 $3,795,682 $4,024,894

Net cash flow $1,070,179 $1,036,571 $1,312,158 $1,458,058 $1,611,383

Cash balance $1,172,844 $2,209,415 $3,521,573 $4,979,631 $6,591,014

PROJECTED BALANCE SHEET

Table 16.10 "Balance Sheet Forecast" is a balance sheet forecast for Franks All-American

BarBeQue.

Table 16.10 Balance Sheet Forecast

Pro Forma Cash Flow

Assets 2011 2012 2013 2014 2015

Current Assets

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Pro Forma Cash Flow

Cash $1,172,844 $2,209,415 $3,521,573 $4,979,631 $6,591,014

Inventory $72,421 $79,197 $109,296 $117,245 $125,954

Other current assets $278,372 $278,372 $278,372 $278,372 $278,372

Total current assets $1,523,636 $2,566,983 $3,909,241 $5,375,249 $6,995,341

Long-Term Assets

Long-term assets $583,675 $583,675 $583,675 $583,675 $583,675

Accumulated depreciation $145,765 $145,765 $145,765 $145,765 $145,765

Total long-term assets $437,910 $437,910 $437,910 $437,910 $437,910

Total assets $1,961,546 $3,004,893 $4,347,151 $5,813,159 $7,433,251

Liabilities and Capital 2011 2012 2013 2014 2015

Current Liabilities

Accounts payable $189,416 $193,009 $259,021 $275,791 $296,597

Current borrowing $135,000 $135,000 $135,000 $135,000 $135,000

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Pro Forma Cash Flow

Other current liabilities $20,329 ($33,671) ($87,671) ($87,671) ($87,671)

Subtotal current liabilities $344,745 $294,338 $306,350 $323,120 $343,926

Long-term liabilities $262,400 $174,800 $174,800 $174,800 $174,800

Total liabilities $607,145 $469,138 $481,150 $497,920 $518,726

Paid-in capital $75,000 $75,000 $75,000 $75,000 $75,000

Retained earnings $399,975 $1,279,402 $2,460,755 $3,791,002 $5,240,239

Earnings $879,427 $1,181,354 $1,330,246 $1,449,237 $1,599,285

Total capital $1,354,402 $2,535,755 $3,866,002 $5,315,239 $6,914,524

Total liabilities and capital $1,961,546 $3,004,893 $4,347,151 $5,813,159 $7,433,251

Net worth $1,354,402 $2,535,755 $3,866,002 $5,315,239 $6,914,524

These figures clearly demonstrate that the proposed opening of a second restaurant is more than

economically viable; it is an extremely lucrative project that promises to increase the net worth

of the firm by 500 percent in five years.