Restaurant Financial Plan

Table of contents

1 Unique selling proposition

2 Aims & objectives:

3 Key facts

4 Funding requirements and company structure

5 Competitive analysis
5.1 Market analysis summary
5.2 SWOT analysis
5.3 Price comparison
Costing & pricing
5.4 Food menu
5.5 Drink menu
5.6 Wine list

6 Breakeven analysis

7 Sensitivity analysis
7.1 Original estimate
7.2 Best case scenario
7.3 Worst case scenario

8 Monthly cash flow

9 Investment appraisal
9.1 Payback period method
9.2 Net present value method

10 Income statements

11 Cash flow statements

12 Balance sheets

13 Ratios
13.1 Profitability
13.2 Efficiency
13.3 Liquidity
13.4 Financial gearing
13.5 Restaurant-specific ratios

14 Appendix
14.1 Inventories budget
14.2 Trade receivables budget
14.3 Depreciation
14.4 Loan
14.5 Non-current assets
14.6 Staff expenses
14.7 Occupancy rates, average check and sales estimates

15 References

1 Unique selling proposition

The planned restaurant will be a 100 seat Mediterranean themed restaurant named “Corrida” situated in the city centre of Guildford. The restaurant aims to distinguish itself from competitors through the provision of reasonably priced high quality Mediterranean food (e.g. Spanish Tapas), drinks and wine (e.g. Sherry and Port) as well as excellent customer service in a pleasant atmosphere that enhances the overall meal experience. Since the level of service quality can make the difference between success and failure, much emphasis will be placed on employee motivation and development in order to attract and retain a skilled workforce. Even if this entails high costs it doubtlessly plays a key role in satisfying and delighting customers from a long-term perspective. Furthermore, the restaurant will implement sophisticated information technology, such as Micros’ “RES” ePOS and ERP system (Micros, 2011b), to enhance key value chain processes, improve decision-making and reduce costs. Likewise, it will deploy an enlightened approach towards customer relationship management and integrated online and offline marketing initiatives to create loyal and profitable customers. In this respect social media (e.g. Facebook or Twitter) allow the restaurant to effectively communicate and engage with guests, gather feedback and promote special offers online at low costs.

The restaurant aims to target a broad segment of customers aged 18-55+ as well as corporate customers who seek value for money. The restaurant has a 20-seater function room which can be used for birthdays, anniversaries, professional seminars and company events. The menu will be adapted on a regular basis to provide seasonal dishes and cater for customer preferences. Own events will be hosted throughout the year, such as wine tastings or themed dinners.

2 Aims & objectives:

1) Provide an outstanding meal experience in a pleasant and cozy atmosphere
2) Gather regular feedback to ensure high guest and employee satisfaction
3) Emphasize corporate social responsibility to satisfy key stakeholders
4) Attract and retain a highly skilled and motivated workforce through employee benefits and a culture that fosters commitment and empowerment
5) Negotiate mutually beneficial contracts with suppliers to achieve high gross margins
6) Enhance internal and external processes by implementing technology to increase efficiency and effectiveness
7) Achieve an average occupancy rate of 65% until 2015

3 Key facts

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4 Funding requirements and company structure

An amount of £200,000 is needed to cover start-up costs and provide sufficient working capital to offset expenses, cope with uncertainty and external factors and seize on opportunities. Partners will contribute £40,000 at equal amounts and a government-backed loan of £160,000 (at an Annual Interest Rate of 7.9% for a loan period of 10 years) will be taken from Natwest, 75% of which will be guaranteed by the UK Department for Business Innovation and skills. This kind of loan allows borrowing more money without having a large amount of security to back the borrowing (Natwest, 2011).

The structure of the restaurant will be a Limited Liability Partnership (LLP), which requires partners to register at Companies House. In order to avoid any conflicts, an agreement will be written and approved by each partner. Moreover, each partner needs to registers as self-employed at HM Revenue and Customs (HMRC). In this kind of business, partners share the risks, costs, responsibilities and profits of the business. However, liability is limited to the amount of money that each partner has invested in the business and to any guarantee they provided to secure the funding. This legal form is well adapted for a restaurant which is not a big structure, but still provides some protection for the partners if the business faces financial problems. In fact, this legal form allows different people to work together without all the procedural constraints of a limited company. The obligations are to produce annual self assessments returns for the business and each individual member to the Inland Revenue. Moreover, accounts must be filed with Companies House. All partners manage and support the business, but they are allowed to employ staff. The restaurant’s profits will be withdrawn in equal amounts. Partners are taxed as individuals at normal rates on their share of profits and need to pay their own National Insurance Contributions (Business Link, 2011b).

5 Competitive analysis

5.1 Market analysis summary

The Guildford area has 44 well-rated restaurants as listed by the Restaurant Guide (2011):

- 2 bar restaurants
- 1 American Bistro cuisine
- 1 Brasserie cuisine
- 1 Japanese Fast Food
- 1 Spanish cuisine
- English, Gastropub, cuisine
- 3 Grill cuisines
- Pub cuisines
- 2 French cuisines
- 14 Mediterranean Restaurants
- 2 Pizza & Pasta restaurants
- casual and Traditional restaurants

There are only two direct competitors which offer similar meals (La Casita and Son of Sombrero), yet lack quality customer service and an appealing atmosphere as well as use of sophisticated technology. This provides a great opportunity to gain market share and create a loyal customer base.

5.2 SWOT analysis

The SWOT matrix highlights the restaurant’s strengths and weaknesses, opportunities and threats as well as appropriate actions to overcome adverse effects and seize on opportunities.

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5.3 Price comparison

The restaurant aims to adopt a pricing strategy that takes account of competitors and perceived value. The tables below provide a competitor price comparison.

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Costing & pricing

In terms of costing and pricing restaurants, in addition to tangible meals and drinks, need to consider the intangible factors which complement the whole meal experience, such as customer service and restaurant atmosphere (Cousins et al., 2002). Likewise, “perceived guest value”, “competition”, “price rounding” and “traditional prices charged” are further factors that influence the pricing decision (Schmidgall et al., 2002, p. 196). Furthermore, given the perishability of inventories it is crucial to carefully manage inventory levels. To facilitate both costing and pricing the restaurant will use Micros’ RES system that “maintains real-time information on inventory levels, recipe ingredients and costs, competitive bids, as well as actual versus theoretical reports” (Micros, 2011a). The system also facilitates adapting menus to cater for customer preferences and evaluate the profitability of individual menu items through “menu engineering”, which is a tool used to determine the relative contribution margin and demand and make changes if necessary (Jagels et al., 2007, p. 256).

A sample food and drinks menu has been created and costs of products and recipe ingredients have been researched using ASDA online. Since all supplies will be bought in bulk from hospitality suppliers, the costs of goods are expected to decrease. The sample food menu comprises starters, soups, main dishes, desserts and tapas, whereas the sample drinks menu comprises water, soft drinks, beer, wine, coffee and tea. Deals are provided for lunch, dinner and tapas to persuade guests to buy more. A “marketing-orientated pricing” approach has been adopted in addition to cost-plus pricing to take account of key influencing factors such as competitors (Jobber, 2010, p. 427). The selling prices include the current standard-rate of VAT of 20% (HM Revenue & Customs, 2011; Business Link, 2011a).

5.4 Food menu

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5.5 Drink menu

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5.6 Wine list

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6 Breakeven analysis

The breakeven analysis is an essential tool in business planning to enhance decision making, because the breakeven point shows the threshold from which a business turns profitable. Calculating the precise breakeven point for restaurants is difficult as they offer a great variety of different meals and drinks. This is also referred to as the “menu mix” (Jagels et al., 2007, p. 254). Cafferky et al. (2010) therefore suggest using the “Costs of Goods method” to calculate the breakeven point for restaurants. The estimated average check per guest and an estimated costs of goods rate inclusive of waste were used to calculate both variable costs and contribution. The average fixed costs used are £891,615.85. The breakeven analysis shows that in the first year the restaurant needs to make at least £1,347,150.91 in sales a year or £3,690.82 a day and serve at least 298 customers a day to break even. The breakeven occupancy rate and seat turnover are 49.72% and 2.98 respectively.

Due to the dynamic nature of the hospitality it is essential to conduct breakeven analyses on a regular basis taking account of any changes in fixed and variable costs and contribution (Cafferky et al., 2010).

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7 Sensitivity analysis

Sensitivity analysis is useful to evaluate the potential risk of an investment (Atrill et al., 2010). Since various factors are having an influence on profitability a best and worst case scenario are provided which exemplify the impact of favorable and unfavorable variations in the average check per guest, variable costs, fixed costs and capacity.

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