CHAPTER I INTRODUCTION
1.1 Introduction of the business The fast food trend is growing in Kathmandu city and other few metros of the country. The taste and preference of people are also shifting as they are being more and more exposed to western culture through various forms of media. Cinema Ghars are transforming into multiplexes and shops into big malls. The food habit of people is also changing as people are getting more and more choices in terms of product variety and pricing. Burgers are not new in Nepal. It is available in the menu of almost every restaurant and one can also grab them from the busy street vendors selling various junk foods at different nooks and corners of the city. So, there is no doubt about the popularity of burger as a preferable lunch item. So, my intention here is not to serve the market with another breed of same old burger, but to provide specialized brand of quality burger with a distinct taste and appeal through small kiosks located in busy area. Branding a burger may seem new in Nepal, but in the western world, it is not a new concept. There are various specific brands of burgers that are catering varying taste and preference of consumers and furthermore these brands are spreading across boundaries through franchising and licensing arrangement. So, my core business will be selling different variants tasty and hygienic burgers with a long-term vision of building a strong brand. Though new in Nepal, the business I am trying to incept is tried and tested concept in many of the western countries. This is one of the low cost business models where fixed cost is kept at the minimum and resources are efficiently utilized to keep the cost down. 1.2 Business ideas (Problems based idea generation) The basic idea for this business plan was incepted while I was having a burger myself in one of the busy streets of Kathmandu where few of my friends told me how they would love to have quality and hygienic burgers as shown in western TV shows and movies. The basic seed for this idea was planted on that moment but later I preformed an informal survey with my friends and relatives to understand their perception about
burgers that were available in Kathmandu. With the help of that survey, I found that people like to have quality burger as one option for their lunch, but as per them the burgers that are available availa ble in the streets are unhygienic as well as the taste is not up to the par. So, with this gap in mind I seek to incept a low cost business model to serve burgers through a specialized kiosk, which basically are small shutter or shops that specialize in burgers. The business model is based on takeaway dining, i.e. customer buys the products and eats it in his own place of choice; but having this said the kiosks will be strategically placed in the location where there is ample public space for consumption. 1.3 Mission, vision and objectives
$%&'( )'*+,-.+/-), 0+1 -/1 )2, 3-1-),4 5-11-), +,6 7)+8 /0+/ *9-6& /0& )'*+,-.+/-), /) 191/+-, :)' %&'( 8),* ;&'-)6 ): /-<&= >-<-8+'8( /0& ?-/,&11 ?-'1/ +81) 0+1 -/1 3-1-),4 5-11-), +,6 @AB&C/-%&1= D&8)2 &E;8+-,1 %-1-), <-11-), +,6 *)+8 ): /0& )'*+,-.+/-),= 1.3.1 Vision To become one of the best Burger Koisk of the Kathmandu valley by creating unique position in the minds of customer with our quality and professional service. 1.3.2 Mission •
We are committed to Quality, Service, cleanliness and value for each and every customer, each and every time.
•
Customers are the most important visitor on our premises and they are not dependent on us, we are dependent on them. We are not doing them a favour by serving s erving them – they are doing us a favour by giving us the opportunity to do so.
1.3.3 Objectives Objectives •
To provide high level of customer satisfaction with qualitative burger with
affordable price. •
To gain market share and earn profit more than the competitors.
1.4 Keys to Success Your Burger Point is focused on serving a niche segment of burger lovers who are trendy, fun loving, more of a happy-go-lucky nature and take life as it comes with fewer concerns. Our long-term focus would be on building a strong brand that will be synonymous to tasty and quality burgers that will differentiate it from the competitors and also create barriers for new comers. The main factors that determine the success of the Your Burger Point are: •
Strategic location advantage
•
Effective and efficient utilization of resources.
•
Continuous commitment to quality and taste. 1.5 Business Model Canvas of Your Burger Point
KEY PARTNERS • • • •
KEY ACTIVITIES
Suppliers Share holders Customers Employees
•
Preparation of Burger
VALUE PROPOSITION • • • •
CUSTOMER RELATIONSHIP
Quality Hygienic Affordable price Customer Satisfaction
•
•
KEY RESOURCES • •
Raw Material Machinery
• •
•
COST STRUCTURE
• • • •
Equipment Operation Cost Other Direct & Indirect Cost Salary & Rents Start up Capital
• • •
Urban youths Adults Quic Quick k and and tast tast hygi hygien enic ic lun luncc without hassle
CHANNELS
•
•
Affordable and accessible Quality products
CUSTOMER SEGMENTS
•
Suppliers Share Holders Members Customers REVENUE STREAM Sales of Products
Business Model of Your Burger Point •
Value Proposition
We are focused to satisfy customer with the quality and hygienic different variants of burgers with affordable price. •
Key Activities
The key activity of our organization is to make or prepare the burger ordered by the customer with distinct taste and hygienic manner. •
Key resources
To make our organization run we need different resources like meat patty, veg patty, bread roll, lettuce, tomato, onion, mayonnaise, ketchup, and relish. •
Customer Segment
Our organization has targeted many customers mainly urban youths, adults who wants quick and tasty hygienic lunch without hassle. •
Channel
We will totally encourage all type of participants who are urban youths and adults who want quick and tasty lunch without hassle. Whereas different suppliers of equipment and raw material play an important role to deliver the value preposition we promise to our customer. All employees play an important role in the service deliver. •
Customer Relationship
We totally focus on providing our customers affordable and accessibility of quality products. •
Key Partner
We are associated with different partners without whom the organization is to be run. The key partners are suppliers, shareholders, member/customers and employees. •
Cost Structure
During the start up of business different start up capital is to be invested and further equipments are to be purchased and operation cost are to be met up with different direct and indirect cost. Salaries are to be provided to the staff working in the organization and rents are to be paid for the premises. •
Revenue structure
The revenue is generated with sales of different variant of burgers.
CHAPTER II PRODUCT AND SERVICES 2.1 Product Your Burger Point provides the product burger that the customers want to consume. Your Burger Point is the brand that everyone will trust for its taste and hygiene as well as its quality. Our goal is to be a destination for mostly youths and adults who want quick tasty, healthy and hygienic burger without hassle. There will be three types of burger in Your Burger Point: •
Hamburger Burger
•
Chicken Burger
•
Veg Burger
2.2 Marketing simulation As any business plan begins with demand estimation and finding out the demand of burger is not easy in Kathmandu as there is no legitimate published source that specify its demand. So, for my business plan, I used survey method in which I researched six of the takeaway burgers vendors that somewhat followed similar business pattern to that of mine. I specifically asked the vendors how much burger they sold daily and based upon those data I came up with the total yearly demand for the burger that is shown on the table below: Table 1: Demand estimation of Burgers No. of Vendors
Daily Demand
Monthly
Yearly
6
1500
45625
547500
The other data related to operational and organizational management was obtained through market study. In this, various people from the restaurants business who have years of experience were asked about the true nature of business and its prerequisites. Similarly, various machineries and raw material suppliers were also consulted so that the business plan would be accurate in terms of its fixed and variable costing.
2.3 Market Opportunities The takeaway burger segment is attractive segment to enter as the number of businesses catering this segment is particularly less as compared to other fast food products. The main differentiating factor in this venture would be the creation of brand that will be perceived by the people as of high quality and hygiene. The demographics for catering this segment will be urban youths and adults who want quick and tasty lunch without hassle. As the kiosks will be placed in busy area like New Road, Thamel or outside departmental stores, multiplexes and shopping malls, where there will be enough customers to achieve the target sales. This model is stable as the focus is not only on creating a great product but also on creating a great brand. The burger as a product is highly generic and business model too is vulnerable to imitation. So, the main barriers to the competitors will the brand name itself that will be based on quality and hygiene. Similarly there are numerous opportunities in terms of product line expansion and diversification; and depending upon the sales and demand, products can be added or discontinued. Furthermore, if the venture is a successful in the long run, the company can earn only by franchising the brand itself. 2.4 SWOT Analysis It is very important for our center to know about the strengths and weaknesses of our internal environment and use our strength for the productivity and remove weaknesses to gain the competitive advantage. It is also very important for us to analyze the external environment to know about the threats and turn the threats into opportunities. Strength 1.Open seven days a week 2. Highly experienced professionals 3. Effective management 4. Competitive price 5. Convenience location 6. Quality Products Weakness 1. Newly entered in the market
2. Lack of experience in the field Opportunities 1. Increasing westernization and modernization culture 2. Consumers wants food in less time Threats 1. Competition from already existing firm 2. Political instability 3. Competitors may imitate innovative ideas 4. A possibility of low cost of service from competitor
CHAPTER III INDUSTRY ANALYSIS 3.1 The competition The industry is not a big one. The competition is increasing day by day. If you maintain the quality of your service in terms of consistency and price, it is not difficult to keep your loyal consumers. As per the market demand there are so many Burger Kiosk established in the market to serve the consumer in the fast time and in best way. There are many Burger house or kiosk in busy places like Newroad, Thamel, New Baneshwor, Nepaltar, etc. 3.2 Competitors Analysis: Some of the famous burger houses in our location i.e. Newroad are: 1. RD’s Café 2. Big Bite The following are the competitive analysis of the RD’s café and Your Burger Point: Table 2: Competitors Analysis
Competitors RD’ Cafe
Your Burger Point
Strength
Weakness
1. Have lots of customers
1. High price
2. Experience in the field
2. Lack of convenience location
1.Highly experienced
1. Newly entered in the market
professionals
2. Lack of experience in the
2. Competitive price
field
3. Convenience location 4. Quality Products
3.3 Porter’s five forces Analysis Through Porter’s five forces analysis, we can identify the attractiveness of the business •
Intensity of Rivalry: Intensity of rivalry is very high to attract and retain every potential customers in market either providing quality services or in low cost.
•
Threats of Entrants: As the procedure of establishing a Burger shop is simple and short, the numbers of Burger shop are growing in Nepalese market day by day. The concept of establishing such business does not impose barrier for the new entrants, the new competitors can enter in the market at any time. It is not sure that how many numbers of new companies will enter the market. But till then, we will certainly gain some market share in the industry through high customer loyalty, as we will be providing quality services at a very reasonable price, so there is no such condition to be afraid of new entrants in the market.
•
Threats of Substitutes: There are many Burger shops in Kathmandu valley that provides similar services to its clients. There are so many shops that provide the good services with different substitute products. Thus there is a threat of substitute in the market in terms of services provided. But in Your Burger Point, though the services are similar but the prices and hygienic burger do vary.
•
Bargaining Power of Buyers: The bargaining power of buyers is high due to competitive market. As the numbers of shops are in increasing number, buyers are gaining advantages of substitute place to get service.
•
Bargaining Power of suppliers: The bargaining power of suppliers is less again due to competitive market and burger shops are compelled to offer its services at low price with high quality services then only they can attract and retain their customers. Since there are numerous business houses that provide the raw materials like pattymeat, bread roll, lettuce, tomato, onion, mayonnaise, ketchup, and relish. We can choose the most reliable, effective and reasonable supplier to meet our requirements.
CHAPTER IV MARKETING STRATEGIES 4.1 Customer Analysis: 4.1.1 Segmentation There are so many customers in Nepal and we have segmented the customers according to the demographic area like urban area, income level: middle class and others. 4.1.2 Target Though there are so many customers we can target on but due to limited resources and time constraints we are only targeting the Newroad area that is the most busiest to target urban youths and adults who want quick and tasty lunch without hassle so there will be opportunities of selling more of our products and take competitive advantages. 4.2 Marketing Plan 4.2.1 Business objective Burgers are general products that are readily available everywhere. In spite of its general tendency there are certain elements in the product as well as service that differentiate one burger from another. As YOUR BURGER POINT is new entrants in the takeaway burger segment, our initial strategy is to maximize sales in order to create a loyal customer base so as to build a strong brand that will differentiate it from the competitors and also create barriers for new comers. This strategy will be perused for next 3 to 5 years so as to stabilize our market in order to fulfill our long-term objective of building a brand that will be synonymous to tasty and quality burgers. 4.2.2 Target segment We will be basically targeting three segments of the burgers based on burger variant as we need to provide variety of products to the market. The three segments will be hamburger, chicken burgers and veggie burgers.
Table 3: Summary of Estimates (Sales Target, Revenue, of Each Segment) ::
Market Segments
Ham
Chicken
Veggie
Total
Total sales target in units
36956
22174
9855
68985
Total sales revenue ( Rs)
2956500
1884769
739125
5580394
Through this survey, the total per year demand of burgers was found out to be about 547,500. Similarly, within burgers, demand for Hamburger was found out to be 273,750; Chicken-burger was found out to be 164,250 and Veggie-burger was found out to be 109,500. With this demand on mind, I planned to serve only 15% of total market and with 90% capacity utilization for the initial year. The total sales target for the first year is about 68,985 burgers. 4.3 Marketing strategies The demand sensitivity for all variants of burgers is assumed to be same considering the little difference among the products. It is fairly assumed that Rs 1 increase in price will decrease in demand of burger by 1000 units. Similarly, Rs 50,000 spent on promotion per year will lead to increase in demand by about 11,000 units . Likewise, a new addition of the store requires about Rs 500,000 of additional investment that will increase the demand by about 90,000 burgers per year. Appropriate mix of place, promotion and price is chosen for each burger variants so as to maximize sales. For hamburgers, the price will be decreased to Rs. 80 that is Rs. 5 will be reduced to the market price. There won’t be any place strategy, as it will involve extra investment in fixed assets, as we will need to open up an exact same store in another location. Similarly, 3.3 units of promotion will be done amounting to Rs 165,000. It is logical to decrease the price by Rs. 5 as it will help to attract new customers. We will be doing much promotion in newspapers and magazines as well as using social media for creating buzz in the market. For chicken burgers, the price will be decreased by Rs. 5 to make it Rs. 85. No distribution channel will be added and 1.8 units of promotion will be done amounting
to Rs 90,000. Similarly, for veggie burgers, the price will be decreased by Rs. 5 to make it Rs. 75. In this segment too we will not be adding any distribution channel and using 0.5 units of promotion amounting to Rs 25,000. Even though the promotional expenses for each of the products variants are estimated separately. The advertisements and promotions of one-product variants will provide synergistic effects to other product variants. 4.4 Positioning Products may be positioned in many different ways. Generally, the way they are differentiated and the benefits they offer. 4.5 Product Attributes The basic goal of positioning strategy is to own a word that ranks the product in prospect’s mind as a Hygienic. We would equip our workers with disposable gloves preparing raw materials such as cooked patty of ground meat, bread roll, lettuce, tomato, onion, mayonnaise, ketchup, and relish. 4.6 Benefits Burger would be the tastiest and healthiest food that would reach the customers. 4.7 Marketing Mix The marketing mix of Your Burge Point consists of the various elements in the marketing mix that forms the core of a company’s marketing system and hence helps to achieve marketing objectives. Product We are providing hamburgers, chicken burgers and veg burgers to the customers with very hygienic and great teaste. However, customers’ requirements change over time. In order to meet these changes, Your Burger Point will introduce new products and will continue to do so. Care is taken not to adversely affect the sales of one choice by introducing a new choice, which will cannibalize sales from the existing one. Price The customer’s perception of value is an important determinant of the price charged. Customers draw their own mental picture of what a product is worth. A product is more than a physical item, it also has psychological connotations for the customer.
The danger of using low price as a marketing tool is that the customer may feel that quality is being compromised. It is important when deciding on price to be fully aware of the brand and its integrity. Promotion The promotions aspect of the marketing mix covers all types of marketing communications One of the methods employed is advertising, Advertising is conducted on in the press for example in newspapers and magazines. Place Place, as an element of the marketing mix, is not just about the physical location or distribution points for products. It encompasses the management of a range of processes involved in bringing products to the end consumer. The shop is located in the busiest place of the Kathmadu i.e. Newroad. People The employees in Your Burger Point have a standard uniform and it specially focuses on friendly and prompt service to its customers from their employees. Process The production process consists of converting various raw materials into burgers. The basic process includes preparing raw materials such as cooked patty of ground meat, bread roll, lettuce, tomato, onion, mayonnaise, ketchup, and relish. Then as the customer's orders, the store manager will inform the cook and the helper. The cook will then put the patty into the grill and bread roll into the oven. In the mean time, the skilled staff will source all the necessary ingredients and both of them in coordination will prepare burgers according to orders. The store manager will then prepare receipt and hand over the burger and receipt to the customer and collect the payment. Physical evidence Your Burger Point focuses on clean and hygienic interiors of of the shop.
CHAPTER V OPERATION PLAN
5.1 Production (operation) process The production process consists of converting various raw materials into burgers. The basic process includes preparing raw materials such as cooked patty of ground meat, bread roll, lettuce, tomato, onion, mayonnaise, ketchup, and relish. Then as the customer's orders, the store manager will inform the cook and the helper. The cook will then put the patty into the grill and bread roll into the oven. In the mean time, the skilled staff will source all the necessary ingredients and both of them in coordination will prepare burgers according to orders. The store manager will then prepare receipt and hand over the burger and receipt to the customer and collect the payment. Figure 1: Operation Process of Your Burger Point
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Supplier’s decisions In order to gain competitive advantage selecting key supplier is a must. Where and what we buy or need to buy in the future should be thus properly analyzed. After having done the market survey, we have decided to custom make the necessary furniture from the Wood craft, a local furniture maker. They have ensured us effective delivery of qualitative goods and serviced with custom made designs with certain discounts.
5.2 Locations and Facility The shop will be located at New Road, Kathmandu. We regard this location as appropriate for our business because this area comprises of both the residential and commercial sector. This area has potential market with presence of many restaurants, banks, beauty parlors, clothing store, shopping complex and accessibility to transportation facility. 5.3 Capacity utilization The capacity utilization for year 1 is 90% and expected to increase at the rate of 10% per annum throughout the years. Total sales target for the year 2015 is 68,985 burgers with the monthly average of about 5,749 burgers. Total of 36,956 hamburgers, 22,174 chicken burgers and 9,855 burgers are expecte d to be produced in 2015. The weighted average price of burgers was found out to be Rs. 80.89; the total promotion expense is expected to be Rs. 280,000 per annum. Table 4: Capacity Utilization of Your Burger Point Sales Forecasting
Capacity Utilization (%)
Year 1
90
Year 2
Sales Target
Monthly
Daily
68985
5749
189
100
76650
6388
210
Year 3
110
84315
7026
231
Year 4
120
91980
7665
252
Year 5
130
99645
8304
273
5.4 Fixed assets As the store is planning to be operated in the rented space, fixed assets such as land and buildings will not be involved. The equipment and machinery headings of the fixed assets contain machines such as burger grill and fryer, microwave oven, refrigeration unit with freezer and a computer for billing. Similarly, Furniture and fixtures consists of cabinets and other items. The total amount allocated for Machinery and Equipment and Furniture and Fixtures is Rs 400,000 and Rs 100,000 respectively. The costing of the required assets was done as
per the brief market survey where suppliers of equipment’s and owners of burger vendors were consulted for the pricing of the assets required for setting up this establishment. The followings are the fixed assets. Table 5: Fixed Assets Particulars
Amount
Machinery & Equipment
400000
Furniture
100000
Total Fixed Assets
500000
Machinery and equipment is depreciated at the rate of 10% whereas furniture and fixtures at the rate of 20%, total amounting to Rs 60000 per annum. 5.5 Raw materials The total raw material cost for three product lines were calculated based on percentage of selling prices. 55% of the selling price consists of actual cost of raw materials which amounts to about Rs 255,768.05
Table 6: Raw material Cost Raw material per month Raw materials in prop to sales
Proportion 55%
Amount/unit Amount (cost per month) 44.49
255768.05
5.6 Labor One cook and a support staff will be used interchangeably for operating the store whose salary will be 12,000 each with total amounting to 24,000. The total cost for labor is summarized below:
Table 7: Labor Cost Labor
Number of labor
Rate/month
Amount
Skilled
2
12000
24000
Semiskilled
0
-
-
Unskilled
0
-
-
Total
24000
5.7 Overhead expenses The total factory overhead will amount to 67,000 per month which includes rent of Rs. 60,000 which is a going rate for shutter in busy streets of New Road; electricity bill of about 2,000 and utilities of about of 5000. Table 8: Overhead Expenses Factory Overhead
Per Month
Rent Expenses
600000
Electricity
2000
Utilities
5000
Total factory overhead expenses
2000
5.8 Per unit costs The total factory cost will amount to about 346,768.05 and per unit factory cost will be about Rs 60.32. !"#$% '( )%* +,-. /01. )"*.-23$"*
Raw materials cost
4503,.
255768.05
Labor cost
24000
Factory overhead expenses
67000
Total monthly sales target (units)
5749
Per unit factory cost per month
60.32
CHAPTER VI ORGANIZATIONAL AND MANAGEMENT PLAN 6.1 Form of organization: The organization will be registered as a partnership firm under Partnership Act, 2020 (1964) of Nepal with two partners. 6.2 Organization structure of management team and their profiles Since the organization set up will be relatively very small, the structure will be flat and have very informal but professional culture. YOUR BURGER POINT will have a simple organisational structure with two partners handling the general management functions and decision-making. Likewise, one store manager will handle the day-today operation of the stores and two other skilled support staff will be employed in order to prepare and serve burgers. (Refer Annex 2 for organisational chart). The profile of partners is as follows. Sunil Shrestha: Sunil is currently pursuing his master’s degree in business administration from D.A.V. Business School with major in Marketing. Sushma Maharjan: Sushma is currently pursuing his master’s degree in business administration from D.A.V. Business School with major in Finance. Figure 2: Organizational Structure
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6.3 Fixed assets As, there won’t be any formal office infrastructure so there will not be any fixed assets involved for administrative and organizational purpose. 6.4 Administrative expenses The two partners will act as the overall manager of the business so Rs 20,000 have been separated to both of them as their monthly salary. This is to support the notion that remaining accumulated profit will be reinvested in the business for expansion. Similarly, as the store requires one manager to handle the day-to-day operation, store manager will be employed to handle inventory as well as daily sales activities. His monthly salary will be Rs 15,000 amounting 180,000 per annum. Similarly, his cell phone bill will also be reimbursed up to Rs 2,000 per month that is the only administrative expenses.
Table 10: Administrative Expenses
Administrative Expenses Salary
55000
Overhead: Electricity
0
Stationary
0
Others
2000
Total
57000
6.5 Pre-operating expenses The pre-operating expenses include expenses made prior to the inception of the actual business and contain registration fees and expenses made for research and survey. The expenses are presented in the table below:
Table 11: Pre-operating Expenses Pre-operating expenses
Amount
Registration
10000
Survey and business plan
10000
Total
20000
CHAPTER VII FINANCIAL PLAN
7.1 Total Capital The total capital consists of fixed assets that will be used in factory, pre- operating expenses and working capital:
Table 12: Total Capital Fixed Assets
500000
Pre-Operating Expenses
200000
Working Capital
188384.54
Total Capital
708384.54
The total working capital is calculated for different days of inventory of materials and credit sales: Table 13: Working Capital Days
PUC
Amount
Raw Material Inventory
2
17051.20
Work In Progress Inventory
0
-
Finished Products Inventory
0
-
Account Receivables
0
-
Cash for One Month
171333.33
Total Working Capital
188384.54
The total cash is equivalent to all monthly expenses for labor, factory expenses, administrative expenses and marketing expenses. Majority of raw material is highly perishable in nature. So, raw material are only stored for 2 days considering its easy availability, transportation ease and lead-time. There is no work in progress inventory in production process as inventory is sourced as needed. Similarly, there is no finished products inventory as burgers are prepared as the customers' orders. Likewise, the there is no account receivable as all the sales will be in cash.
Therefore, total capital = fixed assets + pre-operating expenses + working capital which is equal to Rs 708,384.54. 7.2 Financing plan and interest rate 42% of the business is supposed to be financed by taking a long-term loan from the bank at the rate of 12% per annum. Similarly, the owners will finance the balance that is 58%. Thus, total of Rs. 300,000 will be taken as a long-term loan where as rest the owners will finance Rs 408,384 itself. The company will not take any short-term loan to finance its working capital. The financial plan is presented as follows. Table 14: Financial Plan and Interest Rate Particular
Equity
Loan
Total
Interest
Land
-
-
-
Building
-
-
-
Machinery and equipment
100000
300000
400000
Furniture and fixture
100000
-
100000
-
-
-
200000
300000
500000
40%
60%
100%
20000
-
20000
Working capital
188384.54
-
188384.54
Total
408384.54
300000
708384.54
58%
42%
100%
Vehicles Office equipment Total Percentage Pre-operating expenses
Percentage
12%
10%
7.3 Loan Repayment Schedule Rs 300,000 will be taken as a long-term loan from a bank. The interest rate for the loan is 12% per annum. The loan repayment schedule for five years is presented in the table below.
Table 15: Loan Repayment Schedule Year
Outstanding loan
Interest
Principal
Total Installment
1
300000
36000
47222.92
83222.92
2
252777.08
30333.25
52889.67
83222.92
3
199887.41
23986.49
59236.43
83222.92
4
140650.98
16878.12
66344.80
83222.92
5
74306.18
8916.74
74306.18
83222.92
7.4 Pricing strategy and final price Various pricing strategy was considered ranging from cost plus pricing to comparative and marketing skimming. If we follow a cost-plus pricing strategy and add 20% mark at the per- unit cost, the final selling price is Rs. 89.78. If a Market Skimming strategy is used and premium price is charged, the final selling price is fixed at Rs. 100 and subtracting per unit cost calculated Rs. 74.8, the markup will be is Rs. 25.18. The final per unit cost is calculated to be Rs. 74.82 and as the market is highly competitive, we will use competitive pricing where the weighted average price is found to be Rs. 80.89 with a markup of Rs. 6.08 Table 16: Pricing Strategy
Pricing PUC Marketing Expenses Admin cost Interest expenses Total market, admin & interest Production unit
Cost plus
Comparative
Market skimming
60.32 23333.33 57000 3000 83333.33 5748.75
Per unit market, admin, interest
14.50
Total per unit cost
74.82
74.82
74.82
Add % mark up
14.96
6.08
25.18
Price
89.78
80.89
100
CHAPTER 8 FINANCIAL ANALYSIS 8.1 Projected financial statements 8.1.1 Projected Profit and Loss As the profit and loss table shows, YOUR BURGER POINT expects to continue its steady growth in profitability over the next five years of operations. The profit for the first year will be Rs. 359,177.19 and will increase throughout the years to be Rs 1,374,339.20 at the end of fifth year. The complete projected profit and loss statement of YOUR BURGER POINT is as follows. Table 17: Projected Profit And Loss Statement Particular Capacity
Year 1
Year 3
Year 3
Year 4
Year 5
90%
100%
110%
120%
130%
68985.00
76650.00
84315.00
91980.00
99645.00
Sales revenue
5580393.75 6200437.50
6820481.25
7440525
8060568.75
Raw material
3069216.56 3069217.56
3069218.56
3069219.56
3069220.56
Labor
288,000.00
320,000.00
352,000.00
384,000.00
416,000.00
60,000.00
60,000.00
60,000.00
60,000.00
60,000.00
804,000.00
804,000.00
804,000.00
804,000.00
804,000.00
4221216.56 4594240.63
4967264.69
5340288.75
5713312.81
1359177.19 1606196.88
1853216.56
2100236.25
2347255.94
Sales unit
Depreciation Factory overhead Total
factory
cost Gross profit Administration
684,000
684,000
684,000
684,000
684,000
Marketing
280,000
280,000
280,000
280,000
280,000
964,000
964,000
964,000
964,000
964,000
395,177.19
642,196.88
36,000
30,333.25
359,177.19
611,863.63
expenses Total admin & marketing EBIT Interest EBT
889,216.56 1,136,236.25 1,383,255.94 23986.49
16,,878.12
8,916.74
865,230.07 1,119,358.13 1,374,339.20
Accumulated
359,177.19
971,040.81 1,836,270.89 2,955,629.02 4,329,968.22
Profit
8.1.2 Net Present Value Table 18: Net Present Value Year 0 1 2 3 4 5
CFAT (Net Cum CFAT PV Income) factor@10% 708,384.54 -708,384.54 1 359,177.19 -349,207.35 0.909 611,863.63 262,656.28 0.826 865,230.07 1,127,886.35 0.751 1,119,358.13 2,247,244.48 0.683 1,374,339.20 3,621,583.68 0.621
PV -708,384.54 -317,429.48 216,954.08 847,042.64 1,534,867.98 2,249,003.46 3,822,054.16
8.1.3 Pay Back Period (PBP) PBP = Minimum year + Amount to be recovered / recovery year CFAT = 1+ 349,207.35 / 611,863.63 = 1.5707 years 8.1.4 Projected Cash Flow The cash flow statement shows the Cash Inflows and Cash Outflows of the BUGER JOINT to project the Net Cash Flow of the business. The net cash flows from Year 1 to Year 5 is calculated to be Rs 354,903.06, Rs 618,973.96, Rs 865,993.64, Rs 1,113,013.33 and Rs 1,360,033.02 respectively.
Table 19: Projected Cash flow Statement
Total Cash
Year 0
Year 1
Year 2
Year 3
Year 4
708384.54
5580393.7
6200437.50
6820481.25
7440525.00
8060568.75
5581463.54
5954487.61
6327511.67
6700535.73
Inflows Total Cash
5 520000
Outflows Net Cash
Year 5
5225490.6 9
188384.54
354,903.06
618,973.96
865,993.64
1,113,013.33
1,360,033.02
-
188,384.54
543,287.60
1,162,261.56
2,028,255.20
3,141,268.53
188,384.54
543,287.60
1,162,261.56
2,028,255.20
3,141,268.53
4,501,301.55
Flow Opening Balance Closing Balance
The cash flow statement illustrates that Your Burger Point expects to maintain a steady rate of cash flow over the next five years of operations. Please refer to Annex 3 for the complete projected cash flow statement. 8.1.5 Projected Balance Sheet YOUR BURGER POINT is to maintain a healthy balance sheet. Please Refer Annex 2 for complete projected balance sheet. 8.1.6 Breakeven analysis Analysis shows that YOUR BURGER POINT will break-even at 83.84% of total sales in the 1st year. It is also because the capacity utilization is 90% in initial period. It can also be attributed to gestation period. BEP would continuously decrease in the upcoming years with higher utilization of capacity and improvement in sales and costs. This break-even decreases to 57.20% by the end of 5th year
Figure 3: Five Years BEP
8.1.7 Net Present Value (NPV) The NPV of the YOUR BURGER POINT is Rs. 2,335,908, i.e. positive. Hence, the business is a profitable and sustainable one because the cash inflows from the business in future are positive. 8.1.8 Overall Feasibility The feasibility of YOUR BURGER POINT can be indicated by is market opportunities, growth prospects of BEP, positive NP, increasing Cash flow. The market dynamics present the feasibility of the business in terms of opportunities to solve the customer’s problem and meet their requirements. So, based on the above detailed feasibility analysis of the project, it can be concluded that: •
We can see that the BEP will been declining gradually till the 5th year, which is a very good sign for the business.
•
The Net Present Value of the business is positive.
•
The expected future cash flows of the project are greater and increasing.
APPENDICES Annex 1 Projected Cash flow Statement
Particulars
Year 0
Cash Receipts Equity Debt
408,384.54 300000 .00
Cash sales Total Receipt Disbursement Fixed Asset Pre-operating Expenses Increase in Inventory Factory Expenses
Year 1
-
Year 2
-
Year 3
-
-
5,580,393.75 6,200,437.50 6,820,481.25 7,440,525.00
8,060,568.75
-
-
Year 5
-
708,384.54 5,580,393.75 6,200,437.50
500,000.00
Year 4
6,820,481.25 7,440,525.00
8,060,568.75
-
-
-
-
20,000.00
-
-
-
-
-
-
17,051.20
-
-
-
-
- 4,161,216.56 4,534,240.63 4,907,264.69 5,280,288.75
5,653,312.81
Administration
-
684,000.00
684,000.00
684,000.00
684,000.00
684,000.00
Marketing Interest Principal Total Disbursement Surplus or loss (A-B) Opening balance
-
280,000.00 36000.00 47,222.92
280,000.00 30,333.25 52,889.67
280,000.00 23,986.49 59,236.43
280,000.00 16878.12 66,344.80
280,000.00 8,916.74 74,306.18
520,000.00 5,225,490.69 5,581,463.54 5,954,487.61 6,327,511.67
6,700,535.73
188,384.54
354,903.06
618,973.96
865,993.64 1,113,013.33
1,360,033.02
-
188,384.54
543,287.60 1,162,261.56 2,028,255.20
3,141,268.53
Ending Balance
188,384.54
543,287.60 1,162,261.56 2,028,255.20 3,141,268.53
4,501,301.55
Annex 2 Projected Balance Sheet
YEAR 0 ASSETS Fixed Assets Gross Accumulated Depreciation Net Fixed Assets Pre-operating Expenses Current Assets Inventory Account Receivable Cash Total Assets
500,000.00
PROJECTED BALANCE SHEET YEAR 1 YEAR 2 YEAR 3
YEAR 4
YEAR 5
500,000.00
500,000.00
500,000.00
500,000.00
500,000.00
60,000.00
120,000.00
180,000.00
240,000.00
300,000.00
500,000.00
440,000.00
380,000.00
320,000.00
260,000.00
200,000.00
20,000.00
20,000.00
20,000.00
20,000.00
20,000.00
20,000.00
17,051.20 -
17,051.20 -
17,051.20 -
17,051.20 -
17,051.20 -
188,384.54 543,287.60 1,162,261.56 2,028,255.20 3,141,268.53 4,501,301.55 708,384.54 1,020,388.80 1,579,312.76 2,028,255.20 3,438,319.73 4,738,352.75
LIABILITIES Term loan 300,000.00 252,777.08 199,887.41 140,650.98 74,306.18 Short term loan Initial Equity 408,384.54 408,384.54 408,384.54 408,384.54 408,384.54 408,384.54 Profit 359,177.19 971,040.81 1,836,270.89 2,955,629.02 4,329,968.21 Retained Total Equity 408,384.54 767,561.72 1,379,425.35 2,244,655.42 3,364,013.55 4,738,352.75 Total Capital 708,384.54 1,020,338.80 1,579,312.76 2,385,306.40 3,438,319.73 4,738,352.75 & Liabilities
