Ethnic Food Restaurant Business Plan Executive Summary Our initial statement to Investors and Financial Lenders, this restaurant/ethnic food business plan, is a candid disclosure of the Zara Restaurant & Lounge business proposal - our intent is to set realistic business expectations, and eliminate any questions about the profitability of this business venture. Entrepreneurs have a tendency to paint pai nt the restaurant business plan with a very optimistic brush, highlighting strengths and camouflaging the risks. risks. We, as business owners, have a vested stake and financial commitment in the success of thi s restaurant. Our intent is to have a definitive business, financial, and marketing plan that not only onl y serves our need for capital financing, but is utilized as our daily business roadmap. We have taken all precautions to validate our business and financial models, focusing on realistic projections. We have accomplished this as follows: 1. Our financial model is rooted in industry industry facts, not optimism. We have based costs on our vast industry and practical experience with similar ventures, validation against National Restaurant industry cost averages, and analysis against l ocal Atlanta market averages. We have taken a collective look at all figures to mak e solid business estimates. 2. Our business concept was derived from detailed Market Analyses. Instead of building a business around a preconceived concept, we analysed the market findings and built a concept around our consumers. In other words, w ords, our business is built to service an unmet consumer 'want'. 3. A buffered financial plan that ensures adequate capitalization. A contingency buffer is included in the start-up cost to ensure the business in not under financed, as well w ell as giving the business adequate funding to sustain it in the first six months of start-up. Our industry experience confirms a longer ramp-up stage for restaurants over other retail/service businesses. A common mistake for new entrepreneurs , but fully addressed in this business plan. 4. A solid Risk Mitigation Plan. We have evaluated traditional and non-traditional non-traditional risks associated with Restaurant failure and accounted for f or them directly in the business plan. Instead of dismissing the risks, we have identified valid mitigation strategies for eac h. 5. Deep Management Experience. Our management team has 20 years combined experience, involved with over 86 restaurant openings, and deep i nvolvement with the Atlanta restaurant industry. The total capital requirement to launch Zara Restaurant & Lounge is $740,000, of w hich $643,000 is allocated to start-up capital, and $97,000 as business operations cash reserve. This Plan is being submitted in order to secure a Business loan for $430,000. The loan will be used towards Equipment purchase, Design, Construction, and Operational Start-Up expenses. Owners, Mr. Alex Hunte and Mr. Peter Smith are investing $110,000 in personal capital. Private Investors, who will be part owners with a non-managerial interest in the business, will contribute the remaining $200,000. As owners, our commitment is to take personal accountability for all financial debt. We have taken the necessary precautions to ensure the business is fully capitalized, and have addressed al l financial shortfalls to ensure a successful business start-up. Under a realistic scenario, the company should have over $84,000 in cash c ash balance the third year. Even with the worst-case sales scenario, we reach a Net Worth break even at the end of Year 5. On a linear projection, the entire financial debt will be retired by Year 7.
Mission y
y
y
Zara will be an inspiring restaurant, combining an eclectic atmosphere with excellent and interesting food. The mission is to have not only a great food selection, but also efficient and superior service - customer satisfaction is our paramount obj ective. Zara will be the restaurant of choice for a mature and adult crowd, couples and singles, young and old, male or female. Employee welfare, participation, and training are equally important to our success. Everyone is treated fairly and with the utmost respect. Our employees will feel a part of the success of Zara Restaurant & Lounge. Our concept combines variety, ambiance, ent ertainment and a superior staff to create a sense of 'place' in order to reach our goal of overall value in the dini ng/entertainment experience. We offer fair profits for the owners and investors, and a rewarding place to work for the employees.
Keys to Success 1. Unique, Innovative & Contemporary: The creation of a unique and innovative fine dining atmosphere will differentiate us from the competition. The restaurant will stand out f rom the other restaurants in the area because of the unique design and decor. W e will offer a fine dining experience in an electric atmosphere. 2. Product quality: great food, great service and atmosphere. 3. µSpice of Life' Menu: The menu will appeal to a wide and varied clientele. Our eclectic menu features regional specialties around the globe, from Spanish ceviche, to Thai and Indian curries, to local crabcakes. 4. Employee Retention Focus: Employee retention and development programs will be a primary focus and success platform for thi s business. Through these programs, we will be able to draw seasoned and elite professionals and build a committed work force. We have budgeted for a stock option program for Chef and Management positions to subsidize a lower salary base. This lowers our immediate overhead and attracts quality staff . 5. Cost Control Focus: We will control costs at all times, without exception. Cost Control will be an integrated function of the restaurant from the onset. Cost control is about managing the numbers - interpreting and comparing the numbers that i mpact the bottom line. 80 percent of t he success of a restaurant is determined before it opens. Our focus is to reduce the cost of goods sold to meet our profit margin goals by managing the following crucial elements of cost: Purchasing, Receiving, Storage, Issuing Inventory, Rough Preparation, Service Preparation, Portioning, Order Taking, Cash Receipts, Bank Deposits and Accounts Payable. We will use of this restaurant/ethnic food business plan to track actual costs against our forecasts in managing the business.
Objectives Zara Restaurant & Lounge's objectives for the first three years of operation include: y
y
Keeping food costs at less than 35% of revenue. Improving our Gross Margin from 65.41% in Year 1 to 67.10 in Year 2. These are attainabl e targets; our µstretch' is to attain 70.73% by Year 3.
y
Keeping employee labor cost between 37-39% of total sales.
y
Remaining a small, unique restaurant with eclectic food and service.
y
y
y
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Averaging sales between $1,200,000 - 1,500,000 per year. Promoting and expanding the Zara restaurant concept as a unique Midtown destination restaurant. Expanding our marketing and advertising in Atlanta and in the neighboring suburbs to increase our customer base. Achieving a profitable investment return for investors for Years 2 - 6.
Company Summary The Design Zara Restaurant & Lounge is unique to Midtown Atlanta. The restaurant features 3 venues in one (a concept called µMulti-Branding' ): A Tapas Lounge, Cosmopolitan Bar, and Full Service Dining. This concept offers customers variety, offering multiple dining and entertainment options within a single establishment. The spatial and menu divisions will broaden our appeal and provide our customers with a different experience on each visit. The atmosphere caters to a young but mature adult crowd. This is not a family dining establishment. Total space requirements are 3,000 square feet. In total, the restaurant will provide seating f or 110 patrons. Where possible, consideration will be given to incorporate a dining patio. Zoning, parking, and accessibility issues will be reviewed as key cri teria. We will draw on our Advisory Board as part of the site selection and lease negotiation.
The Menu Zara is focused on servicing Atlanta's grow ing demand for an ethnic eating experience. For lack of a better term we are launching a µmulti-ethnic' cuisine restaurant - a restaurant concept that responds to Atlanta's need for selection and choice. Zara is a complimentary mingling of international cuisine on a single menu. The Midtown demographics fit this concept perfectly.
The Management Our management team has over 48 years combined e xperience in food, restaurant and hotel, business management, finance, and marketing arenas. Operating Criteria
The restaurant will be located in Midtown. The restaurant w ill service lunch, dinner, and after-hours dining during the week and weekends. The restaurant will operate during peak service time to take advantage of street traffic, and after-hour patronage from the entertainment facilities in the area. Service will be available during the following hours: Lunch: Monday to Saturday, 11 a.m. - 2:30 p.m. Dinner: Monday to Saturday, 5:30 p.m. - 12 midnight Sundays - Market brunch takeout only.
Services Zara Restaurant & Lounge will feature international dishes, an eclectic ambiance, and superior service. Our food will be of the finest quality and prepared with exotic flare. Customer satisfaction is the driving force behind our success. We will change our menu every 4 months, but maintain the 'favorites' for loyal patrons. Portions will be modestly sized, garnished with stunning presentation.
Our wine list will be modest and primarily focused on wines from California, Spain, Portugal, and Argentina. Approximately 25% will be available exclusively by the glass, and the remaining labels will be available by the bottle. We will also feature a moderate international beer selection on tap and in bottles. The Zara bar features a comprehensive selection of local and int ernational spirits. The kitchen staff will have the best i n culinary education and work experience. Their c reative talents will compliment one another. The lounge and restaurant staff will offer the finest service in an electric atmosphere and offer customers an extraordinary dining experience.
Zara Menus Zara's varied international menu will feature Thai, Chinese, Spanish, and other regional flavors. The menu flows together to create complementary elements. Normal dining will have a reduced Tapas, Appetizer and Entrée selection, while the Fusion Dim Sum menu will have special items featured only for after-hours dining. The final menu will be defined by the Executive Chef and paired with the wine menu. We have caref ully selected a premium wine, beer, and alcohol listing, from which we will choose a modest rotating selection. Zara's marketing will focus on our exotic foods, but our hours, target market, and location will produce significant alcoholi c drinks sales. Tapas, in particular, are small dishes meant for sharing while drinking sangria, wine, or other mixed drinks, and the Tapas menu will play up this idea with drink suggestions. The list below offers a small selection of our opening menu offerings: Zara Tapas y
y y
Shrimp Baskets w/ sweet & sour peanut couli s Minced curry beef/chicken w/ onions in roti wrap (or spring roll) Mixed Seafood Ceviche w/ couscous siding Bamboo Chicken Satay w/ kaffir lime and Sesame marmalade
Zara Appetizers y y y
Bread basket served with Olive oil, Black Pepper, and Goat Cheese dip Blue Crab Fritters with Mango-Tamarind sauce Crab Cake medallions w/ Shrimp & Lobster µZara'
Salads y y
Mixed Greens with Spanish sherry wine vinaigrette Asian Pear and Endive Salad with Blue Cheese & Walnuts
Entrees y y y y
Tequila Scallops w/ a Spanish sherry reduction Thai Red Chili rubbed shrimp Voodoo Prince Curry Chicken and Bock Chow w/sticky rice in Banana Leaf Herb Roasted Chicken with µZara' Coo-Chee (House ) spices
Desserts y y
Chocolate Chunk Bread Pudding w/ Bourbon Cherry sauce Zara Chocolate Explosion ± Milk, Dark and White chocolate
y
Zara Fruit Plate
Specialty Drinks & Coffees ($3.5 - 9.5) A key source of revenue for the restaurant will be alcohol and bar sales. The restaurant will feature exotic drinks on a separate menu. Alcoholic drink specials will be featured, as well as a l arge nonalcoholic selection. After-hours bar service will feature selections of non-alcoholic drinks to increase bar sales during lunch and after regulatory hours. Bar pricing is competitive; prices range from $3.50 to 6.95. Non-alcoholic drinks will be in the higher price bracket due to preparation requirements. Prices will range from $4.75 to 9.50.
Market Analysis Summary Instead of building a business around a preconceived concept, we conducted market researchand built a concept around our consumers. Our market analysis identified the following key dri vers as areas of opportunity to service Atlanta's re staurant customers: 1. Portion Selection: Nearly 95% of our surveyed focus group endor sed having a choice of different size portions. This statistic is in line with findings reported by the T ableservice Operator Survey. Zara's Tapas concept is built to offer different-sized portions. Our customers want the option to choose what satisfies their appetite. 2. Menu Variety: Ethnic restaurants are increasing in Atlanta. The proliferation of international cookbooks, food magazines, TV cooking shows and imported goods offers ample evidence that America, as a whole, is currently on an int ernational tasting spree. In fact, eating places that identify themselves as ethnic establishments numbered nearly 78,000 in 1999 and recorded sales of $30.5 billion. Our research results do not identify any single ethnic style of restaurant as desired, but rather suggest that incorporating strong multi-ethnic influences in the menu selection will be popular. Again, variety is the underlying el ement for this concept. 3. The Dining Experience: Customer satisfaction with food and service has been and continues to be of utmost importance, but our findings indicate that the décor, lighting, bar, and other options to improve the dining experience are also factors in customer decisions. Zara takes all these factors in consideration for the design of this cosmopolitan restaurant. 4. Reasonable Prices: This was no surprise given the economic tide. Although the restaurant industry as a whole has seen growth in 2002/2003, customers are demanding value for their dining dollar. Zara's menu is priced at a mid-tier level, with no entrée over $20. In addition we have an extended Tapas and Appetizer selection priced between $3.50 - $9.50, allowing budget dining in a full-service restaurant.
Market Segmentation Zara's Restaurant & Lounge intends to cater to a wide customer base. We want everyone to f eel welcome and entertained. We have defined the following groups as targeted segments that contribute to our growth projections: y y y y y
The Business Person Downtown Atlanta Couples The Destination Customer High-End Singles Tourists
These particular market segments are 25-45 years old, have disposable income, and are seeking upscale, trendy, and comfortable restaurant options. These are the types of people who frequent
ot t t i t . li l to ore on exper iences t ey percei e s ni e, cosmopo lit n, nd sophisti cated. hey are al so the most open totryi ng somethi ng new, f oodw i se, and will embrace our i nternati onal f usi on cuisi ne.
Target
arket Seg ment Strategy
iness Person: hey work hard all day and often stay overni ght i n a strange cit y. hey need The a compe tent establi shment that hel ps i mpressc li ents and prospect s. Afterward, they want to rel ax and use the money they are mak i ng or is expensed by thei r company . hey spend the most on dr i nks, f ood and tips. ara's cosmopo lit an fl ai r and comf or tabl e atmosphere will be per f ect f or sophi sti cated busi ness peop l e, whether they li ve i n and around Atlanta or are here f or work. Downtown tlanta oup les: he restaurant will have an intimate, romantic, entici ng adult atmosphere that suggests "date." ara's will be the best date l ocation i n town. hese young i dtown coupl es are genera ll y very successf ul worki ng prof essi onals. In most cases they are budgeitng to eat out on a regul ar basi s, as they don't have the time to prepare f ood ni ghtly. The Destinat ion usto mer: Atlanta i s a very 'secti oned' cit y, and consumers often look onl y i n thei r own nei ghborhoods f or restaurant opti ons. ara will break these habit s, usi ng marke ting to draw customers f rom outside the mai n cit y li mit s. ara will be a desti nation restaurant. ur esti nation li ents tend to be new suburbanit es that mi ss the excitement of the i nner cit y. hey have di sposable i ncome , and will spend uite a bit on such outi ngs. ara's will be especiall y appeali ng to marr ied suburban coupl es i ndulgi ng themselves wit h a "date night" downtown, away f rom the kids. any of these consumers are new to Atlanta f rom l arger citi es, accustomed to di ning withi n the cit y and at non- f ranchised restaurants. High-end Sing les: e will attract them wit h our ecl ectic atmosphere and l ayou t. ur i nternati onal menu, str i ki ng decor , enter tai nment and events, exce ll ent servi ce and engag i ng cli entel e will confi rm the f eeli ng of bei ng in "the in place " in Atlanta. hese are the i ndividual s that pr i de themselves on soci ali ing and di ni ng at the prem ier l ocations- he Image Seekers. Tour ists: Atlanta attracts many vacati oners dur ing the summer months of ay through September . ara's will be a desti nation di ning l ocale, wit h its attractive atmosphere , international menu, and l ounge. A large percen tage of the tour ist populati on are vacati oni ng singl es, here to soci ali e and be enter tained. his i s especiall y true f or the tour i st popul ati on that visit f or spor ti ng and social even ts they are not interested i n f amil y establi shments.
Serv i e
us iness
na lys is
The restaurant industry is highly competitive and risky. The owners know this through their many years of experience opening, running, and improving restaurants across North America. Most new restaurants opened by inexperienced owners struggle or fail. However, those based on solid understandings of the market needs, and management of inventory and staff have a much higher chance of success, especially when combi ned with prior experience in the restaurant industry. Restaurants make money by taking inexpensive ingredients, combining them in creative ways, cooking them properly, and selling them at a much higher price. Any ingredients wasted in the kitchen are money thrown out. Any time wasted in seating customers, taking orders or preparing food is money walking away. While some entrepreneurs think that success is as simple as a good location and a trendy concept, we know the truth: To succeed in the restaurant industry, you need an understanding of the risks and financial conditions, the ability to handle enormous pressure, and the organizational skills to bring off what is essentially a giant catered party, two to three times a day.
Competition and Buying Patterns In 2003, the top ten Atlanta restaurants shared two things: cozy, hip interiors and reasonably priced, regionally specialized menus. Only one of them offered traditional southern cooking. And half of them were located in Midtown. Our competitors are heading in t he right direction, but only Zara is based on sound market research in the local market. Atlanta consumers are seeking variety and new experiences. Location is clearly important, but so is atmosphere and distinctiveness. Our marketing challenge is thus to stand out f rom our competitors, not only as the new restaurant, but as one that offers consistently high qual ity food, menu variety, and a unique atmosphere. Maintaining our edge will depend partly on m arketing ourselves as an adult-only destination, and not a family restaurant.
Strategy and Implementation Summary Our strategy is simple. We intend t o succeed by giving people a combination of excellent and interesting food in an environment that appeals to a wide and varied group of successful adults. We will focus on establishing a strong identity in our community with a grand opening. Our m ain focus in marketing thereafter will be to increase customer awareness in the surrounding communities. We will direct all of our tactics and programs toward the goal of explaining who we are and what we do. We will keep our standards high and execute the concept flawlessly, so that word-of-mouth will be our main marketing force. We will create an appealing and entertaining environment with unbeatable quality at an exceptional price. As an exciting and eclectic restaurant, we will be the talk of the town. Therefore, the execution of our concept is the most critical element of our plan. All menu items are moderately priced for the area. While we are not striving to be the lowest-priced restaurant, we are aiming to offer exceptional food at reasonable prices for the average restaurant diner. Competitive Edge
Zara's competitive edges are: 1. 2. 3. 4.
The owners' thorough understandings of opening and running a restaurant An extraordinary contemporary restaurant design International menu with featured menu changes every 4 months Unique, 3-Tiered spatial layout
5. 6. 7. 8.
Chef Co-op program to allow new entrants, trainee and featured chef Chef/Management Stock Incentive Program. Inner and Outer City Marketing campaign (i.e. Come to Town promotions) Employee Training, Incentive and Retention program
Market Analysis Conclusion: At the end of the day, everyone that sells prepared meals in thi s district is a Zara competitor, because we all compete for the same home meal replacement dollar. However, there are two segments of the restaurant industry that are our m ain competition: the casual dining restaurant and the fine dining value restaurant. So, if the food and service is better at a fine dining restaurant than a casual restaurant, but price has become a factor as a result of t he economic turns, where is a customer more likely to go? There is no absolute answer to the question, but the solution is to deliver the best food at the best price with the highest level of service in one establishment. This is the very definition of value and t he concept at the heart of Zara's business m odel.
Marketing Strategy Zara Restaurant & Lounge's Marketing strategy will be to promote our electric food, superior service, and exciting concepts to draw in the local repeat customers. Marketing initiatives will concentrate on the following: Building and Signage: The most important Marketing tool that we have is the exterior of our building, and our new sign. We budgeted a great deal into the renovations and decor to generate the aesthetic appeal of Zara. See attached Logo and Web design. Customer Service: In our years within the restaurant i ndustry, customer service has always been the major draw for the dining clientele. Food and atmosphere is f ar out-shadowed by superior customer service that turns a new customer into a repeat customer.
Management will demand the wait-staff provide the very best in quality services to the customer, making certain that they are content and satisfied with their dining experience. Wait-staff are thoroughly trained, and every 90 days they undergo a performance appraisal. This is part of our Employee Manual, and Operations Manual guide. Advertising and Promotion: Our Advertising Plan and media schedule call for targeting customers directly through local publications aimed at , respectively, singles, couples, and destination customers.
Management recognizes the key to success at this time of initial opening is extensive media promotion. This must be done aggressively in order to accomplish our service goals. A healthy budget is allocated for the first year. A primary part of the budget is allocated to create the medi a and customer buzz for the month prior to opening and the next three months af ter the grand opening. The full Marketing program is as follows:. Media Objectives and Strategy: Establish our image as a unique Midtown restaurant with great service, value, and great food served in an eclectic atmosphere. We will maximize efficiency in the selection and scheduling of advertisements by:
y
y y y
y
Selecting primary business publications with high specific market penetration, using The Creative Loafing Dining Section, The Atlanta Journal Constitution, Atlanta City Search, and Social Diva, which all reach our targeted demographi cs. Scheduling adequate frequency of ads to impact market with menu items and promotions. Where possible, positioning advertisements in or near entertainment/food related editorial. Redirecting customers to our website to register for upcoming f unctions, VIP lists, reservations, and flash media promotions. Maximizing ad life with monthly and weekly publications.
Working with The Reynolds Group Media Co. (Zara Advisory Board ), we will develop an advertising campaign built around our Zara Diner theme, menu offering, location, and decor. We will support thi s plan with ads that reinforce the Zara dining concept. Additionally, we will develop a consistent reach and frequency throughout the year, targeting each specific customer segment within a five-mile radius, and new 'suburbanites,' w ho still appreciate intown dining. Promotional Campaign: The best way to reach our potential customers is to develop an intense advertising campaign promoting our Zara concept of Spice of Life. " In addition to standard advertising practic es, we will gain considerable recognition through newspapers, newsletters and public announcements. Consumers will be encouraged to visit our website to be greeted with a flash media intro that highlights the restaurant, past happenings, upcoming attractions and our dynamic menu.
Our periodic customer surveys and weekl y menu item sales evaluations will help us to understand what advertising is working and what is not; basically, who we are reaching. Our goal is to understand our customer, measure the success of our direct marketing and media activities, and redirect advertising as effectively as possible.
Marketing Program In line with our Marketing strategy, we will employ three different marketing tactics to increase customer awareness of Zara: In-Restaurant Marketing, Public Relations Marketing, and Media Marketing. Our most important tactic will be word- of-mouth/in-restaurant marketing. This will be by far the cheapest and most eff ective of our marketing programs. Word-of-mouth/In-Restaurant Marketing y
y
y
y y y y y
Restaurant Night: Every first Monday of the quarter, we will have a special evening for restaurant people. A perfect night for the local area's restaurant ow ners, chefs and staff to get together to discuss the market and food trends, and possible Co-op efforts to promote the Midtown district. This is not a conflict of interest, it is an eff ort to increase visibility and patronage across the Midtown district. We will also invite the Midtown Alliance committee for their participation. Monthly Dating Connection: With the increasing appeal of Internet and speed dating, the restaurant will offer a monthly dating night. In addition to food and beverages, customers can choose from an array of dating packages up f or auction. Wait Area Marketing: Wait staff will service appetizers to customers waiting to be seated or on the wait list. Live Entertainment parties Special Events Valentine's Day Zara Halloween Masquerade party Wine tasting weekend
y
New Year's Eve party
Financial Plan Zara Restaurant & Lounge financial model is based on a business concept to "Plan for the Worst, but Manage for the Best. " We have approached the financial plan as follows: The First Year projections anticipates a below average sales volume, below average seat turn, and above average food/beverage cost. This position will help us ensure sufficient financial planning to accommodate a reasonable ramp-up period, and business success, also ensuring that w e do not enter this venture under-capitalized. Financial Pro Forma In addition to the $110,000 of owner investment and $130,000 in grant monies, Zara is seeking $300,000 in long-term loans and $200,000 in investment for renovations, furniture, kitchen equipment, liquor license, food & restaurant supplies, legal f ees, working capital, marketing and personnel. The Financial Plan includes: y y y y y y y
Important Assumptions Risk Analysis & Mitigation Plan Sales Forecast (5.3.1, above ) Break Even Analysis Profit and Loss Statement Cash Flow Statement Balance Sheet
Investment Opportunities The Zara Investment Program allocates equity position of 20% for a total of $200,000 i n investor capital. The Investment structure is as f ollows: Investment Opportunity Total Investor Funding Opportunity:
$200,000
Minimum Investment Amount
$15,000
Investment Term (Investor Selection )
3-5 Years
Total Equity Offering (1% per $15,000 I nvestment)
20% Max
Starting Year 2 Silver: Projected Annual IRR on Investment of $15,000 $49,000
10%
Gold: Projected Annual IRR on Investment of $50,000 -
11%
$99,000 Platinum: Projected Annual IRR on Investment of $100,000 12% + or more Residuals
Investor Payback Program Each Investor will receive equity shares as a part owner, with a non-managerial interest in the Restaurant. Based on financial estimates, the maximum annual IRR is 12%. Over and above the interest and principal repayment, Investors contributing $100,000 or more will receive residuals for the life of the business as a bonus incentive. As with our investors, our primary goal is to earn real profits and not µPaper Profits'. As such we w ill focus on expediting returns to investors w here possible. Our existing payback structure will begin paying dividend every quarter, starting in Year 2 of business operations. Investors will receive quarterly interest and annual principal reduction payments over the full term of the investment. Payback to Financial and Private investors will tak e priority over any profit shares to the owners, Alex Hunte and Peter Smith.
Important Assumptions The financial plan depends on important assumptions, most of which are reflected in t he financial statements that follow. We have been cauti ous with our projections, and incorporate a mitigation for all manageable risks. The key underlying assumptions are: Economy
Slow Economic Recovery. We anticipate a slow-growth economy, recovering from an economic recession. Industry & Start-Up Fiscal Year-1 Ramp-up. Our experience in the industry confirms a longer ram p-up stage for restaurants over other retail/service businesses. Our Annual Sales Growth is based on attaining the following seating capacity percentage per dining period: y y y
Year 1: After-Hours = 53%, Lunch = 70%, Dinner = 88% Year 2: After-Hours = 70%, Lunch = 82%, Dinner = 100% (implied wait period ) Year 3: After-Hours = 80%, Lunch = 87%, Dinner = 100% (implied wait period )
Six-Month Start-Up Stage. As a new restaurant entry to the Midtown m arket, the ramp-up in customer draw is expected to extend over 6 months. This is reflected in a higher than average monthly sales variance shown as follows (Worst-case / Expected-case ): y y y
Month 1: 32% / 51% Month 2: 41% / 58% Month 3: 52% / 66%
Month 4: 64% / 75% Month 5: 80% / 90% Month 6: 90% / 92%
Market Analysis findings are static. We assume that there are no unforeseen change s in findings outlined in the Market Analysis.
Pricing & Cost Control
Competitive Pricing Model. Revenue calculations are based upon competitive price comparisons and established menu values in the current marketplace. The following are baseline assumptions on Average Check Totals, and Average Seat Turns: Daily average for lunch spending is $10.50 per person, dinner at $27.50 per person; and $17.50 per person for After-Hours dining (All check totals include Beverages, but not Bar ). Seat Turn averages are modestly estimated at: y y y
Year 1: After-Hours = 0.7, Lunch = 1. 0, Dinner = 1.0 Year 2: After-Hours = 0.7, Lunch = 1.0, Dinner = 1.0 Year 3: After-Hours = 1.0, Lunch = 1.0, Dinner = 1.25
Cost Control. Cost of goods sold have been calculated as a percentage of sales and will be monitored on a daily basis in order to keep Cost of Food within the range of 31 - 33%, Bar Costs within 28 - 31%, and Cost of Beverages (Non Alcohol ) below 9%. With a focus on Cost Control, we anticipate 6 months to fine tune the restaurant operations and manage our cost s within the defined tolerance range. Inventory turnover and Accounts Payable. Accounts receivable turnover is calculated to be 0 days, as payment is rendered with service. Inventory is turned on a 7 day cycle as inventory is used daily within all categories, and accounts payable are projected to be 30 days.
Risk Analysis/Mitigation 1. How do we allow an adequate startup period and capital to launch the concept and grow our customer base in a competitive sector?
Our financial plan is budgeted to support the Worst-Case business scenario. We addressed the financial risk as follows: y y
y
We looked at our monthly break-even. We calculated worst-case monthly financi al shortfall based on the ramp-up sales percentages outlined in our financial assumptions. We budgeted operational shortfall in an operational contingency budget that we will utilize if the need arises.
2.
How do we ensure we have addressed all resource gaps, and have the right industry knowledge?
Owners Alex Hunte and Peter Smith have a combined 20 years of Restaurant Management, Operations and Business Management Experience. The Financial Plan incorporates a budget f or an Atlanta Restaurant Consulting group. Their services are budgeted for the business start-up analysis, rollout, and on retainer for 4 months of business operations. The selected firm has experience with over 72 Restaurant launches, specializing in the Atlanta Market.
We will be recruiting a seasoned chef (national search) whose style is in accord with the Restaurant concept and our market segment. We will be offering an equity interest to our select Chef to maintain the industry knowledge. Our Accounting service will be contracted to a firm specializing in Restaurant accounting. 3. The current Economic slowdown and recovery state was a key consideration in our restaurant concept. How do we manage a successful restaurant in current market conditions?
Our original effort was to open a restaurant twice the proposed size. As we are in the mi dst of an economic recovery, we have scaled back the size to reduce business overhead, startup requirements, and business operating capital. Another mitigation has been our overall Restaurant concept. We have the menu priced at a mid-tier level with no entrée over $20. In addition, we have an extended Tapas and Appetizer selection priced between $3.50 - $9.50, allowing budget dining in a distinguished restaurant. 4. How do we confirm that our Funding Requirement is sufficient?
Peter Smith has an extensive background in restaurant startup. He is currently an International Consultant for various restaurant ventures, and w e will use his expertise in past projects as a comparative basis. We have leveraged our membership with the National Restaurant Association to look at industry averages for this market segment for Restaurant startup and Operations. Additionally, we included a contingency buffer in the financial estimates to account for any potential cost variance. We have worked with our Restaurant Consulting firm to validate our cost estimates to their industry knowledge. 5. How do we know we have selected the right location for this concept?
Again we will draw on the Consulting group that has the expertise in site selection and lease negotiation. In all, there are no guarantees with location, but we took a very objective approach with our concept. Instead of going in with a predefined business concept, w e let the Market Analysis define the need. Based on the results, the Zara Restaurant concept was formed specific to Midtown Atlanta. Site selection was based on space, visibility, and functionality; the city grant award confirmed our decision. 6. What if there is an additional need for Business Capital after the R estaurant has exhausted its 6-month buffer?
Our intent is to be a self-sufficient business far in advance of the 6-month probation period. But as we are considering all contingencies, we have l ooked at this risk. We have accounted f or an operational contingency budget that will be used to supplement any slow periods. Our next step would be to approach our private investors for capital by extending their return on investment. We w ould also look to the partners' capital reserves as an other source of funds.
General Assumptions
Plan Month
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Year 2
Year 3
Year 4
Year 5
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3
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5
Current
Interest
ate
ong-term Interest
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ate
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ther
Prof it and oss State ment he most impor tant assump ti on in the Pro jected Profit and oss statement i s the gross margi n. e show an ad j ustment increase i n Year as we exit our star t-up phase of the busi ness and move into our expected annual sal es f orecast. hi s transiti on shows the restaurant manag i ng through it s star t-up per iod, and gai ni ng effici ency and customer l oyalt y. In summary, the restaurant will develop it s customer base and reputati on and the growth will pi ck up more rapidly towards the second and thi rd years of busi ness. onth-by-month assumpti ons f or Profit and oss are i ncl uded i n the append ices.
reak-even
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or our irst Year Break-Even Analysi s, we have an average runni ng fi xed costs of , per month wh ich i ncl udes our f ull payroll, rent, and utilities,and an esti mati on of other runni ng costs. ith di rect cost of goods i nventory, i n thi s plan at % of sal es, our monthly break-even point i s , . e will surpass our break-even poi nt in ctober of our fi rst year .
As we exit t he star t-up phase of the business and f ocus on cost control, we will dr i ve the Cost of oods Sold COGS) down, dropping our break-even val ue, and i ncreasing our Gross argin.
reak-even
na lys is
Monthly Revenue Break-even
$83,630
Assumptions:
Average Percent Variable Cost
35%
Estimated Monthly Fixed Cost
$54,703
Cash Flow Statement The cash flow depends on assumptions for inventory turnover and payment days. W e have no sales on credit, so our cash flow does not track accounts receivable. Our proj ected same-day collection is critical, and is reasonable and customary in the restaurant industry. We do not expect to need any additional financial support, even when we reach the less profitable months, as the downturns are incorporated into the monthly revenue variance figures. Month-by-month assumptions for projected cash flow are included in the appendices.
Pro Forma Cash Flow
Year 1
Year 2
Year 3
Year 4
Year 5
Cash Received
Cash from Operations
Cash Sales
$1,073,769 $1,211,088 $1,279,204 $1,341,260 $1,406,670
Subtotal Cash from Operations
$1,073,769 $1,211,088 $1,279,204 $1,341,260 $1,406,670
Additional Cash Received
Sales Tax, VAT, HST/GST Received
$0
$0
$0
$0
$0
New Current Borrowing
$0
$0
$0
$0
$0
New Other Liabilities (interest-free) $0
$0
$0
$0
$0
New Long-term Liabilities
$0
$0
$0
$0
$0
Sales of Other Current Assets
$0
$0
$0
$0
$0
Sales of Long-term Assets
$0
$0
$0
$0
$0
New Investment Received
$0
$0
$0
$0
$0
Subtotal Cash Received
$1,073,769 $1,211,088 $1,279,204 $1,341,260 $1,406,670
Expenditures
Year 1
Year 2
Year 3
Year 4
Year 5
Cash Spending
$399,588
$400,788
$429,828
$431,128
$432,728
Bill Payments
$601,114
$724,989
$745,324
$765,976
$792,442
Subtotal Spent on Operations
$1,000,702 $1,125,777 $1,175,152 $1,197,104 $1,225,170
Expenditures from Operations
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out
$0
$0
$0
$0
$0
Principal Repayment of Current Borrowing
$0
$0
$0
$0
$0
Other Liabilities Principal Repayment
$0
$0
$0
$0
$0
Long-term Liabilities Principal Repayment
$47,772
$47,772
$47,772
$47,772
$47,772
Purchase Other Current Assets
$0
$0
$0
$0
$0
Purchase Long-term Assets
$0
$0
$0
$0
$0
Dividends
$0
$20,000
$10,000
$10,000
$15,000
Subtotal Cash Spent
$1,048,474 $1,193,549 $1,232,924 $1,254,876 $1,287,942
Net Cash Flow
$25,295
$17,539
$46,280
$86,384
$118,727
Cash Balance
$172,276
$189,815
$236,095
$322,479
$441,206
Balance Sheet Statement The projected Balance Sheet is quite solid. We do not anticipate difficulty meeting our debt obligations based on achieving the specific goals outlined in this plan. On a linear projection, Zara Restaurant & Lounge has a positive Net Worth beginning in Year 3.
Pro Forma Balance Sheet
Year 1
Year 2
Year 3
Year 4
Year 5
Cash
$172,276
$189,815
$236,095
$322,479
$441,206
Inventory
$37,839
$39,175
$38,109
$38,843
$39,608
Other Current Assets
$73,311
$73,311
$73,311
$73,311
$73,311
Total Current Assets
$283,426
$302,300
$347,514
$434,633
$554,125
Assets
Current Assets
Long-term Assets
Long-term Assets
$65,000
Accumulated Depreciation
$65,000
$6,500
$65,000
$13,000
$65,000
$19,500
$65,000
$26,000
$32,500
Total Long-term Assets
$58,500
$52,000
$45,500
$39,000
$32,500
Total Assets
$341,926
$354,300
$393,014
$473,633
$586,625
Liabilities and Capital
Year 1
Year 2
Year 3
Year 4
Year 5
Current Liabilities
Accounts Payable
$58,194
$59,713
$61,398
$63,097
$65,315
Current Borrowing
$0
$0
$0
$0
$0
Other Current Liabilities
$0
$0
$0
$0
$0
Subtotal Current Liabilities
$58,194
$59,713
$61,398
$63,097
$65,315
Long-term Liabilities
$252,228
$204,456
$156,684
$108,912
$61,140
Total Liabilities
$310,422
$264,169
$218,082
$172,009
$126,455
Paid-in Capital
$440,000
$440,000
$440,000
$440,000
$440,000
Retained Earnings
($427,209 )
($428,496)
($359,869)
($275,068)
($153,375)
Earnings
$18,712
$78,628
$94,801
$136,692
$173,546
Total Capital
$31,504
$90,131
$174,932
$301,625
$460,171
Total Liabilities and Capital
$341,926
$354,300
$393,014
$473,633
$586,625
Net Worth
$31,504
$90,131
$174,932
$301,625
$460,171
Expansion, Payback & Exit Strategy In addressing this question we look at the Exit Strategy as a definition of our business vision and goals, as well as a contingency in the event the business is unsuccessful. W e have addressed this question at several levels: Expansion as a Business Goal We have set multiple financial goals to grow the success of the Zara concept, and compound the profit return for Zara Investors. 1. Expansion (Option 1): Our overall goal to maintain Zara as a unique and eclectic concept. Based on projections, the business has captured market share by the end of the first year. I n addition Year 2 brings an increased sales and profit margin to sustain the addition of a full-time General Manager. By second quarter of Year 2, the owners will look to launch a second restaurant concept. This is not a chain, but another unique restaurant concept with strong growth potential. Expansion will be considered with our Financial backers and Investor partners. 2. Expansion (Option 2): Throughout our business plan we have stayed focus that Zara would be successful as a larger venue, with greater sales capacity and revenue potential. Our obj ective with the site selection and lease negotiation is to have the opportunity to expand the restaurant as a logical growth and profit plan. 3. Private Sale: We are in the business of making money. At the close of Year 3, we see Zara as meeting 80.4% of its optimum sales potential with the current seating and space allocation. At this stage the business debt is reduced, profit margins are increasing, and Zara has established market share. We will look at the private sale of the majority interest via A) Leveraged Buyout, or B) A larger Restaurant consortium. In both cases, our interest is in delivering healthy profits to our Investors and Financial backers. Sales and profit margins will be based on the restaurant valuation in Year 3. 4. Financial Solvency: The financial projections indicate that exit will be achievable over 3 years for the operating capital line of credit. Under a realistic scenario the Company should have over $70,000 in cash in the bank after income taxes the second year. The entire financial debt would be retired by Year 7.
Exit Strategy to Retire the Business We at Zara are committed to our concept and its viability. We step into this venture with confidence and the success of our respective prior business efforts. No one attempts a business anticipating failure, however sometimes ventures do not f ulfill their promise. In the event that our venture cannot achieve profitability and retire the encumbrances, w e will first attempt to sell the operation and use the proceeds to clear all outstanding balances. If we are unable to sell the operation for sufficient proceeds we wi ll forced to default whereby the SBA loan will be in senior standing. Any further outstanding balances will be borne by the investors on a weighted percentage basis of the total amounts due.
