PAPA GEO’S RESTAURANTBUDGET PROPOSAL FOR 2012-2016

 BUSN-278

Budgeting and Forecasting sessionB

Professor Brandon Foor

DeVry University

TABLE OF CONTENTS Objectives Budget Preparation Financial Statements Methods and Assumptions Competition Geographic Target Sales Forecast Capital Expenditures Budget Cash Flow NPV Rate of Return Payback Period Pro Forma Income Statement Pro Forma Cash Flow Pro Forma Balance Sheet

OBJECTIVES

Papa Geo’s Restaurant will be a single-location, sit-down Italian restaurant located in Orlando, Florida. Our objective is to generate an income of at lest $40,000 per year, starting sometime in the second year of the operation, as well as profit that is at least 2% of sales

Restaurant targets middle to lower-middle class families with children, as well as adults and seniors,

Our Italian food will be served in buffet style The company will operate from 10:00 am to 9:00 pm all 7 days a week

BUDGET PREPARATION

Five year planning horizon is used. The initial up-front investment includes $900,000 investment. In deciding on the initial investment, the Net Present Value

(NPV) was calculated. The discount rate for the required rate of return is 10%.

Discount factors for a five year period were taken from present value tables.

This created the present value of cash inflows. The total was then taken and divided by the initial $900,000.00 investment.

The Rate of Return (ARR) was calculated simply by using the cash inflows for the 5 year period and adding in the depreciation for the equipment.

This amount was then divided by the initial investment. The Internal Rate of Return (IRR) was figured by taken the

initial investment and dividing it by the annual cash inflows.

FINANCIAL STATEMENTS

A Pro-Forma Financial statement is a financial statement that a company prepares to consider the effects of a potential activity.

Pro forma describes a presentation of data, typically financial statements, where the data reflect the world on an 'as if' basis.

That is, as if the states of the world were different from that which is in fact the case.

Including the first year well have positive ending balances.

METHODS AND ASSUMPTIONS

Information is based on research on locations that sell the same products.

Italian buffet makes $9 billion sales in one year.

Assumption that amount sold in one year will be about 144,075.22

COMPETITION

As of today there are only 2,728 Italian buffets in the whole United States.

Our price is lower then that fast food restaurants around us.

We are more clean and faster when it comes to seating down our customers for them to eat.

Also we have a vending machines to keep children busy while adults enjoy their meal.

GEOGRAPHIC TARGET

The target is middle to lower- middle class families with children, as well as adults and seniors.

The area is within 15 minutes of the store has 10,000 families, mostly form lower to middle class neighborhoods.

Average family size is 4 people per household.

The lower to middle class population is growing at about 6% per year over the next five years in this area.

SALES FORECAST

Papa Geo’s Restaurant - 1st Year ForecastMonthly Sales Jan.-March April-June July-Sep. Oct.-Dec.

Growth 0% 366% 100% 98%Sales $9,000.00 $42,000.00 $42,700.00 $41,993.00Other $3,006.00 $2,030.07 $1,500.00 $1,946.15Monthly Totals $12,006.00 $44,030.07 $44,200.00 $43,939.15YTD Totals $12,006.00 $56,036.07 $100,236.07 $144,175.22

Total sales forecasted for 5 years

Year 1 Year 2 Year 3 Year 4 Year 5

0 3% 4% 5% 6%

$144,075.22 $148,397.47 $154,333.37 $162,050.04 $171,773.04

Capital Expenditures Budget

Equipment $68,083.53

Miscellaneous $4,810.00

Furniture/Fixtures $397.00

Facility Costs $45,000.00

$50,207.00

CAPITAL EXPENDITURES BUDGET

Total Capital Expenditure is $50,207 As stated we need to spend $68,083.53 on

equipment that is needed to start the business.

We also are going to spend $4,810 on miscellaneous items such as dish sets, cups, silver ware, etc.

And as for the furniture/ fixtures the amount is $397 these are important because we need an office desk to be able to work on paper work such as applications, bills, payroll, etc.

The amount spent on the Capital Expenditure should cover the full five years

Cash Flow Budget WorksheetPap Geo’s Restaurant

2012 2013 2014 2015 2016 TotalBeginning Cash Balance: 0 $815,005 $827,682 $837,698 $711,768 $3,192,153Cash Inflows (Income):

Loan Proceeds 900,000 900,000

Sales & Receipts 144,075 148,397 154,333 162,050 171,773 780,629Total Cash Inflows: $1,044,075 $148,397 $154,333 $17,988 $19,067 $1,680,629Available Cash Balance: $1,044,075 $963,403 $982,015 $855,686 $730,835 Cash Outflows (Expenses):

Advertising 20,000 10,000 10,000 10,000 10,000 60,000Health Insurance 5,000 5,000 5,000 5,000 5,000 25,000Insurance 1,000 1,000 1,000 1,000 1,000 5,000

Interest 11.590 10.662 9.676 8.630 7.518 48.077

Payroll 80,000 80,000 80,000 80,000 80,000 400,000Rent or Lease 10,000 10,000 10,0000 10,000 10,000 50,000Utilities & Telephone 1,000 1,000 1,000 1,000 1,000 5,000Renovations 15,000 15,000Inventories 1,599 1,647 1,713 1,799 1,907 8,665Equipment 68,084 68,084Furniture 397 397Credit card fees 400 412 428 450 477 2,166

Subtotal $214,070 $119,721 $118,818 $117,878 $116,902 $687,388Other Cash Out Flows:

Loan Principal 15,000 16,000 17,500 18,040 19,090 85,630Owner's Draw 8,000 8,000 8,000 24,000

Subtotal: $15,000 $16,000 $25,500 $26,040 $27,090 $109,630Total Cash Outflows: $299,707 $135,721 $144,318 $143,918 $143,992 $797,018Ending Cash Balance: $815,005 $827,682 $837,698 $711,768 $586,843 $3,778,995

NPV Analysis ... 10%

Year Cash Inflows Discount Factor Present Value

1 815,005.00 0.9091 740,921.05

2 827,682.00 0.8264 683,996.40

3 837,698.00 0.7513 629,362.51

4 711,768.00 0.603 429,196.10

5 586,843.00 0.6209 364,370.82

3,778,996.00 2,847,846.88

 Present Value of

Cash inflowsInitial Investment Net Present Value

2,847,846.88 900,000.00 1,947,846.88

RATE OF RETURN The Rate of Return is used to determine the rate

allowed for the next five years to get the present value at a positive value.

Rate of ReturnTotal for equipment 68,083.53Depreciation 13,616.71 Cash inflows 3,778,996.00 Initial Investment 900,000.00 ARR 4.18   Initial Investment 900,000.00 Annual Cash Inflows 3,778,996.00 IRR 0.2382

Payback Period over 5 Years

  Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

Capital Investment

900,000.00

900,000.0

0

900,000.0

0

900,000.0

0

900,000.00

Annual Cash Inflow 815,005.00

827,682.00

837,698.00

711,768.00 586,843.00

Payback Period 1.104 1.087 1.074 1.264 1.534

Total Payback 6.064

Pro-Forma Income StatementPapa Geo’s Restaurant

For 2012 through 2016(all numbers in $000)

REVENUE   2012 2013 2014 2015 2016

Gross sales   $144,075 $148,397 $154,333 $162,050 $171,773 Net Sales   $144,075 $148,397 $154,333 $162,050 $171,773Gross Profit (Loss) $143,075 $139,617 $148,132 $154,015 $171,773OPERATING EXPENSES          Selling             Salaries and wages $20,000 $20,000 $20,000 $20,000 $20,,000

Advertising 20,000 10,000 10,000 10.000 10,000

Depreciation 13,287 10,629 8,504 6,803 5,443

Other          Total Selling Expenses $53,287 $40,629 $38,504 $36,803 $35,443 General/Administrative           Salaries and wages $60,000 $60,000 $60,000 $60,000 $60,000 Employee benefits 5,000 5,000 5,000 5,000 5,000 Insurance   1,000 1,000 1,000 1,000 1,000 Rent   10,000 10,000 10,000 10,000 10,000 Utilities   1,000 1,000 1,000 1,000 1,000 Interest   11,590 10,662 9,676 8,630 7,518 Furniture & equipment 397 0 0 0 0

Total   $88,987 $87,662 $86,676 $85,630 $84,518

Total Operating Expenses $142,274 $128,291 $125,180 $122,433 $119,961 Net Income Before Taxes $801 $11.327 $22,952 $31,582 $43,307 Taxes   160 2,265 4,590 6,316 8,661 NET INCOME (LOSS) $641 $9,061 $18,362 $25,266 $34,646

PRO-FORMA INCOME STATEMENT

A Pro-Forma Financial statement is a financial statement that a company prepares to consider the effects of a potential activity. Pro forma describes a presentation of data, typically financial statements, where the data reflect the world on an 'as if' basis. That is, as if the states of the world were different from that which is in fact the case.

Pro-Forma Cash Flow StatementPap Geo’s Restaurant

2012   2013   2014   2015   2016   Total

Beginning Cash Balance: 0 $815,005 $827,682 $837,698 $711,768$3,192,15

3Cash Inflows (Income):

Loan Proceeds 900,000 900,000

Sales & Receipts 144,075 148,397 154,333 162,050 171,773 780,629

Total Cash Inflows: $1,044,075 $148,397 $154,333 $17,988 $19,067$1,680,62

9Available Cash Balance: $1,044,075 $963,403 $982,015 $855,686 $730,835  Cash Outflows (Expenses):

Advertising 20,000 10,000 10,000 10,000 10,000 60,000

Health Insurance 5,000 5,000

5,000

5,000

5,000 25,000

Insurance 1,000 1,000 1,000 1,000 1,000 5,000

Interest 11.590 10.662 9.676 8.630 7.518 48.077

Payroll 80,000 80,000 80,000 80,000 80,000 400,000Rent or Lease 10,000 10,000 10,0000 10,000 10,000 50,000Utilities & Telephone 1,000 1,000 1,000 1,000 1,000 5,000Renovations 15,000 15,000Inventories 1,599 1,647 1,713 1,799 1,907 8,665Equipment 68,084 68,084Furniture 397 397Credit card fees 400 412 428 450 477 2,166

Subtotal $214,070  $119,721  $118,818  $117,878  $116,902 $687,388Other Cash Out Flows:

Loan Principal 15,000 16,000 17,500 18,040 19,090 85,630Owner's Draw 8,000 8,000 8,000 24,000

Subtotal: $15,000 $16,000 $25,500 $26,040 $27,090 $109,630Total Cash Outflows: $299,707 $135,721 $144,318 $143,918 $143,992 $797,018

Ending Cash Balance: $815,005 $827,682 $837,698 $711,768 $586,843$3,778,99

5

PRO-FORMA CASH FLOW STATEMENT

“ The cash budget [beginning cash balance + anticipated receipts - expected disbursements = ending cash balance] will provide information about any need for working capital, such as a line of credit, short term financing, or an infusion of capital from the owners of the business.

The cash budget necessarily takes into account any payments on existing indebtedness, receipts of interest on customer financing arrangements, and any anticipated capital expenditures.”

Pro Forma Balance SheetYears 1-5

Assets2012 2013 2014 2015 2016

Current Assets:Cash $1,044,075 $963,403 $982,015 $855,686 $730,835

Total Current Assets $1,044,075 $963,403 $982,015 $855,686 $730,835Fixed Assets:

Furniture $397Equipment $68,083.53

Less: Acc. Dep. ($15,713) ($15,713) ($15,713) ($15,713) ($15,713)Total Fixed Assets $64,067 $64,067 $64,067 $64,067 $64,067

Total Assets$1,160,909.

53 $1,011,757 $1,030,369 $904,04 $779,289

Liabilities and CapitalCurrent Liabilities:Accounts Payable $2,666 $2,666 $2,666 $2,666 $2,666Accrued Payroll Payable $80,0000 $80,000 $80,000 $80,000 $80,000Insurance Payable $1,000 $1,000 $1,000 $1,000 $1,000Interest Payable $11,590 $10,662 $9,676 $8,630 $7,518

Total Current Liabilities $95,256 $94,328 $93,342 $92,296 $91,184Long Term LiabilitiesNotes Payable $233,631 $215,771 $196,283 $175,021 $151,821

Total Long-Term Liabilities $233,631 $215,771 $196,283 $175,021 $151,821CapitalOwner's Equity $125,000        Total Capital $125,000 $0 $0 $0 $0Total Liabilities and Capital $453,887 $310,099 $289,625 $267,317 $243,005

Net Worth $67,373 $165,650 $233,642 $319,533 $426,872

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