Small Business Accounting - Plan and Forecast for Amin and Connie Cafe - Case Study Example

Topic: Plan and Forecast Name: Lecturer: Course name: Course code: Date: Executive Summary Amin and Connie café is a newly established food and beverage services provider. The business is licensed to provide lighter course meals as compared to restaurants. It is operated on a partnership by a family constituting Amin Yak and Connie, his wife who operate on the business name Amin and Connie café. The business premise is located in Melbourne Street, North Adelaide. This is a new business venture and has no record of performance. It is to be started by Connie and Amin, who are long time salary earners. They think they have paid too much tax, and are committed to try their hand at applying the skills they have been using in building other people’s businesses up for some years to a business of their own. Neither has substantial business experience. Detailed research and analysis on the bigger business environment, is poised to point out some opportunities and challenges for Amin and Connie café in three years to come. Hotel and catering services will start operations and continue in the next three years. It is anticipated to extend to outside catering in the next three years i.e. 2015 onwards. The major services offered are food and drinks. This service shall provide high quality and fresh products owing to direct sourcing from the farms. The business will be managed by Amin Yak and Connie as co-directors. BEP =4500 units/1500. This proves that the café will apprehend its breakeven point in three days period. The solvency status of the business forecasted shows that its total assets out way the liabilities, this describe the fact that the firm would be in a position able to gather its financial responsibility and thus the café would be in a safer site to commence its services. The forecast of total turnover confirms that the firm is gaining more customers in the competitive environment this stipulates the fact the café will win from the competition in its environment thus Amin and Connie should initiate the business. Introduction Amin Yak and Connie need a business plan to establish a café, in order to increase their chances of starting off and sustaining the levels of performance in their daily operations. The plan should be consider how these entrepreneurs will anticipate and forecast profits within the next three years. While assuming that the financial performance will stabilize over the stipulated period, interest rates and employment will keep changing. The idea being modeled anticipates growth and ensures that all areas in the organization are catered holistically. The main objective is to make profit and also back the proceeds in capital reserves for procurement of capital equipment to be used in the hotel. Amin and Connie needs to look into their leadership capabilities as well as evaluate the sources of finances to their business. They need to choose the concepts of planning, controlling, leading, staffing, and coordinating the various functions of their hotel business. Amin and Connie café: Business plan Business Description Amin and Connie café is a newly established food and beverage services provider. The business is licensed to provide lighter course meals as compared to restaurants. It is operated on a partnership by a family constituting Amin Yak and Connie, his wife who operate on the business name Amin and Connie café. The business premise is located in Melbourne Street, North Adelaide. The premise of their operations is a leased area of approximately 50m2, which excludes restroom and kitchen areas. However, it is assumed that regulations require a minimum space of 4m2 for every five patrons. It also comprises of a wide footpath along the shop exterior. It will be assumed that the premises are cleared and require all fixtures & fittings, floor coverings, furniture and business equipment etc to be installed. In addition, no building works are required and that all plumbing and electrical connections required are available, though other electrical and plumbing fittings will most likely be required. The utilities like water, electricity, gas have, however, been disconnected by the previous proprietor. There is a separate staff/kitchen area for the restaurant. The premises have access to adequate restrooms for employees and customers. Business history This is a new business venture and has no record of performance. It is to be started by Connie and Amin, who are long time salary earners. They think they have paid too much tax, and are committed to try their hand at applying the skills they have been using in building other people’s businesses up for some years to a business of their own. Neither has substantial business experience. They need extra income to pay for private school fees for their 13 year old daughter Kye who is in year 8 at secondary school and excels at rowing and to help support Manny their unemployed 18 year old son who lives at home. Business objectives The business objectives of Amin and Connie café in the next three years are given below; 2012-2013 2013-2014 2014-2015 Annual sales $ 65,000 $70,000 $78,000 Average gross profit margin 35% 35% 35% Annual net profit $15,000 $19,000 $24,000 Number of staff including (Amin and Connie) 7 7 8 Business location Same Same Same Service range Same Same Extended to include outside catering Marketing Environmental trends Detailed research and analysis on the bigger business environment, is poised to point out some opportunities and challenges for Amin and Connie café in three years to come. Opportunities Increased enrollment among students in universities and colleges in Melbourne High disposable income among students and families to spend on affordable food Increased demand for affordable food and beverages among Australians Challenges Existing economic conditions coupled with higher unemployment rates is anticipated to continue Tighter regulations on food and drinks safety by Australian Department of Health Introduction of affordable segments by five star hotels Rising costs of food items After undertaking the environmental analysis, it can be found that substantial levels of sales can be attained in 2015 when the business is expected to break even. Services Hotel and catering services will start operations and continue in the next three years. It is anticipated to extend to outside catering in the next three years i.e. 2015 onwards. The major services offered are food and drinks. This service shall provide high quality and fresh products owing to direct sourcing from the farms. Consistent and adequate supply of food and drinks will enable Amin and Connie café to offer a range of food items at affordable prices. The business will provide ready food and drinks for travelers, students and family outings. It will operate a segment for the business class when the return on investment is satisfactory. The meals will be tailored to constitute meals preferred by each segment. This will ensure better performance of the hotel business and curving out a market share. The contribution of the service to the yearly sales turnover is anticipated to be: 2012-2013 2013-2014 2014-2015 Food 65% 67% 70% Drinks 35% 33% 20% Outside catering - - 10% Total 100% 100% 100% It is expected that food sales will increase as many customers become accustomed to the meals of the café. Sales from drinks is anticipated to drop, additional income from food will be used to compensate for outside catering introduced. Customers The main customer segments will be students and family get outs that will be targeted for the services of Amin and Connie café. The target group will remain for the next three years. Target customer group: Students and Families Personal characteristics: College students aged 17 to 24 years and families consisting of two children who need enough parking space and ambient environment for relaxation. Students would prefer junk food while families desire meals low in fat and highly nutritious. Relevant wants: The customers desire great quality meals at affordable pricing. The target customers will be found in North Adelaide since statistics indicate that the students enrolled in the local universities has increased by 6% over the last five years. Families have also increased by 4.5% over the same period. The growth in human demographics is likely to continue for a longer time in future. The target groups are approximately 25,000 for students and 1,200 families in North Adelaide. Customers with outdoor functions will be encouraged to consider outside catering in this location. These customers require the services for a similar target group in their geographical areas within Australia. They will request sizeable discounts for hosting and ordering large supplies of food and drinks. Competitors Two competitors will be identified by direct observation. Competitor one Café palazzo is an established café with 23 years in food and beverages. They also offer other services like under cover on-site parking. Their yearly sales turnovers go at $ 5,500,000. The strengths of their operations is in the good name they have build over time and capacity to host big time conferences for business executives. They offer variety of food and cuisine at affordable prices and has developed a booking system for their services. Their weakness is that they fail to cater for lower income earners and spenders like students. They do not offer take away junk food like hot dogs and French fries. Competitor two Café Fellini: Amin and Connie will have to learn this competitor well. It is smaller than café palazzo. It has 15 years experience in dining and cuisine. It offers a suitable place to stop for a late night dessert. Its major weakness is that it provides a great opportunity to window shoppers, who occasionally do not buy from them but only interested in comparing the prices. Marketing methods Amin and Connie café will prefer a customer-oriented approach to market its services a business opportunity will focus on meeting the needs of the mentioned target customer group. Services: Sale of affordable food and drinks Establish a cuisine section to satisfy customers requiring a meal and drink Outside catering Restrooms Parking space Prices: The services will be availed at competitive prices 20 days credit term will be allowed Mean gross profit margin for all sales will be 35% 6% discount for bulk buyers especially for outside catering Distribution Use of the café van to transport food for outside catering The café will be open from 7 a.m. to 8: 30 p.m. daily Reputation Neediness and being convivial is greatly recommended Promotions First advertising will be made through bill boards in Adelaide Flyers and cards will be given to new customers Travelers will be encouraged to stop at the open parking for snacks and toilet Competitive advantages Variety of affordable food and cuisine Dedicate hotel staff Prompt service to customers Marketing controls Monthly evaluations of marketing methods will be done so as to control expenditures. It will be adaptable to changes using marketing programs. Staffing Management The business will be managed by Amin Yak and Connie as co-directors. They have the will and desire starts the café business though with minimal experience. Amin has managed and operated bars and guest lounges for three large hotels. Connie has a TAFE Clerical Associate Diploma and has worked in the financial aspects of the hospitality industry with much success. The owners will draw $ 8,000 every month from the business. Organization structure Directors (Amin Yak & Connie) 1 Head chef: Duties: Control and manage the dining and cuisine Qualifications: 5 years experience in dining and food preparation Remuneration: $ 1,500 per month 3 Chefs: Duties: Prepare and serve food and drinks Qualities: 2 years experience in food preparation Remuneration: $ 1,000 per month 1 Driver: Duties: collect and deliver food and drink materials Qualities: 7 years experience in driving. Valid driving license Remuneration: $ 700 1 Messenger: Duties: Run errands for the café Qualities: experience in running errands Remuneration: $ 500 Staff control Performance of each staff will be reviewed every six months and forms the basis for sustenance and motivation Business advisers The business advisers will be: Thistle, Kostya, Lotz The café will enroll in the list of cafes, bars and restaurant membership Purchasing and purchasing controls The café will source its raw materials from local markets within North Adelaide. Payments will be made in cash. The purchase orders will be checked against supplies made. Financial data AMIN YAK AND CONNIE CAFÉ FORECASTING BALANCE SHEETS 30 June 2013 30 June 2014 30 June 2015 Assets Current assets Stock 23,000 30,000 45,000 Cash at bank 25,000 2,500 64,000 Debtors 12,000 10,000 15,000 Total current assets 60,000 42,500 124,000 Non-current assets Hotel equipment 35,000 35,000 35,000 Vehicle 33,000 33,000 33,000 Accumulated depreciation 6,800 7,000 7,300 Furniture and fittings 24,000 24,000 24,000 Accumulated depreciation 2,500 2,700 3,100 101,300 101,700 102,400 Total assets 161,300 143,200 226,400 Liabilities Current liabilities Creditors 21,000 23,000 25,000 Non-current liability Home loan 60,000 60,000 60,000 Total liabilities 81,000 83,000 85,000 Net assets 81,300 60,200 141,400 Proprietors funds Capital 85,000 85,000 85,000 Net retained profits 4,300 8,000 64,400 Minus Drawing (8,000) (8,000) (8,000) Total proprietors funds 81,300 85,000 141,400 AMIN YAK AND CONNIE CAFÉ FORECASTING CASH FLOW STATEMENTS FOR YEAR 2013-2015 2013 2014 2015 Jan- April $ May- Aug $ Sep-Dec $ Jan- April $ May- Aug $ Sep-Dec $ Jan- April $ May- Aug $ Sep-Dec $ Opening cash 25,000 76,400 135,200 182,600 223,000 250,400 270,800 277,200 337,600 Sales 245,000 256,000 265,000 268,000 275,000 258,000 254,000 298,000 312,000 Total Cash receipts 270,000 332,400 400,200 450,600 498,000 508,400 524,800 575,200 649,600 Less cash payments Purchases 80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 Advertising 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 Rent 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 Electricity 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 Wages 22,800 22,800 22,800 22,800 22,800 22,800 22,800 22,800 22,800 Other expenses 25,000 25,000 45,000 55,000 75,000 65,000 75,000 65,000 87,000 Loan repayments 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,800 Drawings 32,000 32,000 32,000 32,000 32,000 32,000 32,000 32,000 32,000 Total cash payments 197,600 197,600 217,600 227,600 247,600 237,600 247,600 237,600 259,600 Net cash flow 76,400 135,200 182,600 223,000 250,400 270,800 277,200 337,600 390,000 Closing cash 76,400 135,200 182,600 223,000 250,400 270,800 277,200 337,600 390,000 AMIN YAK AND CONNIE CAFÉ FORECASTING PROFIT STATEMENTS FOR YEAR 2013-2015   2013 2014 2015   Jan- April $ May- Aug $ Sep-Dec $ Jan- April $ May- Aug $ Sep-Dec $ Jan- April $ May- Aug $ Sep-Dec $ Sales 245,000 256,000 265,000 268,000 275,000 258,000 254,000 298,000 312,000 less cost of goods sold 152,000 154,350 165,700 170,500 176,000 180,200 185,900 192,400 198,000 total operating income 93,000 101,650 99,300 97,500 99,000 77,800 68,100 105,600 114,000 Less operating expenses accounting and legal 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 Advertising 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 Rent 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 Electricity 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 Wages 22,800 22,800 22,800 22,800 22,800 22,800 22,800 22,800 22,800 Other expenses 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 Loan repayments 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,800 total operating expenses 89,600 89,600 89,600 89,600 89,600 89,600 89,600 89,600 89,600 Net profit before tax 3,400 12,050 9,700 7,900 9,400 -11,800 -21,500 16,000 24,400 less tax(30%) of net profit 1,020 3,615 2,910 2,370 2,820 -3,540 -6,450 4,800 7,320 Net profit after tax 2,380 8,435 6,790 5,530 6,580 -8,260 -15,050 11,200 17,080 Break even Analysis Breakeven point in units Assuming that in the café 1,500 units of food and drinks are produced per day selling at an average of $ 15 per unit. Suppose 1, 400 units are sold every day. Then it means that the calculated variable cost=5 Total fixed costs= $ 225,000 Breakeven point in units= $ 225,000/ (15-5) = 22,500 units Breakeven point in sales= $22,500*15= 337,500 Figure 1: Breakeven chart for Amin and Connie café Conclusion and Recommendations Basing on the increasing trend of cash and cash items from the cash flow, the café should commence its operation as it shows the efficiency and hence breakeven point would be realized in a short duration of time. BEP =4500 units/1500. This proves that the café will apprehend its breakeven point in three days period. The solvency status of the business forecasted shows that its total assets out way the liabilities, this describe the fact that the firm would be able to meet its financial obligation and thus the café would be in a safer site to commence its services. The forecast of total turnover confirms that the firm is gaining more customers in the competitive environment this stipulates the fact the café will win from the competition in its environment thus Amin and Connie should initiate the business. Works Cited Armstrong, Jon Scott. Business Planning and Forecasting. London: OUP, 2001. Print Blackwell, Edward.  How to Prepare a Business Plan: Create Your Strategy; Forecasting. Harvard: Harvard university press, 2011. Print Cooper-Jones, Dennis. Business Planning and Forecasting. Manchester: OUP, 2004. Print Lurin, Pierre Alexandra. Business Planning for Managers: How to Use Powerful Techniques to improve your business. NY: John Wiley & sons, 2010. Print Morden, Tony. Principles of Strategic Management. New York: Allan & Wien, 2007. Print Read More