Financial Planning for POKKA SAPPORO Food & Beverage Ltd joint venture in Thailand
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8. Financial Planning
The financial planning below is prepared with the help of the Profit and loss
(Appendix 6) and balance sheet (Appendix 4 and 5) of Yum! We based on
Brands, the franchisor of KFC and Pizza Hut, for the financial year 2013 as a
sample and consideration of our financial planning.
As a franchisor, the company will have to take into consideration of the financials
of the franchisee. Thus the planning will show 2 sets of accounts, the franchisee
and the franchisor respectively.
All Financials below will be prepared in Singapore dollar as the company will be
incorporated in Singapore and tax rate will follow the Singapore tax rate of 17%.
8.1 Projected Profit and loss statement for the financial year 2015 to 2017
The company will first set up the profit and loss showing the budgeted revenue
and estimated expenses that will incur in the cause of doing business.
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Figure 10: Projected profit and loss of one franchisee
2015 2016 2017
Please refer to the Assumption table (figure 7)
Revenues S$ S$ S$ Resturant Sales 102,200 255,500 383,250 1
Cost of sales Purchase of ingredients 30,660 76,650 114,975 2 Importing and freight cost 20,440 51,100 76,650 3 Packaging and others 5,110 12,775 19,163 4 Service staff cost 76,650 76,650 76,650 5 Total cost of sales 132,860 217,175 287,438
Operating profit ‐30,660 38,325 95,813
Gross profit margin ‐30% 15% 25%
Adminstrative Expenses Bank charges 50 50 50 6 Depreciation of equipments 50,000 50,000 50,000 7 Printing and stationery 300 315 331 8 Rental of resturant 60,000 60,000 60,000 9 Travelling expenses 500 550 605 10
Professional fee Accounting fee 4,000 4,800 5,760 11 Audit fee 2,000 2,400 2,400 12 Secretarial fee 600 600 600 13 Tax agent fee 800 800 800 14
Franchisee Fee One time franchisee fee 25,000 ‐ ‐ 15 Royalties fee ‐ 2,683 6,707 15
Advertisement fee 5,110 12,775 19,163 15
Total expense 148,360 134,973 146,415
Net profit / loss before tax ‐179,020 ‐96,648 ‐50,603
Tax at 17% ‐ ‐ ‐
Net profit / loss ‐179,020 ‐96,648 ‐50,603
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As seen from figure 6, the franchisee is making losses in the first 3 years,
mainly due to the high cost of sales, thus providing insufficient profit to cover
up the expenses incurred, especially the high fixed cost of rental.
Number Description Assumptions
1 Restaurant
sales
The sales are based on an average of S$7 each
considering (Figure 9).
The estimated average number of customers per
day for
2015 – 40 customers
2016 – 100 customers
2017 – 150 customers
2 Purchase of
ingredients
The cost is based on 30% of the revenue.
3 Importing and
freight cost
To maintain the high quality of the restaurant food,
the ingredients are imported from various countries
around the world (Shanghai, Malaysia and New
Zealand). Thus the company expects the high cost
of around 20% of revenue.
4
Packaging and
others
The packaging and others that come with the meal
will roughly make up about 5% of the revenue.
5 Service staff
cost
The restaurant will need about 5 part time staff at
each point of time to handle the customers. Each
part time staff will be paid a rate of $3 per hour
(due to the lower salary in Bangkok). Average
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opening hour of 14 hours per day.
6 Bank charges Annual bank charges for current account will be
assumed at $50 per year.
7 Depreciation of
equipment
Depreciation is set at 3 years
8 Printing and
stationery
Printing and stationary incurred for administrative
staff is set at S$300 and increase at 5% per year
as business increases.
9 Rental of
restaurant
As the restaurant needs large space, the company
will expect a rental cost of S$5000 per month.
10 Travelling
expenses
Travelling expenses for business purpose set at
S$500 and increase at 10% per year as business
increases.
11
Accounting fee The company will suggest the franchisee to
outsource the accounting records to save cost.
The cost is initially set at $4000 per year as
restaurant usually incurred high transaction
volumes and increased by 20% per year due to the
high increase in transaction volume.
12 Audit fee The cost is initially set at $2000 per year as
restaurant usually incurred high transaction
volumes and increased by 20% per year due to the
high increase in transaction volume.
13 Secretarial fee Maintain at the fee set by the Secretarial company
14 Tax agent fee Maintain at the fee set by the tax agent
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15
Franchise Fee
and
Advertisement
fee
Refer to figure 7
Figure 11: Assumption table for projected profit and loss of one franchisee
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Figure 12: Projected profit and loss of franchisor
As shown in figure 12, the company as the franchisor will be gaining high
profits in the three years due to low cost incurred in the business operation.
The increase will be fast in the first and second year and the growth will slowly
decrease after the third year as the business becoming stabilized.
2015 2016 2017
Please refer to the Assumption table (figure 9)
Revenues S$ S$ S$ One time franchisee fee 75,000 175,000 125,000 1 Royalties fee ‐ 26,828 100,603 2 Total revenue 75,000 201,828 225,603
Cost of service Training of franchisee 6000 14000 10000 3
Operating profit 69,000 187,828 215,603
Gross profit margin 92% 93% 96%
Adminstrative Expenses Bank charges 50 50 50 4 Depreciation of equipments 1000 1000 1000 5 Printing and stationery 700 980 1372 6 Rental of accommodation and office 1500 1500 1500 7 Travelling expenses 2000 2600 3380 8 Overseas travelling expense 500 500 500 9
Professional fee Audit fee 3000 3600 4320 10 Secretarial fee 600 600 600 11 Tax agent fee 1000 1000 1000 12
Advertisement fee ‐ ‐ ‐ 13
Total expense 10,350 11,830 13,722
Net profit / loss before tax 58,650 175,998 201,881
Tax at 17% 9,971 29,920 34,320
Net profit / loss 48,680 146,078 167,561
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Number Description Assumptions
1 One time
franchise fee
Number of franchisee increase in the year (Figure
6) multiplied by the Franchisee Fee, S$25,000
(figure 7)
2 Royalty fee
Target number of Franchisee stores in Bangkok
(Figure 6) multiple by the royalty fee per franchisee
(Figure 10)
3 Training of
franchisee
The training cost of per Franchisee will be set at
S$2000.
4 Bank charges Annual bank charges for current account will be
assumed at $50 per year.
5 Depreciation of
equipment
Depreciation is set at 3 years
6 Printing and
stationery
Printing and stationary incurred for administrative
staff is set at S$700 and increase at 40% per year
due to the increase in administrative work as the
number of franchisee increase.
7 Rental of
accommodation
and office
The Company will send one representative to
Bangkok to liaise with the franchisee and
coordinate with the suppliers. The company will
rent a house for use as the home and the office.
8 Travelling
expenses
Travelling expenses for business purpose set at
S$2000 and increase at 30% per year as the
number of franchisee increase.
The expenses are incurred mainly for the travelling
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to the stores for business purpose and inspection.
9
Overseas
travelling
expense
Overseas travelling expense will be the year air
ticket to travel back to Singapore to report on the
status and home visits.
10 Audit fee The cost is initially set at $3000 per year as the
audit needs to take into account of all the
franchisor sales report.
11 Secretarial fee Maintain at the fee set by the Secretary company
12 Tax agent fee Maintain at the fee set by the tax agent
13
Advertisement
fee
Target number of Franchisee stores in Bangkok
(Figure 6) multiplied by the advertisement fee per
franchisee (Figure 10). But as the amount received
is totally used for advertising, no amount is shown
in the Profit and loss.
Figure 13: Assumption table for projected profit and loss of franchisor
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8.2 Projected balance sheet for the financial year 2015 to 2017
In order to understand the status of the franchisee and franchisor, we need to
understand the profitability of the business.
Figure 14: Projected balance sheet of one franchisee
As seen from figure 10, the franchisee is in heavy debt from the directors, as
the directors provide all the funding to start the business. In this way the
company can see the financial ability of the franchisee as its business partner
and this type of funding also avoid incurring high interest cost each year from
taking loans from banks. The figure also shows that the franchisee liabilities
are increasing while the assets are decreasing over the years, causing the
franchisee to be in a net liability position.
2015 2016 2017
Please refer to the Assumption table (figure 11)
Non‐current assets Plant and equipment 100,000 50,000 ‐ 1
Current assets Cash and cash equivalents 21,979 ‐3,870 15,121 Deposits 5,000 5,000 5,000 3 Inventories 4,000 5,200 6,760 4 Prepayments 2,000 2,600 3,380 5 Total assets 132,979 58,930 30,261
Current liabilities Trade payable 4,599 11,498 17,246 6 Accrued expenses 7,400 8,600 9,560 7 Amount due to directors 290,000 304,500 319,725 8 Total liabilities 301,999 324,598 346,531
Shareholder Equity Share capital 10,000 10,000 10,000 9 Retained earnings ‐179,020 ‐275,668 ‐326,270 10 Total shareholder equity ‐169,020 ‐265,668 ‐316,270
Total liabilty and shareholder equity 132,979 58,930 30,261
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Number Description Assumptions
1 Plant and
equipment
The company expects the initial investment in plant
and equipment (cooking equipment, furniture,
machines and others) to be around S$150, 000
and the assets are expected to work for more than
three years.
2 Deposits Deposit relates mainly to the deposit on a rental
(One month).
3 Inventories
Inventories are maintained at minimum stock level
of S$4000 and increase by 30% each year as
sales increase.
4 Prepayments The prepayment is estimated at S$2000 for the
down payment of purchase of ingredients to
maintain minimum stock. The amount increase by
30% each year due to the increase in sales.
5 Trade payable
Trade payable is estimated at 15% of the cost of
ingredients in figure 10.
6 Accrued
expenses
Accrued expenses relate to the accrual of the
professional fee in figure 10.
7 Amount due to
directors
The amount due to director relate to the initial
funding from the director S$290,000. Due to the
loss made in the first three years, the director has
to provide additional funding at 5% per year.
8 Share capital Initial share capital of S$10,000.
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9 Retained
earnings
The sum of the profit and loss after tax in figure 6.
Figure 15: Assumption table for projected balance sheet of one franchisee
Figure 16: Projected balance sheet of franchisor
On the other side, as the franchisor, the Company is making profit in all the
three years and each year the company is able to give dividends to its
shareholders. As shown in the figure 12, the asset outweighs the liability,
giving the net asset position.
2015 2016 2017
Please refer to the Assumption table (figure 13)
Non‐current assets Plant and equipmets 2,000 1,000 ‐ 1
Current assets Cash and cash equivalents 25,705 50,906 69,151 Deposits 1,500 1,500 1,500 2 Total assets 29,205 53,406 70,651
Current liabilities Accrued expenses 4,600 5,200 5,920 3 Amount due to directors 10,000 ‐ ‐ 4 Total liabilities 14,600 5,200 5,920
Shareholder Equity Share capital 1 1 1 5 Retained earnings 48,680 160,682 215,766 6 Dividends paid ‐34,076 ‐112,477 ‐151,036 7 Total shareholder equity 14,605 48,206 64,731
Total liabilty and shareholder equity 29,205 53,406 70,651
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Number Description Assumptions
1 Plant and
equipment
The company expects the initial investment in plant
and equipment (Computer, printer and scanner) to
be around S$3,000 and the assets are expected to
work for more than three years.
2 Deposits Deposit relates mainly to the deposit on rental
(One month).
3 Accrued
expenses
Accrued expenses relate to the accrual of the
professional fee in figure 8.
4 Amount due to
directors
The amount due to director relates to the initial
funding from the director S$10,000. Due to the
profits made in the first three years, the director
shall receive back the payment within second
years.
5 Share capital
Initial share capital of S$1.
6 Retained
earnings
The sum of the profit and loss after tax in figure 8.
7 Dividends paid
in the year
As the company is making a profit and there is not
much expense or investment needed, 70% of the
retained earnings as at year end will be given to
the shareholders as dividends.
Figure 17: Assumption table for projected balance sheet of franchisor
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8.3 Cash flow
As seen from the figure 14, the franchisee has a weak cash position. The cash is
basically being funded by the directors. Due to the large loss, the franchise had
not made any real profits for the three years, especially during the second year
when the franchisee incurred a negative cash flow. Thus the company can
understand that the franchisee is in a very unstable position with limited cash flow
in hand at its deposal.
While the Company on the other hand have been making so much profit with
relatively little expenses, thus as show in figure 16, the disposable cash on hand
had been increasing and is much more than what the Company is able to use.
Thus the Company as the franchisor face no problem in its cash flow.
8.4 Break even analysis
Unfortunately, the franchisee is unable to break even in the three years due to
high cost (show in figure 10). The franchisee continues to make losses and in
those three years the losses and liability had accumulated to a large amount
making it very difficult for the shareholders to gain back its investment.
As for the Company, revenue had largely exceeded the cost and it will break
even in the first year also gaining back shareholder’s investments (Show in figure
12).