Benchmark Assignment - Capstone Presentation
sklmwinbrianna
FinancialPlanfortheCapstoneProject.docx
Red Team Capstone: Week 5
Brianna Baldwin, Brittney Mendez, Catherine Thyben, Chelsea Slawson,
Christopher Mitchell, David Chavez, Gabriel Parra, Jill Peterson
Grand Canyon University: BUS-485
April 7, 2019
Running head: ASSIGNMENT TITLE HERE
9
Capstone: Week 5
Multi-Fry-er has adopted a quality management framework that has helped in running activities effectively. The company is also considered as one of the best performing companies in the food industry. The reason for its success is based on the adoption of the best financial system. Multi-Fry-er uses its financial system to assess the number of sales, cost of budget, labor requirement and purchasing. The company’s financial system has enabled it to remain organized and tracking all the finances; this has played an imperative role in creating a competitive advantage and outcompeting other food companies in the industry. The company uses QuickBooks for reporting all the transaction activities as well as analyzing the profit and loss statement. Presented is the Multi-Fry-er pro forma statement, which is used in forecasting and planning for business operations. Additionally presented is the company Break-even point analysis, business strategy, and financial business management.
Three-year pro forma income statement
Pro forma income statements are an important part of business planning, providing a means to estimate necessary data to create budgets and cash flow forecasts and secure financing. Critical to the success of a pro forma statement is the assumptions that underlie the projections (Pro forma statements, n.d.). The Multi-Fry-er’s revenue projections for the first year are based on lunchtime sales. If average food sales are assumed to be $5.50 and with an average of 100 customers served per day and the truck is open 5 days a week for 50 weeks out of the year, first year food revenue is projected to be $137,500. Beverage sales are expected to be half of food sales, bringing gross revenue to $206,250. In the second year, Multi-Fry-er anticipates serving 150 lunches per day and in the third year, Multi-Fry-er will add a second truck, doubling their sales projections. Expenses are based on industry standards including food and beverage costs at 30% of sales and labor at 30% of sales (Myrick, n.d.). The remaining expenses also following industry averages, providing a realistic expectation of projected expenses. The resulting projections show a net income before taxes of $13,308 in the first year. Net income projection for the second year of $109,115 reflects an increase in sales and the addition of franchise income. Finally, net income projections for the third year approach $273,071 with the addition of a second truck and growth in the franchises.
The break-even point is a critical analysis for any business. It is crucial for a business to understand how many products must be sold in order to cover their expenses (Importance of break-even analysis, 2017). The Multi-Fry-er must sell 20,967 lunches (at a price of $8.25 per lunch) to break-even over the course of the year in both 2019 and 2020. From the first to second year fixed and variable costs remain consistent, affording the company a higher profit margin with a similar break-even point. With the addition of another truck in 2021 and the increased expenses that go along with operating a second truck, the Multi-Fry-er must sell 39,979 lunches which is nearly double the break-even point of the first two years. The pro forma income statements indicate the Multi-Fry-er is comfortably above this range, and as shown in its three-year projection, able to surpass the break-even point a little more each year.
Investment capital
For many businesses, investment capital is needed to help get a business off the ground. Whether it is from banks, business partners, angel investors, or parent companies, investment capital can be used to acquire the necessary fixed assets to get take a business from a dream to reality (Ward, 2018). In the case of Multi-Fry-er, their main acquisition will be their food truck. This will essentially be a rolling kitchen and will be an expensive necessity that will need to pass the same type of inspections as any other restaurant. In the Phoenix area, food trucks can cost an anywhere from $21,000 to $118,000 for a used food truck (Food trucks for sale, 2019). This price could be doubled if Multi-Fry-er were to create and build their own equipment from scratch.
A bank loan should be the first avenue taken to secure financing. Restaurant start-ups however tend to be risky for an investor because of the volatility of the market (Ward, 2018). Other sources of financing such as Kabbage, OnDeck, BlueVine, and Funding Circle are all different avenues should the bank angle fall short. The main drawback is most of these institutions require the recipient of the loan to be in business for a least 1 year, some even longer (Small business loans, 2019). This could easily prevent new small businesses from using these services. If a small business loan is granted, these funds would need to be added into the monthly costs of the business. Timely repayment of this loan would ultimately help Multi-Fry-er if they decide to upgrade their equipment or expand their business in the future by creating a good track record with the lending institution. This would make additional funding, if needed, easier to come by.
Financial Business Strategy
First and foremost, in order for Multi-Fry-er to obtain strategic financial business management it needs to define its objectives in order to quantify and qualify it’s resources to plan to achieve its goals and maximize on capital resources. Multi-Fry-er aims to manage the financial business strategy in a way that will set itself up for success and profit in a timely and realistic fashion. It is known that financial plans focus on the long-term gains for a company, therefore long-term and short-term goals are essential to the process (Merritt, n.d.). A financial plan will be designed to offer the organization with a vivid picture of inflows and outflows of its financial resources, including sources of funds, and uses of these funds. Financial planning should incorporate the process of determination of the company’s goals, policies, and procedures within the financial sphere (Bhat, 2008). The organization’s financial planning should include activities that are related to the functions of finance and the determination of the company’s overall financial goals and objectives. Therefore, there are various steps that the company can take to ensure that it develops a sound financial plan and policy. For instance, the organization should develop a simple financial structure that is practically applicable. In addition, the company should work to ensure that the scope of its operations are clear. This step can go a long way to ensure that the needs for the capital are estimated as accurately as possible. Further, the organization should ensure that its financial strategies and policies meet the contingencies or emergency needs.
Budgeting will help Multi-Fry-er in the financial planning because efficiency will be gained by focusing on a reduction of waste. Operating costs are a huge objective that needs to be budgeted and monitored in order to make sure sufficient funds stay steady throughout the operation. Operating costs can be understood and reduced through the development of a comprehensive operating budget. Operating budgets relate to several activities and operations of the organization. These areas may include sales, purchases, production, as well as account receivables (Gulati & Singh, 2013). They focus on revenues and expenses that are associated with those activities. For instance, one of the most important operating budgets is the sales budget. In regards to management of the financial information, the Multi-Fry-er the management team will collect data weekly, analyze it, consistently make financial decisions that are favorable for the company. Analysis of variances and trends will be used to forecast for the remainder of the year and identify any issues that might arise.
The Multi-Fry-er will utilize four key financial ratios to measure organizational performance and ultimately determine success of the organization. Management will use the prime costs to total costs financial ratio to determine expenses for food, beverages and staff. Prime costs to total costs should equal approximately 65% of a prepared food business’ total sales (Hanson, 2019). Secondly, the Multi-Fry-er’s management will calculate specific food costs to total cost. This ratio will determine the breakdown of specific products offered. Using the food cost to total cost metric will prove useful when adjusting the Multi-Fry-er’s menu to include certain seasonal food items. Next, the Multi-Fry-er will utilize the inventory turnover ratio to determine the adequate amount of food purchases. An inventory turnover ratio metric that is higher than the standard industry level represents the purchase of insufficient inventory, a lack of utilization of quantity discounts and a risk of shortages (Hanson, 2019). On the other hand, a calculation that is under the industry standard means that too much food is being purchased, business has slowed, or food quality is potentially declining due to the lack of fresh products, which may potentially have a direct impact on long-term sales. Lastly, the Multi-Fry-er will use the current ratio which measures the liquidity of an organization. The current ratio will measure organizational performance by showing the Multi-Fry-er’s ability to pay for items in the short term, including food, beverages and staff wages (Hanson, 2019). These four key financial ratios will measure organizational performance of the Multi-Fry-er and provide a roadmap to financial success and long-term profitability.
Conclusion
Multi-Fry-er’s pro forma income statement demonstrates a modest gain in the first year of operation, with steady growth during the next two years. Adding a new truck in the third year will increase net income and will help Multi-Fry-er continue to grow their business and establish their name in the food truck industry. By expanding their business through a franchise business model, the Multi-Fry-er will bring in additional income and expand its brand nationally (Murray, 2017). Using the local resources and establishing positive business relationships with suppliers, allow the Multi-Fry-er to keep food costs down and remain competitively priced. By utilizing start-up funds, managing the operating costs closely, and minding inventory turnover, Multi-Fry-er can continue to make this a successful business endeavor.
References
Bhat, S. (2008). Financial management: Principles and practice. New York: Excel Books India.
Gulati, S., & Singh, Y.P. (2013). Financial Management. New York: McGraw Hill.
Food trucks and carts for sale. (2019). Retrieved from https://roaminghunger.com/market_trucks/buy/ Comment by User: You could improve by listing your references using APA style.
Hansen, K. (2019). Financial ratios: Complete list and guide to all financial ratios. Corporate Finance Institute. Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/finance/financial-ratios/
Merritt, K. (n.d.). 9 Financial data points that inform business strategy. Retrieved from https://www.accountingdepartment.com/blog/9-financial-data-points-that-inform-business-strategy
Myrick, R. (n.d.). Food truck food & labor cost percentages. Retrieved from https://mobile-cuisine.com/accounting/food-truck-food-labor-cost-percentages/
Pro forma statements. (n.d.). Inc. Retrieved from https://www.inc.com/encyclopedia/pro-forma-statements.html
Small business loans. (2019) U.S. News. Retrieved from: https//loans.usnews.com/small-business
Ward, S. (2018) Capital investment in business: Two uses in business. Retrieved from https://www.thebalancesmb.com/capitalinvestment-2948114
Red Team - Thank you for your paper. Your TII percentage is low. Your assignment met the minimum word count requirement. You wrote a financial plan that included a three-year Pro Forma income statement, the break-even point, and possible sources for investment capital if required, explained how you will use financial information to help you craft your business strategy, and identified the key financial ratios you will use to measure the performance of your organization to determine success. However, you could improve by incorporating the pro forma income statement within the body of the text. Furthermore, the points are supported with in-text citations. There are paragraph transitions present, logical and maintain the flow throughout the paper. Overall, your paper is clear and easy to follow and the tone is appropriate for formal academic writing. The sentences are complete, clear, and concise. In general, your sentences are well-constructed. The assignment included a title page and reference page. There are a few APA errors. I suggest that you follow the APA Style Guide. Make sure to spend more time with the APA guidelines found in the APA Style Guide, located in the Student Success Center, to polish APA skills with listing references. APA Style uses headings to separate and classify paper sections. The assignment is laid out with effective use of headings. You have a few grammar and word choice errors throughout the paper. Thanks again for your paper. Best Regards, Ed Miller
201920202021
Revenue
Food Sales (1)137,500$ 206,250$ 412,500$
Beverage Sales68,750 103,125 206,250
Franchise Fee Revenue (2)- 75,000 157,500
Total Sales206,250 384,375 776,250
Cost of Sales (3)
Food and Beverage Cost 61,875 92,813 185,625
Salaries and Wages 61,875 92,813 185,625
Total Cost of Goods Sold123,750 185,625 371,250
Gross Profit82,500 198,750 405,000
Operating Expenses
Advertising (4)2,400 2,400 2,400
Commissary (5, 6)4,800 4,800 9,600
Fuel (4, 5)500 500 1,000
Insurance (5, 7)2,500 2,500 5,000
Legal and Professional Fees1,200 1,500 2,000
License and Permit Fees (8)1,015 640 640
Miscellaneous Expenses3,877 3,595 3,289
Office Supplies1,200 1,200 1,200
Office Space6,000 6,000 6,000
Phone and Internet1,200 1,200 1,200
Repairs and Maintenance (5)5,000 5,000 10,000
Space Rental Fees for Events (5, 9)7,800 7,800 15,600
Salaries and Wages, Administrative30,000 50,000 70,000
Supplies (4)1,200 1,750 3,000
Uniforms500 750 1,000
Total Operating Expense69,192 89,635 131,929
Net Income13,308$ 109,115$ 273,071$
Notes:
1. Average lunch sales of $8.25 per customer. Multi-Fry-er is open for lunch 5 days a week, 50 weeks of the year (Survey results, 2017).
2. Projection of 5 new franchised trucks in 2020 and 8 new franchised trucks in 2021, plus 5 trucks from 2020 paying 5% in estimated revenue in 2021 (20 Best, n.d.).
3. Average food truck food costs are 28-35% of sales and average labor costs are 20-30% of sales (Myrick, n.d.).
4. (Food truck projected income statement, 2015)
5. Reflecting additional truck placed into service in 2021.
6. (The complete breakdown of food truck operation costs, n.d.)
7. (Thune & Spates, 2019)
8. The figures reflect both local (Mobile vending and mobile food vending, 2012) and county (Mobile food truck III guidelines, n.d.) permit and licensing costs .
9. Anticipated event costs of $150 per weekend (Mobile food truck III guidelines, n.d.).
References
Food truck projected income statement. (2015). Retrieved from https://blog.projectionhub.com/wp-content/uploads/2015/11/Food-Truck-Projected-Income-Statement.pdf
Mobile Food Truck III Guidelines. (n.d.). Retrieved from https://www.maricopa.gov/DocumentCenter/View/29645/Mobile-Food-Type-III-Guidelines-PDF
Mobile Vending and Mobile Food Vending. (2012). Retrieved from https://www.phoenix.gov/cityclerksite/Documents/mvbro.pdf
Myrick, R. (n.d.). Food truck food & labor cost percentages. Retrieved from https://mobile-cuisine.com/accounting/food-truck-food-labor-cost-percentages/
Survey Results: What is the Average Income for a Food Truck Vendor? (2017). Retrieved from https://foodtruckempire.com/news/survey-income/
The complete breakdown of food truck operation costs. (2014). Retrieved from https://foodtruckempire.com/how-to/costs/
Thune, K., & Spates, D. (2019). Food Truck Insurance Cost, Coverage & More. Retrieved from https://fitsmallbusiness.com/food-truck-insurance-cost-coverage/
20 Best Food Truck Franchise Business Opportunities for 2019. (n.d.). Retrieved Afrom https://www.profitableventure.com/best-food-truck-franchises/
MULTI-FRY-ER
Pro Forma Income Statement
For years ending 2019 through 2021
