SMEDA (Barbecue Restaurant)

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INTRODUCTION TO BUSINESS FINANCE GROUP 1 AREEB SALEEM - 1524 MAHEEN SIDDIQI - 1470 MAHEEN SIDDIQUI - 1487

Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)

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PREFACE: This is the final project report of the course “Introduction to Business Finance” facilitated by Mr. Iqbal Nayani. This is the feasibility report of starting a new business of a Barbeque Restaurant with finance from SMEDA. The purpose of this report is to show the estimated profitability and financial position of the company. We have also described about Project and Products, the Critical factors of the business and the Process flow of the business. We have shown some tables related to Raw material cost, Human resources, Space requirement, Furniture and Fixtures used, Revenue Generation, Working Capital Requirement, Project cost and Utility charges. Also showing the profitability and financial position are the Income Statement and Balance Sheet respectively. We have also done the analysis of financial statements which include ratios and its graphical representation as well.

Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)

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AKNOWLEGEMENT: First of all, we thank Almighty Allah who praise us with the ability to think, work and deliver what we are assigned to do. Secondly, we must be grateful to our course facilitator who helps us in this project. We also acknowledge him that throughout our studies for helping and guiding us. We also would like to thank him for showing us some example that related to the topic of our project. It is a great honor to work with him.

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Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)

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TABLE OF CONTENTS 1. DISCLAIMER……..........................................................................................................................5 2. INTRODUCTION TO SMEDA.........................................................................................................6 3. INTRODUCTION TO SCHEME.......................................................................................................6 4. EXECUTIVE SUMMARY…………………………………............................................................................7 5. BRIEF DESCIRPTION OF PROJECT AND PRODUCT….......................................................................7 6. CRITICAL FACTORS…………………………………..................................................................................8 7. PROCESS FLOW..........................................................................................................................8 8. INSTALLED AND OPERATIONAL CAPACITY...................................................................................8 9. RESTAURANT COST SUMMARY…………........................................................................................9 9.1 PROJECT FINANCING................................................................................................................9 9.2 PROJECT COST ..........................................................................................................................10 9.3 SPACE REQUIREMENT................................................................................................................10 9.4 MACHINERY AND EQUIPMENT ....................................................................................................10 9.5 FURNITURE AND FIXTURES ........................................................................................................11 9.6 RAW MATERIAL REQUIREMENTS ...............................................................................................11 9.7 HUMAN RESOURCE REQUIREMENT ...........................................................................................12 9.8 REVENUE GENERATION .............................................................................................................12 9.9 UTILITIES REQUIREMENT............................................................................................................13 9.10 WORKING CAPITAL REQUIREMENT..........................................................................................14 10. ANNEXURE………………………………………………………………………………………………………………………....15 10.1 INCOME STATEMENT ..................................................................................................................15 10.2 BALANCE SHEET ........................................................................................................................16 10.3 RATIO ANALYSIS……………………………………………………………………………………………….…………………………17

Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)

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DISCLAIMER: This information memorandum is to introduce the subject matter and provide a general idea and information on the subject. Although, the material included in this document is based on data or information gathered from various reliable sources; however, it is based upon certain assumptions which may differ from case to case. The information has been provided on ‘as is where is’ basis without any warranties or assertions as to the correctness or soundness thereof. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA, its employees or agents do not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The contained information does not preclude any further professional advice. The prospective user of this memorandum is encouraged to carry out additional diligence and gather any information which is necessary for making an informed decision including taking professional advice from a qualified consultant / technical expert before taking any decision to act upon the information. For more information on services offered by SMEDA, please contact our website: WWW.SMEDA.ORG.PK

Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)

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INTRODUCTION TO SMEDA: The Small and Medium Enterprises Development Authority (SMEDA) was launched by Govt. Of Nawaz Sharif in October 1998 with having a clear objective to support economy and giving a drive to the economy by building up of Small and Medium Enterprises (SMEs).SMEDA is relatively a new organization with a futuristic structure. Having a clear mission "To assist in employment generation and value addition to the national income, through development of the SME sector, by helping increase the number, scale and competitiveness of SMEs", SMEDA has carried out ‘Sectoral Research’ to make out accurate policy, access to finance, business development services, fully planned strategic initiatives and institutional collaboration and networking initiatives. Simultaneously to the feasibility studies, provision of business development services to the SMEs by SMEDA has also started to engine the growth. These services include identification of experts and consultants and delivery of need based capacity building programs of different types in addition to business guidance through help desk services.

INTRODUCTION TO SCHEME: Young entrepreneurs was highly supported by “Prime Minister’s Youth Business Loan” which was offering subsidized financing at 8% mark-up per annum for one hundred thousand (100,000) beneficiaries, through well reputed institutions, primarily by the National Bank Of Pakistan (NBP) and the First Women Bank Ltd. (FWBL), having a budget of Rs. 5.0 Billion for the year 2013-14.Small business loans from Rs. 0.1 million to Rs. 2.0 million with tenure up to 8 years inclusive of 1 year grace period, and a debt : equity of 90 : 10 will be distributed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa, Baluchistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).

Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)

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EXECUTIVE SUMMARY: The Barbecue Restaurant can be a very profitable and fastest growing business and it is proposed to be established at a location that has a continuous flow of traffic, convenient parking, preferably near densely populated middle income areas or flat complexes so that variety of customers can easily get attracted. Major cities like Karachi, Hyderabad, Sukkur, Larkana, Multan, Lahore, Gujranwala, Faisalabad, Sialkot, Gujarat, Rawalpindi, Peshawar, Hub and Quetta etc. are suitable to house the project. Common menu items at the proposed Barbecue restaurant includes fish, steaks, beef sandwiches, Kebab item, French fries, salad and cold drinks which are mainly preferable. The installed capacity of Barbecue Restaurant is to serve 335 clients per day; however, the restaurant would initially start business with 140-150 clients. 12 personnel would be required to manage the operations of Barbecue restaurant. Total Cost Estimates are Rs. 2.20 million with a fixed investment of Rs. 1.88 million and an initial working capital requirement of Rs. 0.32 million. Given the cost assumptions, internal rate of Return (IRR) and payback are 54% and 2.25 years respectively.

BRIEF DESCRIPTION OF PROJECT AND PRODUCT: Barbecue is famous all across the country, and is available in a variety of regional styles as Desi People love to have it. Many customers enjoy stopping at smaller barbecue businesses because they typically offer affordable prices, quick service and good-quality barbecue items. Here, Barbecue restaurants provide dine-in as well as take-away facility. In Pakistan, there are many similar or small Barbecue outlets which don’t provide dine in facility but serve good quality food for take-away. Individuallyowned Barbecue restaurants are very famous and common all over the country which requires relatively low capital. We are inaugurating a Barbecue Outlet which is based on following variables:  Technology: The proposed setup with used Barbecue cooking machinery including grilling machine, instant Marinator, fryers, and pre-processing equipment would serve popular Barbecue.  Location: The business is predicted to be established as a Barbecue restaurant, with seating capacity on rented premises of around 500 sq ft., near a heavily populated area suitable for Barbecue lovers. We are starting our business from Karachi and it is located at HYDERI near DEHLI MUSLIM.  Product: Mainly we have planned to offer popular Barbecue items, including Chicken and Beef burgers, Chicken Tikka, Russian salad, Kebab items, beef sandwiches and steaks have been selected to be served separately or as combo meals through the restaurant. It has installed capacity of serving 335 customers per day but is estimated to start with 140-150 customers per day.  Target Market: The middle income segment of Karachi is mainly targeted. Specifically we are targeting youngsters and families who love to have get-togethers.

Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)

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CRITICAL FACTORS: Whether an entrepreneur is opening a new Barbecue Restaurant or trying to expand an existing Barbecue outlet, there are winning principles that can improve the chances of success. Some key success factors are as follows:       

Selecting the right location and layout Hiring well experienced staff especially cooks and servers Quality & Hygiene Creating the right menu Menu pricing Operational food quality consistency Knowing the competition

PROCESS FLOW: Drive through Customer

Main Course Meal Preparation

Packing

TakeAway

PLACE ORDER Front Desk Or Waiter

Order in Queue

Walk-in Customer (Family)

Sidelines Preparation

Serving

Dine-In (Family)

INSTALLED & OPERATIONAL CAPACITIES: In the Barbecue Restaurant business, the installed capacities are mainly dependant on the location and layout of the outlet, service style, food concept and the target market. The restaurant is expected to serve around 335 customers in a day. At start up, the operational capacities are estimated to be around 140-150 clients. Once the business gains popularity and acceptance, sales are expected to increase with the same installed capacity.

Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)

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RESTAURANT COST SUMMARY: A detailed financial model has been developed to analyze the commercial viability of this Restaurant under Prime Minister Youth Loan Program. Various costs and revenue related assumptions along with results of the analysis are outlined in this section. The projected Income Statement and Balance Sheet are attached as annexure.

9.1 PROJECT FINANCING: Following table provides details of the equity required and variables related to bank loan;

TABLE NO.1 FINANCING OF RESTAURANT Description

Details

Total Equity (10%)

Rs. 220,000

Bank Loan (90%)

Rs. 1,980,000

Markup to the Borrower (%age/annum)

08%

Tenure of the loan (Years)

08

Grace period (Year)

1

9.2 PROJECT COST: Following requirements have been identified for operations of the proposed business. f

TABLE NO. 2 COST OF PROJECT Capital Investment

Amount (Rs.)

Restaurant Building

233,000

Restaurant Furniture & Fixtures

181,850

Machinery & Equipment

933,000

Advance Rent and Gas Security

505,000

Preliminary Expenses

25,500

Total Capital Cost

1,878,350

Initial Working Capital

321,650

Total Project Cost

2,200,000

Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)

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9.3 SPACE REQUIRMENT: The land requirement is 500 sq. ft. The cost per sq. Ft is Rs. 466. It is recommended that the Barbecue outlet be established in an open area or any other area with high retail consumer traffic. As per the proposed service style, the floor space needs to be carefully allocated to allow for maximum space for food preparation and store. The allocation of space between different sections would be as follows:

TABLE NO. 3 SPACE REQUIREMENTS SPACE REQUIREMENT (in ft.)

Area (sq. ft.)

Total Cost (Rs.)

Kitchen and Preparation

300

139,800

Store

100

46,600

Front desk / Reception

25

11,650

Family Area

75

34,950

Total

500

233,000

9.4 MACHINERY & EQUIPMENT: Machines are easily available in the local market but the entrepreneur also has the choice to select from international brands. The machines can be purchased through international vendors with a minimum delivery period of 3 months while refurbished machines are also available. The typical Barbecue restaurant as outlined above would require the following machine / equipment for its operations:

TABLE NO.4 MACHINERY AND EQUIPMENT

2

Cost (Rs/Unit) 40,000

Total (Rs.) 80,000

Grilling Machine

2

307,500

615,000

Deep Fryer (with 2 baskets) Hot Plates for Burgers, Kabab & Sandwiches Potato Cutter

2

40,000

80,000

1

33,000

33,000

2

3,500

7,000

Peeler

1

7,000

7,000

Microwave Oven

2

10,000

20,000

Generator (5 kva)

1

71,000

71,000

Keg rack & other

2

10,000

20,000

Description

Quantity

Deep Freezers

Total

Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)

933,000

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9.5 FURNITURE AND FIXTURES: The Restaurant is envisaged to operate as a take-away Barbecue restaurant and a limited seating arrangement around the outlet for families, would be provided to entertain a maximum of 40 customers at a time. The following table gives the details of the furniture and fixtures requirement for the front and back-house operations.

TABLE NO. 5 FURNITURE AND FIXTURES Description

Quantity

Cost (Rs.)

Amount (Rs.)

Dining Table (Square)

10

3,500

35,000

Chairs (Standard 14”)

40

1,500

60,000

Kitchen Cutlery set Dining Cutlery ( Plate, Fork, Knife, Spoon, Glass) Hot Water Geyser Large

2

2,500

5,000

60

150

9,000

1

18,000

18,000

Lights/CFLs

15

250

3,750

Wall lights/ Tube lights

6

750

4,500

Portable Emergency light

5

2,500

12,500

Working tables/Counter

1

15,000

15,000

Counter chairs

2

1,800

3600

Office Counter & Chair set

1

8,000

8,000

Chairs for Take away Customers

5

1,500

7,500

Total

181,850

9.6 RAW MATERIAL REQUIREMENT: It is assumed that material inventory for 5-6 days would be kept at the restaurant. The Raw Material cost is estimated to increase by 12% annually. The cost of material required is as under:

TABLE NO. 6 RAW MATERIAL REQUIREMENTS Description Material For Beef/Chicken Burger Material for Beef Sandwiches Material for Kabab items (Seekh, Behari, Shami Kebab) Material for Chicken Tikka Soft drinks, Fries, Chapati, Salad etc Packaging material Total Raw Material cost Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)

Cost (Rs.) 21,165 9,772 20,324 19,323 15,432 1,134 87,150

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9.7 HUMAN RESOURCE REQURIMENT: The human resource requirement is as follows:

TABLE NO. 7 HUMAN RESOURCE REQURIMENT Description

No. of Employees

Salary per Month (Rs.)

Total Monthly salary (Rs.)

Owner / Manager

1

30,000

30,000

Kitchen Supervisor

1

12,000

12,000

Cook

3

11,000

33,000

Servers

4

8,000

32,000

Dishwashers

2

8,000

16,000

Cleaner

1

6,000

6,000

Total Staff

12

129,000

Considering the size of the proposed establishment, it is assumed that the owner would be managing the overall affairs of the Barbecue setup. Owner will process and check bills, invoices, and cash and also maintain accounts etc. It is essential to hire experienced cooks, trained in operating machinery for the Restaurant. The proposed project would need a total of 12 persons to handle the restaurant operations. Salaries of all employees are estimated to increase at the rate of 10% annually.

9.8 REVENUE GENERATION: The Sales are expected to increase by 12% every year. The 12% annual increase in revenue is expected to result from a part increase in customer traffic and part increase in product price. The prices used to calculate the gross revenue earned are based on the billing rate at which the entrepreneur will charge the customer. The item-wise estimated revenue for the restaurant is as follows:

TABLE NO.8 REVENUE Items Description

Unit

Sales Price (Rs./Unit)

First year sales (No.)

First year sales Revenue (Rs.)

Chicken Tikka

No

550

1,800

990,000

Chicken Burger

No

120

4,320

518,400

Beef Burger

No

100

3,600

360,000

Beef Cheese Burger

No

120

3,600

432,000

Beef Sandwich

No

110

1,500

165,000

Beef Club Sandwich

No

140

360

504,000

Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)

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Katakat

No

150

1,440

216,000

Beef Steaks

No

280

720

201,600

Chicken Steaks

No

250

1,800

450,000

Behari Kebab (4 per plate)

No

160

2,800

448,000

Behari Kebab (8 per plate)

No

320

1,000

320,000

Seekh Kebab (4 per plate)

No

150

2,500

375,000

Seekh Kebab (8 per plate)

No

300

1,500

450,000

Chapli Kebab (4 per plate)

No

150

2,500

375,000

Chapli Kebab (8 per plate)

No

300

1,550

465,000

Malai Boti

No

280

900

252,000

Beef Boti Chicken Behari Boti Beef Boti Roll Chicken Roll Beef Chatni Roll Salad & Raita Puri Paratha Chapati Fries Kheer Beverages

No No No No No No No No No No No

250 200 80 80 70 35 + 40 15 10 60 45 30

850 1,200 1,500 1,600 1,800 3,500 6,000 4,998 1,300 2,500 71284

212,500 240,000 120,000 128,000 126,000 262,500 90,000 49980 78,000 112,500 2138520

Total Revenue

10,080,000

9.9 UTILITIES REQUIRMENTS: The following table presents the estimated breakup of utilities on a monthly basis:

TABLE NO. 9 UTLITIES REQUIRMENTS Description

Monthly Charges (Rs.)

Electricity

38,000

Gas

20,000

Telephone

2,500

Water

2,500

Total

63,000

Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)

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9.10 WORKING CAPITAL REQUIREMENT: It is estimated that an additional amount of Rs. 321,650 will be required as cash in hand to meet the initial working capital requirements / contingency cash. The requirement is based on the rent, utilities and salaries expenses for at least one month and 5-6 days’ raw material inventory. The following table gives the break up.

TABLE NO. 10 WORKING CAPITAL REQUIREMENT Description

Days

Charges (Rs.)

Utilities

30

63,000

Salaries

30

129,000

Raw Material

5

87,150

Rent

30

42,500

Total

Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)

321,650

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DESIHOLIC BARBECUE COMMON SIZE INCOME STATEMENT YEARS REVENUE/SALES LESS: COST OF GOOD SOLD RAW MATERIAL COST LABOUR & SALARY UTILITIES TOTAL COST OF GOOD SOLD GROSS PROFIT LESS: OPERATING EXP. RENT EXP. OFFICE & MISC. EXP. AMORTIZATION EXP. DEPRICIATION EXP. MAINTAINANCE EXP. SUB TOTAL OPERATING INCOME FINANCIAL CHARGES (08%/ANNUM) EARNING BEFORE TAX TAX NET PROFIT

YEAR 2015

YEAR 2016

10,080,000 6,274,800 1,548,000 756,000

11,289,600 7,027,776 1,702,800 831,600

2016%

100%

100%

(62.25%) (62.25%) (15.35%) (15.08%) (7.5%) (7.36%)

(8,578,800)

(9,562,176)

1,501,200

1,727,424

510,000 360,000 5,100 134,785 20,993

2015 %

561,000 396,000 5,100 121,352 18,893

14.89%

15.30%

(5.05%) (3.57%) (0.05%) (1.33%) (0.20%)

(4.96%) (3.50%) (0.04%) (1.07%) (0.16%)

(1,030,878) 470,322

(1,102,345) 625,079

4.66%

5.53%

(158,400)

(158,400)

(1.57%)

(1.40%)

311,922 (5000) 306,922

466,679 (7000) 459,679

3.09% (0.05%) 3.04 %

4.13% (0.06%) 4.07%

Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)

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DESIHOLIC BARBECUE BALANCE SHEET YEAR 2014

YEAR 2015

YEAR 2016

AMOUNT (PKR)

AMOUNT (PKR)

AMOUNT (PKR)

MACHINERY & EQUIPMENT

933,000

839,700

755,730

BUILDING

233,000

209,700

188,730

OFFICE FIXTURE & FURNITURE

181,850

163,665

147,298

1,347,850

1,213,065

1,091,758

CASH & BANK BALANCE

234,500

363,927

910,147

RAW MATERIAL INVENTORY

87,150

97,608

109,321

PREPAID RENT

505,000

505,000

505,000

826,150

966,535

1,524,468

25,500

20,400

15,300

2,200,000

2,200,000

2,631,526

1,980,000

1,980,000

1,821,600

1,980,000

1,980,000

1,821,600

220,000

220,000

809,926

220,000

220,000

809,926

2,200,000

2,200,000

2,631,526

ASSETS FIXED ASSET

TOTAL FIXED ASSETS CURRENT ASSET

TOTAL CURRENT ASSETS PRELIMINARY EXPENSES TOTAL ASSETS LIABLITIES & OWNER EQUITY NON CURRENT LIABLITIES LONG TERM LOAN TOTAL NON CURRENT LIABLITY OWNER EQUITY OWNER EQUITY TOTAL OWNER EQUITY TOTAL LIABILITIES & OWNER EQUITY

Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)

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DESIHOLIC BARBECUE RATIOS  DEBT RATIO (2015): FORMULA: TOTAL LIABILITIES/TOTAL ASSETS = 1,980,000 / 2,200,000 = 0.9 Times.

 EQUITY RATIO (2015): FORMULA: TOTAL OWNERS EQUITY / TOTAL ASSETS = 220,000/2,200,000 =0.10 OR 10%



DEBT TO EQUITY RATIO(2015): FORMULA: Total Liabilities/Owner Equity = 1,980,000/220,000 =9:1

 ASSET TURNOVER RATIO (2015): FORMULA: NET SALES/ TOTAL ASSETS = 10,080,000 / 2200,000 = 4.58 = 5 Times 

FIXED ASSET TURNOVER RATIO (2015): FORMULA: Net Sales / TOTAL FIXED ASSETS = 10,080,000 / 1,078,280 = 9.3 = 9 Times

 INVENTORY TURNOVER RATIO (2015): FORMULA: COGS / AVG. INVEMTORY = 8,578,800 / 92,379 = 92.8 = 93 Times

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 INVENTORY TURNOVER IN DAYS: FORMULA: 360 DAYS / INVENTORY TURNOVER IN TIMES = 360 days / 93 times = 3.87 = 4 days

 GROSS PROFIT RATE (2015): FORMULA: GROSS PROFIT / TOTAL SALES = 1,501,200 / 10,080,000 = 0.148 OR 15%

 NET PROFIT RATE (2015): FORMULA: NET INCOME / TOTAL SALES = 306,922 / 10,080,000 = 0.03 OR 3%

 RETURN ON ASSET (2015): FORMULA: NET INCOME/TOTAL ASSETS x 100 = 306,922 / 2,200,000 x 100 = 0.139 x 100 = 13.9 OR 14%

 OPERATING PROFIT RATIO (2015): FORMULA: EARNING BEFORE TAX/NET SALES = 311,922/10,080,000 = 0.030 OR 3%



RETURN ON EQUITY (2015): FORMULA: Net Income/Owner's Equity = 306,922/220,000 = 1.39

 COST OF GOODS SOLD RATIO (2015): FORMULA: COGS / NET SALES = 8,578,800 / 10,080,000 = 85%

Feasibility Study – Barbecue Restaurant (Rs.2.20 Million)