The project will be financed with a total investment of AED 7,00,000. The total investment will be proportionately invested with AED 400,000 sourced from the bakery owners and remaining AED 300,000 borrowed from a local bank. Since we don’t have mortgage to offer, we are expecting the loan proceeds at the rate of 10%. The reason for borrowing from a bank is to gain the advantage of tax deductibility on interest paid on debt borrowings.
a) Sales:
Sales/ Turnover of the company is expected to grow consistently over the year. However,for the purpose of forecasts,we have kept the sales forecast in a conservative manner and assumes a 5% increase in Year 2, and a 10% in Year 3. Additionally, since we are eatery based outlet, our sales projection includes projection for seasonality wherein some months revenues peak (such as holidays and Ramadan) and wane in the slower months. For instance, and since major section of this country is following Islamic religion, sales of all the three categories of the product will be affected during the month of Ramadan.
-Sales Transaction Nature
All our sales will be counter sales and will be dealt in cash terms only
b) Cost of Goods Sold:
The bakery will sell three products, cakes, drinks and wedding cakes. Cost of each product varies, with cakes accounting for 75% of the cost of sales, while drinks and wedding cakes are assumed to be in the proportion of 50% and 65%, respectively.
c)Gross Margin:
We assume constant cost of sales throughout the period of our analysis, and consequently a stable gross margin of 32% every year.
d) Operating Expenses
The operating expenses of our bakery comprise of staff expenses, rental & other expenses and amortization expenses. Below I have comprehensively discussed the details relating to our operating expenses:
-Staff Expenses
While I will assume the role of general manager, however, since I plan to retain my profits, I will not take any salary from my entity for my services. Apart from this, I plan to employ a staff of seven people, the details of which are shared below. Important to note, we plan to offer 7.5% additional salary to our workforce compared to the industry standard. Moreover, salary for each member of the staff will increase by 7.5% every year. Highlighted below is the salary structure of our employees from Year 1- Year 6:
-Rental Expenses
We duly understand the importance of ambience and location when it comes to an eating and refreshment point. Therefore, we have planned to open our outlet in Jumeria Beach Residence in a 250 square meter area with an average rental expected at AED 2000 per square meter. Therfore, our annual rental is estimated to be AED 500000, which we will pay 50% in current year and will keep 50% outstanding at the year end to be paid in the following year. All the details of the rental agreement will be confirmed with the landlord. We expect the rental expense to increase by 1% every year.
-Other Expenses
Other expenses are related to water& electricity, insurance charges, courier charges, transportation, telephone and seasonal decoration. All the details relating to these expenses and projected growth rate are detailed hereunder:
-Depreciation Expenses
Depreciation expenses are related to the capital asset that we will purchase for our bakery outlet. The detailed information relating to the depreciation expenses of the capital assets is detailed hereunder:
d) Financing Expenses
We plan to borrow AED 300,000 from a local bank for the period of 25 years, and as already notified initially, since we are not in a position to offer mortgage security, we expect that the rate of interest will be 10%. Monthly payment for the loan is estimated at AED 1625.
e) Net Proft Margin
We expect a steady increase in the net profit margin over the years as we rely extensively on worth mouth. In general, most pastry businesses have a 3% net profit margin. However, with little staff expenses to bear, we are expecting higher net margin over the years to come.
f) Cash Flow Projections
Cash sales structure and high gross margins will ensure a highly liquid structure for my entity. We expect our cash reserves to grow 3 times in the period of 6 years. Please note that this amount still include bank borrowings worth $300,000. The details of cash flow projections are shared below:
Ratio Analysis to Support Optimistic Business Outlook
Conclusion
As we may see from the above table, the revenue figures are projected to increase every year as we target to offer exclusivity, not just in the terms of taste of authentic French pastry, but also the aura of bon-vivant location and hand picked ingredients by one of the best French pastry chef. These attributes will help us generate a positive mouth publicity in years to come, and consequently, higher sales figure. Moreover, since the entire sales structure is based on cash basis, this pastry business will be a source of cash generation where we expect to recoup our initial investment within few years of our establishment.
On the whole, I am highly optimistic with my business plan as the same is framed with meticulous consideration of each and every factor, related to location, product offering, the staff, marketing plan and all other aspects that we consider crucial to the likely success of our entity.
