SMEDA(Barbecue Restaurant)

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Feasibility Study Barbecue Restaurant (Rs.2.20 Million)

INTRODUCTION TO BUSINESS FINANCE

GROUP 1

AREEB SALEEM - 1524

MAHEEN SIDDIQI - 1470

MAHEEN SIDDIQUI - 1487

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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.

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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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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

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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

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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 Ministers 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).

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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 dont provide dine in facility but serve good quality food for take-away. Individually-

owned 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.

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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:

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.

Drive through

Customer

Walk-in Customer (Family)

PLACE ORDER

Front Desk Or

Waiter

Order in Queue

Main Course Meal

Preparation

Sidelines Preparation

Packing

Serving

Take-Away

Dine-In (Family)

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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

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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

Description Quantity Cost

(Rs/Unit) Total (Rs.)

Deep Freezers 2 40,000 80,000

Grilling Machine 2 307,500 615,000

Deep Fryer (with 2 baskets) 2 40,000 80,000

Hot Plates for Burgers, Kabab & Sandwiches

1 33,000 33,000

Potato Cutter 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

Total 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 2 2,500 5,000

Dining Cutlery ( Plate, Fork, Knife, Spoon, Glass)

60 150 9,000

Hot Water Geyser Large 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 Cost (Rs.)

Material For Beef/Chicken Burger 21,165

Material for Beef Sandwiches 9,772

Material for Kabab items (Seekh, Behari, Shami Kebab) 20,324

Material for Chicken Tikka 19,323

Soft drinks, Fries, Chapati, Salad etc 15,432

Packaging material 1,134

Total Raw Material cost 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

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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 No 250 850 212,500

Chicken Behari Boti No 200 1,200 240,000

Beef Boti Roll No 80 1,500 120,000

Chicken Roll No 80 1,600 128,000

Beef Chatni Roll No 70 1,800 126,000

Salad & Raita No 35 + 40 3,500 262,500

Puri Paratha No 15 6,000 90,000

Chapati No 10 4,998 49980

Fries No 60 1,300 78,000

Kheer No 45 2,500 112,500

Beverages No 30 71284 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

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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 321,650

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DESIHOLIC BARBECUE

COMMON SIZE INCOME STATEMENT

YEARS YEAR 2015 YEAR 2016 2015 % 2016%

REVENUE/SALES

10,080,000

11,289,600 100% 100%

LESS: COST OF GOOD SOLD

RAW MATERIAL COST 6,274,800

7,027,776

(62.25%) (62.25%)

LABOUR & SALARY 1,548,000

1,702,800

(15.35%) (15.08%)

UTILITIES 756,000

831,600

(7.5%) (7.36%)

TOTAL COST OF GOOD SOLD

(8,578,800)

(9,562,176)

GROSS PROFIT

1,501,200

1,727,424 14.89% 15.30%

LESS: OPERATING EXP.

RENT EXP. 510,000

561,000

(5.05%) (4.96%)

OFFICE & MISC. EXP. 360,000

396,000

(3.57%) (3.50%)

AMORTIZATION EXP. 5,100

5,100

(0.05%) (0.04%)

DEPRICIATION EXP. 134,785

121,352

(1.33%) (1.07%)

MAINTAINANCE EXP. 20,993

18,893

(0.20%) (0.16%)

SUB TOTAL

(1,030,878)

(1,102,345)

OPERATING INCOME

470,322

625,079 4.66% 5.53%

FINANCIAL CHARGES (08%/ANNUM)

(158,400)

(158,400) (1.57%) (1.40%)

EARNING BEFORE TAX

311,922

466,679 3.09% 4.13%

TAX

(5000)

(7000) (0.05%) (0.06%)

NET PROFIT

306,922

459,679 3.04 % 4.07%

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DESIHOLIC BARBECUE

BALANCE SHEET

YEAR 2014 YEAR 2015 YEAR 2016

ASSETS

FIXED ASSET 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

TOTAL FIXED ASSETS 1,347,850 1,213,065 1,091,758

CURRENT ASSET

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

TOTAL CURRENT ASSETS 826,150 966,535 1,524,468

PRELIMINARY EXPENSES 25,500 20,400 15,300

TOTAL ASSETS 2,200,000 2,200,000 2,631,526

LIABLITIES & OWNER EQUITY

NON CURRENT LIABLITIES

LONG TERM LOAN 1,980,000 1,980,000 1,821,600

TOTAL NON CURRENT LIABLITY 1,980,000 1,980,000 1,821,600

OWNER EQUITY

OWNER EQUITY 220,000 220,000 809,926

TOTAL OWNER EQUITY 220,000 220,000 809,926

TOTAL LIABILITIES & OWNER EQUITY 2,200,000 2,200,000 2,631,526

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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%

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SMEDA(Barbecue Restaurant)