Stay Healthy Stay Happy

Business Plan
Submitted by:
Uzair Ejaz

14E00076

M. Amin Asghar 14E00018

TABLE OF CONTENTS
Table of Contents
EXECUTIVE SUMMARY............................................................................................................. 3
COMPANY DESCRIPTION..........................................................................................................4
Mission..................................................................................................................... 5
Vision....................................................................................................................... 5
Products and Services................................................................................................ 5
Key Partnership.......................................................................................................... 6
Legal Status and Ownership........................................................................................ 6
INDUSTRY ANALYSIS................................................................................................................ 7
Increasing Number of Food Outlets............................................................................... 7
Consumer Appeal....................................................................................................... 8
Focusing on Consumer Convenience............................................................................ 8
Increasing Market for Fast Food The Population Boom..................................................8
The Future of the Industry............................................................................................ 9
FIVE FORCES MODEL............................................................................................................. 10
KEYS TO SUCCESS................................................................................................ 12
MARKET ANALYSIS.................................................................................................................. 13
SWOT ANALYSIS..................................................................................................... 13
MARKETING MIX...................................................................................................................... 17
MANAGEMENT TEAM AND COMPANY STRUCTURE............................................................19
OPERATIONS PLAN................................................................................................................. 20
FINANCIAL PROJECTIONS......................................................................................................21
RATIO ANALYSIS...................................................................................................................... 26
APPENDIX................................................................................................................................ 28

EXECUTIVE SUMMARY
The International-Style Open Kitchen Restaurant will be a moderately priced 80 seat
restaurant offering Healthy and Quality food and service. Lahori Khabas, Continental,
Bar-B-Q along with classic dishes, fast food items and generous salads are all on the
menu. We will offer specialty selections including a lighter options and smaller portions
for a childrens menu.
The restaurant will be a Partnership owned and operated by Uzair Ejaz and Amin
Asghar.
Partners will be leasing required space located at Gulberg Main Boulevard, an existing
Commercial area. The site was previously leased as a Chinese Restaurant. Although
the location was previously utilized as a restaurant, the former tenant removed the
majority of the furniture, fixtures and equipment which will need to be replaced. The
location will also require some additional renovation to update the lavatories and
increase table space in the dining area.
The decor will feature wood accented chairs with green and white checked table cloths.
Dinner style tables will be surrounded by wooden chairs with comfortable seating
cushions.
Initial Sales projections assume approximately 2,000 customers per week resulting in
weekly sales of just over Rs. 192,600 or Rs. 10,015,200 annually which positions Open
Kitchen as a highly desirable concept for ownership in a table service market therefore
a good investment. Total startup costs will be Rs. 4,996,250 half of which will be
contributed by the owners and the remainder will be secured by a proposed bank loan.

COMPANY DESCRIPTION
Today's restaurants can hardly neglect other non-food aspects. Activities in the kitchen,
such as chopping, frying or roasting, and the enticing aromas from kitchens have now
become part of the total dining experience.
It is the Traditional Restaurant with an open kitchen, visible in the center of the
restaurant. Our Restaurant will start the era of perfection by providing healthy, hygienic
and quality food to its customers. That is what the Open Kitchen concept, a new
growing trend among modern restaurants, is all about.
This concept is radically new among restaurants since the kitchen, traditionally a hidden
place in most of restaurants, suddenly becomes one of restaurant's interior design.
Under this new trend, the kitchen is no longer put behind the scene but comes to the
fore.
Another reason to pursue this idea was sudden unexpected disclosure made by Punjab
Food Authority which resulted in decreased consumer trust on the food chains.
We are here to regain consumer trust through transparency via Open Kitchen along with
best Quality and Taste.
It will be located on the Main Blvd, Gulberg, Lahore. The restaurant will be wholly
owned and operated by Uzair Ejaz and Amin Asghar. The restaurant will serve a variety
of Classic Continental favorites, Fast Food and ice-cream.

Vision
To become no.1 restaurant in providing best quality food and services and to be
recognized as pioneers in introducing open kitchen concept in Pakistan; also shall
become an example for all other restaurants to follow.

Mission
To ensure that each guest receives prompt, professional, friendly and courteous service.
To maintain a clean, comfortable and well maintained premises for our guests and staff.
To provide at a fair price, nutritional and well-prepared meals; using only quality
ingredients. To ensure that all guests and staff are treated with the respect and dignity
they deserve. To thank each guest for the opportunity to serve them. By maintaining
these objectives we shall be assured of a fair profit that will allow us to contribute to the
community we serve.

Products and Services

Our restaurant will be dealing in the following line of food products and services:

Local Lahori Favorite

Continental
Fast Food
Sweet Tooth

Services will include

Dine-In
Take Away
Home Delivery

Key Partnership
The restaurant will be owned and operated by Uzair Ejaz and Amin Asghar under the
partnership agreement.
With the high turnover of help for startup restaurants, we will rely on family and friends
to fill in key positions where required until we are off the ground and making a profit.

Legal Status and Ownership

Open Kitchen will be organized as a Partnership, owned and operated by Uzair Ejaz
and Amin Asghar. Open Kitchen will be registered under Pakistan Hotels and
Restaurant Acts Act 1976 is the law which requires the owners of all types of
restaurants to register and obtain a license with the government. The restaurant owner
is required to apply to the controller for registration of the restaurant.
Application for registration and determination of fair rates shall be made to the controller
in Form G together with a certificate of medical fitness in Form I from a registered
medical officer of the civil hospital in respect of the staff of the restaurant.
For registration of a restaurant, the owner of the restaurant is required to conform to the
standard of health, hygiene and comfort which standards have been set out in Schedule
II of the act. On receipt of application, the controller will carry out inspection of the
aforementioned premises and once satisfied will initiate the registration process. Once
registered the owner of the restaurant will apply to the controller for license as per the
Act which needs to be renewed on a yearly basis for the prescribed fee.

INDUSTRY ANALYSIS
The food industry is 2nd largest and popular in Pakistan with 169 million consumers. It
caters 16% of employment of manufacturing sector, the source of most of its innovation,
and many major international chains are based in Pakistan. The presence of
multinational Upscale and fast food chains like McDonalds, KFC, Hardees, Pizza Hut,
Subway etc. have somewhat catered to the high income segment therefore developing
a gap for midscale restaurants. Multinational corporations such as these typically modify
their menus to cater to local Pakistan tastes and most overseas outlets are owned by
native franchisees to ensure that cultural, ethnic, and community values are taken care
of.
Additionally, multinational food chains are not the only or even the primary source of
food in most cities of Pakistan. Many regional and local chains have developed around
the main cities of Pakistan (for example Bundu Khan and Shezan in Lahore) to compete
with international chains and provide menu items that appeal to the unique regional
tastes and habits at comparatively low costs. In Pakistan, multinational chains are
considerably more expensive; they usually are frequented because they are considered
chic and somewhat glamorous and because they usually are much cleaner than local
eateries. However much of the middle-income segment (which forms a major chunk of
restaurant goers) prefers visiting local outlets that offer low cost food, hence more
frequent visits.

Increasing Number of Food Outlets

The rapid rate at which the food industry continues to add outlets is as much a reflection
of consumer demand for convenience as it is a reflection of demand for food itself.
Expanding the number of outlets increases accessibility, thus making it more convenient
for consumers to purchase food. Especially in recent years, much of the expansion has
been in the form of "satellite" outlets. These tend to be smaller in size, with little or no
seating capacity, and are often in nontraditional locations, such as office buildings,
department stores, airports, and gasoline stations; locations chosen specifically to
maximize convenience and consumer accessibility.

Consumer Appeal
Food outlets have become popular with consumers for several reasons. One is that
through economies of scale in purchasing and producing food, these companies can
deliver food to consumers at a very low cost. In addition, although some people dislike
fast food for its predictability, it can be reassuring to a hungry person in a hurry or far
from home. Multinational Fast food chains like McDonald's rapidly gained a reputation
for their cleanliness, fast service and a child-friendly atmosphere where families on the
road could grab a quick meal, or seek a break from the routine of home cooking. Prior to
the rise of the fast food chain restaurant, people generally had a choice between
greasy-spoon diners (kiosk) where the quality of the food was often questionable and
service lacking, or high end restaurants that were expensive and impractical for families
with young children. Modern, stream-lined convenience of the fast food or midscale
restaurant provides a new alternative and appealed to consumers' instinct for ideas and
products associated with progress, technology and innovation.
Many consumers see good restaurants as symbols of the wealth, progress and wellordered openness of Western society and therefore become trendy attractions in many
cities around Pakistan, particularly among younger people with more varied tastes.

Focusing on Consumer Convenience

Midscale Food outlets tend to focus on the Home Delivery similar to the fast food
restaurants because consumers are now more conscious about time and convenience.

Increasing Market for Fast Food The Population Boom

Pakistan, currently ranked as 6 th in terms of total population, is characterized by a high
population growth rate of (Pakistan Economic Survey 2014-2015) and is set to take the
top three positions in terms of total population with already 191.07 Million people
registered in 2015. With this, the per capita income has increased to US$ 1,555 while
the productive age group (15 to 64) years is said to take the major chunk of population
(67% of total population) by 2020. The growth rate in food consumption is also
augmented by the rapid increase in the employment rate for males / female population
aging between 20 to 29 years (fast food goers) hence the greater income contribution to
the overall income generated is expected to be higher.
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The Future of the Industry

The Pakistani economy is becoming increasingly service-oriented, and over the past
several decades, the foodservice industries that offer the highest levels of convenience
have been rewarded with strong sales growth. In the face of rising population, incomes
and increasingly hectic work schedules, a nearly insatiable demand for convenience will
continue to drive restaurant food sales. Food Outlets will strive to find ways to make
their products even more accessible.
Even if incomes stagnate or attitudes change, consumers are unlikely to return to meal
preparation at home on a large scale. This suggests that even if consumers choose to
spend more time at home, for family or other reasons, much of the meal preparation will
still occur elsewhere.
Many more table service restaurants, which traditionally focus on full-service in house
dining, will likely try to capture part of this market by offering take-out, and possibly
experimenting with home delivery.
The value of consumer time, as well as the demand for consistent, high-quality and
Hygienic food products, will continue to shape the fast food industry. Also, the role of
convenience in this dietary shift cannot be over-emphasized, and the future growth of
the rest of the food service industry will be driven in large part by its ability to find new
ways to save consumers time.

FIVE FORCES MODEL

THREAT OF NEW ENTRANTS
o Economies of Scale:
The firms in the limited-service restaurant class do see some advantages to
economies of scale, but these advantages are undermined by the ease of
creating a quick service restaurant. The saturation of the industry is also a huge
limiter of how much an advantage can be attained by economies of scale.
o Product Differentiation:
While differentiation is a large and necessary expense for the large fast food
chains in the industry, it is not difficult for private startups to overcome and thus
not a significant barrier to market entry.
o Capital Requirements:
Capital requirements will quell the formation of new, national competitors, but is
not a significant barrier to private startups.
o Cost Disadvantages:
These disadvantages occur from the fact that established companies already
have product technology, access to raw materials, favorable sites, advantages in
the form of government subsidies, and experience. The extreme saturation and
similarity in product offering make convenient locations essential for quick service
restaurants large and small. This is a significant barrier to entry.
o Distribution Channels:
Speedy and reliable channels are essential among all firms in the industry; they
are not necessarily difficult for new comers to attain. Also the economies of scale
enjoyed by large firms are not so great as to shut out smaller competitors.
o Government Regulation:
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Government regulation is more intense for the larger firms which have to deal
with franchising regulations. Smaller establishments are subject to the standard
array of government regulations including: zoning, health, safety, sanitation, and
building. These are standard for almost any new business and thus do not pose
large threat to new comers.
o Conclusion:
Due to the lack of any of the barriers to entry being so significant as to prevent
the majority of private startups, we feel the threat of new entrants is high.

BARGAINING POWER OF CUSTOMERS

Even though customer switching costs are nearly zero, the food industry does
not worry about loyalty. It is this volume that keeps customer bargaining power
low by diluting the effect of a few picky customers.
BARGAINING POWER OF SUPPLIERS
Large fast food chains thousands of suppliers to choose from. They can switch
suppliers easily and tend to make up a large portion of the suppliers revenue.
This severely limits the bargaining power of suppliers.

THREAT OF SUBSTITUTES
With so many firms in the quick service / midscale restaurant industry, low
switching costs, similar products, and healthier options, the threat of substitutes
is very high.

RIVALRY AMONG EXISTING FIRMS

Firms compete for market share in a saturated market. Growth is very slow so
the customer base is not growing as fast as the industry. This leads to high
rivalry among food chains.

KEYS TO SUCCESS

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o Repeat business. Every customer who comes in once should want to return,
and recommend us. Wordofmouth marketing is a powerful ally.
o Hire top notch chefs and offer training to keep the chef on top of his/her
game, and pay top wages to ensure they stay with us.
o Location Convenience is essential to us; we need to be close to our market
because we are not trying to get people to travel to reach us.
o A variety of menu offerings with a down home theme, reasonably priced to
establish credibility, but not so high as to limit customers.
o Strict controls on providing Healthy and Hygienic food and no compromises.

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MARKET ANALYSIS
SWOT ANALYSIS
Strengths
o Prime Location
o Skilled Staff
o Open Kitchen Concept and Good Quality
o Unsurpassed Service
Weaknesses
o Recruiting Quality Employees
o Tight Margins
Opportunities
o Low Barriers to Entry
o Offer additional catering services in future
o Home Delivery Services
Threats
o Government Policies
o Rising Operation Costs
o Maintaining Sales Volumes
o Consumers that believe that homemade food is more healthier than those
prepared in restaurants.

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Unique Selling Proposition (USP)

Our Major USP is Open Kitchen and Quality food. We will be able to offer home-style
meals for a reasonable price in a comfortable home-like setting. We will also be able to
keep our menu reasonably priced by offering menu items that take advantage of
seasonal produce further reducing price. Finally we will keep our prices in check by
meticulous monitoring of our controllable expenses keeping close eye on our Prime
Cost Report and Inventory. By initially employing family members and friends who will
work for lower and reduced wagers, for example, we can further reduce our controllable
expenses

Competitive Edge
Open Kitchens competitive edge is in its people. We truly believe that our business is
not only as good as our products (meals) but the quality of our staff as well. Our staff is
a reflection of us. Initially, we intend to employ our family members and friends who will
work for lower and reduced wages. Our long term goal is to hire team members that are
truly hand selected and have the same honest to goodness family values we do. And
unlike our big chain competitors, because of our lean size, we can turn on a dime when
economically pushed and make changes quickly allowing us to be proactive. (Whereas
our corporate competitors have to adhere more closely to their company policies thus
impeding their reaction time)

Market Size
Food Industry is the 2nd largest industry in Pakistan with 165 million relevant consumer
bases.

Industry Participants
Major participants include Major restaurants like Gourmet, Bundu Khan, Salt & Pepper
and Shezan.

14

15

Main Competitors
The restaurants located within a five mile radius of Open Kitchen.
Other main competitors include:
Direct

Indirect

Gourmet Restaurants

Fast Food Chains Local and International

Bundu Khan

Local Caf and Diners

Shezan Restaurants
Salt n Pepper

Market Segments
Open Kitchen will appeal to a broad base of consumers in both the residential and
business community. The location selected for Open Kitchen will be chosen primarily to
appeal to the growing number of households in the area.

Target Market
Our target market will be SEC A (complete) and SEC B1 (Middle Class).

Target Market Segment Strategy

The restaurant will be located in a crowded commercial area. This will encourage
families and especially white collar working class, tired from a day of work to stop in for
a Quality meal they can enjoy without the cleanup!

Profitability
At Open Kitchen, cost accounting is important, since the profitability of individual dishes
can vary significantly and will initially determine the cost of the menu items. We will take
advantage take advantage of seasonality for example in local produce items. We will
also closely monitor the Prime Cost Report which focuses on the controllable expenses
of Cost of Goods Sold and Labor. As a new start-up we can currently control employee
cost by hiring family members and friends who will work for low and reduced wages.
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MARKETING PLAN
Marketing Strategy
We realize the success of Open Kitchen will have to be achieved by doing more that
serving great food, and providing friendly service. We will utilize a marketing plan to
build customer traffic. At Open Kitchen we will continually strive to win more customers
by being proactive rather than reactive in our marketing efforts and stay current with
popular industry trends. We will achieve these goals by using the following:
Database: We will begin our campaign by marketing to our existing database of
customers. We will email fliers announcing our grand opening. We will continually
update our database by providing a fishbowl for business cards in the lobby and
offer a weekly or monthly drawing.
Loyalty /Birthday Program: Open Kitchen will offer a birthday/loyalty club proving
a complimentary dish or wrap any fast food item for the birthday person. These
simple techniques can increase revenues as much as 15% due to repeat
business.
Our restaurant team will also be active in the local community and we plan to
take an active role by participating, sponsoring, and donating to local Masjid,
sports clubs or teams in the market area.
We will also strive to develop rapport with local business as a quick, comfortable
lunch choice. In the future, we plan on establishing a marketing campaign to call
on the local business in the market area, deliver samples, and encourage them
to consider our restaurant as the restaurant of choice for their next business
luncheon.

MARKETING MIX
17

Positioning
Consumers believe that meals at home are healthier and higher quality than eating at
restaurants. At Open Kitchen, we will position ourselves as the premier home-style
restaurant by preparing quality and Hygienic meals with simple wholesome ingredients.

Pricing
We will offer reasonably priced meals, in a warm, relaxed and comfortable setting. We
have a wide selection on our menu and also have menu options for lighter fare. We are
open 7 days a week and unlike our chain competitors. We will also offer Home Delivery
Service.

Promotion and Advertising Strategy

Location- The restaurant will be located on Gulberg Main Boulevard with easy
access. We will have Signage on the Roads as well as signage over our
entrance.
Word of Mouth We shall maintain a database of existing catering customers
and will rely heavily on this method to attract and grow new business.
Direct Mail - Bulk mailing either directly to potential customers or by including a
postcard in a value-pack-type mailing and also via pamphlets.
Event Marketing Take the help of local unions to help us market our grand
opening. This will continue for future events as well.

Website
We will stay current with industry trends and have a webpage, Facebook page and
Twitter site. Our menu, map, and hours of operation will be easily accessed.

Sales Strategy

18

Customer service is of the utmost importance. Different surveys estimate that only 1 in
20 customers that have a problem in a restaurant will tell management about it. It will be
our goal to provide a wonderful meal combined with superior customer service. Training
programs will include teaching materials to train our employees about service attitudes,
customer perception and how to handle guest complaints. We shall conduct periodic
staff meetings intended to review policy, increase guest satisfaction and to keep a
general line of communication between staff and management. All guest complaints will
be acknowledged by the staff and referred to management. Programs will be in place
for all types of guest complaints.
Customer feedback will be accomplished by customer surveys or the use of mystery
shoppers.

Sales Programs
We will encourage our employees to grow our customer base and provide incentives
and regular bonuses to employees for referrals and repeat customers. These initiatives
are still in the planning stages as we gear up to hire and staff. They will play an active
role in our employee culture.

Exit Strategy
Disposal of kitchen equipment, and restaurant furniture, and fixtures would occur at
auction. The additional assets such as the staffs uniforms, table cloths, and cutlery
could be sold at auction or on OLX. Food inventory because of its quick perishable time
would be considered a write-off.

MANAGEMENT TEAM AND COMPANY STRUCTURE

19

Organizational Structure
Open Kitchen expects to hire 12 employees. Both Partners will personally select each
candidate. We have adopted an effective interview process designed to staff the
restaurant with highly qualified people for each position. Each applicant will be rated
and evaluated according to a pre-defined set of standards designed for each position.
Background checks will be utilized for designated positions. Recruiting efforts will
always center on referrals.

Management Team
The restaurant will be owned by both partners Uzair and Amin.
Initially Uzair and Amin will fill in many of the management gaps. Over time, they have
plans to hire a general manager and a kitchen manager to meet the gaps associated in
payroll, inventory management, and cost accounting,

20

OPERATIONS PLAN
Open Kitchen will be open 7 days a week for lunch and dinner requiring multiple shifts.
We will write the schedules. The schedules will be written in a manner that will allow the
ability to increase or decrease hourly labor according to sales volume in order to
maintain a consistent labor cost control.
Proper labeling and rotation techniques, accompanied by ample storage facilities will
ensure that high quality prepared product will be sufficiently available to meet the
demands during peak business hours. Replenishment and ongoing preparation will
continue during off peak business hours.
We shall be responsible for ordering, receiving and maintaining sufficient inventory to
meet production demands. Ordering schedules will be spread over a period of time with
perishable products being ordered multiple times per week to preserve freshness.
Standard grocery and supply orders will be ordered less often, according to a
predetermined schedule and storage capacity.
We shall rely on operational checklists to verify that each work shift has been properly
prepared for and to make sure that the operational standards are followed before,
during and after work shifts.
The restaurant layout, including the dining room, kitchen and serving line, has been
designed for efficiency and flexibility to accommodate the fluctuation in customer traffic
and peak meal periods.
Upon arrival, guests will be greeted immediately by either the assistant manager or a
server and asked for the seating preference. Drink orders will be taken and guests can
enjoy our complimentary items. Once the customers order is taken, the order will
automatically be printed to a requisition printer located in the kitchen area. The cook will
use the printed ticket to keep track of orders and place the meal under the heating
lamps until the order is complete. The kitchen preparation line has been designed to be
operated by a minimum staff of 1 line cook and a maximum of 4 cooks. This design
allows line staffing to be adjusted to the business volume. Shift changes for all staff will
involve cleanup, restocking and preparation. All dues will be settled at the end of each
shift. The closing shift will involve designated closing duties that will leave the restaurant
clean and fully prepared for the next day.
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FINANCIAL PROJECTIONS
Project Investment
This section will provide the total cost of the project.
Item
Construction Cost (all inclusive)
Dining & Office Furniture
Equipment & Machinery
Advance Rent of Year
Preliminary Expenses
Working Capital
Total

Cost (PKR)
1,000,000
540,250
940,000
1,200,000
80,000
1,236,000
4,996,250

The project cost estimates for the proposed restaurant have been formulated on the
basis of discussions with relevant stakeholders and experts. The cost projections cover
the cost of land, building, inventory, equipment including office furniture etc. The specific
assumptions relating to individual cost components are given as under:

Recommended Project Parameters

Capacity

Human Resource

300 Customers
per day

12

Equipment

Location

Local / American
/
Chinese

Middle / High
Income
Level Area

FINANCIAL SUMMARY

Project Cost

IRR

NPV

Payback Period

Cost of Capital
(WACC)

4,996,250

43.77%

19,435,083

2.8 Years

14.5%

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Machinery & Equipment

Understanding the customers individual needs and the capability to satisfy these
completely is a vital part of the restaurants success. This is in turn dependent on the
machinery and equipment used to produce good quality food. Food processing
Machines are easily available in the market. Cheaper Chinese brands have gained
popularity over the years. The machines can be ordered through international vendors
with a minimum delivery period of 3 months while refurbished / reconditioned machines
are also available. Some outlets closing their business also tend to sell their machinery
at low prices but the durability and reliability factor must be taken into consideration
while buying such machines.
Total cost of the restaurant machinery will be PKR 967,000

Dining Furniture & General Fixtures

The restaurant is expected to entertain a minimum of 300 customers in a day, which
requires a good seating layout to avoid any confusion and problems during rush hours.
It will cost PKR 540,250

Land Requirement
The land requirement is around 1,000-1,400 sq.ft. in densely populated area where all
utilities and facilities are properly available. It is recommended that the fast food outlet
be opened on the ground floor wherein the consumer traffic will be a maximum. The
more the shop is near the main road the better sales potential it will have.

Construction Cost
The floor space needs to be carefully allocated to allow for maximum dining space for
customers in rush hours. The allocated amount for construction is PKR 1 Million.

Human Resource Requirement

Considering the size of the proposed establishment it is assumed that the owners would
be managing the overall affairs of the restaurant setup. They shall be required to
process and check bills, invoices, receivables management, maintain accounts, etc. for
record. The owners shall also ensure safe custody of store keys.
The cashier will only be responsible for receiving payment and handing over change
while the owner would be managing the cash drawer for control purposes. It is important
to note that many food outlets tend to lose out due to inadequate cash control by the
owners especially during rush hours where the counter staff can easily slip out one or
two payments.

Revenue & Cost Projections

The Sales are expected to increase by 15% every year while the cost of raw materials is
assumed to increase by 10%. The 15% annual increase in revenue is expected to result
from a part increase in population increase 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 prices are also inclusive of the General
Sales Tax.

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Furthermore it is assumed that the following sales breakup will form the revenue
streams for the fast food outlet.
Revenue Stream

% of Total Sales

Dine In
Take Away
Home Delivery
Total Revenue

60%
20%
20%
100%

The minimum delivery order size is assumed to be Rs. 500/- per order with 3 delivery
riders being employed at the charge out rate of Rs. 50 per delivery order wherein no
transportation fuel is provided by the fast food outlet. For Take Away and Home Delivery
another 1% of sales added cost due to packing is assumed.

Rent Cost
The rent for the assumed premises will be Rs. 100,000/- per month. It is assumed that
Rs. 1,200,000 will be given in advance before possession of premises. This will include
6 months deposit and 6 month advance rent. The rent would be payable on a monthly
basis and is expected to increase at the rate of 10% per annum for the projected period.

Utilities Requirement
The following table presents the assumed breakup of utilities on a monthly basis:
Utility
Electricity
Water
Gas
Telephone
Total

Monthly Charges (Rs.)

40,000
2,000
15,000
10,000
67,000

As we see above the Stoves and Ovens require considerable gas during the
preparation process. The preheating procedure of the equipment before
commencement of preparation also consumes considerable gas. It is assumed that
utilities expenses will be increased by 10% every year.

Depreciation on Building & Equipment

Depreciation on Shop, Equipment, Machinery and Fixtures is assumed to be at the rate
of 10% per annum based on the straight line method for the projected period.

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Working Capital & Pre Operating Costs

It is estimated that an additional amount of approximately Rs. 1,236,000 will be required
as cash in hand to meet the working capital requirements / contingency cash for the
initial stages. The requirement is based on the rent, utilities and salaries expenses for at
least four months and 3 days raw material inventory. The following table gives the break
up.
Item

4 Months Cost (Rs.)

Utilities
Salaries
Raw Material Inventory
Rent
Total

208,000
500,000
128,000
400,000
1,236,000

The provision for pre operating costs is assumed to be Rs. 80,000 which will be
amortized equally over a 5 year period.

Account Receivables
All sales will be made strictly on cash basis. It is not prudent to operate a restaurant on
credit basis.

Miscellaneous Outlet Expenses

A monthly figure of Rs. 9,000 (300 per day) is assumed to be incurred for miscellaneous
expenses which are expected to increase at the rate of 10% per annum for the
projected period.

Financial Charges
It is assumed that long-term financing for 5 years will be obtained in order to finance the
restaurant setup which would mainly include construction & decor of Building, Purchase
of machinery & equipment, purchase of inventory etc. This facility would be required at
a rate of 9% (including 1% insurance premium) per annum with 60 monthly installments
over a period of five years. The installments are assumed to be paid at the end of every
month.

Taxation
The tax rate applicable to partnership is the same as that of the salaried individuals. Tax
is considered as an average rate of 20%

Cost of Capital
The cost of capital is explained in the following table:

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Particulars
Required ROE
Cost of Finance
Weighted Average Cost of
Capital

Rate
20%
9%
14.5%

The weighted average cost of capital is based on the debt/equity ratio of 50:50.

Owners Withdrawal
It is assumed that the owners will withdraw from the business once the desired
profitability is reached from the start of operations. The amount would depend on
business sustainability and availability of funds for future growth.

Key Assumptions
Item

Assumption

Sales Increase

15% Per Year

Increase in Cost of Raw Materials

10% Per Year

Increase in Staff Salaries

10% Per Year

Increase in Utilities (Electricity / Water /

Gas)
Increase in Rent

10% Per Year

Increase in Office Expenses

10% Per Year

Debt / Equity Ratio

50:50

10% Per Year

Depreciation
Shop Building & Fixtures

10% Per Year

Kitchenware & Machinery

10% Per Year

Furniture

10% Per Year

Equipment Annual Maintenance Cost

2.5% of Book Value

Raw Food Inventory - Meat

3 Days

Raw Food Inventory Spices & Sauce

7 Days

Lease Period

5 Years

Lease Installments

Monthly

Financial Charges (Lease Rate)

9 % Per Annum

Tax Rate

As per Salaried Individual

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RATIO ANALYSIS
1. RETURN ON ASSETS (ROA)
Net profit after Tax / Total Assets * 100
5= 3,853 / 13,460 * 100 = 29%
4= 2,877 / 10,198 * 100 = 28%
3= 2,058 / 7,863 * 100 = 26%
2= 1,372 / 6,301 * 100 = 22%
1= 799 / 5,381
* 100 = 15%
Significance:
We actually see total business of restaurant; this ratio tells that how efficiently restaurant
is using its Assets. This ratio expresses the capacity of earning profit by a company on
its total assets employed in the business. It is calculated as percentage of net profit after
tax to total assets.
2. RETURN ON EQUITY (ROE)
Net profit after Tax / Owners Equity * 100
5= 3,853 / 13,459 * 100 = 29%
4= 2,877 / 9,605 * 100 = 30%
3= 2,058 / 6,728 * 100 = 31%
2= 1,372 / 4,670 * 100 = 29%
1= 799 / 3,298
* 100 = 24%
The amount of net income returned as a percentage of shareholders equity. Return on
equity measures a corporation's profitability by revealing how much profit a company
generates with the money shareholders have invested. Here increased percentage
showing gradual increase profits that is added in the Owners equity.
3. PROFIT MARGINS
Net profit after Tax / Net Sales * 100
5= 3,853 / 17,516
4= 2,877 / 15,231
3= 2,058 / 13,245
2= 1,372 / 11,517
1= 799 / 10,015

* 100 = 22%
* 100 = 19%
* 100 = 16%
* 100 = 12%
* 100 = 8%

It shows gradual increase in the profits year by year.

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4. WORKING CAPITAL RATIO

Current Assets / Current Liabilities * 100
Assessing the health of a company in which you want to invest involves understanding
its liquidity - how easily that company can turn assets into cash to pay short-term
obligations.
As restaurant business is usually cash based and less on credit so there is no current
liabilities assumed.
5. DEBT RATIO
Total Debt / Total assets * 100
5= 0 / 13,460
* 100 = 0%
4= 1,135 / 10,198 * 100 = 6%
3= 1,630 / 7,863 * 100 = 14%
2= 2,083 / 6,301 * 100 = 26%
1= 2,498 / 5,381 * 100 = 39%
Significance:
The ratio shows the proportion of total assets, which are financed through debt.
6. DEBT TO EQUITY RATIO
Total Liabilities / Owners Equity * 100
5= 0 / 13,459
4= 1,135/ 9,605
3= 1,630 / 6,728
2= 2,083 / 4,670
1= 2,498 / 3,298

* 100 = 0%
* 100 = 6%
* 100 = 17%
* 100 = 35%
* 100 = 63%

The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion
of shareholders' equity and debt used to finance a company's assets. Closely related to
leveraging, the ratio is also known as Risk, Gearing or Leverage.

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APPENDIX
LOAN AMORTIZATION SCHEDULE

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