Ethnic Food Restaurant Business Plan

Executive Summary

Our initial statement to Investors and Financial Lenders, this restaurant/ethnic food business plan, is a candid disclosure of the Zara Restaurant & Lounge business proposal - our intent is to set realistic business expectations, and eliminate any questions about the profitability of this business venture.

Entrepreneurs have a tendency to paint the restaurant business plan with a very optimistic brush, highlighting strengths and camouflaging the risks. We, as business owners, have a vested stake and financial commitment in the success of this restaurant. Our intent is to have a definitive business, financial, and marketing plan that not only serves our need for capital financing, but is utilized as our daily business roadmap. We have taken all precautions to validate our business and financial models, focusing on realistic projections. We have accomplished this as follows:

1. Our financial model is rooted in industry facts, not optimism. We have based costs on our vast industry and practical experience with similar ventures, validation against National Restaurant industry cost averages, and analysis against local Atlanta market averages. We have taken a collective look at all figures to make solid business estimates.

2. Our business concept was derived from detailed Market Analyses. Instead of building a business around a preconceived concept, we analysed the market findings and built a concept around our consumers. In other words, our business is built to service an unmet consumer 'want'.

3. A buffered financial plan that ensures adequate capitalization. A contingency buffer is included in the start-up cost to ensure the business in not under financed, as well as giving the business adequate funding to sustain it in the first six months of start-up. Our industry experience confirms a longer ramp-up stage for restaurants over other retail/service businesses. A common mistake for new entrepreneurs , but fully addressed in this business plan.  

4. A solid Risk Mitigation Plan. We have evaluated traditional and non-traditional risks associated with Restaurant failure and accounted for them directly in the business plan. Instead of dismissing the risks, we have identified valid mitigation strategies for each.

5. Deep Management Experience. Our management team has 20 years combined experience, involved with over 86 restaurant openings, and deep involvement with the Atlanta restaurant industry.

The total capital requirement to launch Zara Restaurant & Lounge is $740,000, of which $643,000 is allocated to start-up capital, and $97,000 as business operations cash reserve.

This Plan is being submitted in order to secure a Business loan for $430,000. The loan will be used towards Equipment purchase, Design, Construction, and Operational Start-Up expenses. Owners, Mr. Alex Hunte and Mr. Peter Smith are investing $110,000 in personal capital. Private Investors, who will be part owners with a non-managerial interest in the business, will contribute the remaining $200,000.

As owners, our commitment is to take personal accountability for all financial debt. We have taken the necessary precautions to ensure the business is fully capitalized, and have addressed all financial shortfalls to ensure a successful business start-up. Under a realistic scenario, the company should have over $84,000 in cash balance the third year. Even with the worst-case sales scenario, we reach a Net Worth break even at the end of Year 5. On a linear projection, the entire financial debt will be retired by Year 7.

Mission

Zara will be an inspiring restaurant, combining an eclectic atmosphere with excellent and interesting food. The mission is to have not only a great food selection, but also efficient and superior service - customer satisfaction is our paramount objective. Zara will be the restaurant of choice for a mature and adult crowd, couples and singles, young and old, male or female.

Employee welfare, participation, and training are equally important to our success. Everyone is treated fairly and with the utmost respect. Our employees will feel a part of the success of Zara Restaurant & Lounge.

Our concept combines variety, ambiance, entertainment and a superior staff to create a sense of 'place' in order to reach our goal of overall value in the dining/entertainment experience. We offer fair profits for the owners and investors, and a rewarding place to work for the employees.

Keys to Success

1. Unique, Innovative & Contemporary: The creation of a unique and innovative fine dining atmosphere will differentiate us from the competition. The restaurant will stand out from the other restaurants in the area because of the unique design and decor. We will offer a fine dining experience in an electric atmosphere.

2. Product quality: great food, great service and atmosphere.3. ‘Spice of Life' Menu: The menu will appeal to a wide and varied clientele. Our eclectic

menu features regional specialties around the globe, from Spanish ceviche, to Thai and Indian curries, to local crabcakes.

4. Employee Retention Focus: Employee retention and development programs will be a primary focus and success platform for this business. Through these programs, we will be able to draw seasoned and elite professionals and build a committed work force. We have budgeted for a stock option program for Chef and Management positions to subsidize a lower salary base. This lowers our immediate overhead and attracts quality staff.  

5. Cost Control Focus: We will control costs at all times, without exception. Cost Control will be an integrated function of the restaurant from the onset. Cost control is about managing the numbers - interpreting and comparing the numbers that impact the bottom line. 80 percent of the success of a restaurant is determined before it opens. Our focus is to reduce the cost of goods sold to meet our profit margin goals by managing the following crucial elements of cost: Purchasing, Receiving, Storage, Issuing Inventory, Rough Preparation, Service Preparation, Portioning, Order Taking, Cash Receipts, Bank Deposits and Accounts Payable. We will use of this restaurant/ethnic food business plan to track actual costs against our forecasts in managing the business. 

Objectives

Zara Restaurant & Lounge's objectives for the first three years of operation include:

Keeping food costs at less than 35% of revenue.

Improving our Gross Margin from 65.41% in Year 1 to 67.10 in Year 2. These are attainable targets; our ‘stretch' is to attain 70.73% by Year 3.

Keeping employee labor cost between 37-39% of total sales.

Remaining a small, unique restaurant with eclectic food and service.

Averaging sales between $1,200,000 - 1,500,000 per year.

Promoting and expanding the Zara restaurant concept as a unique Midtown destination restaurant.

Expanding our marketing and advertising in Atlanta and in the neighboring suburbs to increase our customer base.

Achieving a profitable investment return for investors for Years 2 - 6.

Company Summary

The DesignZara Restaurant & Lounge is unique to Midtown Atlanta. The restaurant features 3 venues in one (a concept called ‘Multi-Branding'): A Tapas Lounge, Cosmopolitan Bar, and Full Service Dining. This concept offers customers variety, offering multiple dining and entertainment options within a single establishment. The spatial and menu divisions will broaden our appeal and provide our customers with a different experience on each visit.

The atmosphere caters to a young but mature adult crowd. This is not a family dining establishment. Total space requirements are 3,000 square feet. In total, the restaurant will provide seating for 110 patrons. Where possible, consideration will be given to incorporate a dining patio. Zoning, parking, and accessibility issues will be reviewed as key criteria. We will draw on our Advisory Board as part of the site selection and lease negotiation.

The MenuZara is focused on servicing Atlanta's growing demand for an ethnic eating experience. For lack of a better term we are launching a ‘multi-ethnic' cuisine restaurant - a restaurant concept that responds to Atlanta's need for selection and choice. Zara is a complimentary mingling of international cuisine on a single menu. The Midtown demographics fit this concept perfectly.

The ManagementOur management team has over 48 years combined experience in food, restaurant and hotel, business management, finance, and marketing arenas.

Operating CriteriaThe restaurant will be located in Midtown. The restaurant will service lunch, dinner, and after-hours dining during the week and weekends. The restaurant will operate during peak service time to take advantage of street traffic, and after-hour patronage from the entertainment facilities in the area. Service will be available during the following hours:

Lunch:   Monday to Saturday, 11 a.m. - 2:30 p.m.

Dinner:  Monday to Saturday, 5:30 p.m. - 12 midnight

Sundays - Market brunch takeout only.

Services

Zara Restaurant & Lounge will feature international dishes, an eclectic ambiance, and superior service. Our food will be of the finest quality and prepared with exotic flare. Customer satisfaction is the driving force behind our success. We will change our menu every 4 months, but maintain the 'favorites' for loyal patrons. Portions will be modestly sized, garnished with stunning presentation.

Our wine list will be modest and primarily focused on wines from California, Spain, Portugal, and Argentina. Approximately 25% will be available exclusively by the glass, and the remaining labels will be available by the bottle. We will also feature a moderate international beer selection on tap and in bottles. The Zara bar features a comprehensive selection of local and international spirits.

The kitchen staff will have the best in culinary education and work experience. Their creative talents will compliment one another. The lounge and restaurant staff will offer the finest service in an electric atmosphere and offer customers an extraordinary dining experience.

Zara Menus

Zara's varied international menu will feature Thai, Chinese, Spanish, and other regional flavors. The menu flows together to create complementary elements. Normal dining will have a reduced Tapas, Appetizer and Entrée selection, while the Fusion Dim Sum menu will have special items featured only for after-hours dining. The final menu will be defined by the Executive Chef and paired with the wine menu. We have carefully selected a premium wine, beer, and alcohol listing, from which we will choose a modest rotating selection. Zara's marketing will focus on our exotic foods, but our hours, target market, and location will produce significant alcoholic drinks sales. Tapas, in particular, are small dishes meant for sharing while drinking sangria, wine, or other mixed drinks, and the Tapas menu will play up this idea with drink suggestions.

The list below offers a small selection of our opening menu offerings:

Zara Tapas

Shrimp Baskets w/ sweet & sour peanut coulis Minced curry beef/chicken w/ onions in roti wrap (or spring roll)

Mixed Seafood Ceviche w/ couscous siding Bamboo Chicken Satay w/ kaffir lime and Sesame marmalade

Zara Appetizers

Bread basket served with Olive oil, Black Pepper, and Goat Cheese dip Blue Crab Fritters with Mango-Tamarind sauce Crab Cake medallions w/ Shrimp & Lobster ‘Zara'

Salads

Mixed Greens with Spanish sherry wine vinaigrette Asian Pear and Endive Salad with Blue Cheese & Walnuts

Entrees

Tequila Scallops w/ a Spanish sherry reduction Thai Red Chili rubbed shrimp Voodoo Prince Curry Chicken and Bock Chow w/sticky rice in Banana Leaf Herb Roasted Chicken with ‘Zara' Coo-Chee (House) spices

Desserts

Chocolate Chunk Bread Pudding w/ Bourbon Cherry sauce Zara Chocolate Explosion – Milk, Dark and White chocolate Zara Fruit Plate

Specialty Drinks & Coffees ($3.5 - 9.5) A key source of revenue for the restaurant will be alcohol and bar sales. The restaurant will feature exotic drinks on a separate menu. Alcoholic drink specials will be featured, as well as a large non-alcoholic selection. After-hours bar service will feature selections of non-alcoholic drinks to increase bar sales during lunch and after regulatory hours. Bar pricing is competitive; prices range from $3.50 to 6.95. Non-alcoholic drinks will be in the higher price bracket due to preparation requirements. Prices will range from $4.75 to 9.50.

Market Analysis Summary

Instead of building a business around a preconceived concept, we conducted market research and built a concept around our consumers. Our market analysis identified the following key drivers as areas of opportunity to service Atlanta's restaurant customers:

1. Portion Selection: Nearly 95% of our surveyed focus group endorsed having a choice of different size portions. This statistic is in line with findings reported by the Tableservice Operator Survey. Zara's Tapas concept is built to offer different-sized portions. Our customers want the option to choose what satisfies their appetite.

2. Menu Variety: Ethnic restaurants are increasing in Atlanta. The proliferation of international cookbooks, food magazines, TV cooking shows and imported goods offers ample evidence that America, as a whole, is currently on an international tasting spree. In fact, eating places that identify themselves as ethnic establishments numbered nearly 78,000 in 1999 and recorded sales of $30.5 billion. Our research results do not identify any single ethnic style of restaurant as desired, but rather suggest that incorporating strong multi-ethnic influences in the menu selection will be popular. Again, variety is the underlying element for this concept.

3. The Dining Experience: Customer satisfaction with food and service has been and continues to be of utmost importance, but our findings indicate that the décor, lighting, bar, and other options to improve the dining experience are also factors in customer decisions. Zara takes all these factors in consideration for the design of this cosmopolitan restaurant.

4. Reasonable Prices: This was no surprise given the economic tide. Although the restaurant industry as a whole has seen growth in 2002/2003, customers are demanding value for their dining dollar. Zara's menu is priced at a mid-tier level, with no entrée over $20. In addition we have an extended Tapas and Appetizer selection priced between $3.50 - $9.50, allowing budget dining in a full-service restaurant.

Market Segmentation

Zara's Restaurant & Lounge intends to cater to a wide customer base. We want everyone to feel welcome and entertained. We have defined the following groups as targeted segments that contribute to our growth projections:

The Business Person Downtown Atlanta Couples The Destination Customer High-End Singles Tourists

These particular market segments are 25-45 years old, have disposable income, and are seeking upscale, trendy, and comfortable restaurant options. These are the types of people who frequent other restaurants and bars in the area. They are likely to spend more on experiences they perceive as

unique, cosmopolitan, and sophisticated. They are also the most open to trying something new, foodwise, and will embrace our international fusion cuisine. 

Target Market Segment Strategy

The Business Person: They work hard all day and often stay overnight in a strange city. They need a competent establishment that helps impress clients and prospects. Afterward, they want to relax and use the money they are making (or is expensed by their company). They spend the most on drinks, food and tips. Zara's cosmopolitan flair and comfortable atmosphere will be perfect for sophisticated business people, whether they live in and around Atlanta or are here for work.

Downtown Atlanta Couples: The restaurant will have an intimate, romantic, enticing adult atmosphere that suggests "date." Zara's will be the best date location in town. These young Midtown couples are generally very successful working professionals. In most cases they are budgeting to eat out on a regular basis, as they don't have the time to prepare food nightly.

The Destination Customer: Atlanta is a very 'sectioned' city, and consumers often look only in their own neighborhoods for restaurant options. Zara will break these habits, using marketing to draw customers from outside the main city limits. Zara will be a destination restaurant. Our Destination Clients tend to be new suburbanites that miss the excitement of the inner city. They have disposable income, and will spend quite a bit on such outings. Zara's will be especially appealing to married suburban couples indulging themselves with a "date night" downtown, away from  the kids. Many of these consumers are new to Atlanta from larger cities, accustomed to dining within the city and at non-franchised restaurants.

High-end Singles: We will attract them with our eclectic atmosphere and layout. Our international menu, striking decor, entertainment and events, excellent service and engaging clientele will confirm the feeling of being in "the in place" in Atlanta. These are the individuals that pride themselves on socializing and dining at the premier locations - The Image Seekers.

Tourists: Atlanta attracts many vacationers during the summer months of May through September. Zara's will be a destination dining locale, with its attractive atmosphere, international menu, and lounge. A large percentage of the tourist population are vacationing singles, here to socialize and be entertained. This is especially true for the tourist population that visit for sporting and social events - they are not interested in family establishments.

Service Business Analysis

The restaurant industry is highly competitive and risky. The owners know this through their many years of experience opening, running, and improving restaurants across North America. Most new restaurants opened by inexperienced owners struggle or fail. However, those based on solid understandings of the market needs, and management of inventory and staff have a much higher chance of success, especially when combined with prior experience in the restaurant industry.

Restaurants make money by taking inexpensive ingredients, combining them in creative ways, cooking them properly, and selling them at a much higher price. Any ingredients wasted in the kitchen are money thrown out. Any time wasted in seating customers, taking orders or preparing food is money walking away. While some entrepreneurs think that success is as simple as a good location and a trendy concept, we know the truth:

To succeed in the restaurant industry, you need an understanding of the risks and financial conditions, the ability to handle enormous pressure, and the organizational skills to bring off what is essentially a giant catered party, two to three times a day.

 

Competition and Buying Patterns

In 2003, the top ten Atlanta restaurants shared two things: cozy, hip interiors and reasonably priced, regionally specialized menus. Only one of them offered traditional "southern" cooking. And half of them were located in Midtown. Our competitors are heading in the right direction, but only Zara is based on sound market research in the local market.

Atlanta consumers are seeking variety and new experiences. Location is clearly important, but so is atmosphere and distinctiveness. Our marketing challenge is thus to stand out from our competitors, not only as the "new" restaurant, but as one that offers consistently high quality food, menu variety, and a unique atmosphere. Maintaining our edge will depend partly on marketing ourselves as an adult-only destination, and not a family restaurant.

Strategy and Implementation Summary

Our strategy is simple. We intend to succeed by giving people a combination of excellent and interesting food in an environment that appeals to a wide and varied group of successful adults.

We will focus on establishing a strong identity in our community with a grand opening. Our main focus in marketing thereafter will be to increase customer awareness in the surrounding communities. We will direct all of our tactics and programs toward the goal of explaining who we are and what we do. We will keep our standards high and execute the concept flawlessly, so that word-of-mouth will be our main marketing force.

We will create an appealing and entertaining environment with unbeatable quality at an exceptional price. As an exciting and eclectic restaurant, we will be the talk of the town. Therefore, the execution of our concept is the most critical element of our plan.

All menu items are moderately priced for the area. While we are not striving to be the lowest-priced restaurant, we are aiming to offer exceptional food at reasonable prices for the average restaurant diner.

Competitive Edge

Zara's competitive edges are:

1. The owners' thorough understandings of opening and running a restaurant2. An extraordinary contemporary restaurant design3. International menu with featured menu changes every 4 months4. Unique, 3-Tiered spatial layout

5. Chef Co-op program to allow new entrants, trainee and featured chef6. Chef/Management Stock Incentive Program. 7. Inner and Outer City Marketing campaign (i.e. "Come to Town" promotions)8. Employee Training, Incentive and Retention program

Market Analysis Conclusion:

At the end of the day, everyone that sells prepared meals in this district is a Zara competitor, because we all compete for the same home meal replacement dollar. However, there are two segments of the restaurant industry that are our main competition: the casual dining restaurant and the fine dining value restaurant.

So, if the food and service is better at a fine dining restaurant than a casual restaurant, but price has become a factor as a result of the economic turns, where is a customer more likely to go?

There is no absolute answer to the question, but the solution is to deliver the best food at the best price with the highest level of service in one establishment. This is the very definition of value and the concept at the heart of Zara's business model.

Marketing Strategy

Zara Restaurant & Lounge's Marketing strategy will be to promote our electric food, superior service, and exciting concepts to draw in the local repeat customers. Marketing initiatives will concentrate on the following:

Building and Signage: The most important Marketing tool that we have is the exterior of our building, and our new sign. We budgeted a great deal into the renovations and decor to generate the aesthetic appeal of Zara. See attached Logo and Web design.

Customer Service:In our years within the restaurant industry, customer service has always been the major draw for the dining clientele. Food and atmosphere is far out-shadowed by superior customer service that turns a new customer into a repeat customer.

Management will demand the wait-staff provide the very best in quality services to the customer, making certain that they are content and satisfied with their dining experience. Wait-staff are thoroughly trained, and every 90 days they undergo a performance appraisal. This is part of our Employee Manual, and Operations Manual guide.

Advertising and Promotion:Our Advertising Plan and media schedule call for targeting customers directly through local publications aimed at , respectively, singles, couples, and destination customers.

Management recognizes the key to success at this time of initial opening is extensive media promotion. This must be done aggressively in order to accomplish our service goals. A healthy budget is allocated for the first year. A primary part of the budget is allocated to create the media and customer buzz for the month prior to opening and the next three months after the grand opening. The full Marketing program is as follows:.

Media Objectives and Strategy:Establish our image as a unique Midtown restaurant with great service, value, and great food served in an eclectic atmosphere. We will maximize efficiency in the selection and scheduling of advertisements by:

Selecting primary business publications with high specific market penetration, using The Creative Loafing Dining Section, The Atlanta Journal Constitution, Atlanta City Search, and Social Diva, which all reach our targeted demographics.

Scheduling adequate frequency of ads to impact market with menu items and promotions. Where possible, positioning advertisements in or near entertainment/food related editorial. Redirecting customers to our website to register for upcoming functions, VIP lists, reservations,

and flash media promotions. Maximizing ad life with monthly and weekly publications.

Working with The Reynolds Group Media Co. (Zara Advisory Board), we will develop an advertising campaign built around our Zara Diner theme, menu offering, location, and decor. We will support this plan with ads that reinforce the Zara dining concept.

Additionally, we will develop a consistent reach and frequency throughout the year, targeting each specific customer segment within a five-mile radius, and new 'suburbanites,' who still appreciate in-town dining.

Promotional Campaign:The best way to reach our potential customers is to develop an intense advertising campaign promoting our Zara concept of "Spice of Life." In addition to standard advertising practices, we will gain considerable recognition through newspapers, newsletters and public announcements. Consumers will be encouraged to visit our website to be greeted with a flash media intro that highlights the restaurant, past happenings, upcoming attractions and our dynamic menu.

Our periodic customer surveys and weekly menu item sales evaluations will help us to understand what advertising is working and what is not; basically, who we are reaching. Our goal is to understand our customer, measure the success of our direct marketing and media activities, and redirect advertising as effectively as possible.

Marketing Program

In line with our Marketing strategy, we will employ three different marketing tactics to increase customer awareness of Zara: In-Restaurant Marketing, Public Relations Marketing, and Media Marketing. Our most important tactic will be word-of-mouth/in-restaurant marketing. This will be by far the cheapest and most effective of our marketing programs.

Word-of-mouth/In-Restaurant Marketing

Restaurant Night:  Every first Monday of the quarter, we will have a special evening for restaurant people. A perfect night for the local area's restaurant owners, chefs and staff to get together to discuss the market and food trends, and possible Co-op efforts to promote the Midtown district. This is not a conflict of interest, it is an effort to increase visibility and patronage across the Midtown district. We will also invite the Midtown Alliance committee for their participation.

Monthly Dating Connection: With the increasing appeal of Internet and speed dating, the restaurant will offer a monthly dating night. In addition to food and beverages, customers can choose from an array of dating packages up for auction.

Wait Area Marketing: Wait staff will service appetizers to customers waiting to be seated or on the wait list.

Live Entertainment parties Special Events Valentine's Day Zara Halloween Masquerade party Wine tasting weekend New Year's Eve party

Financial Plan

Zara Restaurant & Lounge financial model is based on a business concept to "Plan for the Worst, but Manage for the Best." We have approached the financial plan as follows:

The First Year projections anticipates a below average sales volume, below average seat turn, and above average food/beverage cost. This position will help us ensure sufficient financial planning to accommodate a reasonable ramp-up period, and business success, also ensuring that we do not enter this venture under-capitalized.

Financial Pro Forma

In addition to the $110,000 of owner investment and $130,000 in grant monies, Zara is seeking $300,000 in long-term loans and $200,000 in investment for renovations, furniture, kitchen equipment, liquor license, food & restaurant supplies, legal fees, working capital, marketing and personnel.

 The Financial Plan includes:

Important Assumptions Risk Analysis & Mitigation Plan Sales Forecast (5.3.1, above) Break Even Analysis Profit and Loss Statement Cash Flow Statement Balance Sheet

Investment Opportunities

The Zara Investment Program allocates equity position of 20% for a total of $200,000 in investor capital. The Investment structure is as follows:

Investment Opportunity

Total Investor Funding Opportunity:   $200,000

Minimum Investment Amount $15,000

Investment Term (Investor Selection) 3-5 Years

Total Equity Offering (1% per $15,000 Investment) 20% Max

Starting Year 2

Silver: Projected Annual IRR on Investment of $15,000 - $49,000

10%

Gold: Projected Annual IRR on Investment of $50,000 - $99,000

11%

Platinum: Projected Annual IRR on Investment of $100,000 12% +

or more Residuals

 

Investor Payback Program

Each Investor will receive equity shares as a part owner, with a non-managerial interest in the Restaurant. Based on financial estimates, the maximum annual IRR is 12%. Over and above the interest and principal repayment, Investors contributing $100,000 or more will receive residuals for the life of the business as a bonus incentive.

As with our investors, our primary goal is to earn real profits and not ‘Paper Profits'. As such we will focus on expediting returns to investors where possible. Our existing payback structure will begin paying dividend every quarter, starting in Year 2 of business operations. Investors will receive quarterly interest and annual principal reduction payments over the full term of the investment. Payback to Financial and Private investors will take priority over any profit shares to the owners, Alex Hunte and Peter Smith.

Important Assumptions

The financial plan depends on important assumptions, most of which are reflected in the financial statements that follow. We have been cautious with our projections, and incorporate a mitigation for all manageable risks. The key underlying assumptions are:

Economy

Slow Economic Recovery. We anticipate a slow-growth economy, recovering from an economic recession.

Industry & Start-Up

Fiscal Year-1 Ramp-up. Our experience in the industry confirms a longer ramp-up stage for restaurants over other retail/service businesses. Our Annual Sales Growth is based on attaining the following seating capacity percentage per dining period:

Year 1: After-Hours = 53%, Lunch = 70%, Dinner = 88% Year 2: After-Hours = 70%, Lunch = 82%, Dinner = 100% (implied wait period) Year 3: After-Hours = 80%, Lunch = 87%, Dinner = 100% (implied wait period)

Six-Month Start-Up Stage. As a new restaurant entry to the Midtown market, the ramp-up in customer draw is expected to extend over 6 months. This is reflected in a higher than average monthly sales variance shown as follows (Worst-case / Expected-case):

Month 1: 32% / 51%     Month 4: 64% / 75% Month 2: 41% / 58%      Month 5: 80% / 90% Month 3: 52% / 66%      Month 6: 90% / 92%

Market Analysis findings are static. We assume that there are no unforeseen changes in findings outlined in the Market Analysis.

 

Pricing & Cost Control

Competitive Pricing Model. Revenue calculations are based upon competitive price comparisons and established menu values in the current marketplace. The following are baseline assumptions on Average Check Totals, and Average Seat Turns:

Daily average for lunch spending is $10.50 per person, dinner at $27.50 per person; and $17.50 per person for After-Hours dining (All check totals include Beverages, but not Bar). Seat Turn averages are modestly estimated at:

Year 1: After-Hours = 0.7, Lunch = 1.0, Dinner = 1.0 Year 2: After-Hours = 0.7, Lunch = 1.0, Dinner = 1.0 Year 3: After-Hours = 1.0, Lunch = 1.0, Dinner = 1.25

Cost Control. Cost of goods sold have been calculated as a percentage of sales and will be monitored on a daily basis in order to keep Cost of Food within the range of 31 - 33%, Bar Costs within 28 - 31%, and Cost of Beverages (Non Alcohol) below 9%. With a focus on Cost Control, we anticipate 6 months to fine tune the restaurant operations and manage our costs within the defined tolerance range.

Inventory turnover and Accounts Payable. Accounts receivable turnover is calculated to be 0 days, as payment is rendered with service. Inventory is turned on a 7 day cycle as inventory is used daily within all categories, and accounts payable are projected to be 30 days.

Risk Analysis/Mitigation

1. How do we allow an adequate startup period and capital to launch the concept and grow our customer base in a competitive sector?

Our financial plan is budgeted to support the Worst-Case business scenario. We addressed the financial risk as follows:

We looked at our monthly break-even. We calculated worst-case monthly financial shortfall based on the ramp-up sales

percentages outlined in our financial assumptions. We budgeted operational shortfall in an operational contingency budget that we will

utilize if the need arises.

2. How do we ensure we have addressed all resource gaps, and have the right industry knowledge?

Owners Alex Hunte and Peter Smith have a combined 20 years of Restaurant Management, Operations and Business Management Experience.

The Financial Plan incorporates a budget for an Atlanta Restaurant Consulting group. Their services are budgeted for the business start-up analysis, rollout, and on retainer for 4 months of business operations. The selected firm has experience with over 72 Restaurant launches, specializing in the Atlanta Market.

We will be recruiting a seasoned chef (national search) whose style is in accord with the Restaurant concept and our market segment. We will be offering an equity interest to our select Chef to maintain the industry knowledge.

Our Accounting service will be contracted to a firm specializing in Restaurant accounting.

3. The current Economic slowdown and recovery state was a key consideration in our restaurant concept. How do we manage a successful restaurant in current market conditions?

Our original effort was to open a restaurant twice the proposed size. As we are in the midst of an economic recovery, we have scaled back the size to reduce business overhead, startup requirements, and business operating capital.

Another mitigation has been our overall Restaurant concept. We have the menu priced at a mid-tier level with no entrée over $20. In addition, we have an extended Tapas and Appetizer selection priced between $3.50 - $9.50, allowing budget dining in a distinguished restaurant.

4. How do we confirm that our Funding Requirement is sufficient?

Peter Smith has an extensive background in restaurant startup. He is currently an International Consultant for various restaurant ventures, and we will use his expertise in past projects as a comparative basis.

We have leveraged our membership with the National Restaurant Association to look at industry averages for this market segment for Restaurant startup and Operations. Additionally, we included a contingency buffer in the financial estimates to account for any potential cost variance.

We have worked with our Restaurant Consulting firm to validate our cost estimates to their industry knowledge.

5. How do we know we have selected the right location for this concept?

Again we will draw on the Consulting group that has the expertise in site selection and lease negotiation. In all, there are no guarantees with location, but we took a very objective approach with our concept. Instead of going in with a predefined business concept, we let the Market Analysis define the need. Based on the results, the Zara Restaurant concept was formed specific to Midtown Atlanta. Site selection was based on space, visibility, and functionality; the city grant award confirmed our decision.

6. What if there is an additional need for Business Capital after the Restaurant has exhausted its 6-month buffer?

Our intent is to be a self-sufficient business far in advance of the 6-month probation period. But as we are considering all contingencies, we have looked at this risk. We have accounted for an operational contingency budget that will be used to supplement any slow periods. Our next step would be to approach our private investors for capital by extending their return on investment. We would also look to the partners' capital reserves as another source of funds.

General Assumptions

Year 1 Year 2 Year 3 Year 4 Year 5

Plan Month 1 2 3 4 5

Current Interest Rate 6.00% 6.00% 6.00% 6.00% 6.00%

Long-term Interest Rate 7.00% 7.00% 7.00% 7.00% 7.00%

Tax Rate 30.00% 30.00% 30.00% 30.00% 30.00%

Other 0 0 0 0 0

Profit and Loss Statement

The most important assumption in the Projected Profit and Loss statement is the gross margin. We show an adjustment increase in Year 2 as we exit our start-up phase of the business and move into our expected annual sales forecast.

This transition shows the restaurant managing through its start-up period, and gaining efficiency and customer loyalty. In summary, the restaurant will develop its customer base and reputation and the growth will pick up more rapidly towards the second and third years of business. Month-by-month assumptions for Profit and Loss are included in the appendices.

Break-even Analysis

For our First Year Break-Even Analysis, we have an average running fixed costs of $60,230 per month which includes our full payroll, rent, and utilities, and an estimation of other running costs. With direct cost of goods (inventory, in this plan) at 35% of sales, our monthly break-even point is $92,081. We will surpass our break-even point in October of our first year.

As we exit the start-up phase of the business and focus on cost control, we will drive the Cost of Goods Sold (COGS) down, dropping our break-even value, and increasing our Gross Margin.

Break-even Analysis

Monthly Revenue Break-even $83,630

Assumptions:

Average Percent Variable Cost 35%

Estimated Monthly Fixed Cost $54,703

Cash Flow Statement

The cash flow depends on assumptions for inventory turnover and payment days. We have no sales on credit, so our cash flow does not track accounts receivable. Our projected same-day collection is critical, and is reasonable and customary in the restaurant industry. We do not expect to need any additional financial support, even when we reach the less profitable months, as the downturns are incorporated into the monthly revenue variance figures. Month-by-month assumptions for projected cash flow are included in the appendices.

Pro Forma Cash Flow

Year 1 Year 2 Year 3 Year 4 Year 5

Cash Received

Cash from Operations

Cash Sales $1,073,769 $1,211,088 $1,279,204 $1,341,260 $1,406,670

Subtotal Cash from Operations $1,073,769 $1,211,088 $1,279,204 $1,341,260 $1,406,670

Additional Cash Received

Sales Tax, VAT, HST/GST Received

$0 $0 $0 $0 $0

New Current Borrowing $0 $0 $0 $0 $0

New Other Liabilities (interest-free) $0 $0 $0 $0 $0

New Long-term Liabilities $0 $0 $0 $0 $0

Sales of Other Current Assets $0 $0 $0 $0 $0

Sales of Long-term Assets $0 $0 $0 $0 $0

New Investment Received $0 $0 $0 $0 $0

Subtotal Cash Received $1,073,769 $1,211,088 $1,279,204 $1,341,260 $1,406,670

Expenditures Year 1 Year 2 Year 3 Year 4 Year 5

Expenditures from Operations

Cash Spending $399,588 $400,788 $429,828 $431,128 $432,728

Bill Payments $601,114 $724,989 $745,324 $765,976 $792,442

Subtotal Spent on Operations $1,000,702 $1,125,777 $1,175,152 $1,197,104 $1,225,170

Additional Cash Spent

Sales Tax, VAT, HST/GST Paid Out

$0 $0 $0 $0 $0

Principal Repayment of Current Borrowing

$0 $0 $0 $0 $0

Other Liabilities Principal Repayment

$0 $0 $0 $0 $0

Long-term Liabilities Principal Repayment

$47,772 $47,772 $47,772 $47,772 $47,772

Purchase Other Current Assets $0 $0 $0 $0 $0

Purchase Long-term Assets $0 $0 $0 $0 $0

Dividends $0 $20,000 $10,000 $10,000 $15,000

Subtotal Cash Spent $1,048,474 $1,193,549 $1,232,924 $1,254,876 $1,287,942

Net Cash Flow $25,295 $17,539 $46,280 $86,384 $118,727

Cash Balance $172,276 $189,815 $236,095 $322,479 $441,206

Balance Sheet Statement

The projected Balance Sheet is quite solid. We do not anticipate difficulty meeting our debt obligations based on achieving the specific goals outlined in this plan. On a linear projection, Zara Restaurant & Lounge has a positive Net Worth beginning in Year 3.

Pro Forma Balance Sheet

Year 1 Year 2 Year 3 Year 4 Year 5

Assets

Current Assets

Cash $172,276 $189,815 $236,095 $322,479 $441,206

Inventory $37,839 $39,175 $38,109 $38,843 $39,608

Other Current Assets $73,311 $73,311 $73,311 $73,311 $73,311

Total Current Assets $283,426 $302,300 $347,514 $434,633 $554,125

Long-term Assets

Long-term Assets $65,000 $65,000 $65,000 $65,000 $65,000

Accumulated Depreciation $6,500 $13,000 $19,500 $26,000 $32,500

Total Long-term Assets $58,500 $52,000 $45,500 $39,000 $32,500

Total Assets $341,926 $354,300 $393,014 $473,633 $586,625

Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5

Current Liabilities

Accounts Payable $58,194 $59,713 $61,398 $63,097 $65,315

Current Borrowing $0 $0 $0 $0 $0

Other Current Liabilities $0 $0 $0 $0 $0

Subtotal Current Liabilities $58,194 $59,713 $61,398 $63,097 $65,315

Long-term Liabilities $252,228 $204,456 $156,684 $108,912 $61,140

Total Liabilities $310,422 $264,169 $218,082 $172,009 $126,455

Paid-in Capital $440,000 $440,000 $440,000 $440,000 $440,000

Retained Earnings ($427,209) ($428,496) ($359,869) ($275,068) ($153,375)

Earnings $18,712 $78,628 $94,801 $136,692 $173,546

Total Capital $31,504 $90,131 $174,932 $301,625 $460,171

Total Liabilities and Capital $341,926 $354,300 $393,014 $473,633 $586,625

Net Worth $31,504 $90,131 $174,932 $301,625 $460,171

Expansion, Payback & Exit Strategy

In addressing this question we look at the Exit Strategy as a definition of our business vision and goals, as well as a contingency in the event the business is unsuccessful. We have addressed this question at several levels:

Expansion as a Business Goal

We have set multiple financial goals to grow the success of the Zara concept, and compound the profit return for Zara Investors.

1. Expansion (Option 1): Our overall goal to maintain Zara as a unique and eclectic concept. Based on projections, the business has captured market share by the end of the first year. In addition Year 2 brings an increased sales and profit margin to sustain the addition of a full-time General Manager. By second quarter of Year 2, the owners will look to launch a second restaurant concept. This is not a chain, but another unique restaurant concept with strong growth potential. Expansion will be considered with our Financial backers and Investor partners.

2. Expansion (Option 2): Throughout our business plan we have stayed focus that Zara would be successful as a larger venue, with greater sales capacity and revenue potential. Our objective with the site selection and lease negotiation is to have the opportunity to expand the restaurant as a logical growth and profit plan.   

3. Private Sale: We are in the business of making money. At the close of Year 3, we see Zara as meeting 80.4% of its optimum sales potential with the current seating and space allocation. At this stage the business debt is reduced, profit margins are increasing, and Zara has established market share. We will look at the private sale of the majority interest via A) Leveraged Buyout, or B) A larger Restaurant consortium. In both cases, our interest is in delivering healthy profits to our Investors and Financial backers. Sales and profit margins will be based on the restaurant valuation in Year 3.

4. Financial Solvency: The financial projections indicate that exit will be achievable over 3 years for the operating capital line of credit. Under a realistic scenario the Company should have over $70,000 in cash in the bank after income taxes the second year. The entire financial debt would be retired by Year 7. 

Exit Strategy to Retire the Business

We at Zara are committed to our concept and its viability. We step into this venture with confidence and the success of our respective prior business efforts. No one attempts a business anticipating failure, however sometimes ventures do not fulfill their promise. 

In the event that our venture cannot achieve profitability and retire the encumbrances, we will first attempt to sell the operation and use the proceeds to clear all outstanding balances. If we are unable to sell the operation for sufficient proceeds we will forced to default whereby the SBA loan will be in senior standing. Any further outstanding balances will be borne by the investors on a weighted percentage basis of the total amounts due.