1  

CHAPTER I

INTRODUCTION

1.1 Introduction of the business

The fast food trend is growing in Kathmandu city and other few metros of the

country. The taste and preference of people are also shifting as they are being more

and more exposed to western culture through various forms of media. Cinema Ghars

are transforming into multiplexes and shops into big malls. The food habit of people

is also changing as people are getting more and more choices in terms of product

variety and pricing.

Burgers are not new in Nepal. It is available in the menu of almost every restaurant

and one can also grab them from the busy street vendors selling various junk foods at

different nooks and corners of the city. So, there is no doubt about the popularity of

burger as a preferable lunch item. So, my intention here is not to serve the market

with another breed of same old burger, but to provide specialized brand of quality

burger with a distinct taste and appeal through small kiosks located in busy area.

Branding a burger may seem new in Nepal, but in the western world, it is not a new

concept. There are various specific brands of burgers that are catering varying taste

and preference of consumers and furthermore these brands are spreading across

boundaries through franchising and licensing arrangement.

So, my core business will be selling different variants tasty and hygienic burgers with

a long-term vision of building a strong brand. Though new in Nepal, the business I am

trying to incept is tried and tested concept in many of the western countries. This is

one of the low cost business models where fixed cost is kept at the minimum and

resources are efficiently utilized to keep the cost down.

1.2 Business ideas (Problems based idea generation)

The basic idea for this business plan was incepted while I was having a burger myself

in one of the busy streets of Kathmandu where few of my friends told me how they

would love to have quality and hygienic burgers as shown in western TV shows and

movies. The basic seed for this idea was planted on that moment but later I preformed

an informal survey with my friends and relatives to understand their perception about

  2  

burgers that were available in Kathmandu. With the help of that survey, I found that

people like to have quality burger as one option for their lunch, but as per them the

burgers that are available in the streets are unhygienic as well as the taste is not up to

the par. So, with this gap in mind I seek to incept a low cost business model to serve

burgers through a specialized kiosk, which basically are small shutter or shops that

specialize in burgers. The business model is based on takeaway dining, i.e. customer

buys the products and eats it in his own place of choice; but having this said the

kiosks will be strategically placed in the location where there is ample public space

for consumption.

1.3 Mission, vision and objectives

Every   organization   has   its   own   Vision,   Mission   and   Goal   that   guide   the  

organization   to   sustain   for   very   long  period  of   time.   Similarly   the  Fitness  First  

also   has   its   Vision,  Mission   and   Objectives.   Below   explains   vision  mission   and  

goal  of  the  organization.  

1.3.1 Vision

To become one of the best Burger Koisk of the Kathmandu valley by creating unique

position in the minds of customer with our quality and professional service.

1.3.2 Mission

• We are committed to Quality, Service, cleanliness and value for each and

every customer, each and every time.

• Customers are the most important visitor on our premises and they are not

dependent on us, we are dependent on them. We are not doing them a favour

by serving them – they are doing us a favour by giving us the opportunity to

do so.

1.3.3 Objectives

Objectives

• To provide high level of customer satisfaction with qualitative burger with

affordable price.

• To gain market share and earn profit more than the competitors.

  3  

1.4 Keys to Success

Your Burger Point is focused on serving a niche segment of burger lovers who are

trendy, fun loving, more of a happy-go-lucky nature and take life as it comes with

fewer concerns. Our long-term focus would be on building a strong brand that will be

synonymous to tasty and quality burgers that will differentiate it from the competitors

and also create barriers for new comers. The main factors that determine the success

of the Your Burger Point are:

• Strategic location advantage

• Effective and efficient utilization of resources.

• Continuous commitment to quality and taste.

1.5 Business Model Canvas of Your Burger Point

KEY PARTNERS

• Suppliers • Share holders • Customers • Employees

KEY ACTIVITIES

• Preparation of Burger

VALUE PROPOSITION

• Quality • Hygienic • Affordable price • Customer

Satisfaction

CUSTOMER RELATIONSHIP

• Affordable and

accessible • Quality

products

CUSTOMER SEGMENTS

• Urban youths • Adults • Quick and tasty

hygienic lunch without hassle

KEY RESOURCES

• Raw Material • Machinery

CHANNELS

• Suppliers • Share Holders • Members • Customers

COST STRUCTURE

• Equipment • Operation Cost • Other Direct & Indirect Cost • Salary & Rents • Start up Capital

REVENUE STREAM

• Sales of Products

Business Model of Your Burger Point

• Value Proposition

We are focused to satisfy customer with the quality and hygienic different variants of

burgers with affordable price.

• Key Activities

  4  

The key activity of our organization is to make or prepare the burger ordered by the

customer with distinct taste and hygienic manner.

• Key resources

To make our organization run we need different resources like meat patty, veg patty,

bread roll, lettuce, tomato, onion, mayonnaise, ketchup, and relish.

• Customer Segment Our organization has targeted many customers mainly urban youths, adults who wants

quick and tasty hygienic lunch without hassle.

• Channel

We will totally encourage all type of participants who are urban youths and adults

who want quick and tasty lunch without hassle. Whereas different suppliers of

equipment and raw material play an important role to deliver the value preposition we

promise to our customer. All employees play an important role in the service deliver.

• Customer Relationship

We totally focus on providing our customers affordable and accessibility of quality

products.

• Key Partner

We are associated with different partners without whom the organization is to be run.

The key partners are suppliers, shareholders, member/customers and employees.

• Cost Structure

During the start up of business different start up capital is to be invested and further

equipments are to be purchased and operation cost are to be met up with different

direct and indirect cost. Salaries are to be provided to the staff working in the

organization and rents are to be paid for the premises.

• Revenue structure

The revenue is generated with sales of different variant of burgers.

  5  

CHAPTER II

PRODUCT AND SERVICES

2.1 Product

Your Burger Point provides the product burger that the customers want to consume.

Your Burger Point is the brand that everyone will trust for its taste and hygiene as

well as its quality. Our goal is to be a destination for mostly youths and adults who

want quick tasty, healthy and hygienic burger without hassle.

There will be three types of burger in Your Burger Point:

• Hamburger Burger

• Chicken Burger

• Veg Burger

2.2 Marketing simulation

As any business plan begins with demand estimation and finding out the demand of

burger is not easy in Kathmandu as there is no legitimate published source that

specify its demand. So, for my business plan, I used survey method in which I

researched six of the takeaway burgers vendors that somewhat followed similar

business pattern to that of mine. I specifically asked the vendors how much burger

they sold daily and based upon those data I came up with the total yearly demand for

the burger that is shown on the table below:

Table 1: Demand estimation of Burgers

No. of Vendors Daily Demand Monthly Yearly

6 1500 45625 547500

The other data related to operational and organizational management was obtained

through market study. In this, various people from the restaurants business who have

years of experience were asked about the true nature of business and its prerequisites.

Similarly, various machineries and raw material suppliers were also consulted so that

the business plan would be accurate in terms of its fixed and variable costing.

  6  

2.3 Market Opportunities

The takeaway burger segment is attractive segment to enter as the number of

businesses catering this segment is particularly less as compared to other fast food

products. The main differentiating factor in this venture would be the creation of

brand that will be perceived by the people as of high quality and hygiene. The

demographics for catering this segment will be urban youths and adults who want

quick and tasty lunch without hassle. As the kiosks will be placed in busy area like

New Road, Thamel or outside departmental stores, multiplexes and shopping malls,

where there will be enough customers to achieve the target sales.

This model is stable as the focus is not only on creating a great product but also on

creating a great brand. The burger as a product is highly generic and business model

too is vulnerable to imitation. So, the main barriers to the competitors will the brand

name itself that will be based on quality and hygiene. Similarly there are numerous

opportunities in terms of product line expansion and diversification; and depending

upon the sales and demand, products can be added or discontinued. Furthermore, if

the venture is a successful in the long run, the company can earn only by franchising

the brand itself.

2.4 SWOT Analysis

It is very important for our center to know about the strengths and weaknesses of our

internal environment and use our strength for the productivity and remove weaknesses

to gain the competitive advantage. It is also very important for us to analyze the

external environment to know about the threats and turn the threats into opportunities.

Strength

1.Open seven days a week

2. Highly experienced professionals

3. Effective management

4. Competitive price

5. Convenience location 6. Quality Products

Weakness

1. Newly entered in the market

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2. Lack of experience in the field

Opportunities

1. Increasing westernization and modernization culture

2. Consumers wants food in less time

Threats

1. Competition from already existing firm

2. Political instability

3. Competitors may imitate innovative ideas

4. A possibility of low cost of service from competitor

  8  

CHAPTER III

INDUSTRY ANALYSIS

3.1 The competition

The industry is not a big one. The competition is increasing day by day. If you

maintain the quality of your service in terms of consistency and price, it is not

difficult to keep your loyal consumers. As per the market demand there are so many

Burger Kiosk established in the market to serve the consumer in the fast time and in

best way. There are many Burger house or kiosk in busy places like Newroad,

Thamel, New Baneshwor, Nepaltar, etc.

3.2 Competitors Analysis:

Some of the famous burger houses in our location i.e. Newroad are:

1. RD’s Café

2. Big Bite

The following are the competitive analysis of the RD’s café and Your Burger Point:

Table 2: Competitors Analysis

Competitors Strength Weakness

RD’ Cafe 1. Have lots of customers

2. Experience in the field

1. High price

2. Lack of convenience location

Your Burger Point 1.Highly experienced

professionals

2. Competitive price

3. Convenience location 4. Quality Products

1. Newly entered in the market

2. Lack of experience in the

field

  9  

3.3 Porter’s five forces Analysis

Through Porter’s five forces analysis, we can identify the attractiveness of the

business

• Intensity of Rivalry: Intensity of rivalry is very high to attract and retain every

potential customers in market either providing quality services or in low cost.

• Threats of Entrants: As the procedure of establishing a Burger shop is simple

and short, the numbers of Burger shop are growing in Nepalese market day by

day. The concept of establishing such business does not impose barrier for the

new entrants, the new competitors can enter in the market at any time. It is not

sure that how many numbers of new companies will enter the market. But till

then, we will certainly gain some market share in the industry through high

customer loyalty, as we will be providing quality services at a very reasonable

price, so there is no such condition to be afraid of new entrants in the market.

• Threats of Substitutes: There are many Burger shops in Kathmandu valley that

provides similar services to its clients. There are so many shops that provide

the good services with different substitute products. Thus there is a threat of

substitute in the market in terms of services provided. But in Your Burger

Point, though the services are similar but the prices and hygienic burger do

vary.

• Bargaining Power of Buyers:

The bargaining power of buyers is high due to competitive market. As the

numbers of shops are in increasing number, buyers are gaining advantages of

substitute place to get service.

• Bargaining Power of suppliers:

The bargaining power of suppliers is less again due to competitive market and

burger shops are compelled to offer its services at low price with high quality

services then only they can attract and retain their customers. Since there are

numerous business houses that provide the raw materials like pattymeat, bread

roll, lettuce, tomato, onion, mayonnaise, ketchup, and relish. We can choose

the most reliable, effective and reasonable supplier to meet our requirements.

  10  

CHAPTER IV

MARKETING STRATEGIES

4.1 Customer Analysis:

4.1.1 Segmentation

There are so many customers in Nepal and we have segmented the customers

according to the demographic area like urban area, income level: middle class and

others.

4.1.2 Target

Though there are so many customers we can target on but due to limited resources

and time constraints we are only targeting the Newroad area that is the most busiest to

target urban youths and adults who want quick and tasty lunch without hassle so there

will be opportunities of selling more of our products and take competitive advantages.

4.2 Marketing Plan

4.2.1 Business objective

Burgers are general products that are readily available everywhere. In spite of its

general tendency there are certain elements in the product as well as service that

differentiate one burger from another.

As YOUR BURGER POINT is new entrants in the takeaway burger segment, our

initial strategy is to maximize sales in order to create a loyal customer base so as to

build a strong brand that will differentiate it from the competitors and also create

barriers for new comers. This strategy will be perused for next 3 to 5 years so as to

stabilize our market in order to fulfill our long-term objective of building a brand that

will be synonymous to tasty and quality burgers.

4.2.2 Target segment

We will be basically targeting three segments of the burgers based on burger variant

as we need to provide variety of products to the market. The three segments will be

hamburger, chicken burgers and veggie burgers.

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Table 3: Summary of Estimates (Sales Target, Revenue, of Each Segment) ::

Market Segments Ham Chicken Veggie Total

Total sales target in units

36956 22174 9855 68985

Total sales revenue ( Rs)

2956500 1884769 739125 5580394

Through this survey, the total per year demand of burgers was found out to be about

547,500. Similarly, within burgers, demand for Hamburger was found out to be

273,750; Chicken-burger was found out to be 164,250 and Veggie-burger was found

out to be 109,500. With this demand on mind, I planned to serve only 15% of total

market and with 90% capacity utilization for the initial year. The total sales target for

the first year is about 68,985 burgers.

4.3 Marketing strategies

The demand sensitivity for all variants of burgers is assumed to be same considering

the little difference among the products. It is fairly assumed that Rs 1 increase in price

will decrease in demand of burger by 1000 units. Similarly, Rs 50,000 spent on

promotion per year will lead to increase in demand by about 11,000 units.

Likewise, a new addition of the store requires about Rs 500,000 of additional

investment that will increase the demand by about 90,000 burgers per year.

Appropriate mix of place, promotion and price is chosen for each burger variants so

as to maximize sales.

For hamburgers, the price will be decreased to Rs. 80 that is Rs. 5 will be reduced to

the market price. There won’t be any place strategy, as it will involve extra

investment in fixed assets, as we will need to open up an exact same store in another

location. Similarly, 3.3 units of promotion will be done amounting to Rs 165,000. It is

logical to decrease the price by Rs. 5 as it will help to attract new customers. We will

be doing much promotion in newspapers and magazines as well as using social media

for creating buzz in the market.

For chicken burgers, the price will be decreased by Rs. 5 to make it Rs. 85. No

distribution channel will be added and 1.8 units of promotion will be done amounting

  12  

to Rs 90,000. Similarly, for veggie burgers, the price will be decreased by Rs. 5 to

make it Rs. 75. In this segment too we will not be adding any distribution channel and

using 0.5 units of promotion amounting to Rs 25,000.

Even though the promotional expenses for each of the products variants are estimated

separately. The advertisements and promotions of one-product variants will provide

synergistic effects to other product variants.

4.4 Positioning

Products may be positioned in many different ways. Generally, the way they are

differentiated and the benefits they offer.

4.5 Product Attributes

The basic goal of positioning strategy is to own a word that ranks the product in

prospect’s mind as a Hygienic. We would equip our workers with disposable gloves

preparing raw materials such as cooked patty of ground meat, bread roll, lettuce,

tomato, onion, mayonnaise, ketchup, and relish.

4.6 Benefits

Burger would be the tastiest and healthiest food that would reach the customers.

4.7 Marketing Mix

The marketing mix of Your Burge Point consists of the various elements in the

marketing mix that forms the core of a company’s marketing system and hence helps

to achieve marketing objectives.

Product

We are providing hamburgers, chicken burgers and veg burgers to the customers with

very hygienic and great teaste. However, customers’ requirements change over time.

In order to meet these changes, Your Burger Point will introduce new products and

will continue to do so. Care is taken not to adversely affect the sales of one choice by

introducing a new choice, which will cannibalize sales from the existing one.

Price

The customer’s perception of value is an important determinant of the price charged.

Customers draw their own mental picture of what a product is worth. A product is

more than a physical item, it also has psychological connotations for the customer.

  13  

The danger of using low price as a marketing tool is that the customer may feel that

quality is being compromised. It is important when deciding on price to be fully

aware of the brand and its integrity.

Promotion

The promotions aspect of the marketing mix covers all types of marketing

communications One of the methods employed is advertising, Advertising is

conducted on in the press for example in newspapers and magazines.

Place

Place, as an element of the marketing mix, is not just about the physical location or

distribution points for products. It encompasses the management of a range of

processes involved in bringing products to the end consumer. The shop is located in

the busiest place of the Kathmadu i.e. Newroad.

People

The employees in Your Burger Point have a standard uniform and it specially focuses

on friendly and prompt service to its customers from their employees.

Process

The production process consists of converting various raw materials into burgers. The

basic process includes preparing raw materials such as cooked patty of ground meat,

bread roll, lettuce, tomato, onion, mayonnaise, ketchup, and relish. Then as the

customer's orders, the store manager will inform the cook and the helper. The cook

will then put the patty into the grill and bread roll into the oven. In the mean time, the

skilled staff will source all the necessary ingredients and both of them in coordination

will prepare burgers according to orders. The store manager will then prepare receipt

and hand over the burger and receipt to the customer and collect the payment.

Physical evidence

Your Burger Point focuses on clean and hygienic interiors of of the shop.

  14  

CHAPTER V

OPERATION PLAN

5.1 Production (operation) process

The production process consists of converting various raw materials into burgers. The

basic process includes preparing raw materials such as cooked patty of ground meat,

bread roll, lettuce, tomato, onion, mayonnaise, ketchup, and relish. Then as the

customer's orders, the store manager will inform the cook and the helper. The cook

will then put the patty into the grill and bread roll into the oven. In the mean time, the

skilled staff will source all the necessary ingredients and both of them in coordination

will prepare burgers according to orders. The store manager will then prepare receipt

and hand over the burger and receipt to the customer and collect the payment.

Figure 1: Operation Process of Your Burger Point

Supplier’s decisions

In order to gain competitive advantage selecting key supplier is a must. Where and

what we buy or need to buy in the future should be thus properly analyzed. After

having done the market survey, we have decided to custom make the necessary

furniture from the Wood craft, a local furniture maker. They have ensured us effective

delivery of qualitative goods and serviced with custom made designs with certain

discounts.

Order  of  customer  

Inform  Cook  and  Helper  

Burger  is  prepared  

Receipt  is  made  

Collect  the  payment  

  15  

5.2 Locations and Facility

The shop will be located at New Road, Kathmandu. We regard this location as

appropriate for our business because this area comprises of both the residential and

commercial sector. This area has potential market with presence of many restaurants,

banks, beauty parlors, clothing store, shopping complex and accessibility to

transportation facility.

5.3 Capacity utilization

The capacity utilization for year 1 is 90% and expected to increase at the rate of 10%

per annum throughout the years. Total sales target for the year 2015 is 68,985 burgers

with the monthly average of about 5,749 burgers. Total of 36,956 hamburgers, 22,174

chicken burgers and 9,855 burgers are expected to be produced in 2015. The weighted

average price of burgers was found out to be Rs. 80.89; the total promotion expense is

expected to be Rs. 280,000 per annum.

Table 4: Capacity Utilization of Your Burger Point

Sales Forecasting

Capacity Utilization (%)

Sales Target Monthly Daily

Year 1 90 68985 5749 189

Year 2 100 76650 6388 210

Year 3 110 84315 7026 231

Year 4 120 91980 7665 252

Year 5 130 99645 8304 273

5.4 Fixed assets

As the store is planning to be operated in the rented space, fixed assets such as land

and buildings will not be involved. The equipment and machinery headings of the

fixed assets contain machines such as burger grill and fryer, microwave oven,

refrigeration unit with freezer and a computer for billing.

Similarly, Furniture and fixtures consists of cabinets and other items. The total

amount allocated for Machinery and Equipment and Furniture and Fixtures is Rs

400,000 and Rs 100,000 respectively. The costing of the required assets was done as

  16  

per the brief market survey where suppliers of equipment’s and owners of burger

vendors were consulted for the pricing of the assets required for setting up this

establishment.

The followings are the fixed assets.

Table 5: Fixed Assets

Particulars Amount

Machinery & Equipment 400000

Furniture 100000

Total Fixed Assets 500000

Machinery and equipment is depreciated at the rate of 10% whereas furniture and

fixtures at the rate of 20%, total amounting to Rs 60000 per annum.

5.5 Raw materials

The total raw material cost for three product lines were calculated based on

percentage of selling prices. 55% of the selling price consists of actual cost of raw

materials which amounts to about Rs 255,768.05

Table 6: Raw material Cost

Raw material per month Proportion Amount/unit Amount (cost per month)

Raw materials in prop to sales

55% 44.49 255768.05

5.6 Labor

One cook and a support staff will be used interchangeably for operating the store

whose salary will be 12,000 each with total amounting to 24,000. The total cost for

labor is summarized below:

  17  

Table 7: Labor Cost

Labor Number of labor Rate/month Amount

Skilled 2 12000 24000

Semiskilled 0 - -

Unskilled 0 - -

Total 24000

5.7 Overhead expenses

The total factory overhead will amount to 67,000 per month which includes rent of

Rs. 60,000 which is a going rate for shutter in busy streets of New Road; electricity

bill of about 2,000 and utilities of about of 5000.

Table 8: Overhead Expenses

Factory Overhead Per Month

Rent Expenses 600000

Electricity 2000

Utilities 5000

Total factory overhead expenses 2000

5.8 Per unit costs

The total factory cost will amount to about 346,768.05 and per unit factory cost will

be about Rs 60.32.

Table  9:  Per  Unit  Cost  

Particular   Amount  

Raw materials cost   255768.05  

Labor cost   24000  Factory overhead expenses   67000  

Total monthly sales target (units)   5749  

Per unit factory cost per month   60.32  

  18  

CHAPTER VI

ORGANIZATIONAL AND MANAGEMENT PLAN

6.1 Form of organization:

The organization will be registered as a partnership firm under Partnership Act, 2020

(1964) of Nepal with two partners.

6.2 Organization structure of management team and their profiles

Since the organization set up will be relatively very small, the structure will be flat

and have very informal but professional culture. YOUR BURGER POINT will have a

simple organisational structure with two partners handling the general management

functions and decision-making. Likewise, one store manager will handle the day-to-

day operation of the stores and two other skilled support staff will be employed in

order to prepare and serve burgers. (Refer Annex 2 for organisational chart). The

profile of partners is as follows.

Sunil Shrestha: Sunil is currently pursuing his master’s degree in business

administration from D.A.V. Business School with major in Marketing.

Sushma Maharjan: Sushma is currently pursuing his master’s degree in business

administration from D.A.V. Business School with major in Finance.

Figure 2: Organizational Structure

Managers/  Partners  

Store  Manager  

Store  Support  Staff  

Store  Support  Staff  

  19  

6.3 Fixed assets

As, there won’t be any formal office infrastructure so there will not be any fixed

assets involved for administrative and organizational purpose.

6.4 Administrative expenses

The two partners will act as the overall manager of the business so Rs 20,000 have

been separated to both of them as their monthly salary. This is to support the notion

that remaining accumulated profit will be reinvested in the business for expansion.

Similarly, as the store requires one manager to handle the day-to-day operation, store

manager will be employed to handle inventory as well as daily sales activities. His

monthly salary will be Rs 15,000 amounting 180,000 per annum. Similarly, his cell

phone bill will also be reimbursed up to Rs 2,000 per month that is the only

administrative expenses.  

Table 10: Administrative Expenses

Administrative Expenses

Salary 55000

Overhead:

Electricity 0

Stationary 0

Others 2000

Total 57000

6.5 Pre-operating expenses

The pre-operating expenses include expenses made prior to the inception of the actual

business and contain registration fees and expenses made for research and survey. The

expenses are presented in the table below:

  20  

Table 11: Pre-operating Expenses

Pre-operating expenses Amount

Registration 10000

Survey and business plan 10000

Total 20000

  21  

CHAPTER VII

FINANCIAL PLAN

7.1 Total Capital

The total capital consists of fixed assets that will be used in factory, pre- operating

expenses and working capital:

Table 12: Total Capital

Fixed Assets 500000 Pre-Operating Expenses 200000

Working Capital 188384.54

Total Capital 708384.54

The total working capital is calculated for different days of inventory of materials and credit sales:

Table 13: Working Capital

Days PUC Amount

Raw Material Inventory 2 17051.20

Work In Progress Inventory 0 -

Finished Products Inventory 0 -

Account Receivables 0 -

Cash for One Month 171333.33

Total Working Capital 188384.54

The total cash is equivalent to all monthly expenses for labor, factory expenses,

administrative expenses and marketing expenses. Majority of raw material is highly

perishable in nature. So, raw material are only stored for 2 days considering its easy

availability, transportation ease and lead-time. There is no work in progress inventory

in production process as inventory is sourced as needed. Similarly, there is no finished

products inventory as burgers are prepared as the customers' orders. Likewise, the

there is no account receivable as all the sales will be in cash.

  22  

Therefore, total capital = fixed assets + pre-operating expenses + working capital

which is equal to Rs 708,384.54.

7.2 Financing plan and interest rate

42% of the business is supposed to be financed by taking a long-term loan from the

bank at the rate of 12% per annum. Similarly, the owners will finance the balance that

is 58%. Thus, total of Rs. 300,000 will be taken as a long-term loan where as rest the

owners will finance Rs 408,384 itself. The company will not take any short-term loan

to finance its working capital. The financial plan is presented as follows.

Table 14: Financial Plan and Interest Rate

Particular Equity Loan Total Interest

Land - - -

Building - - -

Machinery and equipment 100000 300000 400000

Furniture and fixture 100000 - 100000

Vehicles - - -

Office equipment

Total 200000 300000 500000 12%

Percentage 40% 60% 100%

Pre-operating expenses 20000 - 20000

Working capital 188384.54 - 188384.54 10%

Total 408384.54 300000 708384.54

Percentage 58% 42% 100%

7.3 Loan Repayment Schedule

Rs 300,000 will be taken as a long-term loan from a bank. The interest rate for the

loan is 12% per annum. The loan repayment schedule for five years is presented in the

table below.

  23  

Table 15: Loan Repayment Schedule

Year Outstanding loan Interest Principal Total Installment

1 300000 36000 47222.92 83222.92

2 252777.08 30333.25 52889.67 83222.92

3 199887.41 23986.49 59236.43 83222.92

4 140650.98 16878.12 66344.80 83222.92

5 74306.18 8916.74 74306.18 83222.92

7.4 Pricing strategy and final price

Various pricing strategy was considered ranging from cost plus pricing to

comparative and marketing skimming. If we follow a cost-plus pricing strategy and

add 20% mark at the per- unit cost, the final selling price is Rs. 89.78. If a Market

Skimming strategy is used and premium price is charged, the final selling price is

fixed at Rs. 100 and subtracting per unit cost calculated Rs. 74.8, the markup will be

is Rs. 25.18.

The final per unit cost is calculated to be Rs. 74.82 and as the market is highly

competitive, we will use competitive pricing where the weighted average price is

found to be Rs. 80.89 with a markup of Rs. 6.08

Table 16: Pricing Strategy

Pricing Cost plus Comparative Market skimming

PUC 60.32

Marketing Expenses 23333.33

Admin cost 57000

Interest expenses 3000

Total market, admin & interest

83333.33

Production unit 5748.75

Per unit market, admin, interest

14.50

Total per unit cost 74.82 74.82 74.82

Add % mark up 14.96 6.08 25.18

Price 89.78 80.89 100

  24  

CHAPTER 8

FINANCIAL ANALYSIS

8.1 Projected financial statements

8.1.1 Projected Profit and Loss

As the profit and loss table shows, YOUR BURGER POINT expects to continue its

steady growth in profitability over the next five years of operations. The profit for the

first year will be Rs. 359,177.19 and will increase throughout the years to be Rs

1,374,339.20 at the end of fifth year. The complete projected profit and loss statement

of YOUR BURGER POINT is as follows.

Table 17: Projected Profit And Loss Statement

Particular Year 1 Year 3 Year 3 Year 4 Year 5

Capacity 90% 100% 110% 120% 130%

Sales unit 68985.00 76650.00 84315.00 91980.00 99645.00

Sales revenue 5580393.75 6200437.50 6820481.25 7440525 8060568.75

Raw material 3069216.56 3069217.56 3069218.56 3069219.56 3069220.56

Labor 288,000.00 320,000.00 352,000.00 384,000.00 416,000.00

Depreciation 60,000.00 60,000.00 60,000.00 60,000.00 60,000.00

Factory

overhead

804,000.00 804,000.00 804,000.00 804,000.00 804,000.00

Total factory

cost

4221216.56 4594240.63 4967264.69 5340288.75 5713312.81

Gross profit 1359177.19 1606196.88 1853216.56 2100236.25 2347255.94

Administration 684,000 684,000 684,000 684,000 684,000

Marketing

expenses

280,000 280,000 280,000 280,000 280,000

Total admin &

marketing

964,000 964,000 964,000 964,000 964,000

EBIT 395,177.19 642,196.88 889,216.56 1,136,236.25 1,383,255.94

Interest 36,000 30,333.25 23986.49 16,,878.12 8,916.74

EBT 359,177.19 611,863.63 865,230.07 1,119,358.13 1,374,339.20

  25  

Accumulated

Profit

359,177.19 971,040.81

1,836,270.89 2,955,629.02 4,329,968.22

8.1.2 Net Present Value

Table 18: Net Present Value

Year CFAT (Net Income)

Cum CFAT PV factor@10%

PV

0 708,384.54 -708,384.54 1 -708,384.54 1 359,177.19 -349,207.35 0.909 -317,429.48 2 611,863.63 262,656.28 0.826 216,954.08 3 865,230.07 1,127,886.35 0.751 847,042.64 4 1,119,358.13 2,247,244.48 0.683 1,534,867.98 5 1,374,339.20 3,621,583.68 0.621 2,249,003.46

3,822,054.16

8.1.3 Pay Back Period (PBP)

PBP = Minimum year + Amount to be recovered / recovery year CFAT

= 1+ 349,207.35 / 611,863.63

= 1.5707 years

8.1.4 Projected Cash Flow

The cash flow statement shows the Cash Inflows and Cash Outflows of the BUGER

JOINT to project the Net Cash Flow of the business. The net cash flows from Year 1

to Year 5 is calculated to be Rs 354,903.06, Rs 618,973.96, Rs 865,993.64, Rs

1,113,013.33 and Rs 1,360,033.02 respectively.

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Table 19: Projected Cash flow Statement

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Total Cash

Inflows

708384.54 5580393.7

5

6200437.50 6820481.25 7440525.00 8060568.75

Total Cash

Outflows

520000 5225490.6

9

5581463.54 5954487.61 6327511.67 6700535.73

Net Cash

Flow

188384.54 354,903.06 618,973.96 865,993.64 1,113,013.33 1,360,033.02

Opening

Balance

- 188,384.54 543,287.60 1,162,261.56 2,028,255.20 3,141,268.53

Closing

Balance

188,384.54 543,287.60 1,162,261.56 2,028,255.20 3,141,268.53 4,501,301.55

The cash flow statement illustrates that Your Burger Point expects to maintain a

steady rate of cash flow over the next five years of operations. Please refer to Annex 3

for the complete projected cash flow statement.

8.1.5 Projected Balance Sheet

YOUR BURGER POINT is to maintain a healthy balance sheet. Please Refer Annex

2 for complete projected balance sheet.

8.1.6 Breakeven analysis

Analysis shows that YOUR BURGER POINT will break-even at 83.84% of total

sales in the 1st year. It is also because the capacity utilization is 90% in initial period.

It can also be attributed to gestation period. BEP would continuously decrease in the

upcoming years with higher utilization of capacity and improvement in sales and

costs. This break-even decreases to 57.20% by the end of 5th year

  27  

Figure 3: Five Years BEP

8.1.7 Net Present Value (NPV) The NPV of the YOUR BURGER POINT is Rs. 2,335,908, i.e. positive. Hence, the

business is a profitable and sustainable one because the cash inflows from the

business in future are positive.

8.1.8 Overall Feasibility

The feasibility of YOUR BURGER POINT can be indicated by is market

opportunities, growth prospects of BEP, positive NP, increasing Cash flow. The

market dynamics present the feasibility of the business in terms of opportunities to

solve the customer’s problem and meet their requirements. So, based on the above

detailed feasibility analysis of the project, it can be concluded that:

• We can see that the BEP will been declining gradually till the 5th year, which

is a very good sign for the business.

• The Net Present Value of the business is positive.

• The expected future cash flows of the project are greater and increasing.

  28  

APPENDICES

Annex 1

Projected Cash flow Statement

Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Cash Receipts Equity 408,384.54 - - - - - Debt 300000 .00 - - - - -

Cash sales -

5,580,393.75 6,200,437.50

6,820,481.25

7,440,525.00 8,060,568.75

Total Receipt

708,384.54

5,580,393.75 6,200,437.50

6,820,481.25 7,440,525.00 8,060,568.75 Disbursement Fixed Asset 500,000.00 - - - - - Pre-operating Expenses 20,000.00 - - - - - Increase in Inventory - 17,051.20 - - - - Factory Expenses - 4,161,216.56

4,534,240.63 4,907,264.69

5,280,288.75 5,653,312.81

Administration - 684,000.00 684,000.00

684,000.00 684,000.00 684,000.00

Marketing - 280,000.00

280,000.00 280,000.00 280,000.00 280,000.00 Interest 36000.00 30,333.25 23,986.49 16878.12 8,916.74 Principal 47,222.92 52,889.67 59,236.43 66,344.80 74,306.18 Total Disbursement 520,000.00 5,225,490.69

5,581,463.54

5,954,487.61 6,327,511.67 6,700,535.73

Surplus or loss (A-B)

188,384.54 354,903.06

618,973.96 865,993.64

1,113,013.33 1,360,033.02

Opening balance - 188,384.54 543,287.60 1,162,261.56 2,028,255.20 3,141,268.53

Ending Balance

188,384.54 543,287.60

1,162,261.56 2,028,255.20

3,141,268.53 4,501,301.55

  29  

Annex 2

Projected Balance Sheet

PROJECTED BALANCE SHEET

YEAR 0 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 ASSETS Fixed Assets Gross

500,000.00 500,000.00 500,000.00 500,000.00 500,000.00 500,000.00

Accumulated Depreciation

60,000.00 120,000.00 180,000.00 240,000.00 300,000.00

Net Fixed Assets

500,000.00 440,000.00 380,000.00 320,000.00 260,000.00 200,000.00

Pre-operating Expenses

20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00

Current Assets

Inventory 17,051.20 17,051.20 17,051.20 17,051.20 17,051.20 Account Receivable

- - - - -

Cash 188,384.54 543,287.60 1,162,261.56 2,028,255.20 3,141,268.53 4,501,301.55 Total Assets 708,384.54 1,020,388.80 1,579,312.76 2,028,255.20 3,438,319.73 4,738,352.75

LIABILITIES

Term loan 300,000.00 252,777.08 199,887.41 140,650.98 74,306.18 - Short term

loan - - - - - -

Initial Equity 408,384.54 408,384.54 408,384.54 408,384.54 408,384.54 408,384.54 Profit

Retained - 359,177.19 971,040.81 1,836,270.89 2,955,629.02 4,329,968.21

Total Equity 408,384.54 767,561.72 1,379,425.35 2,244,655.42 3,364,013.55 4,738,352.75 Total Capital & Liabilities

708,384.54 1,020,338.80 1,579,312.76 2,385,306.40 3,438,319.73 4,738,352.75

  30