BUSINESS INVESTMENT

STRATEGIES
BUSINESS PLAN

AUTHORS:

FABIZ ENGLISH TEACHING, GROUP 137

BUCHAREST, 2010

TABLE OF CONTENTS
I.

BUSINESS DESCRIPTION
I.1. BUSINESS IDEA
I.2 . THE COMPANY
I.3. SWOT ANALYSIS

II.

INVESTMENT
II.1. FUND DESTINATION
II.2. FINANCING PROCESS
II.3. INVESTOR BENEFITS

III.

FINANCIAL PLANNING
III.1. ANALYSIS OF PREVIOUS FINANCIAL PERIOD
III.2. PREDICTIONS
III.3. EVALUATION INDICATORS

I.

BUSINESS DESCRIPTION
I.1. BUSINESS IDEA

Throughout Hedon restaurant, Millennium has been providing catering services for
approximately 6 years. During this time, following the impeccable quality of its services, the
restaurant has won a deserved reputation and a comfortable market share. Quality of supply and
affordable prices, however, attract a large number of consumers in the western part of Bucharest.
Currently, the service capacity of the restaurant is used 75%.
Based on knowledge gained, past successes and type of services, future business strategy
will be a qualitative differentiation to offer competition. Although there are many places
competing with lower prices, particularly for attracting and maintaining the target customers of
the company concerned, this strategy proved to be most efficient. The 6 years of experience and
success base the good choice for this strategy.
I.2 . THE COMPANY
Currently, the company has a capital of 622,000,000 lei, represented by a total of 6,200
shares worth 100,000 lei/share. Funding is made predominantly from own sources, the date for
the business plan funding structure of the business including the 80% equity and 20% of current
liabilities to suppliers, shareholders and state institutions. At this point, Millennium reinforced its
image and market position, the turnover of 2001 reached the record level of about 610,000 USD
(17,400 million lei). The current structure of the monthly turnover is as follows:

Monthly Turnover
Structure
Catering
Direct Services
Total

Percentage

Value (lei)

25
75
100

362,000,000
1,087,500,000
1,450,000,000

Average No. Of
Customers (daily)
172
290
462

The 172 customers served daily by the catering department are generated by orders of 15
companies and the 290 direct customers of the restaurant translate into a daily average of 10
clients/table (at a restaurant capacity of 30 tables - approximately 120 seats).
The objective is to fully meet customer gastronomically requirements, given that people's
concern for a healthy and nutritious diet has been increasing in recent years - according to market
studies conducted by the monitoring agency of consumer trends in 2001.
The restaurant was able to attract and satisfy the demands of new customers through
culinary variety and the range of drink products available. The current structure of supply can be
traced in the following table:

Variety
Traditional culinary
products
International Cuisine
Drinks

Approximate no. of Varieties

150

Percentage
50

70
70

30
20

There is an increasing consumer interest in the culinary specialties belonging to

international cuisine, especially from Italian cuisine, French and Asian. Except for the Asian
cuisine, the company currently has personnel to fully meet these consumer trends.
There are two types of customer service:

Directly - one of the 30 tables in the restaurant;

By delivering at home or at the office.

Hedon restaurant has a great commercial opening, located near the intersection of streets
and semicircular arches, on the ground floor of an apartment building recently developed. The
restaurant is situated across the street from Herastrau Park; therefore Hedon enjoys a place near
high traffic and the view offered by the park vegetation. It is also within an easily accessible area
in the vicinity of Business Town - an important business centre in the western half of the city.
Catering services have been and will always be a permeable business, easily emulated
and supported by open competition. Therefore the risk of bankruptcy is high enough. In this
activity, influences arising from the political system, macroeconomic policies and legal system
are not important. What matters most are the management skills to anticipate and perceive
market trends to meet consumer needs and make them loyal. After a good period of time that
there was a general preference for fast food restaurants, there is a tendency reconsideration of
traditional restaurants. Still, fast-foods remain young and modest-income people favourite,
according to market demand.
The new restaurant will be opened in the western part of town, in a building which has
already been paid an advance of about 11% (14,000 USD). The building where the project will
materialize requires renovations, improvements and outfitting. This work will be conducted to
enhance the strength and structure the necessary repairs will be made. Special attention will be
paid to the utility, superior finishes and decorative elements - glass windows, panelling of
precious wood, indirect lighting, air conditioning, indoor artificial waterfall, etc.. The precinct
will include a dining room (27 tables), space booths (3 tables), wardrobe, and dressing rooms for
employees, bathrooms, kitchen, a warehouse and head office of the restaurant. The restaurant
will have all necessary facilities: furniture, kitchen equipment, tableware. The total amount of
accommodation and facilities will be 190,000 USD:

Accommodation-$ 100,000 (according to expenses estimate);

Equipment-materials 80,000 USD (according to market prices and selections of
tender).

To achieve the necessary arrangements two months will be needed.

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In terms of the working hours that the personnel would be bound by contract to perform,
the restaurant shall be opened daily, from 10.00 to 22.00, the same interval in which customers
can place orders for the chefs that would be working in two shifts (3 chefs per shift) with an
individual program of 6 hours a day.
The personnel structure that will be employed in the new restaurant, as well as the
corresponding wages can be summarized as follows:
Job

Number

Net individual wage ()

Restaurant manager

550

Hall coordinator

480

Chefs

400

Administrator

370

Waiters

330

Bartenders

330

Cleaning personnel

250

Drivers - Distributors

300

In order to recruit, select and employ the adequate personnel that can make proof of the
required abilities and accumulated experience necessary for the parameters imposed by the
management 2 months would be allocated; however, in order to somehow hedge the risks, an
additional month would be allocated for the accommodation with the job requirements, as well
as the examination of the personnel competencies.
The recruitment and verification program regarding the personnel would be expanded
according to the specifications in the operational plan, whereas the employees recruitment
process would be completed by collaborating with a recruitment and labor force placement
company. The entire personnel would be hired on the basis of an employment record, while the
remuneration would consist in a fixed wage and certain premiums associated to specific events
or achievements of extraordinary results; the salary evolution and the premiums would be
correlated to the individual performances of each employee. The human resources management
politics implies training programs in particular, especially during the accommodation and
examination of the newly employed persons.
I.3. SWOT ANALYSIS
Strengths:
experience in the field;
very good market image;
experienced and united management
team;

Weaknesses:
lack of own parking spaces;
over-worked of staff;
unable to retrieve small order service in
less than two days before the date of
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a favourable site;
effective marketing strategy;
various services and quality;
price/quality favourable ratio;
a close relationship with a major TV
channel;

Opportunities:
possibilities of obtaining Phare
grants;
expected macroeconomic growth;
overloaded work program for people
from target segment;
the legal framework favourable to
SMEs;
increased use of the Internet (e-mail
orders);
business centre near the new
restaurant.

II.

delivery
insufficient capacity for service-peak
hours (lunch);
distance to centre of the city;
congested traffic areas of location;
limit of planning operations due to
construction characteristics of the block
(Hedon restaurant).

Threats:
extended chains of restaurants with
international renown;
the opening of similar restaurants in
business centres;
conflict between Flesh Committee and
Government on government policy on
imports of meat that could affect the
price of meat and meat products.

INVESTMENT
II.1. FUNDS DESTINATION

In order to accomplish the specified investment project, the opening of the future restaurant
would require a total of 200 000, entitling the following acquisitions:
Fund allocation
-Real estate acquisition intended for restaurant, out of
which:
-land (300 m2; 40 /m2)
-construction (250 m2; 290 /m2)
-Establishments
-Kitchen equipment and furnishings
-Automobiles for deliveries (3)
Total
Personal financing
Required financing

Sum
84.000
12.000
72.000
70.000
35.000
25.000
214.000
14.000
200.000

The estimated sums regarding the purchase of kitchen equipment, furnishings and delivery
automobiles were computed based on the corresponding analysis of the market offer.

II.2. FINANCING PROCESS

The necessary subsequent financing funds are intended to be gathered by obtaining a credit from
a specialized institution, while the financial predictions have been computed according to the premises of
obtaining a loan in value of 200.000, whose reimbursement would be done in 4 years by payment of
equal amounts to which the associated interest rates are estimated to be around 13%.
Due to the relatively short period of time in which the investment would take place, the credit
would be acquired in one year, specifically during the first quarter of 2011, as follows:
a. 294.000 lei - in January
b. 294.000 lei in February
c. 252.000 lei in March

II.3. INVESTOR BENEFITS

For the contracted loan of 200.000, the creditor would receive the corresponding interest rate of
approximately 13%, which means that the financial institution would receive according to the credit
reimbursement program, by the moment of the reimbursement of the total sum, a total interest rate of
approximately 40.000, namely 168.000 lei, given an estimated exchange rate of 4.2 lei/. In addition to
this, SC Millennium SA would guarantee for the contracted loan by a pledge contract and a mortgage on
the entitys assets, therefore, a subsequent evaluation of these assets would prove the fact that the
restaurant would be in the position in covering for the loan.

III. FINANCIAL PLANNING

III.1. ANALYSIS OF PREVIOUS FINANCIAL PERIOD
Financial indicator

2010

2011

2012

Global liquidity (Current assets/Current liabilities)

0.48

0.64

1.47

Immediate liquidity (Liquid assets/Current liabilities)

0.27

0.23

0.78

0.50

0.49

0.19

0.98

0.96

0.23

LIQUIDITY INDICATORS

SOLVENCY INDICATORS
Debt rate (Total liabilities/Total assets)
Solvency rate (Financial liabilities/
Equity)
Equity coverage rate
(Total liabilities/Equity)
Liability coverage rate
(Net Profit + Amortization + Interest
rates/Reimbursement rate)
ADMINISTRATION INDICATORS (days)

Current assets to turnover velocity (Current assets x 365 27

38
34
days/ Turnover)
Inventory velocity
7
13
10
(Inventory x 365 days/Turnover)
Suppliers velocity (Suppliers
6.4
5.7
6.1
x 365 days/Credit purchases)
RETURN INDICATORS (%)
2012
2011
2010
Operating profit margin
22.96
26.25
22.84
(Operating profit x 100/Turnover)
Net profit margin
16.64
18.94
16.51
(Net profit x 100/ Turnover)
Equity return
105.52
111.72
61.52
(Net profit x 100/Equity)
Total assets return
73.45
78.24
68.93
(Gross profit + interest rates) x 100/Total assets
Based on certain rational assumptions and the analysis of the financial results achieved by other
similar businesses activating in this field, we forecasted approximate figures for the period 2010 2012
as follows:

III.2. PREDICTIONS
Sales Volume
Regarding this element an increase of 20% in sales revenue was estimated for 2011, as the result of
opening the new restaurant. For the year 2012 an increase of 50% compared to 2010 was assessed, as an
effect of doubling the service capacity. For the following 2 years (2013 and 2014), an increase in
activities volume was anticipated based on: good will operations, allocation of additional amounts for
advertisement, increase in service capacity and occupancy rate (from 70% to 78%). The effect is
represented by an income increase of 6% in 2013 compared to 2012 and of 5% in 2014 over 2013.
The sales of goods represent 27% from the total turnover (2% from catering activities and 25% from
actions inside the restaurants). On account of the business specificity, the sales with collection under 30
days represent 100% of the turnovers value.
Cost Elements
The costs of goods sold are maintained at approximately 45% of the sales value and represents around
15% of the operational costs volume. The raw material expenses anticipated for the predicted period are
about 57% from the total operational costs. The companys indirect costs level cover 11% of the total
operational costs, whereas amortization expenses represent 2.5% of them.
Interest expenses were measured according to the loan reimbursement program, at a 13% interest rate for
currency loans. The required credit will be 200,000, within a 3-year refund period through equal rates
and the associated interest rate. A grace period of 6 months has been considered.
Dividends

Subsequent to the anticipated cash surplus policy, the annual dividends on the predicted period have been
calculated at a 75% level in 2011, 60% in 2012 and 100% in the following 2 years from the expected net
profit.
Social capital
The social capital value will remain constant along the foreseen 4 years (14,000).

Computation of turnover at breakeven point

FC2011
50,000
TO2011 BEP = = = 166,666.67
VCM2011%
30%
Where:

TOBEP = turnover at breakeven point

FC = fixed costs
VCM%= margin rate of turnover over variable costs
Under these conditions, we can observe a monthly turnover at breakeven of 13890.
Determining the confidence interval

CA2011p C2011BEP = 400,000 50,000 =350,000

where: TOp = expected turnover
TOBEP = turnover at breakeven point
This indicator represents the operational risk rate. The higher its value, the lower the risk is, in other
words, the operational activity is ahead of the minimum profitability level (profit zero).
In our case the indicator emphasizes a favourable situation, the turnover exceeding the breakeven return
by approximately 165%.
For the whole expected period the confidence intervals evolution is presented in the following table:

Indicator for
each year

2011

2012

2013

2014

Expected
Turnover ()

400,000

420,000

410,000

425,000

Turnover at BEP
()
Confidence
interval

50,000

51,000

52,500

53,000

350,000

369,000

357,500

372,000

III.3. EVALUATION INDICATORS

a. Determining the Internal Rate of Return (IRR)
This indicator was determined considering an investment functional period of 10 years and represents that
value of the discount rate for which the net updated value is zero.
Following the computations, the discount rate for which the net incomes discounted value is zero, lies
between 41% and 42%. According to the computations, the most appropriate value for IRR is 42%.
b. Determining the projects net updated value
For the computation of this indicator for an economical lifecycle of 10 years an discount rate of 19% has
been used (13% - the medium interest rate for currency loans and 7% - the risk factor for the
expectations). The computations lead us to a net discounted value (NDV) of 50,200 through the
discounted cash flows of the investment project with the above rate.
We mention the fact that the financial projections are based on a business evolution in constant prices
approach.
c. Investment Payback Period
The payback period represents the time interval necessary for recovering the invested capital. The results
lead us to a payback period of approximately 6.2 years, which is relatively good, considering also the
projects lifetime, which is of at least 10 years.

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