Contingency Tactical Plan for Dough Pizza

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Table of Contents

Start-Up Financing
Sales Forecast
Proforma Income Statement
Contingency Plan #1
Contingency Plan #2
Conclusion
References

The contingency tactical plan prepared for the proposed company, Dough Pizza, which is a fast-food restaurant planned to be opened in Lynchburg, VA, is based on the estimations of the initial capital requirements and assumptions regarding its business and financial performance in the first year of operations. The contingency tactical plan evaluates the anticipated changes in the companys earnings based on different projected growth rates.

Start-Up Financing

Based on the assumptions made regarding the proposed business venture, the start-up financing required by the owner is estimated in this section of the report. It is crucial to prepare an investment budget to ensure that the owner can arrange sufficient finances to carry out the project until the end. The owner has two options for financing the project, which is equity financing and debt financing (Broome Jr., 2016). The preference will be given to the equity financing which means that the owner will invest in setting up the new business by using personal equity. The owner is of the view, The rich rule over the poor, and the borrower is slave to the lender (Proverbs 22:7).

However, the second option of acquiring finance from a bank will not be overlooked entirely, and if the business requires additional funds in later years, then the management will borrow from a bank. The cost of debt will be the primary factor affecting this decision as it is understood that start-up businesses face the difficulty of getting a bank loan because of their limited credit history (Bamford & Bruton, 2018). The start-up funding requirement is provided in Table 1 given below.

Table 1. Start-Up Funding Requirement.

Description	Amount ($)
Business license	50
Business name registration	12
Lease improvement	35,000
Equipment	85,000
Marketing	9,000
Public relations, website development, and road shows	11,000
Store rent	38,304
Cash in hand	21,634
Funding required	200,000

Table 1 indicates that the management will have to allocate $200,000 to the proposed business. The primary capital expenditures include leasehold improvement and equipment. The economic values of these expenditures will be depreciated on a straight-line method over the next ten years. The depreciation charge estimated is at $12,000 per year. The retail space selected for opening the new restaurant is available at $1.14 per sq. ft. and its total floor size is 2,800 sq. ft. (Lynchburg city county retail space for lease, 2019).

The total yearly rent is estimated to be $38,304. The reason for selecting a larger retail space is because the management wants to offer a dine-in experience to its customers in addition to its takeaway services. All other expenses are estimated as per the business plan. The management will carry out various marketing activities before the business is launched.

The company must test the market before it initiates its primary business activities. It will help the management to plan out its contingent business strategies and also formalize its exit strategy in case the business fails to generate the expected earnings. The company will require $21,634 in cash in hand. It is the minimum cash balance that the company will maintain at the end of the financial year. It will ensure that it can sustain its business and purchase the required inventory for food preparation.

Sales Forecast

The sales forecast given in Table 2 indicates that the restaurant will achieve growing sales over the next five years. There are two sources of revenue identified for the proposed business including food sales and drink sales. It is estimated that 70% of the companys sales will be generated from food sales and the remaining 30% will be from drink sales. The companys food sales are expected to grow by 50% in Year 2 and then increase at a steady rate of 30% per year in the next three years. Furthermore, the companys drink sales are expected to grow by 30% in Year 2 and then increase at a steady rate of 15% per year in the next three years.

The reason for the high growth rate in the second year is that the company will attract more customers due to the brand hype to be formed after the initial public relations and marketing activities. In later years, the restaurant will grow based on its brand reputation, customer satisfaction, and high food quality.

Table 2. Sales Forecast.

	Year 1	Year 2	Year 3	Year 4	Year 5
	$	$	$	$	$
Food sales	201,600	302,400	393,120	511,056	664,373
Drink sales	86,400	112,320	129,168	148,543	170,825
Total sales	288,000	414,720	522,288	659,599	835,197

Proforma Income Statement

The proforma income statement for the first five years of operations is given in Table 3.

Table 3. Proforma Income Statement.

	Year 1	Year 2	Year 3	Year 4	Year 5
	$	$	$	$	$
Food sales	201,600	302,400	393,120	511,056	664,373
Drink sales	86,400	112,320	129,168	148,543	170,825
Total revenue	288,000	414,720	522,288	659,599	835,197
Cost of sales	168,000	241,920	304,668	384,766	487,199
Gross margin	120,000	172,800	217,620	274,833	347,999
Labor expenses	163,360	163,360	169,894	169,894	176,690
Marketing	15,000	15,000	10,000	10,000	10,000
Other expenses	5,000	5,000	5,250	5,513	5,788
EBITDA	(63,360)	(10,560)	32,476	89,426	155,521
Depreciation	12,000	12,000	12,000	12,000	12,000
EBIT	(75,360)	(22,560)	20,476	77,426	143,521
Tax (13.3%)			2,723	10,298	19,088
Net profit	(75,360)	(22,560)	17,752	67,128	124,432

The company will incur a net loss in the first three years. However, the profitability will improve and it is forecasted that the company will have a growing net profit from Year 3 onwards.

Contingency Plan #1

Down-adjustment of Sales

The revised proforma income statement is prepared in Table 4 based on the assumption that the company will not achieve its anticipated sales level. Therefore, its sales are adjusted downward.

Table 4. Revised Proforma Income Statement (Downward Adjustment)

	Year 1	Year 2	Year 3	Year 4	Year 5
	$	$	$	$	$
Food sales	100,800	151,200	196,560	255,528	332,186
Drink sales	43,200	56,160	64,584	74,272	85,412
Total revenue	144,000	207,360	261,144	329,800	417,599
Cost of sales	84,000	120,960	152,334	192,383	243,599
Gross margin	60,000	86,400	108,810	137,417	173,999
Labor expenses	163,360	163,360	169,894	169,894	176,690
Marketing	15,000	15,000	10,000	10,000	10,000
Other expenses	5,000	5,000	5,250	5,513	5,788
EBITDA	(123,360)	(96,960)	(76,334)	(47,990)	(18,479)
Depreciation	12,000	12,000	12,000	12,000	12,000
EBIT	(135,360)	(108,960)	(88,334)	(59,990)	(30,479)
Tax (13.3%)			(11,748)	(7,979)	(4,054)
Net profit	(135,360)	(108,960)	(76,586)	(52,012)	(26,425)

Steps to Minimize the Negative Impact

The revised proforma invoice shows that the company will not be able to achieve profitability in the next five years. The management can take the following steps to minimize the negative impact of poor sales.

Increase marketing and public relation activities.
Revise its pricing strategy by lowering the prices of its food items.
Sign up on different food delivery websites to improve brand exposure and also increase its sales.
Improve or add new food choices.
Launch promotional or combo deals for customers.
Lower the labor cost by hiring a fewer number of employees with better skills.

Contingency Plan #2

Upward-adjustment of Sales

The revised proforma income statement is prepared in Table 5 based on the assumption that the company will exceed its anticipated sales level. Therefore, its sales are adjusted upward.

Table 5. Revised Proforma Income Statement (Upward Adjustment)

	Year 1	Year 2	Year 3	Year 4	Year 5
	$	$	$	$	$
Food sales	302,400	453,600	589,680	766,584	996,559
Drink sales	129,600	168,480	193,752	222,815	256,237
Total revenue	432,000	622,080	783,432	989,399	1,252,796
Cost of sales	252,000	362,880	457,002	577,149	730,798
Gross margin	180,000	259,200	326,430	412,250	521,998
Labor expenses	163,360	163,360	169,894	169,894	176,690
Marketing	15,000	15,000	10,000	10,000	10,000
Other expenses	5,000	5,000	5,250	5,513	5,788
EBITDA	(3,360)	75,840	141,286	226,843	329,520
Depreciation	12,000	12,000	12,000	12,000	12,000
EBIT	(15,360)	63,840	129,286	214,843	317,520
Tax (13.3%)			17,195	28,574	42,230
Net profit	(15,360)	63,840	112,091	186,269	275,290

Steps to Maximize the Opportunities

The management can take the following steps to maximize the opportunities arising from high-level sales.

Open up another fast-food outlet.
Provide training to its staff to improve customer experience.
Engage with customers and make changes in the business accordingly.
Carry out marketing activities to promote its brand and challenge its competitors.

Conclusion

The contingency plan provided in this report highlights the measures that could help the company in achieving its mission and objectives. The management should plan out its exit strategy if the company fails to produce the desired level of sales and profit. The management should be prepared to cut its losses, but before doing so, it should take steps that could help to sustain the business. The plan also emphasizes strong planning to take advantage of the opportunities in the market.

References

Bamford, C. E., & Bruton, G. D. (2018). Entrepreneurship: The art, science, and process for success (3rd ed.). New York, NY: McGraw-Hill Education.

Broome Jr., J. T. (2016). Chapter 38: Making a statement how to create financial statements. In T. S. Media, Personal training business: step-by-step startup guide. Irvine, CA: Entrepreneur Press.

Lynchburg city county retail space for lease. (2019). Web.

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