The Purchase of Toyama: Project

Introduction

In this project, the purchase of TOYAMA – a Japanese restaurant, will require $50000 loan. The loan shall acquire the restaurant at a cost of $40,000, and the remaining $10,000 is for maintenance and recurrent expenditure. The passing on of the owner has opened an investment opportunity that will enable me to manage the business and particularly maintain current operations. This is a well established enterprise with a profit margin has been registering gradual growth over the past few years.

Repayment

Loan repayment will come from continuing net profits which will the long term financing strategy. Repayment of the seasonal credit line will come from liquidation of inventories and receivables.

Business Description

The business is a restaurant targeting Japanese cuisine. The current owner maintains an average of 100 customers per day. Most of the customers come to the restaurant repeatedly. The average sale of the dishes is $15 per customer which translates to $37,500 per month. Given the recent annual performance, I would expect the total revenues to increase from $450,000 to $500,000 or more by 2015. The sales price for this restaurant is $40,000.

Operational Product Information

The restaurant already has skilled staff that understand labor relations who when maintained will ensure continuity of the business.

Management

The current employees at TOYAMA restaurant maintain their same positions which will ensure that the quality standards of excellence in service retain current customers. Furthermore, I’m an insider, a Japanese and bachelor’s degree holder in accounting and finance. I have worked for Mr. Tanaka, the current owner of TOYAMA restaurant for a few years. I have enormous experience in this establishment. I am confident I can sustain its current success considering my academic background, ethnicity and restaurant service experience.

Marketing & Distribution

Going by feasibility studies conducted in the area, there is minimal competition. There is a ready market from current customers located two miles from a large U.S corporation. The employees from the corporation present a new market niche where they request for orders at lunch hour. The research shows advance delivery service for lunch orders will satisfy customers’ needs. The current owner is hesitant to take the risk. However, this will be an opportunity to double and optimize on current sales trends. Besides, through balancing between low cost products and advertising, it is possible to increase client base and overall sales. I have projected sales will increase by at least 5% each year. The rate could be higher..

Competition

Competition currently remains low with a vast untapped market potential. Other restaurants in the area concentrate on general cuisines.

Financial Informatiion

Proforma Income Statement for Toyama 2012 Through 2015

REVENUE 2012 2013 2014 2015
Sales $ 450,000 $ 472,500 $ 496,125 $ 520,931
Food 350,000 367,500 385,875 405,169
Beverage 100,000 105,000 110,250 115,763
Total Sales $ 450,000 $ 472,500 $ 496,125 $ 520,931
Cost of Sales
Food Cost 210,000 218,400 229,320 240,786
Beverage Cost 70,000 73,500 77,175 81,034
Total Cost of Sales $ 280,000 $ 291,900 $ 306,495 $ 321,820
Gross Profit $ 170,000 $ 180,600 $ 189,630 $ 199,112
Gross Margin % 38% 38% 38% 38%
Expenses
Payroll $ 45,000 $ 46,350 $ 47,741 $ 49,173
Rent 21,600 22,248 22,915 23,603
Utilities 20,000 20,000 20,000 20,000
Advertising and Marketing 1,000 1,000 1,000 1,000
Insurance 3,600 3,600 3,600 3,600
Misc Other Expenses 1,900 1,900 1,900 1,900
EBITDA 76,900 85,502 92,474 99,836
Depreciation expenses 1,600 1,600 1,600 1,600
EBIT 75,300 83,902 90,874 98,236
Interest expense (rate 6%) 3,000 2,400 1,800 1,200
EBT (Earning before tax) 72,300 81,502 89,074 97,036
Taxes on income 20,244 22,821 24,941 27,170
Net Income $ 52,056 $ 58,681 $ 64,133 $ 69,866
Net Profit / Sales 12% 12% 13% 13%

Balance Sheet

Balance Sheet
Toyama Restaurant
For the Year Ended December 31, 2012, 2013, 2014, 2015
2012 2013 2014 2015
Assets
Current
Cash $ 193,656 $ 243,937 $ 299,670 $ 361,135
Food Inventory 25,000 27,500 30,250 33,275
Beverage Inventory 8,600 9,460 10,406 11,447
Total Current Assets 227,256 280,897 340,326 405,857
Fixed
Equipment 5,000 4,000 3,000 2,000
depreciation (1,000) (1,000) (1,000) (1,000)
Fixtures 3,000 2,400 1,800 1,200
Depreciation (600) (600) (600) (600)
Total Fixed Assets 6,400 4,800 3,200 1,600
Total Assets $ 233,656 $ 285,697 $ 343,526 $ 407,457
Liabilities
Notes Payable 40,000 30,000 20000 10,000
Account Payable 25,000 27,500 30,250 33,275
Total Liabilities $ 65,000 $ 57,500 $ 50,250 $ 43,275
Owner’s Equity
Retained Earning $ 168,656 $ 228,197 $ 293,276 $ 364,182
Total Liabilities and Owner’s Equity $ 233,656 $ 285,697 $ 343,526 $ 407,457

Ratios analysis

Ratios analysis
2012 2013 2014 2015
Times-interest earned (TIE) 25.1 35.0 50.5 81.9 TIE = EBIT/Interest expense
Current ratio 3.5 4.9 6.8 9.4 Current ratio =Current assets / Current liabilities
Debt ratio 28% 20% 15% 11% Debt ratio = Total liabilities / Total assets
Profit margin on sales 12% 12% 13% 13% Profit margin = Net income / Sales

Cash Flow Statement

Cash Flow Statement
Toyama Restaurant
For the Year Ended December 31, 2012, 2013, 2014, 2015
2012 2013 2014 2015
Cash Flow from Operating Activities
Net Sales $ 450,000 $ 472,500 $ 496,125 $ 520,931
Cost of food $ (210,000) $ (218,400) $ (229,320) $ (240,786)
Cost of Beverage $ (70,000) $ (73,500) $ (77,175) $ (81,034)
Operating & Administration Expense $ (94,700) $ (96,698) $ (98,756) $ (100,876)
Depreciation $ 1,600 $ 1,600 $ 1,600 $ 1,600
Taxes $ (20,244) $ (22,821) $ (24,941) $ (27,170)
Net Cash Flow from Operating $ 56,656 $ 62,681 $ 67,533 $ 72,665
Cash Flow from financing activities
Loan interest payments (@ 6%) $ (3,000) $ (2,400) $ (1,800) $ (1,200)
Loan repayment $ (10,000) $ (10,000) $ (10,000) $ (10,000)
Net Cash Flow from financing activities $ (13,000) $ (12,400) $ (11,800) $ (11,200)
Change in Cash $ 43,656 $ 50,281 $ 55,733 $ 61,465
Cash, Beginning of the year $ 150,000 $ 193,656 $ 243,937 $ 299,670
Cash, End of the year $ 193,656 $ 243,937 $ 299,670 $ 361,135

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