Financial Management of a Small Burger Restaurant Coursework

Financial Management of a Small Burger Restaurant - Coursework Example They provide a rough idea of how the business can be in future and can even identify areas of concerns that can appear in future. Each head in the projected financial statement is based on certain assumptions; some can easily be predicted while some are difficult to predict as they are outside business’s control for e.g. changes in taxes, an unpredictable event etc. (Lasher. 2000; Covello. 1998) In a small business like burger restaurant operative in a college campus, since there are no proper planning departments and tools, the projection technique of financial management can be useful. A typical small burger restaurant’s sources of revenue can be sale of food and beverages. The main heads of costs could be the material costs, packaging and transportation of food etc. In any other business, the restaurants have operating expenses like rents, utilities, labor wages, cleaning expenses etc. Such businesses are not operative in a very dynamic environment nor are very large businesses which have many complexities and changes to take account of. The estimated projected income statement for such a business for 3 years can be presented as below: Pro-forma 3 years Projected Income Statement YEAR-1 YEAR-2 YEAR-3 SALES REVENUE (NET) ($) ($) ($) Food revenue 505,890 570,276 548,674 Beverage Revenue 151,110 153,884 233,682 Food Cost (143,719) (158,863) (168,542) Beverage Cost (47,906) (44,807) (42,136) TOTAL INCOME 465,375 520,490 571,678 OPERATING EXPENSES Advertising 1,200 2,400 3,000 Depreciation 36,000 28,800 23,040 Utilities and Phones 31,080 33,300 37,200 Wages 344,925 356,423 367,920 Officer's Salary 42,000 43,680 45,420 Rent 7,500 7,500 7,500 TOTAL OPERATING EXPENSES 462,705 472,103 484,080 OPERATING PROFIT 2,670 48,388 87,598 NET PROFIT 2,670 48,388 87,598 The analysis of the projected income statement for three years is detailed below: Revenue: The business deals and serves meals which include foods and beverages. The restaurant serves food items li ke burgers, apple pies, nachos and cheese and salads etc, while it mainly serves beverages and soft drinks with the meal. This makes two main products as the revenue generating which are food revenue and beverages revenue. Food & Beverages Revenue: The food revenue constitutes around 65% to 75% of the total revenue. We analyzed that on an average a customer spends around $6 on an order. Since we have no information about the units of sales and what items of food are preferred and sold we shall assume that out of the revenue received from each customer on an average, a portion of average selling price of food items can be taken as revenue from the food. Similarly for the beverages no information regarding the number of units sold is given, therefore we shall take the revenue as a portion of average selling price of beverages. The beverages ranges from a price range of $1.29 to $ 1.49; this means that out of the total $6 spend on an order by a customer $1.29 to $1.49 will be spent on beverages, which makes around 25% to 35% of the average order that is $6. Rest 65% to 75% of the remaining revenue will be generated from food items. Based on this assumption in year 1, if there are 300 customers everyday and the business operated 365 days a year and an average customer spending is $6, the food revenue on an estimate can be around 77% which makes $505,890 and the remaining 23% can be