Pizza hut profit and loss statement

8. Financial Planning

The financial planning below is prepared with the help of the Profit and loss

(Appendix 6) and balance sheet (Appendix 4 and 5) of Yum! We based on

Brands, the franchisor of KFC and Pizza Hut, for the financial year 2013 as a

sample and consideration of our financial planning.

As a franchisor, the company will have to take into consideration of the financials

of the franchisee. Thus the planning will show 2 sets of accounts, the franchisee

and the franchisor respectively.

All Financials below will be prepared in Singapore dollar as the company will be

incorporated in Singapore and tax rate will follow the Singapore tax rate of 17%.

8.1 Projected Profit and loss statement for the financial year 2015 to 2017

The company will first set up the profit and loss showing the budgeted revenue

and estimated expenses that will incur in the cause of doing business.

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Figure 10: Projected profit and loss of one franchisee

2015 2016 2017

Please refer to the Assumption table (figure 7)

Revenues S$ S$ S$ Resturant Sales 102,200 255,500 383,250 1

Cost of sales Purchase of ingredients 30,660 76,650 114,975 2 Importing and freight cost 20,440 51,100 76,650 3 Packaging and others 5,110 12,775 19,163 4 Service staff cost 76,650 76,650 76,650 5 Total cost of sales 132,860 217,175 287,438

Operating profit ‐30,660 38,325 95,813

Gross profit margin ‐30% 15% 25%

Adminstrative Expenses Bank charges 50 50 50 6 Depreciation of equipments 50,000 50,000 50,000 7 Printing and stationery 300 315 331 8 Rental of resturant 60,000 60,000 60,000 9 Travelling expenses 500 550 605 10

Professional fee Accounting fee 4,000 4,800 5,760 11 Audit fee 2,000 2,400 2,400 12 Secretarial fee 600 600 600 13 Tax agent fee 800 800 800 14

Franchisee Fee One time franchisee fee 25,000 ‐ ‐ 15 Royalties fee ‐ 2,683 6,707 15

Advertisement fee 5,110 12,775 19,163 15

Total expense 148,360 134,973 146,415

Net profit / loss before tax ‐179,020 ‐96,648 ‐50,603

Tax at 17% ‐ ‐ ‐

Net profit / loss ‐179,020 ‐96,648 ‐50,603

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As seen from figure 6, the franchisee is making losses in the first 3 years,

mainly due to the high cost of sales, thus providing insufficient profit to cover

up the expenses incurred, especially the high fixed cost of rental.

Number Description Assumptions

1 Restaurant

sales

The sales are based on an average of S$7 each

considering (Figure 9).

The estimated average number of customers per

day for

2015 – 40 customers

2016 – 100 customers

2017 – 150 customers

2 Purchase of

ingredients

The cost is based on 30% of the revenue.

3 Importing and

freight cost

To maintain the high quality of the restaurant food,

the ingredients are imported from various countries

around the world (Shanghai, Malaysia and New

Zealand). Thus the company expects the high cost

of around 20% of revenue.

4

Packaging and

others

The packaging and others that come with the meal

will roughly make up about 5% of the revenue.

5 Service staff

cost

The restaurant will need about 5 part time staff at

each point of time to handle the customers. Each

part time staff will be paid a rate of $3 per hour

(due to the lower salary in Bangkok). Average

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opening hour of 14 hours per day.

6 Bank charges Annual bank charges for current account will be

assumed at $50 per year.

7 Depreciation of

equipment

Depreciation is set at 3 years

8 Printing and

stationery

Printing and stationary incurred for administrative

staff is set at S$300 and increase at 5% per year

as business increases.

9 Rental of

restaurant

As the restaurant needs large space, the company

will expect a rental cost of S$5000 per month.

10 Travelling

expenses

Travelling expenses for business purpose set at

S$500 and increase at 10% per year as business

increases.

11

Accounting fee The company will suggest the franchisee to

outsource the accounting records to save cost.

The cost is initially set at $4000 per year as

restaurant usually incurred high transaction

volumes and increased by 20% per year due to the

high increase in transaction volume.

12 Audit fee The cost is initially set at $2000 per year as

restaurant usually incurred high transaction

volumes and increased by 20% per year due to the

high increase in transaction volume.

13 Secretarial fee Maintain at the fee set by the Secretarial company

14 Tax agent fee Maintain at the fee set by the tax agent

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15

Franchise Fee

and

Advertisement

fee

Refer to figure 7

Figure 11: Assumption table for projected profit and loss of one franchisee

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Figure 12: Projected profit and loss of franchisor

As shown in figure 12, the company as the franchisor will be gaining high

profits in the three years due to low cost incurred in the business operation.

The increase will be fast in the first and second year and the growth will slowly

decrease after the third year as the business becoming stabilized.

2015 2016 2017

Please refer to the Assumption table (figure 9)

Revenues S$ S$ S$ One time franchisee fee 75,000 175,000 125,000 1 Royalties fee ‐ 26,828 100,603 2 Total revenue 75,000 201,828 225,603

Cost of service Training of franchisee 6000 14000 10000 3

Operating profit 69,000 187,828 215,603

Gross profit margin 92% 93% 96%

Adminstrative Expenses Bank charges 50 50 50 4 Depreciation of equipments 1000 1000 1000 5 Printing and stationery 700 980 1372 6 Rental of accommodation and office 1500 1500 1500 7 Travelling expenses 2000 2600 3380 8 Overseas travelling expense 500 500 500 9

Professional fee Audit fee 3000 3600 4320 10 Secretarial fee 600 600 600 11 Tax agent fee 1000 1000 1000 12

Advertisement fee ‐ ‐ ‐ 13

Total expense 10,350 11,830 13,722

Net profit / loss before tax 58,650 175,998 201,881

Tax at 17% 9,971 29,920 34,320

Net profit / loss 48,680 146,078 167,561

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Number Description Assumptions

1 One time

franchise fee

Number of franchisee increase in the year (Figure

6) multiplied by the Franchisee Fee, S$25,000

(figure 7)

2 Royalty fee

Target number of Franchisee stores in Bangkok

(Figure 6) multiple by the royalty fee per franchisee

(Figure 10)

3 Training of

franchisee

The training cost of per Franchisee will be set at

S$2000.

4 Bank charges Annual bank charges for current account will be

assumed at $50 per year.

5 Depreciation of

equipment

Depreciation is set at 3 years

6 Printing and

stationery

Printing and stationary incurred for administrative

staff is set at S$700 and increase at 40% per year

due to the increase in administrative work as the

number of franchisee increase.

7 Rental of

accommodation

and office

The Company will send one representative to

Bangkok to liaise with the franchisee and

coordinate with the suppliers. The company will

rent a house for use as the home and the office.

8 Travelling

expenses

Travelling expenses for business purpose set at

S$2000 and increase at 30% per year as the

number of franchisee increase.

The expenses are incurred mainly for the travelling

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to the stores for business purpose and inspection.

9

Overseas

travelling

expense

Overseas travelling expense will be the year air

ticket to travel back to Singapore to report on the

status and home visits.

10 Audit fee The cost is initially set at $3000 per year as the

audit needs to take into account of all the

franchisor sales report.

11 Secretarial fee Maintain at the fee set by the Secretary company

12 Tax agent fee Maintain at the fee set by the tax agent

13

Advertisement

fee

Target number of Franchisee stores in Bangkok

(Figure 6) multiplied by the advertisement fee per

franchisee (Figure 10). But as the amount received

is totally used for advertising, no amount is shown

in the Profit and loss.

Figure 13: Assumption table for projected profit and loss of franchisor

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8.2 Projected balance sheet for the financial year 2015 to 2017

In order to understand the status of the franchisee and franchisor, we need to

understand the profitability of the business.

Figure 14: Projected balance sheet of one franchisee

As seen from figure 10, the franchisee is in heavy debt from the directors, as

the directors provide all the funding to start the business. In this way the

company can see the financial ability of the franchisee as its business partner

and this type of funding also avoid incurring high interest cost each year from

taking loans from banks. The figure also shows that the franchisee liabilities

are increasing while the assets are decreasing over the years, causing the

franchisee to be in a net liability position.

2015 2016 2017

Please refer to the Assumption table (figure 11)

Non‐current assets Plant and equipment 100,000 50,000 ‐ 1

Current assets Cash and cash equivalents 21,979 ‐3,870 15,121 Deposits 5,000 5,000 5,000 3 Inventories 4,000 5,200 6,760 4 Prepayments 2,000 2,600 3,380 5 Total assets 132,979 58,930 30,261

Current liabilities Trade payable 4,599 11,498 17,246 6 Accrued expenses 7,400 8,600 9,560 7 Amount due to directors 290,000 304,500 319,725 8 Total liabilities 301,999 324,598 346,531

Shareholder Equity Share capital 10,000 10,000 10,000 9 Retained earnings ‐179,020 ‐275,668 ‐326,270 10 Total shareholder equity ‐169,020 ‐265,668 ‐316,270

Total liabilty and shareholder equity 132,979 58,930 30,261

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Number Description Assumptions

1 Plant and

equipment

The company expects the initial investment in plant

and equipment (cooking equipment, furniture,

machines and others) to be around S$150, 000

and the assets are expected to work for more than

three years.

2 Deposits Deposit relates mainly to the deposit on a rental

(One month).

3 Inventories

Inventories are maintained at minimum stock level

of S$4000 and increase by 30% each year as

sales increase.

4 Prepayments The prepayment is estimated at S$2000 for the

down payment of purchase of ingredients to

maintain minimum stock. The amount increase by

30% each year due to the increase in sales.

5 Trade payable

Trade payable is estimated at 15% of the cost of

ingredients in figure 10.

6 Accrued

expenses

Accrued expenses relate to the accrual of the

professional fee in figure 10.

7 Amount due to

directors

The amount due to director relate to the initial

funding from the director S$290,000. Due to the

loss made in the first three years, the director has

to provide additional funding at 5% per year.

8 Share capital Initial share capital of S$10,000.

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9 Retained

earnings

The sum of the profit and loss after tax in figure 6.

Figure 15: Assumption table for projected balance sheet of one franchisee

Figure 16: Projected balance sheet of franchisor

On the other side, as the franchisor, the Company is making profit in all the

three years and each year the company is able to give dividends to its

shareholders. As shown in the figure 12, the asset outweighs the liability,

giving the net asset position.

2015 2016 2017

Please refer to the Assumption table (figure 13)

Non‐current assets Plant and equipmets 2,000 1,000 ‐ 1

Current assets Cash and cash equivalents 25,705 50,906 69,151 Deposits 1,500 1,500 1,500 2 Total assets 29,205 53,406 70,651

Current liabilities Accrued expenses 4,600 5,200 5,920 3 Amount due to directors 10,000 ‐ ‐ 4 Total liabilities 14,600 5,200 5,920

Shareholder Equity Share capital 1 1 1 5 Retained earnings 48,680 160,682 215,766 6 Dividends paid ‐34,076 ‐112,477 ‐151,036 7 Total shareholder equity 14,605 48,206 64,731

Total liabilty and shareholder equity 29,205 53,406 70,651

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Number Description Assumptions

1 Plant and

equipment

The company expects the initial investment in plant

and equipment (Computer, printer and scanner) to

be around S$3,000 and the assets are expected to

work for more than three years.

2 Deposits Deposit relates mainly to the deposit on rental

(One month).

3 Accrued

expenses

Accrued expenses relate to the accrual of the

professional fee in figure 8.

4 Amount due to

directors

The amount due to director relates to the initial

funding from the director S$10,000. Due to the

profits made in the first three years, the director

shall receive back the payment within second

years.

5 Share capital

Initial share capital of S$1.

6 Retained

earnings

The sum of the profit and loss after tax in figure 8.

7 Dividends paid

in the year

As the company is making a profit and there is not

much expense or investment needed, 70% of the

retained earnings as at year end will be given to

the shareholders as dividends.

Figure 17: Assumption table for projected balance sheet of franchisor

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8.3 Cash flow

As seen from the figure 14, the franchisee has a weak cash position. The cash is

basically being funded by the directors. Due to the large loss, the franchise had

not made any real profits for the three years, especially during the second year

when the franchisee incurred a negative cash flow. Thus the company can

understand that the franchisee is in a very unstable position with limited cash flow

in hand at its deposal.

While the Company on the other hand have been making so much profit with

relatively little expenses, thus as show in figure 16, the disposable cash on hand

had been increasing and is much more than what the Company is able to use.

Thus the Company as the franchisor face no problem in its cash flow.

8.4 Break even analysis

Unfortunately, the franchisee is unable to break even in the three years due to

high cost (show in figure 10). The franchisee continues to make losses and in

those three years the losses and liability had accumulated to a large amount

making it very difficult for the shareholders to gain back its investment.

As for the Company, revenue had largely exceeded the cost and it will break

even in the first year also gaining back shareholder’s investments (Show in figure