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Second Cup Business Plan
Business PlanSecond Cup Franchise
Prepared By
Robert DanielsShankar Das
Josephine McKayEdmund Mupondwa
February 2008
Edwards School of Business, University of SaskatchewanDaniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
Table of Contents
EXECUTIVE SUMMARY 41.0 Introduction 41.1 Industry Overview 41.2 Mission Statement 41.3 Goals and Objectives 41.4 Financing 42.0Operations Plan 72.1Location 72.2Second Cup Plan 82.3 Floor Plan 83.4 Average Business Cycle 93.4.1Average Business Day 93.0Human Resources 134.1Organizational Strategy 144.2Training 145. Marketing Plan 155.1 Industry Overview and Current Markets 155.2 Competition 16
5.2.1 Direct Competitors 165.2.2 Indirect Competition 165.3 Customers and Target Markets 16
5.4 Product and Service Features 185.4.1 Product Quality 185.5 Pricing Strategy 205.6 Promotion Strategy 205.7 Distribution 215.8 Sales Objectives 21
5.8.1 Sales Projections 225.8.1 Marketing Expenses 225.9 SWOT Analysis 225.9.1 Strengths (Internal Factors) 225.9.2 Weaknesses (Internal Factors) 225.9.3 Opportunities (External Factors)
235.9.4 Threats (External Factors 23
6. Financial Plan 246.1 Sales Revenue and Net Income: 246.2 Total Operating Expenses 256.3 Working Capital Estimates 256.4 Cost of Capital 266.5 Debt Amortization Schedules 266.6 Risk analysis 266.7 Financing Budget 266.8 Dividend Policy 276.9 Ratio Analysis 276.10 Financial and Investment Analysis 286.11 Risk Analysis 287. Conclusion 30
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LIST OF TABLESTable 1.1 Summary of Financial Results 6Table 2.1: Shift Schedule by Hours 10Table 2.2: Total Hours of Work 11Table 2.3 Capital Budget 12Table 2.4 Operating Expenses 13Table 6.1 Sales Revenue 24Table 6.3 Risk Variables and Level of Importance 26Table 6.4 Financing Structure 27Table 6.5 Dividend Projections 27Table 6.6 Ratio Analysis 27Table 6.7 Summary of Financial Results 28
LIST OF FIGURESFigure 2.1 Site Location 7Figure 2.2 Aerial View of Location 8Figure 2.3 Floor Plan 9Figure 2.4 Daily Work Schedule 10Figure 4.1 Organizational Chart 14APPENDIX 1 Financials 31
Edwards School of Business, University of SaskatchewanDaniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
EXECUTIVE SUMMARY
Introduction
This report presents a comprehensive business plan for a Second Cup franchise to be established in
Saskatoon, Saskatchewan. The Second Cup franchise (referred to as Second Cup for the remainder of the
report) will be located at the new University Heights Shopping complex called The Village Square. This
location is also home to one of Saskatoon’s fastest growing areas in the city, with an estimated population
of 30,000 and expected to double to 62,000 by 2015. This area has homeownership of approximately
93.5%. The average value of a dwelling is $218,357; average family income of $81,774; average
household size is 3.2. The Village Square includes a strip mall with street-front coffee shops, boutiques,
and other retail and community services. The area has two elementary schools and two high schools, with
an additional high school recently announced. This location is adjacent to the world class SaskTel Indoor
and Outdoor Artificial Turf Soccer Centre. The SaskTel Soccer Centre is a great magnet for ancillary
business development in this area. Second Cup will provide high quality specialty product lines in four
categories: coffee, specialty beverages, food, and cooler beverages
The operating and marketing strategy is backed by a sound financial analysis that demonstrates the
viability of this plan. Key financial projections are as follows:
Total revenue for 2008 is projected to reach $527,850. This is expected to double by 2013.
The gross margin from total revenue is estimated at 63%, this margin is expected to be remain
consistent year over year.
Net income, after taxes, in the first year of operations is expected to be $7,030 however by 2013
this will grow to $112,392.
Ratio analysis shows that the business is able to meet its current liabilities 4 times over within the
first year.
The ROI after taxes is 13%, for every $1 invested there is an earning of $0.13.
The Net Present Value is $176,326.
The expected internal rate of return on this investment is 94.4%.
These are very positive returns given an initial equity investment of $40,000.
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1.0 Introduction
1.4 Industry Overview
The specialty coffee and beverage industry is dominated by three main companies, namely, Tim Hortons,
Starbucks, and Second Cup. Starbucks has a market share of over 40% of the specialty coffee market.
Overall, the coffee segment is growing very fast. Industry is already benefiting, in terms of increasing
sales and higher prices, from the product differentiation, improved quality and price premiums of
specialty coffees. Coffee quality rather than price, customer demand, or convenience of supply is
considered to be the principal criterion for industry purchasing decisions. According to the International
Coffee Organization (ICO), most potential specialty coffee markets are far from saturated. Specialty
coffee sales continue to expand by 5% to 10% per year. The North American specialty market therefore
represents one of the largest and most vibrant coffee markets in the world. Second Cup has an opportunity
to benefit from this market.
1.5 Mission Statement
To be the leading Canadian Second Cup franchise of specialty coffee and beverages in Saskatchewan,
with a commitment to providing community support, while achieving growth through core competencies
of our people.
1.6 Goals and Objectives
To provide fresh coffee and beverages seven days a week for the neighbourhood
To achieve a return on investment of not less than 15% per annum
1.4 Financing
Mary and Ken Hatch are preparing for a significant career change and are willing to become their own boss. Ken is a supervisor Caretaker at the local school and Mary has worked in a coffee shop for eight years. The Hatches have savings of $20,000 and will be required to raise another $20,000 to become the equity owners of a Second Cup franchise in Saskatoon. Right now there is no other Second Cup franchise in Saskatoon, so the opportunity looks even more attractive for the Hatches. The Hatches will be 50 – 50 shareholders in this private corporation. The financial projections summarized above look very promising for the Hatches (Table 1.1 below).
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Table 1.1 Summary of Financial Results
Year 2008 2009 2010 2011 2012 2013Sales 527,850 594,570 669,724 754,377 849,730 957,136 Cost of Goods Sold 192,948 222,141 250,220 281,847 317,473 357,602 Gross Margin 334,902 372,429 419,504 472,530 532,257 599,535 Expenses 326,483 314,233 362,615 393,928 427,938 464,934
Income Before Taxes 8,420 58,196 56,889 78,601 104,319 134,601 Income Taxes 1,389 9,602 9,387 12,969 17,213 22,209 Net Income(Loss) 7,030 48,594 47,502 65,632 87,106 112,392
Net Present Value of Equity Investment 176,326Internal Rate of Return on Equity Investment at 20% 94.4%
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Second Cup Business Plan
2.0 Operations Plan
The Second Cup Franchise is a café style coffee shop that will serve a selection of hot and cold beverages
with a value added component of sandwiches and baking products. The manager and the full time staff
will monitor the day to day operations with a part time staff controlling the front end of the operation of
sales and service of coffee products. The objective for Second Cup in Saskatoon is to provide quality
coffee at reasonable prices. The atmosphere is also crucial along with the location of the café. The
chosen location is in the University Heights area of Saskatoon. This area is developing quite fast and
high sales volumes are expected, this is explained further in the marketing plan. Figure 2.1 is an aerial
photo of a 1 kilometre circumference of the actual site of building.
2.1 Location
Figure 2.1 Site Location
The basis for this location was the accelerated development of the area that includes new homes,
condominiums, two new high schools, and the major soccer centre. Figure 2.2 is a close-up aerial photo
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of the site of the new franchise. The site is easily accessible and there is plenty of room to accommodate
a minimal 1000 sq.ft building.
Figure 2.2 Aerial View of Location
2.2 Second Cup Plan
The option to have Second Cup construct the building is be highly beneficial to the plan. The franchiser’s
experience and expertise is crucial in this venture in the development of this new structure that will be
leased from Second Cup for a minimum 10 years.
2.3 Floor Plan
The floor plan, seen in Figure 2.3, will accommodate 10 tables and 40 chairs. The layout includes an
office, washroom, and small kitchen area for minimal food preparation and inventory storage. This is the
floor plan that was recommended to Second Cup, and actual blueprint drawings are not available at this
time for confidentiality reasons.
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Figure 2.3 Floor Plan
EXIT RESTROOMS
Dining
OFFICE
Service Counter
KITCHEN STORAGE
Entrance
3.4 Average Business Cycle
3.4.1 Average Business Day
The average business day is scheduled in such a way that it is user friendly, and that includes making sure
fresh hot and cold beverages are produced so that the customer will return for more “Second Cups”. The
diagram provides the activity schedule that will transpire from opening time (6:30 am) to closing (11:30
pm).
Figure 2.4 Daily Work Schedule
The above components are explained further below as follows:
Edwards School of Business, University of SaskatchewanDaniels, R., Das, S., McKay, J. Mupondwa, E. 2008
Opening of the store Administration and float Fresh goods on display
Make fresh coffee Two staff works counter on
4 part time shifts
Manager assist close Cash drop by Manager
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The manager will open the store along with the full time (f.t.) employee who is the partner.
The manager will attend to any administration duties including staff schedule, inventory, and
prepare the day’s cash float.
Fresh foods like subs or sandwiches and baked products will be put into the display unit for
the customers to view. Any other preparation of the food items will take place at this time to
ensure accessibility for staff throughout the day.
The f.t. employee will get the fresh coffee brewing and ready to open for 6:30 am.
The first p.t. employee starts their shift at 7:00 am, so until this time the manager and the f.t.
employee work the counter.
Throughout the day three more part time shifts will start with at least two employees at any
given time. See Table 3.1 for a break down of the shift schedule, including start and end
times. The schedule has been formatted to ensure safety and a smooth running operation.
At 8:00 pm the Manager returns assist with the closing the store front and deal with any
issues that may arisen during the day. Inventory is assessed and orders are place as soon as
possible the following day.
The cash drop occurs after closing at the Bank located next door.
To support these hours of operation time schedules was determined to show how this the shifts will be
formatted and could be adjusted for part time employees on a rotation for preferences of evenings or days
or even after school for employees attending school.
Table 2.1: Shift Schedule by Hours
Manager Full Time Staff Part Time Staff
Monday6am - 10am8pm - 10pm 6am - 1pm
7am- 3pm (1)2pm-9:30pm (2)
Tuesday6am - 10am8pm - 10pm 6am - 1pm
7am- 3pm (1)2pm-9:30pm (2)
Wednesday6am - 10am8pm - 10pm 6am - 1pm
7am- 3pm (1)2pm-9:30pm (2)
Thursday 2pm-10pm 6am - 1pm7am- 3pm (1)2pm-9:30pm (2)
Friday 2pm-10pm 6am - 1pm7am- 3pm (1)2pm-9:30pm (2)
Saturday6am - 10am6pm - 10pm 10am -2pm
7am- 3pm (1)2pm-9:30pm (2)
Sunday6am - 10am6pm - 10pm 10am - 2pm
7am- 3pm (1)2pm-9:30pm (2)
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Table 2.2: Total Hours of Work
Total Hours of WorkManager(Salary)
Full Time
Part time 1
Part time 2
Part time 3
Part time 4
Daily Total
Monday 8 7 7.5 7 14.5Tuesday 8 7 7.5 7 14.5Wednesday 8 7 7 7.5 14.5Thursday 4 7 7 7.5 14.5Friday 4 7 7 7.5 14.5Saturday 8 2.5 7.5 7 14.5Sunday 8 2.5 7.5 7 14.5TOTAL HOURS 48 40 30 21 28 22.5 101.5
Shift #'s ( ) (1) = 7am-3pm (2) = 2pm-9:30pm
Total Part Time Hours 101.5 HourlyTotal Full Time Hours 40 HourlyTotal Manager Hours 48 Salary
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Table 2.3 Capital Budget
Capital Budget 2008 2009 2010 2011 2012 2013Equipment:
Full Size Refrigerator
2,500
Mini Refrigerator
600
Freezer
3,500
2 Blenders
2,000
10 Table ($300 per), 40 Chairs ($60 per)
5,400 1140
Cups (36 tall: 36 short)
160 80 80 80 80 80
Plates (36: 6.5 inch)
35 18 18 18 18 18
Silverware
4
2 Coffee Maker (dbl)
6,000
Espresso Machine
10,000
Cappacino Machine
1,500
Frozen Drink Machine (dbl)
2,200
Coffee Grinder
1,100
Frothing Pitchers
130
Dishwasher
3,800
Cash Register (2)
5,000
Pastry Display Case
209
Refrigerated Deli Case
2,748
Office Equipment 3,098
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Total Capital Costs 49,984 98 98 1,238 98 98
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Table 2.4 Operating Expenses
Operating and Marketing Expenses 2008 2009 2010 2011 2012 2013 Advertising Royalty 52,785 59,457 66,972 75,438 84,973 95,714 Local Advertising 9,285 9,285 9,285 9,285 9,285 9,285 Rent ($30 @ 1000) 30,000 30,720 31,457 32,212 32,985 33,777 Insurance 5,000 5,120 5,243 5,369 5,498 5,629 Repairs & Maintenance 4,950 5,069 5,190 5,315 5,443 5,573 Telephone & Utilities 15,000 15,360 15,729 16,106 16,493 16,888 Compensation 127,728 128,730 160,951 174,190 187,971 202,313 General Supplies 52,785 59,457 66,972 75,438 84,973 95,714 Incorporation Fees 250 40 40 40 40 40 Franchise Fee 27,500 - - - - - Interest on Long Term Debt 1,200 995 775 536 278 0 Total Expenses 326,483 314,233 362,615 393,928 427,938 464,934
3.0 Human Resources
Ken and Mary Hatch are the equity owners of the company. Mary brings extensive experience of the
coffee industry, while Ken comes with supervisory experience. The staff mix of Second Cup will as
follows:
1. One Manager (Co-owner: Mary Hatch)
2. One Full Time Employee (Co-Owner: Ken Hatch)
3. Six Part Time employees.
With the exception of the Manager’s position, the positions are entry level jobs with a focus on customer
service experience and safe food handling certification. These positions will require some shift work, but
there is some flexibility to meet the needs of the individual. The initial expected volume does not require
a large number of employees, until further growth. The overall plan is to recruit happy, energetic
employees who are committed to providing great customer service.
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4.1 Organizational Strategy
Figure 4.1 Organizational Chart
4.2 Training
Part of the franchise agreement with Second Cup includes a 3 week training program for new owners at
the Second Cup coffee college. On the job training will be provided for employees to ensure Second Cup
commitment to service is maintained.
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5. Marketing Plan
5.1 Industry Overview and Current Markets
According to the Coffee Association of Canada, Canadians drink over 15 billion cups of coffee a year,
making coffee Canada's favourite hot beverage. The most recent estimates show that per capita
consumption of coffee increased from 4.27 kg (beans) in 1990 to 4.52 kg in 1999. The average coffee
drinker consumes three cups per day. Of all coffee consumed, 74% is roast and ground, 20% is instant,
and 6% is specialty. Decaffeinated coffee represents 9% of total coffee consumption. From 1990 to 1999,
per capita consumption of tea increased from 0.54 kg (tea leaves) to 0.86 kg. Presently, about 90% of
Canadians drink tea and consume about 7 billion cups per year. The tea and coffee industry represented
1.9% of the total value of food and beverage shipments, 1.1% of employment in the sector, and 1.1% of
the number of food and beverage plants in 1999. The combined sector accounted for 28% on a volume
basis of all non-alcoholic beverages sold at retail in 1998-99 (A.C. Nielsen).
In 1999, manufacturing shipments of tea and coffee combined totalled $1,110 million. The Canadian
market absorbed the remaining $832 million in domestic shipments and a volume of imports worth
$486 million. This industry continues to be a net importer. The specialty coffee sector accounts for 15%
of the retail coffee market. In the US for instance, the retail coffee market recorded a growth of 157% in
value between 2000 ($3,258 million) and 2005 ($8,372 million). This growth was driven by American
consumer demand up-market and premium-priced coffees. Over the 2005-2010 period, coffee sales are
expected to grow by a further 125% to reach $18,839 million in 2010.
Starbucks has a market share of over 40% of the specialty coffee market. The expected growth in this
category will offer the company opportunities for expanding its revenue base. Overall, the coffee segment
is growing very fast. Industry is already benefiting, in terms of increasing sales and higher prices, from
the product differentiation, improved quality and price premiums of specialty coffees. Coffee quality
rather than price, customer demand, or convenience of supply is considered to be the principal criterion
for industry purchasing decisions. According to the International Coffee Organization (ICO), most
potential specialty coffee markets are far from saturated. Specialty coffee sales continue to expand by 5%
to 10% per year. The North American specialty market therefore represents one of the largest and most
vibrant coffee markets in the world. Second Cup has an opportunity to benefit from this market.
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5.2 Competition
On a product basis, tea and coffee beverages compete with a variety of other beverages including
flavoured soft drinks, milk, fruit juices, bottled water, vegetable juices, soy beverages, hot chocolate, low
alcohol wine coolers, and ciders. Retail sales of tea made up about 3.9% of all non-alcoholic beverages in
1998 and 1999, while sales of coffee constituted 8.3% of all non-alcoholic beverages in 1998 and 7.7% in
1999. This decrease in the value of retail sales has been due to falling prices for traded coffee.
(Agriculture and Agri-Food Canada 1999)
At the segment level, there is intense competition in coffee beverage segment from other specialty coffee
shops, restaurants, and doughnut shops. Whole bean coffees sold through coffee shops compete directly
with specialty coffees sold through supermarkets, specialty retailers, and a growing number of boutique
specialty coffee stores. In addition, regional specialty coffee companies also sell whole bean coffees in
supermarkets. Increasing competition has adverse effects a company’s revenue.
5.2.1 Direct Competitors
Second Cup faces direct competition from Starbucks and Tim Horton’s, which are the established
national coffee houses. It also faces direct competition from other locally-owned and operated coffee
shops such as The Broadway Roastery, The Co-op and local restaurants. Other forms of direct
competition include McDonald’s and other fast food chains such as Dairy Queen, Burger King, and
Subway. Convenience stores such as 7-Eleven also provide direct competition.
5.2.2 Indirect Competition
Supermarkets such as Safeway that purchase whole bean coffees directly from suppliers offer indirect
competition by enabling consumers access to specialty coffee for home consumption. Second Cup will
differentiate itself by leveraging its brand identity to provide a high quality product backed by high
quality service. It is the intention of the Second Cup franchise owners will also contributor to local
community activities, especially the Soccer Association, schools, and other charities.
5.3 Customers and Target Markets
Second Cup will be located at the new University Heights Shopping complex called The Village Square.
This area is also home to one of Saskatoon’s fastest growing parts of the city, with an estimated
population of 30,000 and expected to more than double to 62,000 by 2015. These areas include Erindale,
Silverspring, Arbor Creek, and the new Willowgrove estate.
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Willowgrove is an exciting new neighbourhood. Homeownership is approximately 93.5%, and the
average value of dwelling is $218,357, with an average family income of $81,774. Average household
size is 3.2. Second Cup will locate in The Village Square, which is considered to be the heart of the
community, providing residents a central location with a relaxing ambience where they can meet
informally or hold community events. The Village Square includes a strip mall with street-front coffee
shops, boutiques, and other retail and community services. It has two elementary schools (Forest Grove
School and St. Volodymyr School) and two high schools (St. Joseph High School and Centennial
Collegiate), with an additional high school recently announced.
This location is adjacent to the world class new SaskTel Indoor and Outdoor Artificial Turf Soccer
Centre. The SaskTel Soccer Centre is a great magnet for ancillary business development in this area. The
Centre is attached to the Centennial Collegiate and the city operates a walking track on the perimeter of
the indoor turf field, with a future civic facility planned in 5 to 10 years. The Centre was built as a
partnership with the Saskatoon Public School Board and the City of Saskatoon, making it one of a kind in
Saskatoon and in Canada. Since 1998, the SaskTel Soccer Centre has been home to more almost 10,000
soccer players. Provincially, Saskatchewan Soccer Association enjoys approximately 30,000 members
including players, coaches, referees, managers, administrators, clubs, leagues, and districts. There are
approximately 178 adult teams in the indoor season alone, or over 4,200 adult games. There
approximately 200 youth teams with over 8,000 youth games. There are 7,000 registered players in
Saskatoon.
Second Cup is quite confident that it has identified a location that provides an important prerequisite for
success when it comes to the food service business. This location has great visibility, high traffic pattern,
convenient access, established retail shops in the area, enabling Second Cup to consolidate its already
well-known brand supported by its well-known line of fresh African, Colombian, and Brazilian coffee
beans and other beverages served in cleanest equipment, premium serving containers, and consistent
flavours.
Second Cup will implement a low cost but effective advertising and promotion campaign and forge strong
relationships with the Saskatoon Soccer Association, schools, charitable organizations, civic
organizations, and corporations by offering programs that support Saskatoon communities. This
relationship will provide significant free publicity for Second Cup.
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5.4 Product and Service Features
Second Cup’s franchise products are well established. Its product line has also grown from simple whole
bean coffee to more than 30 premium coffees, specialty beverages, complementary foods and
merchandise items. Our proposed location in The Village Square location will provide our patrons with
114 main beverage lines and a line of deserts and prepared deli sandwiches (Appendix 3.1). The lines
include:
Line 1: Specialty Coffee & Lattes
Line 2: Flavoured Lattes
Line 3: Specialty Tea
Line 4: Hot Chocolate
Line 5: Hot Milk Steamers
Line 6: Cider
Line 7: Soda
Line 8: Blended Sensations
Line 9: Creamy Fruit Smoothies
Line 10: Coffee Chillers
Line 11: Chocolate Chillers
Line 12: Tea Chillers
Line 13: Chocolate Vanilla Chillers
Line 14: Athletic Power Smoothies
Line 15: Specialty dry cake, desserts muffins, pastries, sandwiches
5.4.1 Product Quality
Second Cup prides itself for product quality based on the authentic sources of its coffee beans. It will
offer highly differentiated coffee blends sourced from prime coffee growing regions. African blends
include Ethiopian Limu Roast and Rwandan Cup of Hope Roast. Both blends reflect the exotic nature of
Africa in the taste and variety of its coffees, with tastes ranging from fruity citrus to delicate chocolate.
Ethiopia is considered the birthplace of coffee, with its highly respected Limu coffee bean, carefully
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picked and processed to preserve its sweet and smooth flavour. Additional diversity in the product line
comes from Asian blends such as Sumatra Mandheling, a truly exotic coffee prized for its unique and
well-concentrated sweet flavour. Finally, Second Cup provides a product line based on Latin American
blends La Minita Tarrazu from Costa Rica. This is a premium, hand-picked, and estate-grown coffee. La
Minita Tarrazu is exclusive to Second Cup in Canada. La Minita Tarrazu is one of the most carefully
processed and highly sought-after coffees in the world.
Second Cup’s other prized blends come from Panama (El Toucan), Brazil (Fazenda Vista Alegre),
Colombia (San Agustin and Colombia Supremo; Continental Dark, Colombian Supremo Swiss Water
Decaf). The Decaf blends are gently decaffeinated using a 100% chemical-free method of decaffeination
without removing the coffee flavour. Second Cup’s multi-region blends are intended to integrate flavours
from the four regions. The blends include Espresso Forte used to make all of our Specialty Lattes and
Cappuccinos; Espresso Forte Swiss Water Decaf used for all of our Decaffeinated Specialty Lattes and
Cappuccinos; Caffé Venice blending different coffee beans from Latin America and Africa to create a
sweet coffee with a rich aroma; Paradiso, which is Second Cup’s signature blend of unique coffees from
around the world and one of the company’s most popular blends. Second Cup will also offer flavoured
coffee, including:
Butter Pecan: Smooth, medium-bodied, sweet scent
Caramelo: Rich, inviting aroma with a subtle caramel flavour
French Vanilla: Aromatic, clean after-notes, medium body
Hazelnut Crème: Full-bodied, enticing aroma, nutty taste
Hazelnut Crème Swiss Water Decaffeinated: Full-bodied, enticing aroma, nutty taste
Irish Cream: Clean, aromatic and refreshing
Spiced Eggnog: Rich and creamy with a hint of nutmeg
Second Cup’s commitment to product quality comes from understanding the importance of four key
attributes that make a particular coffee or blend unique. These are aroma, acidity, flavour, and body.
Aroma is maintained to evoke an expectation on the part of the customer without being artificial or
overwhelming. Acidity is used to ensure that coffee does not taste flat and lifeless. Flavour refers to
how a drinker’s tongue will interpret the aromatic attributes of the coffee. Second Cup maintains body to
ensure volume and texture as opposed to competitors who offer light-bodied coffees that are watery.
Indeed, the company has a quality competitive advantage over some coffee retailers who disguise the
taste of low grade coffee with flavoured sugar syrup, resulting in an inconsistent cup as the amount of
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syrup added varies. Second Cup uses only high-quality coffee beans and has the distinct ability blend a
customer’s coffee beverage according to a customer’s exact specifications. Our employees will be well-
trained in coffee brewing, blending, and serving.
Apart from its high-quality aromatic coffees, Second Cup will also offer specialty teas, chilled coffee
beverages, power sports drinks, deserts and deli sandwiches, and seasonal specialty drinks. Premium
Second Cup merchandize will be offered at the store and via the web site. These include coffee mugs,
soccer balls, caps, T-shirts, bunny hugs, sweatshirts.
5.5 Pricing Strategy
Second Cup prices will be competitive and comparable to major competitors such as Starbucks and Tim
Hortons. However, the highly differentiated nature of its product based on product origin and target,
location advantage, and image will provide distinctive value-added benefits to Second Cup customers.
The pricing structure is provided in the appendix. Summary prices per cup are as follows: coffee at
$1.50, other specialty beverages at $3.50, food items at $2.50, and cooler beverages at $2.00. Credit terms
will be offered only in the form of valid credit card purchases such as Visa or MasterCard. This policy
makes it easy for patrons who prefer to use credit cards as a means of keeping track of expenditures, say
as a business expense.
5.6 Promotion Strategy
Second Cup will implement a low cost but effective advertising and promotion campaign and forge strong
relationships with the Saskatoon Soccer Association, schools, charitable organizations, civic
organizations, and corporations by offering programs that support Saskatoon communities. This
relationship will provide significant free publicity for Second Cup. In addition to this effort, Second Cup
will advertise in the local newspapers as well as use via direct mail ads which will include discount
coupons. A "frequent drinkers club" discount will be offered to regular customers. Second Cup
merchandize will be offered at the store and via the web site. These include coffee mugs, soccer balls,
caps, T-shirts, bunny hugs, sweatshirts. This will be an indirect way to promote the company. We will
allocate $1,000 per month for the next year towards advertising in local papers. An additional $1,000 per
month will be spent on radio and TV advertising. We will institute and sponsor a new annual City and
Provincial soccer tournament called Second Cup Soccer Tournament. We will also run an annual Second
Cup school fundraising program. These events will generate significant publicity without the need for
incremental spending on professional public relations services. The total marketing expense is $10,999.
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5.7 Distribution
Second Cup will have a lot of traffic owing to its prime location as described above. Well trained food
servers will distribute the product in the coffee shop. All the coffee blends will be mixed on site. Pastries
and cakes will be served fresh. Second Cup does not have a kitchen. However, its pastries, cakes, and
sandwiches will be supplied fresh by a highly reputed local food catering service. Supplies will be
coordinated to ensure that peak-hour demand is met. Our well trained servers will always greet patrons
and proceed to take the order. It is the duty of the server to ensure that every patron receives first-class
service.
5.8 Sales Objectives
Second Cup has set a 10% annual sales growth objective.
5.8.1 Sales Projections
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5.8.1 Marketing Expenses
Marketing Expenses Advertising Royalty 52,785 59,457 66,972 75,438 84,973 95,714 Local Advertising 9,285 9,285 9,285 9,285 9,285 9,285 Total Expenses 62,070 68,742 76,257 84,723 94,258 104,999
5.9 SWOT Analysis
We present an analysis of Second Cup’s strengths, weaknesses, opportunities, and threats (SWOT),
looking both at internal factors (strengths and weaknesses) and external factors (opportunities and
threats).
5.9.1 Strengths (Internal Factors)
Strong brand identity
Canadian leader, with more than 400 coffee houses, 43 of them in Quebec
Robust financial performance
Large scale of operations
Agreements with Air Canada, Via Rail and Delta Hotels, under which it serves over 26 million
cups of coffee a year
5.9.2 Weaknesses (Internal Factors)
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Second Cup prefers franchises or owner-operators who pay royalties on sales. Owner-operators
may have difficulty raising required start-up equity financing, unlike Starbucks which usually
prefers to set up company-owned outlets, sometimes in partnership.
Second Cup has signed a long-term agreement with a coffee multi-national for supply of coffee
beans. Competitors like Van Houtte and Starbucks have their own roasting plants.
Narrow product mix. Any reduction in consumer consumption of coffee for any reason would
have a negative impact company’s performance. High dependence upon a single product
represents a commercial risk.
5.9.3 Opportunities (External Factors)
New markets
Growing specialty coffee market
Growing demographic segment in new location
Prime location close to highly visible and active residential area
New health benefits of coffee
Organic coffee segment
Speciality teas expected to attain strong sales growth. Currently, specialty teas account for only a
small share of consumer purchases.
5.9.4 Threats (External Factors)
Intense competition from established players like Starbucks which has over 13,000 locations in
39 countries and a total of more than 44 million customer visits per week; revenues of $7,787
million in 2006 against its competitors like Diedrich Coffee ($59.5 million) and GMCR ($225.3
million) during the same period. Large economies of scale provide a cost advantage to Starbucks
in the marketplace and pose a threat to Second Cup.
Highly volatile coffee commodity prices
Coffee industry faces social and environmental concerns associated with coffee supplies,
including child labour in developing countries and exploitative prices paid to developing country
coffee producers. Corporate image can be eroded.
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Emergence of low cost of brewers such as coffee presses (Bodum), mocha coffee-makers and
filter coffee systems (Melitta) will likely influence the purchase of whole beans and speciality
coffees by prime target market of the 18 – 50 year age group.
Rivalry reaction from multinational coffee companies (e.g. Kraft and Nestlé) who aware of
current market trends and have implemented a strategy to reposition themselves more
aggressively in the gourmet coffee market. The sale of coffee beans in grocery stores from major-
league players like Kraft, Proctor & Gamble (Folgers) and Nestlé.
Kraft and Starbucks announced the formation of a long-term partnership to sell Starbucks brand
coffee beans and ground coffee in stores throughout the U.S. and possibly internationally.
Strong competition and market leadership in the tea segment by the multinationals such as
Unilever and Nestlé that dominate the market. (Unilever and Nestlé).
6. Financial Plan
This section reports detailed financial projections for the next 6 years.
6.1 Sales Revenue and Net Income:
All products and services are furnished in four categories: coffee, specialty beverages, food, and cooler
beverages (Table 6.1).
Table 6.1 Sales Revenue
Sales Revenue 2008 2009 2010 2011 2012 2013 Coffee 114,750 129,254 145,592 163,995 184,724 208,073 Other Hot beverages 160,650 180,956 203,829 229,593 258,614 291,302 Food 191,250 215,424 242,654 273,325 307,873 346,788 Cooler Beverages 61,200 68,936 77,649 87,464 98,519 110,972 Total 527,850 594,570 669,724 754,377 849,730 957,136
Total revenue for 2008 is projected to reach $527,850. It is also projected to double in 2013. The gross
margin from the total revenue is estimated to be 63% in 2008 meaning that 37% is accounted for cost of
goods sold in this year.
As expected, net income after tax is very low, at $7,030 in the first year of operations. However it will
grow to more than $112,392 by 2013. However, this increase will result from reduced expenses and
increased sales in the second year.
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6.2 Total Operating Expenses
Total operating expenses are estimated to be approximately $326,483 in 2008 followed by a decline in
2009 to a just over $314,233 given that expected cash on hand will be greater than $25,000 dividends will
be paid.
6.3 Working Capital Estimates
As far as inventories are concerned, the store will carry a 7-day inventory of all the products. All sales
are on cash basis. Therefore, there are no account receivables. Accounts payable are also paid within 7-
days.
The store’s net working capital for year 2009 is as follows:
Cash + inventories + accounts receivable – accounts payable
= $7,030 + $4,522 + 0 – $4,522
=$7,030 this amount is not enough to run the store for one year. Therefore, an Operating Line of Credit is
required.
6.4 Cost of Capital
As shown in the Operations Plan Section 2.5 Capital budget, the total capital cost in 2008 is a major
expenditure ($49,984) on equipment and related items in the year of establishment subsequent years have
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little additional capital spending. As shown in Schedule 9 of the Financial Plan in the average capital cost
allowance (C.C.A.) or depreciation is 20% on all equipment. The items will be depreciated to two-thirds
of their original prices in five years.
6.5 Debt Amortization Schedules
Long term debt will be paid at a fixed amount every year for next five years at a interest rate of 8.00%,
resulting in paying-off all the debts by 2012.
6.6 Risk analysis
The risk analysis provides a list of critical success variables which determine the success of the shop in
both short and long run. The critical variables are: units of sales, selling prices, supply and/or cost of
direct material inputs. As shown in Table 6.3, units of sales and selling prices of the products are the most
critical success factors, while the cost of direct materials is important for financial performance.
Table 6.3 Risk Variables and Level of Importance
Variables Level of Importance
Units of sales 1Selling price 1Cost of direct materials 2
Where, 1 = most critical for success2 = important for success but not critical
Both units of sales and selling price will determine if the shop will be financially viable in the long run. In
addition, several intangible factors such as quality and the environment are also equally important for
success as the shop will compete with other competing shops such as Starbucks and Tim Hortons.
6.7 Financing Budget
Two –thirds, or $40,000, of the financial commitment will come from an equity investment from the
owners Ken and Mary Hatch. An additional $15,000 will be obtained from a bank loan at 8% over 5
years.
Table 6.4 Financing Structure
Long Term Debt $ 15,000
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Owner’s Equity $ 30,000
Total Financing $ 45,000
6.8 Dividend Policy
Dividends will be paid to equity investors when cash on hand exceeds $25,000. This will ensure within
the first couple years, that there is an adequate supply of cash to keep up the operations or cover any
unexpected events. No dividend will be paid in the first year of operations. Dividend projections are
presented in Table 6.5.
Table 6.5 Dividend Projections
2008 -2009 -2010 $ 20,1582011 $ 33,0592012 $ 47,6162013 $ 67,448
6.9 Ratio Analysis
In the first year of operations, the current ratio for Second Cup is 4 (Table 6.6). This ratio indicates that
the business is able to meet its current liabilities 4 times over. In addition, keeping within industry levels,
compensation or wages as a portion of sales is at 24%. The ROI after taxes is 13%, the equity owners
earn $0.13 for every $1 invested.
Table 6.6 Ratio AnalysisLiquidity RatiosCurrent Ratio 4Operating ExpensesCompensation/Sales 24%Marketing/Sales 12%Operating/Sales 27%Total Expenses/Sales 62%Profitability RatiosReturn on Equity 13%Return on Equity * 15%* Using net income before tax
6.10 Financial and Investment Analysis
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Second Cup’s financial analysis is positive (Table 6.7). The NPV shows a value of $176,326 in future
cash flows, these are very positive returns given an initial investment of $40,000. The expected return on
this investment is 94.4%.
Table 6.7 Summary of Financial Results
Year 2008 2009 2010 2011 2012 2013Sales 527,850 594,570 669,724 754,377 849,730 957,136 Cost of Goods Sold 192,948 222,141 250,220 281,847 317,473 357,602 Gross Margin 334,902 372,429 419,504 472,530 532,257 599,535 Expenses 326,483 314,233 362,615 393,928 427,938 464,934
Income Before Taxes 8,420 58,196 56,889 78,601 104,319 134,601 Income Taxes 1,389 9,602 9,387 12,969 17,213 22,209 Net Income(Loss) 7,030 48,594 47,502 65,632 87,106 112,392
Net Present Value of Equity Investment 176,326Internal Rate of Return on Equity Investment at 20% 94.4%
6.11 Risk Analysis
Second Cup’s initial year will be running near the break-even point. Break-even is 391 customers. If the
sales forecasts are achieved then the first year net income is minimal at $4310. However, in this year
99% of all capital costs are incurred, as a result second year will realize a more substantial gain in next
income.
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Apply a portion of the cash on hand to the long term debt, this will increase net income.
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7. Conclusion
This business plan has presented an operating and marketing strategy backed by a sound financial
analysis that demonstrates the viability of establishing a successful Second Cup franchise in Saskatoon. .
Key financial projections show that total revenue for 2008 is projected to reach $527,850. This is
expected to double by 2013. The gross margin from total revenue is estimated at 63%, this margin is
expected to be remain consistent year over year. Net income, after taxes, in the first year of operations is
expected to be $7,030 however by 2013 this will grow to $112,392. Additional ratio analysis shows that
the business is able to meet its current liabilities 4 times over within the first year. The ROI after taxes is
13%, for every $1 invested there is an earning of $0.13. The Net Present Value is $176,326. The
expected internal rate of return on this investment is 94.4%. These are very positive returns given an
initial equity investment of $40,000. These results are projected against sound market research and
SWOT analysis that recognizes both internal and external factors that Second Cup needs to be aware of in
order to achieve a sustainable competitive advantage.
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APPENDIX 1 FINANCIALS
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APPENDIX 1 FINANCIALS
Second Cup
Financial Projections 2008 - 2013
Statement of Income and Retained Earnings
For the year ended December 2008 2008 2009 2010 2011 2012 2013
Sales Revenue:
Coffee 114,750
129,254
145,592
163,995
184,724 208,073
Other Specialty Beverages 160,650
180,956
203,829
229,593
258,614 291,302
Food 191,250
215,424
242,654
273,325
307,873 346,788
Cooler Beverages 61,200
68,936
77,649
87,464
98,519 110,972
Total 527,850
594,570
669,724
754,377
849,730 957,136
Cost of Goods Sold
192,948
222,141
250,220
281,847
317,473 357,602
Gross Margin
334,902
372,429
419,504
472,530
532,257 599,535
Gross Profit Margin 63% 63% 63% 63% 63% 63%
Operating and Marketing Expenses
Advertising Royalty 52,785
59,457
66,972
75,438
84,973 95,714
Local Advertising 9,285
9,285
9,285
9,285
9,285 9,285
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Rent ($30 @ 1000) 30,000
30,720
31,457
32,212
32,985 33,777
Insurance 5,000
5,120
5,243
5,369
5,498 5,629
Repairs & Maintenance 4,950
5,069
5,190
5,315
5,443 5,573
Telephone & Utilities 15,000
15,360
15,729
16,106
16,493 16,888
Compensation 127,728
128,730
160,951
174,190
187,971 202,313
General Supplies 52,785
59,457
66,972
75,438
84,973 95,714
Incorporation Fees 250 40 40 40 40 40
Franchise Fee 27,500 - - - - -
Interest on Long Term Debt 1,200
995
775
536
278 0
Total Expenses 326,483
314,233
362,615
393,928
427,938 464,934
Income Before Taxes 8,420
58,196
56,889
78,601
104,319 134,601
Income Taxes 1,389
9,602
9,387
12,969
17,213 22,209
Net Income(Loss) 7,030
48,594
47,502
65,632
87,106 112,392
Beg Retained Earnings - 7,030
55,624
60,886
78,279 100,653
Net Income(Loss) 7,030
48,594
47,502
65,632
87,106 112,392
Dividends - - 86,742
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42,240 48,239 64,732
End Retained Earnings 7,030
55,624
60,886
78,279
100,653 126,303
Dividend Policy - - 42,240
48,239
64,732 86,742
Balance Sheet
For the year ended December 2008 2008 2009 2010 2011 2012 2013
Assets
Current Assets:
Cash 15,727
67,240
73,239
89,732
111,742 136,438
Total Inventories 4,805
5,412
6,096
6,867
7,735 8,712
Total Current Assets 20,532
72,653
79,335
96,599
119,477 145,151
Capital Assets:
Equipment 49,984
50,082
50,179
51,417
51,514 51,612
Accumulated C.C.A. (6,238)
(12,016)
(15,832)
(19,391)
(22,603)
(25,504)
Equipment 43,746
38,065
34,347
32,026
28,911 26,108
Total Assets 64,278
110,718
113,682
128,625
148,388 171,258
Liabilities
Current Liabilities:
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Accounts Payable 4,805
5,412
6,096
6,867
7,735 8,712
Noncurrent Liabilities
Long Term Debt 12,443
9,682
6,699
3,479 0
(3,757)
Total Liabilities 17,248
15,094
12,796
10,345
7,735 4,956
Shareholders' Equity
Owner's Equity 40,000
40,000
40,000
40,000
40,000 40,000
Retained Earnings 7,030
55,624
60,886
78,279
100,653 126,303
Total Shareholder's Equity 47,030
95,624
100,886
118,279
140,653 166,303
Total Liabilities and 64,278
110,718
113,682
128,625
148,388 171,258
Shareholder's Equity
Statement of Cash Flow
For the year ended December 2008 2008 2009 2010 2011 2012 2013
Cash from (used in) Operating Activities:
Net Income(Loss) 7,030
48,594
47,502
65,632
87,106 112,392
Depreciation 6,238
5,778
3,816
3,558
3,212 2,901
Inventory (4,805)
(607)
(684)
(771)
(868)
(978)
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Accounts Payable 4,805
607
684
771
868 978
Net Cash Flow from Operations 13,268
54,372
51,319
69,190
90,319 115,293
Cash from (used for) Financing Activities:
Owner's Equity 40,000 - - - - -
Long Term Debt 12,443
(2,761)
(2,982)
(3,221)
(3,479)
(3,757)
Dividends - - (42,240)
(48,239)
(64,732)
(86,742)
Net Cash Flow from Financing 52,443
(2,761)
(45,223)
(51,460)
(68,211)
(90,499)
Cash from (used for) Investing Activities:
Equipment (49,984)
(98)
(98)
(1,238)
(98)
(98)
Net Cash Flow from Investing (49,984)
(98)
(98)
(1,238)
(98)
(98)
Increase(decrease) in Cash 15,727
51,513
5,999
16,493
22,010 24,696
Cash beginning of year 0 15,727
67,240
73,239
89,732 111,742
Cash end of year 15,727
67,240
73,239
89,732
111,742 136,438
Supporting Schedules
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Schedule 1: Economic Forecast
2008 2009 2010 2011 2012 2013
Long Term Debt Rate input 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%
Rate of Inflation input 2.40% 2.40% 2.40% 2.40% 2.40% 2.40%
Schedule 2: Revenues
2008 2009 2010 2011 2012 2013
Growth in Selling Prices
Coffee input 2.40% 2.40% 2.40% 2.40% 2.40% 2.40%
Other Specialty Beverages input 2.40% 2.40% 2.40% 2.40% 2.40% 2.40%
Food input 2.40% 2.40% 2.40% 2.40% 2.40% 2.40%
Cooler Beverages input 2.40% 2.40% 2.40% 2.40% 2.40% 2.40%
Quantity of Sales input 425 468
514
566
622 684
Coffee 0.5 76,500
84,150
92,565
101,822
112,004 123,204
Other Speciality Beverages 0.3 45,900
50,490
55,539
61,093
67,202 73,922
Food 0.5 76,500
84,150
92,565
101,822
112,004 123,204
Cooler Beverages 0.2 30,600
33,660
37,026
40,729
44,801 49,282
2008 2009 2010 2011 2012 2013
Selling Prices (per unit)
Coffee input 1.50
1.54
1.57
1.61
1.65 1.69
Other Hot beverages input 3.50
3.58
3.67
3.76
3.85 3.94
Food input 2.50
2.56
2.62
2.68
2.75 2.81
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Cooler Beverages input 2.00
2.05
2.10
2.15
2.20 2.25
Sales Revenue
Coffee 114,750
129,254
145,592
163,995
184,724 208,073
Other Hot beverages 160,650
180,956
203,829
229,593
258,614 291,302
Food 191,250
215,424
242,654
273,325
307,873 346,788
Cooler Beverages 61,200
68,936
77,649
87,464
98,519 110,972
Total 527,850
594,570
669,724
754,377
849,730 957,136
Schedule 3: Cost of Goods Sold
2008 2009 2010 2011 2012 2013
Direct Material Purchases
Coffee input 25% 25% 25% 25% 25% 25%
Other Specialty Beverages input 25% 25% 25% 25% 25% 25%
Food input 45% 45% 45% 45% 45% 45%
Cooler Beverages input 70% 70% 70% 70% 70% 70%
Schedule 4: Cost of Goods Sold
2008 2009 2010 2011 2012 2013
Beginning Inventory 0 4,805
5,412
6,096
6,867 7,735
Purchases 197,753
222,748
250,904
282,618
318,341 358,579
Ending Inventory 4,805
5,412
6,096
6,867
7,735 8,712
Cost of Goods Sold 357,602
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192,948 222,141 250,220 281,847 317,473
Schedule 5: Compensation, Operating and Marketing Expenses
2008 2009 2010 2011 2012 2013
Compensation Expenses
Staffing
Manager input 1 1 1 1 1 1
Full time employee input 1 1 2 2 2 2
Part time employee input 4 5 6 7 8 9
Total staff 6 7 9 10 11 12
Total Annual Salary
Manager Salary input 55,000
56,320
57,672
59,056
60,473 61,924
Total Manager Salary 55,000
56,320
57,672
59,056
60,473 61,924
Hourly Workers
Full Time Employee Wage input 9.00
9.22
9.44
9.66
9.90 10.13
Hours per Employee input 1950 1950 3900 3900 3900 3900
Total Full Employee 17,550
17,971
36,805
37,688
38,593 39,519
Part Time Employee Wage input 8.25
8.45
8.65
8.86
9.07 9.29
Hours per Employee input 5100 4875 5850 6825 7800 8775
Total Part Time 42,075
41,184
50,607
60,458
70,754 81,508
Total Hourly Workers 121,027
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59,625 59,155 87,412 98,147 109,346
Benefits for Wage-Earning Employees
EI 2.42% 2,776
2,797
3,514
3,807
4,113 4,431
CPP 4.95% 5,674
5,716
7,182
7,782
8,406 9,056
Holiday Pay 6% 3,300
3,379
3,460
3,543
3,628 3,715
Workers Compensation 1.18% 1,353
1,363
1,712
1,855
2,004 2,159
Total Benefits 13,103
13,255
15,868
16,987
18,151 19,361
Total Compensation 127,728
128,730
160,951
174,190
187,971 202,313
Marketing Expenses 2008 2009 2010 2011 2012 2013
Advertising Royalty 10% 52,785
59,457
66,972
75,438
84,973 95,714
Local Marketing input 9,285
9,285
9,285
9,285
9,285 9,285
Total Marketing Expense 62,070
68,742
76,257
84,723
94,258 104,999
Operating Expense
General Supplies 10% 52,785
59,457
66,972
75,438
84,973 95,714
Insurance 5,000
5,120
5,243
5,369
5,498 5,629
Rent ($30 @ 1000) 30,000
30,720
31,457
32,212
32,985 33,777
Maintenance & Repairs 17% 5,573
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4,950 5,069 5,190 5,315 5,443
Telephone & Utilities 50% 15,000
15,360
15,729
16,106
16,493 16,888
Incorporation Initial & Annual Fees 250 40 40 40 40 40
Start-up Franchise Fee 27,500 - - - - -
Total Operating Expenses 135,485
115,766
124,632
134,480
145,431 157,622
Summary of Compensation, Operating and Marketing Expenses
Compensation Expenses 127,728
128,730
160,951
174,190
187,971 202,313
Marketing Expenses 62,070
68,742
76,257
84,723
94,258 104,999
Operating Expenses 135,485
115,766
124,632
134,480
145,431 157,622
Interest on Long term Debt 1,200
995
775
536
278 0
Total Expenses 326,483
314,233
362,615
393,928
427,938 464,934
Schedule 6: Capital Budget
2008 2009 2010 2011 2012 2013
Equipment:
Full Size Refrigerator input
2,500
Mini Refrigerator input
600
Freezer input
3,500
2 input
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Second Cup Business Plan
Blenders 2,000
10 Table ($300 per), 40 Chairs ($60 per) input
5,400 1140
Cups (36 tall: 36 short) input
160 80 80 80 80 80
Plates (36: 6.5 inch) input 35 18 18 18 18 18
Silverware input 4
2 Coffee Maker (dbl) input
6,000
Espresso Machine input
10,000
Cappacino Machine input
1,500
Frozen Drink Machine (dbl) input
2,200
Coffee Grinder input
1,100
Frothing Pitchers input
130
Dishwasher input
3,800
Cash Register (2) input
5,000
Pastry Display Case input
209
Refrigerated Display Case input
2,748
Office Equipment input 3,098
Total Capital Costs 49,984 98 98
1,238 98 98
Edwards School of Business, University of SaskatchewanDaniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
Working Capital 2008 2009 2010 2011 2012 2013
Inventory 4,805
5,412
6,096
6,867
7,735 8,712
Accounts Payable 4,805
5,412
6,096
6,867
7,735 8,712
Total Working Capital 9,610
10,824
12,193
13,734
15,470 17,425
Average Days Inventory
Inventory input 7 7 7 7 7 7
Average Days Payables input 7 7 7 7 7 7
Schedule 7: Financing Budget
2008 2009 2010 2011 2012 2013
Long Term Debt input 15,000 0 0 0 0 0
Owner's Equity input 40,000 0 0 0 0 0
Total 55,000 - - - - -
Schedule 8: Long Term Debt
2008 2009 2010 2011 2012 2013
Interest Rate 8.00%
Payment Period (Years) 5
Beginning Balance - 12,443
9,682
6,699
3,479 0
Addition 15,000 - - - - -
Interest 1,200
995
775
536
278 0
Edwards School of Business, University of SaskatchewanDaniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
Debt Payment 3,757
3,757
3,757
3,757
3,757 3,757
Ending Balance 12,443
9,682
6,699
3,479 0
(3,757)
Schedule 9: Capital Cost Allowance
2008 2009 2010 2011 2012 2013
Equipment Input Rate 20%
Beginning Balance - 42,197
38,065
34,347
32,026 28,911
Additions 46,886 98 98
1,238 98 98
Capital Cost Allowance 4,689
4,229
3,816
3,558
3,212 2,901
Ending Balance 42,197
38,065
34,347
32,026
28,911 26,108
Office Equipment Input Rate 100%
Beginning Balance - 1,549 - - - -
Additions 3,098 - - - - -
Capital Cost Allowance 1,549
1,549
-
-
-
-
Ending Balance 1,549 - - - - -
Total CCA Expense 6,238
5,778
3,816
3,558
3,212 2,901
Schedule 10: Income Tax
2008 2009 2010 2011 2012 2013
Edwards School of Business, University of SaskatchewanDaniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
Income Before Taxes 8,420
58,196
56,889
78,601
104,319 134,601
Accumulated Loss Carryforward - - - - - -
Loss Carryforward Used - - - - - -
Taxable Income 8,420
58,196
56,889
78,601
104,319 134,601
Federal Tax @ 28%, 21% 2,357
16,295
15,929
22,008
29,209 37,688
Small Bus Tax Credit @ 16% (1,347)
(9,311)
(9,102)
(12,576)
(16,691)
(21,536)
Provincial Tax @ 5%, 10% 379
2,619
2,560
3,537
4,694 6,057
Total Taxes 1,389
9,602
9,387
12,969
17,213 22,209
Schedule 11: Ratio Analysis
2008 2009 2010 2011 2012 2013
Cash Conversion Cycle 0 0 0 0 0 0
Liquidity Ratios
Current Ratio 4 13 13 14 15 17
Activity and Operating Ratios
Total Asset Turnover 8 5 6 6 6 6
Inventory Turnover 38 39 39 39 39 82
Average Days Inventory 10 9 9 9 9 4
Operating Expenses
Compensation/Sales 24% 22% 24% 23% 22% 21%
Marketing/Sales 12% 12% 11% 11% 11% 11%
Operating/Sales 26% 19% 19% 18% 17% 16%
Edwards School of Business, University of SaskatchewanDaniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
Total Expenses/Sales 62% 53% 54% 52% 50% 49%
Leverage Ratios
Debt Ratio 84% 21% 16% 11% 6% 3%
Debt to Equity 37% 16% 13% 9% 5% 3%
Profitability Ratios
Gross Profit Margin 63% 63% 63% 63% 63% 63%
Net Profit Margin 1% 8% 7% 9% 10% 12%
Return on Total Assets 11% 44% 42% 51% 59% 66%
Return on Equity 15% 51% 47% 55% 62% 68%
Net Profit Margin * 2% 10% 8% 10% 12% 14%
Return on Total Assets * 13% 53% 50% 61% 70% 79%
Return on Equity * 18% 61% 56% 66% 74% 81%
* Using net income before tax
Schedule 12: Investment Analysis
2008 2009 2010 2011 2012 2013
Required Return on Equity input 20%
Present Value of Equity Investment
Equity Investment 40,000 - - - - -
Present Value of Equity Investment 40,000 - - - - -
Present Value of Equity Returns
Net Cash Flows to Equity 15,727
51,513
5,999
16,493
22,010 24,696
Dividends - - 42,240
48,239
64,732 86,742
Salvage Value 0 0 0 0 0 107,894
Edwards School of Business, University of SaskatchewanDaniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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Second Cup Business Plan
Total Net Cash Flow to Equity 15,727
51,513
48,239
64,732
86,742 219,333
Present Value of Net Cash Flows 216,326
Total Cash Flows to Equity (40,000)
15,727
51,513
48,239
64,732
86,742 219,333
Net Present Value of Equity Investment 176,326
Internal Rate of Return on Equity Investment 94.4%
External Rate of Return on Equity Investment
2008 2009 2010 2011 2012 2013
Equity Investment (40,000)
Dividends - - 42,240
48,239
64,732 86,742
Salvage Value - - - - - 107,894
Total to Equity Investor (40,000) - -
42,240
48,239
64,732 194,637
External Rate of Return on Equity Investment 55.8%
Edwards School of Business, University of SaskatchewanDaniels, R., Das, S., McKay, J. Mupondwa, E. 2008
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