For the next two years, the restaurant’s future will depend on the cash flow forecast. By this, we could monitor the money coming in and out. We could monitor the expenditures that the business may have facing, whether spending more on stocks and increasing the wages of the employees. Cash flow forecast is really helpful to keep the business on track on what is happening on the financial side of the business.
For the start of the year 2008 and 2009, the opening balance of my business is ï¿½72724.8 and ï¿½159703.6. These amounts of money are the closing balance from December of both years. To increase the sales, I have made an advertisement in January 2008 to promote the business. Promoting the business for the first month of the year is good because this could be a good start to increase the flow of customers and of course to increase the sales. For this month, the total sales is ï¿½22000. This amount of money is not that bad, but if we compare this to last year when the restaurant first opened, both sales are almost the same. However, for the year 2009, we increased the sales to ï¿½27000 in January. Despite of this sales for the first month, we need more people coming in to the business and do more promotion.
The projection of my business for the year 2008 and 2009 is that we increased our sales and earned the loyalty of the customers. This is good because in just three years, we managed to earn the profit and return the amount of money that I invested for this business.
I have projected that the same every year, summer season will give the restaurant a hard time and declining sales. I have projected the restaurant sales were declining between the months of July to September 2008 and 2009. However, I have predicted that between October until Christmas season, we will increase sales because of more people eating in restaurants during these months especially the month of December. For these months, the highest sales of the month are always expected.
Inflation in Britain has been relatively higher than the rest of the world. The rise in relative inflation leads to a fall in the world share of UK exports and a rise in import penetration. Ultimately, this will lead to a fall in the rate of economic growth and the level of employment.
One effect of inflation to my business is the wage-price spiral. Price rises can lead to higher wage demands as my employees are trying to maintain their real standard of living.
Inflation can also affect my future plans for the business as it makes difficult because of the effect on the level of planned capital investment. If I plan to open another restaurant on 2009 but the inflation is very high, this project could be cancelled or postponed until economic conditions improve. The effect of inflation can lead to a slower growth of the restaurant profit which can then feed through into business investment decisions.
Calculating ratios will let me know if my business is really doing and earning good profit. This is really important to evaluate the financial results of my restaurant in order to gauge its performance. Ratios will allow my business to compare against different standards using the figures on my balance sheet. Accounting ratios can offer an invaluable insight into the business’ performance.
Return on Capital Employed (ROCE)
ROCE will let if me know how much return money or if there is a return on money that I invested to set up this business. Firstly, I am going to calculate my figures using this formula,
Total Capital Employed
1.01 x 100 = 101%
I can say that my business is really good on the first year with 101% ROCE. This means that I will have a 101% return on capital that I invested. The business’ sales for the first year is good as it means that we are improving since the restaurant started operating. This is a good sign because if we double or triple the sales for the next coming years, I may be able to set up another business because of the money coming in to the business.
Gross Profit Margin
I will be calculating the Gross Profit Margin to measure the restaurant’s manufacturing and distribution efficiency during one year of production process. To calculate the gross profit margin I will be using this formula,
x 100 = 96.7%
My business has high Gross Profit Margin which means that we still manage the cost of sales in very competitive prices of our products. The sales that we had for the first year is good to compare against other businesses that are just starting. We can increase the percentage if we continue to earn good sales for the coming years.
Net Profit Margin
The profit margin tells me how much profit the restaurant can make for every ï¿½1 it generates in revenue. To calculate my Net Profit Margin, I will use this formula,
Net Profit x 100
x 100 = 26.9%
The Net Profit Margin of my business is not good because of very low percentage. The prices are very competitive to the market, but there is a problem with the pricing strategy of the business. The prices of our products are low, but the business spends too much on the restaurant expenditures e.g. rates, rent, loan repayments, wages and insurance. In short, the restaurant is known for our low cost but with high volume approach. To increase the Net Profit Margin, I need to increase the product prices. But by doing this, we also need to maintain the good quality of the food and service for our loyal customers that will be expecting much better food in higher prices. We must increase the quality of the food and service by making sure that we use quality ingredients and the employees are fully trained.
Current Ratio and Acid Test
Since my business has no current liabilities, I may not be able to calculate the Current Ratio and Acid Test Ratio. However, having no current liabilities means that the liquidity of the business is too high. This means that there a lot of money that is not being used and could end up as a waste. This is bad because those amounts of money could be used for better things like expanding or setting up another business. As of now, I am confident that the business can do well for the next couple of years. If we still manage to have decent sales, we might expand the business and open a branch to secure that all the money coming in is used in good cause.
Formula for Current Ratio: Current Assets
Formula for Acid Test : Current Assets – Stock
The projection of my business for the next coming years is very good and positive. I can say that my restaurant is profitable and has a high chance for expansion. The cash flow forecast of the first year has high figures and proves that the business can stay for a long time. The restaurant has a 101% return on capital that I invested and this means that in just one year I have got the money that I put in to set up this business. My restaurant is very competitive in a very competitive world of business.
We need to do more promotion to increase the number of customers. The promotion can make the customers more familiar of the restaurant. This could be expensive, but this can increase the sales and earn more profit.
Due to inflation, the demand increases and stock prices goes up which means I need to spend more money on stocks and increase the wages of my employees. I have predicted that we can increase our sales because of our loyal customers and my restaurant starting to make its name to the market, so there is no problem spending more on stocks, advertisements and employee’ wages.
At the moment, my business has no current liabilities as it means that some money are not being used and might end up as a waste. The liquidity of my business is too high and therefore I might open another restaurant to use the money properly. This is my plan after the first 3 years of operation.
Setting up another restaurant could be a big gamble. But with proper knowledge and experience, it could turn out as a success. With the help of fully trained and motivated staff and performing proper promotion, increasing the number of customers every day is not impossible and earning high profit is at hand. The quality of the food and service is the key for success.