Java Culture Coffee Bar

Business Plan

By: Kenosha Morrison

Java Culture

Table of Contents
Executive Summary 1
Chart: Highlights........................................................................................................................1
Objectives........................................................................................................................................2
Keys to Success...............................................................................................................................2
Mission............................................................................................................................................2

Company Summary 3
Company Ownership.......................................................................................................................3
Start-up Summary............................................................................................................................3
Table: Start-up............................................................................................................................4
Table: Start-up Funding..............................................................................................................5
Chart: Start-up............................................................................................................................7
Company Locations and Facilities...................................................................................................7

Products 8
Product Description.........................................................................................................................8
Sales Literature................................................................................................................................8

Market Analysis Summary 9

Market Segmentation.......................................................................................................................9
Chart: Market Analysis (Pie)......................................................................................................9
Table: Market Analysis.............................................................................................................10
Target Market Segment Strategy...................................................................................................10
Market Needs.................................................................................................................................10
Industry Analysis...........................................................................................................................10
Competition and Buying Patterns..................................................................................................11

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Java Culture

Competition...............................................................................................................................11
Buying Patterns.........................................................................................................................11

Strategy and Implementation Summary 11

Competitive Edge..........................................................................................................................12
Sales Strategy.................................................................................................................................12
Sales Forecast...........................................................................................................................12
Chart: Sales Monthly.................................................................................................................13
Table: Sales Forecast................................................................................................................13

Management Summary 14
Management Team........................................................................................................................14
Management Team Gaps...............................................................................................................14
Personnel Plan...............................................................................................................................14
Table: Personnel.......................................................................................................................15

Financial Plan 15
Important Assumptions..................................................................................................................15
Table: General Assumptions.....................................................................................................15
Projected Cash Flow......................................................................................................................16
Chart: Cash...............................................................................................................................16
Table: Cash Flow......................................................................................................................17
Key Financial Indicators................................................................................................................18
Chart: Benchmarks....................................................................................................................18
Break-even Analysis......................................................................................................................18
Chart: Break-even Analysis.......................................................................................................19
Table: Break-even Analysis.......................................................................................................19
Projected Profit and Loss...............................................................................................................19
Table: Profit and Loss...............................................................................................................20

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Projected Balance Sheet................................................................................................................21

Table: Balance Sheet.................................................................................................................21
Business Ratios..............................................................................................................................22
Table: Ratios.............................................................................................................................22

Appendix i
Sales Forecast (With Monthly Detail)..............................................................................................i
Personnel (With Monthly Details)...................................................................................................ii
General Assumptions (With Monthly Detail)................................................................................iii
Profit and Loss Statement (With Monthly Detail)..........................................................................iv

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Executive Summary
Java Culture coffee bar is determined to become a daily necessity for local coffee addicts, a place
to dream of as you try to escape the daily stresses of life and just a comfortable place to meet
your friends or to read a book, all in one. With the growing demand for high-quality gourmet
coffee and great service, Java Culture will capitalize on its proximity to the University of
Houston - Downtown to build a core group of repeat customers. Java Culture will offer its
customers the best prepared coffee in the area that will be complimented with pastries, as well as
free books that its patrons can read to enjoy their visit.

The company will operate a 2,300 square foot coffee bar within a walking distance from the
University of Houston – Downtown campus. The owners have secured this location through a
three-year lease with an option for extending. The owners have also provided $140,000 of the
required $170,000 start-up funds. The remaining capital will be obtained through Bank of
America commercial loans.

The company is expected to grow sales revenue from $584,000 in FY2020 to $706,000 in year
three. As Java Culture we will strive to maintain a 65% gross profit margin and reasonable
operating expenses, it will see net profits grow from $100,000 to $125,000 during the same
period.

Chart: Highlights

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Java Culture

Highlights

$700,000

$600,000

$500,000
Sales
$400,000 Gross Margin

$300,000 Net Profit

$200,000

$100,000

$0
Year 1 Year 2 Year 3

Objectives
Java Culture's objectives for the first year of operations are:

 Become selected as the "Best New Coffee Bar in the area" by the local restaurant guide.
 Turn in profits from the first month of operations.
 Maintain a 65% gross

Keys to Success
The keys to success will be:

 Store design that will be both visually attractive to customers and designed for fast and
efficient operations.
 Employee training to insure the best coffee preparation techniques.
 Marketing strategies aimed to build a solid base of loyal customers, as well as
maximizing the sales of high margin products, such as espresso drinks.

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Mission
Java Culture will make its best effort to create a unique place where customers can socialize with
each other in a comfortable and relaxing environment while enjoying the best brewed coffee or
espresso and pastries in town. We will be in the business of helping our customers to relieve their
daily stresses by providing piece of mind through great ambience, convenient location, friendly
customer service, and products of consistently high quality. Java Culture will invest its profits to
increase the employee satisfaction while providing stable return to its shareholders.

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Java Culture

Company Summary
Java Culture, a limited liability company, sells coffee, other beverages and snacks in its 2,300
square feet premium coffee bar located near the University of Houston - Downtown campus.
Java Culture's major investors are Arthur Garfield and James Polk who cumulatively own over
70% of the company. The start-up loss of the company is assumed in the amount of $27,680.

Company Ownership
Java Culture is registered as a Limited Liability Corporation in the state of Texas. Arthur
Garfield owns 51% of the company. His cousin, James Polk, as well as Megan Flanigan and
Todd Barkley hold minority stakes in Java Culture, LLC.

Start-up Summary
The start-up expenses include:
 Legal expenses for obtaining licenses and permits as well as the accounting services
totaling $1,300.
 Marketing promotion expenses for the grand opening of Java Culture in the amount of
$3,500 and as well as flyer printing (2,000 flyers at $0.04 per copy) for the total amount
of $3,580.
 Consultants fees of $3,000 paid to ABC Espresso Services <name changed> for the help
with setting up the coffee bar.
 Insurance (general liability, workers' compensation and property casualty) coverage at a
total premium of $2,400.
 Pre-paid rent expenses for one month at $1.76 per square feet in the total amount of
$4,400.
 Premises remodeling in the amount of $10,000.
 Other start-up expenses including stationery ($500) and phone and utility deposits
($2,500).

The required start-up assets of $142,320 include:

 Operating capital in the total amount of $67,123, which includes employees and owner's
salaries of $23,900 for the first two months and cash reserves for the first three months of
operation (approximately $14,400 per month).
 Start-up inventory of $16,027, which includes:
o Coffee beans (12 regular brands and five decaffeinated brands) - $6,000
o Coffee filters, baked goods, salads, sandwiches, tea, beverages, etc. - $7,900
o Retail supplies (napkins, coffee bags, cleaning, etc.) - $1,840
o Office supplies - $287

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 Equipment for the total amount of $59,170:

o Espresso machine - $6,000
o Coffee maker - $900
o Coffee grinder - $200
o Food service equipment (microwave, toasters, dishwasher, refrigerator, blender,
etc.) - $18,000
o Storage hardware (bins, utensil rack, shelves, food case) - $3,720
o Counter area equipment (counter top, sink, ice machine, etc.) - $9,500
o Serving area equipment (plates, glasses, flatware) - $3,000
o Store equipment (cash register, security, ventilation, signage) - $13,750
o Office equipment (PC, fax/printer, phone, furniture, file cabinets) - $3,600
o Other miscellaneous expenses - $500

Funding for the company comes from two major sources--owners' investments and bank loans.
Two major owners, Arthur Garfield and James Polk, have contributed $70,000 and $30,000
respectively. All other investors have contributed $40,000, which brings the total investments to
$140,000. The remaining $30,000 needed to cover the start-up expenses and assets came from
the two bank loans--a one-year loan in the amount of $10,000 and a long-term (five years) loan
of $20,000. Both loans were secured through the Bank of America. Thus, total start-up loss is
assumed in the amount of $27,680.

The following chart and table summarize the start-up assumption

Table: Start-up

Start-up

Requirements

Start-up Expenses
Legal $1,300
Stationery etc. $500
Brochures $3,580
Consultants $3,000
Insurance $2,400
Rent $4,400
Remodeling $10,000
Other $2,500
Total Start-up Expenses $27,680

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Start-up Assets
Cash Required $67,123
Start-up Inventory $16,027
Other Current Assets $0
Long-term Assets $59,170
Total Assets $142,320

Total Requirements $170,000

Table: Start-up Funding

Start-up Funding
Start-up Expenses to Fund $27,680
Start-up Assets to Fund $142,320
Total Funding Required $170,000

Assets
Non-cash Assets from Start-up $75,197
Cash Requirements from Start-up $67,123
Additional Cash Raised $0
Cash Balance on Starting Date $67,123
Total Assets $142,320

Liabilities and Capital

Liabilities
Current Borrowing $10,000
Long-term Liabilities $20,000
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $30,000

Capital

Planned Investment
Arthur Garfield $70,000
James Polk $30,000
All other investors $40,000
Additional Investment Requirement $0

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Java Culture

Total Planned Investment $140,000

Loss at Start-up (Start-up Expenses) ($27,680)

Total Capital $112,320

Total Capital and Liabilities $142,320

Total Funding $170,000

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Java Culture

Chart: Start-up

Start-up

$140,000

$120,000

$100,000

$80,000

$60,000

$40,000

$20,000

$0
Expenses Assets Investment Loans

Company Locations and Facilities

Java Culture coffee bar will be located on the ground floor of the commercial building at the
corner of West 13th Avenue and Patterson Street in Houston, TX. The company has secured a
one-year lease of the vacant 2,500 square feet premises previously occupied by a hair salon. The
lease contract has an option of renewal for three years at a fixed rate that Java Culture will
execute depending on the financial strength of its business.

The floor plan will include 200 square feet back office and a 2,300 square feet coffee bar, which
will include a seating area with 15 tables, a kitchen, storage area and two bathrooms. The space
in the coffee bar will be approximately distributed the following way--1,260 square feet (i.e.,
55% of the total) for the seating area, 600 square feet (26%) for the production area, and the
remaining 440 square feet (19%) for the customer service area.

This property is located in a commercial area within a walking distance from the University of
Houston - Downtown campus on the corner of a major thoroughfare connecting affluent South
Eugene neighborhood with the busy downtown commercial area. The commercially zoned
premises have the necessary water and electricity hookups and will require only minor
remodeling to accommodate the espresso bar, kitchen and storage area. The coffee bar's open and
clean interior design with modern wooden decor will convey the quality of the served beverages

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and snacks and will be in-line with the establishment's positioning as an eclectic place where
people can relax and enjoy their cup of coffee. The clear window displays, through which
passerby will be able to see customers enjoying their beverages, and outside electric signs will be
aimed to grab the attention of the customer traffic.

Products
Java Culture will offer its customers the best tasting coffee beverages in the area. This will be
achieved by using high-quality ingredients and strictly following preparation guidelines. The
store layout, menu listings and marketing activities will be focused on maximizing the sales of
higher margin espresso drinks. Along with the espresso drinks, brewed coffee and teas, as well as
some refreshment beverages, will be sold in the coffee bar. Java Culture will also offer its clients
pastries, small salads and sandwiches. For the gourmet clientele that prefers to prepare its coffee
at home, Java Culture will also be selling coffee beans.

The menu offerings will be supplemented by free books and magazines that customers can read
inside the coffee bar.

Product Description
The menu of the Java Culture coffee bar will be built around espresso-based coffee drinks such
as lattes, mochas, cappuccinos, etc. Each of the espresso-based drinks will be offered with
whole, skimmed, or soy milk. Each of these coffee beverages is based on a 'shot' of espresso,
which is prepared in the espresso machine by forcing heated water through ground coffee at high
pressure. Such espresso shots are combined with steamed milk and/or other additives like cocoa,
caramel, etc., to prepare the espresso-based beverages. Proper preparation techniques are of
paramount importance for such drinks. A minor deviation from the amount of coffee in the shot,
the size of the coffee particles, the temperature of milk, etc., can negatively affect the quality of
the prepared drink.

Sales Literature
Two thousand flyers will be distributed in the adjacent neighborhood, on the University of
Houston -Downtown campus, at the malls and in the selected office buildings within two weeks
prior to the opening of Java Culture. Subsequently, free postcards with Java Culture endorsement
will be printed to increase the company visibility among the patrons.

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Market Analysis Summary

U.S. coffee consumption has shown steady growth, with gourmet coffee having the strongest
growth. Coffee drinkers in the Pacific Northwest are among the most demanding ones. They
favor well-brewed gourmet coffee drinks and demand great service. Houston, TX, with its liberal
and outgoing populace and long rainy winter, has traditionally been a great place for coffee
establishments. Java Culture will strive to build a loyal customer base by offering a great tasting
coffee in a relaxing environment of its coffee bar located close to the bustling University of
Houston - Downtown campus.

Market Segmentation
Java Culture will focus its marketing activities on reaching the University students and faculty,
people working in offices located close to the coffee bar and on sophisticated teenagers. Our
market research shows that these are the customer groups that are most likely to buy gourmet
coffee products. Since gourmet coffee consumption is universal across different income
categories and mostly depends on the level of higher education, proximity to the University of
Houston – Downtown campus will provide access to the targeted customer audience.

The chart and table below outline the total market potential (in number of customers) of gourmet
coffee drinkers in Houston, TX.

Chart: Market Analysis (Pie)

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Java Culture

Market Analysis (Pie)

Students and Faculty

Teenagers

Office workers

Other

Table: Market Analysis

Market Analysis
Year 1 Year 2 Year 3 Year 4 Year 5

Potential Growth CAGR

Customers

Students and 2% 18,000 18,360 18,727 19,102 19,484 2.00%

Faculty
Teenagers 1% 3,000 3,030 3,060 3,091 3,122 1.00%

Office workers 2% 8,000 8,160 8,323 8,489 8,659 2.00%

Other 0% 5,000 5,000 5,000 5,000 5,000 0.00%

Total 1.63% 34,000 34,550 35,110 35,682 36,265 1.63%

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Target Market Segment Strategy

Java Culture will cater to people who want to get their daily cup of great-tasting coffee in a
relaxing atmosphere. Such customers vary in age, although our location close to the University
of Houston – Downtown campus means that most of our clientele will be college students and
faculty. Our market research shows that these are discerning customers that gravitate towards
better tasting coffee. Furthermore, a lot of college students consider coffee bars to be a
convenient studying or meeting location, where they can read or meet with peers without the
necessity to pay cover charges. For us, this will provide a unique possibility for building a loyal
client base.

Market Needs
General trend toward quality among U.S. consumers plays an important role in the recent growth
in gourmet coffee. Additionally, such factors as desire for small indulgencies, for something
more exotic and unique, provide a good selling opportunity for coffee bars.

Industry Analysis
Coffee consumption has shown a steady 2.5% growth rate in the United States over the last
decade. In 1994, total sales of coffee were approximately $7.5 billion with gourmet coffee
representing 33% (or $2.5 billion) of that. The retail coffee industry is flourishing in the U.S.
Pacific Northwest. The local climate, with a long rainy season, is very conducive for the
consumption of hot non-alcoholic beverages. At the same time, hot dry summers drive people
into cafes to order iced drinks. Further, coffee has really become a part of the lifestyle in the
Pacific Northwest. Its discerning coffee drinkers are in favor of well-prepared, strong coffee-
based beverages, which they can consume in a relaxing environment.

Competition and Buying Patterns

Competition

According to the 1997 Houston Food Service Statistics (NAICS 72), Eugene had 45 established
snack & non-alcoholic beverage bars (NAICS 722213) with total sales of $14.2 million. Among
other establishments that offer coffee drinks to their customers are most of Eugene's limited- and
full-service restaurants. Java Culture's direct competitors will be other coffee bars located near
the University of Houston – Downtown campus. These include Starbucks, Cafe Roma, The UHD
Bookstore, and other Food service establishments that offer coffee. Starbucks will definitely be
one of the major competitors because of its strong financial position and established marketing
and operational practices. However, despite of Starbuck's entrenched market position, many

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customers favor smaller, independent establishments that offer cozy atmosphere and good coffee
at affordable prices. Cafe Roma is a good example of such competition. We estimate that
Starbucks holds approximately 35% market share in that neighborhood, Cafe Roma appeals to
25% of customers, The UHD Bookstore caters to another 10%, with the remaining market share
split among other establishments. Java Culture will position itself as a unique coffee bar that not
only offers the best tasting coffee and pastries but also provides home-like, cozy and comfortable
environment, which established corporate establishments lack. We will cater to customers'
bodies and minds, which will help us grow our market share in this competitive market.

Buying Patterns

The major reason for the customers to return to a specific coffee bar is a great tasting coffee,
quick service and pleasant atmosphere. Although, as stated before, coffee consumption is
uniform across different income segments, Java Culture will price its product offerings
competitively. We strongly believe that selling coffee with a great service in a nice setting will
help us build a strong base of loyal clientele.

Strategy and Implementation Summary

Java Culture's marketing strategy will be focused at getting new customers, retaining the existing
customers, getting customers to spend more and come back more often. Establishing a loyal
customer base is of a paramount importance since such customer core will not only generate
most of the sales but also will provide favorable referrals.

Competitive Edge
Java Culture will position itself as unique coffee bar where its patrons can not only enjoy a cup
of perfectly brewed coffee but also spend their time in an ambient environment. Comfortable
sofas and chairs, dimmed light and quiet relaxing music will help the customers to relax from the
daily stresses and will differentiate Java Culture from incumbent competitors.

Sales Strategy
Java Culture baristas will handle the sales transactions. To speed up the customer service, at least
two employees will be servicing clients--while one employee will be preparing the customer's
order, the other one will be taking care of the sales transaction. All sales data logged on the
computerized point-of-sale terminal will be later analyzed for marketing purposes.

To build up its client base, Java Culture will use banners and fliers, utilize customer referrals and
cross-promotions with other businesses in the community. At the same time, customer retention

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11 12
10 Month
programs will be used to make sure the customers are coming back and spending more at the
coffee bar.

9 Month
Sales Forecast

8 Month
Month
Food costs are assumed at 25% for coffee beverages and 50% for retail beans and pastries.

Month
Proximity to the University campus will dictate certain sales seasonality with revenues slightly
decreasing during the school vacation periods.

Month
6 7
The chart and table below outline our projected sales forecast for the next three years.

MonthMonth
1 Month
2 3 Month
Month 4 Month
5

Chart: Sales Monthly

Sales Monthly

$60,000

$50,000

$40,000 Coffee beverages

Coffee beans
$30,000
Pastries, etc.
$20,000

$10,000

$0

Table: Sales Forecast

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Java Culture

Sales Forecast
Year 1 Year 2 Year 3

Sales

Coffee beverages $350,400 $385,440 $423,984

Coffee beans $87,600 $96,360 $105,996
Pastries, etc. $146,000 $160,600 $176,660
Total Sales $584,000 $642,400 $706,640

Direct Cost of Sales Year 1 Year 2 Year 3

Coffee beverages $87,600 $96,360 $105,996
Coffee beans $43,800 $48,180 $52,998
Pastries, etc. $73,000 $80,300 $88,330
Subtotal Direct Cost of Sales $204,400 $224,840 $247,324

Management Summary
Java Culture is majority-owned by Arthur Garfield and James Polk. Mr. Garfield holds a
bachelor’s Degree in Business Administration from the University of Texas. He's worked for
several years as an independent business consultant. Previously, he owned the ABC Travel
Agency, which he profitably sold four years ago. Mr. Garfield has extensive business contacts in
Houston that he will leverage to help his new venture succeed. Mr. Polk has a bachelor's Degree
in Psychology from the Texas A&M State University. For the last five years he has worked as a
manager of DEF Ristorante, a successful Italian restaurant in Houston, TX. Under Mr. Polk's
management, the restaurant has consistently increased sales while maintaining a lower than
average level of operating expenses.

However, because of the investors' other commitments they will not be involved into the daily
management decisions at Java Culture. A professional manager ($35,000/yr.) will be hired who
will oversee all the coffee bar operations. Two full-time baristas ($25,000/yr. each) will oversee
coffee preparation. Four more part-time employees will be hired to fulfill the staffing needs. In
the second and third year of operation one more part-time employee will be hired to handle the
increased sales volume.

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Management Team
A full-time manager will be hired to oversee the daily operations at Java Culture. The candidate
(who's name is withheld due to his current employment commitment) has had three years of
managerial experience in the industry in Houston. This person's responsibilities will include
managing the staff, ordering inventory, dealing with suppliers, developing a marketing strategy
and perform other daily managerial duties. We believe that our candidate has the right
experience for this role. A profit-sharing arrangement for the manager may be considered based
on the first-year operational results.

Management Team Gaps

Despite the owners' and manager's experience in the industry, the company will retain the
consulting services of ABC Espresso Services, the consultants who have helped to develop the
business idea for Java Culture. This company has over twenty years of experience in the retail
coffee industry and has successfully opened dozens of coffee bars across the U.S. Consultants
will be primarily used for market research, customer satisfaction surveys and to provide
additional input into the evaluation of the new business opportunities.

Personnel Plan
The table below outlines the personnel needs of Java Culture coffee bar.

Table: Personnel

Personnel Plan

Year 1 Year 2 Year 3

Manager $35,000 $37,800 $40,824

Baristas $50,000 $54,000 $58,320
Employees $39,600 $52,000 $56,000
Total People 7 8 8

Total Payroll $124,600 $143,800 $155,144

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Financial Plan
Java Culture will capitalize on the strong demand for high-quality gourmet coffee. The owners
have provided the company with sufficient start-up capital. With successful management aimed
at establishing and growing a loyal customer base, the company will see its net worth doubling in
two years. Java Culture will maintain a healthy 65% gross margin, which combined with
reasonable operating expenses, will provide enough cash to finance further growth.

Important Assumptions
Table: General Assumptions

General Assumptions
Year 1 Year 2 Year 3

Plan Month 1 2 3

Current Interest Rate 10.00% 10.00% 10.00%

Long-term Interest Rate 10.00% 10.00% 10.00%

Tax Rate 25.42% 25.00% 25.42%

Other 0 0 0

Projected Cash Flow

As the chart and table below present, the company will maintain a healthy cash flow position,
which will allow for timely debt servicing and funds available for future development.

Chart: Cash

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 Month
2 Mo
3
Java Culture

MonthMonth
1
Cash
$200,000

$180,000
$160,000

$140,000

$120,000 Net Cash Flow

$100,000
Cash Balance
$80,000

$60,000

$40,000
$20,000

$0

Table: Cash Flow

Pro Forma Cash Flow

Year 1 Year 2 Year 3
Cash Received

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Cash from Operations

Cash Sales $584,000 $642,400 $706,640
Subtotal Cash from Operations $584,000 $642,400 $706,640

Additional Cash Received

Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $0 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $584,000 $642,400 $706,640

Expenditures Year 1 Year 2 Year 3

Expenditures from Operations

Cash Spending $124,600 $143,800 $155,144
Bill Payments $327,865 $388,144 $420,837
Subtotal Spent on Operations $452,465 $531,944 $575,981

Additional Cash Spent

Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current $3,300 $3,300 $3,300
Borrowing
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal $0 $3,585 $3,961
Repayment
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $2,000 $2,000
Dividends $0 $0 $0
Subtotal Cash Spent $455,765 $540,829 $585,242

Net Cash Flow $128,235 $101,571 $121,398

Cash Balance $195,358 $296,928 $418,326

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Key Financial Indicators

Chart: Benchmarks

Benchmarks

1.0

Year 1

Year 2

Year 3

0.0
Sales Operating Expenses
Gross Margin% Inventory Turnover

Break-even Analysis
With average monthly fixed costs of $20,300 in FY2018 and an average margin of 65%, Java
Culture's break-even sales volume is around $31,300 per month. As shown further, the company
is expected to generate such sales volume from the outset.

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Chart: Break-even Analysis

Break-even Analysis
$16,000

$12,000

$8,000

$4,000

$0

($4,000)

($8,000)

($12,000)

($16,000)

($20,000)
$0 $10,000 $20,000 $30,000 $40,000 $50,000
$5,000 $15,000 $25,000 $35,000 $45,000 $55,000

Table: Break-even Analysis

Break-even Analysis

Monthly Revenue Break-even $31,247

Assumptions:
Average Percent Variable Cost 35%
Estimated Monthly Fixed Cost $20,311

Projected Profit and Loss

Annual projected sales of $584,000 in FY2018 translate into $254.00 of sales per square foot,
which is in line with the industry averages for this size of coffee bar. Overall, as the company
gets established in the local market, its net profitability increases from 17.06% in FY2001 to
17.63% in FY2020. The table below outlines the projected Profit and Loss Statement for
FY2018-2020.

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Table: Profit and Loss

Pro Forma Profit and Loss

Year 1 Year 2 Year 3
Sales $584,000 $642,400 $706,640
Direct Cost of Sales $204,400 $224,840 $247,324
Other $0 $0 $0
Total Cost of Sales $204,400 $224,840 $247,324

Gross Margin $379,600 $417,560 $459,316

Gross Margin % 65.00% 65.00% 65.00%

Expenses
Payroll $124,600 $143,800 $155,144
Sales and Marketing and Other $25,800 $27,600 $31,000
Expenses
Depreciation $5,400 $5,500 $5,500
Rent $48,400 $52,800 $52,800
Rent $6,000 $6,000 $6,000
Maintenance $5,840 $6,424 $7,066
Utilities/Phone $9,000 $9,500 $10,000
Payroll Taxes $18,690 $21,570 $23,272
Other $0 $0 $0

Total Operating Expenses $243,730 $273,194 $290,782

Profit Before Interest and Taxes $135,870 $144,366 $168,534

EBITDA $141,270 $149,866 $174,034
Interest Expense $2,821 $2,326 $1,618
Taxes Incurred $33,740 $35,510 $42,424

Net Profit $99,308 $106,530 $124,491

Net Profit/Sales 17.00% 16.58% 17.62%

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Projected Balance Sheet

The company's net worth is expected to increase from approximately $212,000 by the end of
FY2018 to approximately $443,000 in FY2020. The table below summarizes the projected
balance sheets for this period.

Table: Balance Sheet

Pro Forma Balance Sheet

Year 1 Year 2 Year 3
Assets

Current Assets
Cash $195,358 $296,928 $418,326
Inventory $21,175 $22,671 $24,939
Other Current Assets $0 $0 $0
Total Current Assets $216,533 $319,600 $443,264

Long-term Assets
Long-term Assets $59,170 $61,170 $63,170
Accumulated Depreciation $5,400 $10,900 $16,400
Total Long-term Assets $53,770 $50,270 $46,770
Total Assets $270,303 $369,870 $490,034

Liabilities and Capital Year 1 Year 2 Year 3

Current Liabilities
Accounts Payable $31,974 $31,896 $34,831
Current Borrowing $6,700 $3,400 $100
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $38,674 $35,296 $34,931

Long-term Liabilities $20,000 $16,415 $12,454

Total Liabilities $58,674 $51,711 $47,385

Paid-in Capital $140,000 $140,000 $140,000

Retained Earnings ($27,680) $71,628 $178,159
Earnings $99,308 $106,530 $124,491
Total Capital $211,628 $318,159 $442,650
Total Liabilities and Capital $270,303 $369,870 $490,034

Net Worth $211,628 $318,159 $442,650

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Business Ratios
The table below outlines the company's business ratios. The last column represents industry
average business ratios for Specialty Eating Places (SIC 5812).

Table: Ratios

Ratio Analysis
Year 1 Year 2 Year 3 Industry
Profile
Sales Growth n.a. 10.00% 10.00% 7.60%

Percent of Total Assets

Inventory 7.83% 6.13% 5.09% 3.60%
Other Current Assets 0.00% 0.00% 0.00% 35.60%
Total Current Assets 80.11% 86.41% 90.46% 43.70%
Long-term Assets 19.89% 13.59% 9.54% 56.30%
Total Assets 100.00% 100.00% 100.00% 100.00%

Current Liabilities 14.31% 9.54% 7.13% 32.70%

Long-term Liabilities 7.40% 4.44% 2.54% 28.50%
Total Liabilities 21.71% 13.98% 9.67% 61.20%
Net Worth 78.29% 86.02% 90.33% 38.80%

Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 65.00% 65.00% 65.00% 60.50%
Selling, General & 47.94% 48.47% 47.37% 39.80%
Administrative Expenses
Advertising Expenses 2.26% 2.18% 2.26% 3.20%
Profit Before Interest and Taxes 23.27% 22.47% 23.85% 0.70%

Main Ratios
Current 5.60 9.05 12.69 0.98
Quick 5.05 8.41 11.98 0.65
Total Debt to Total Assets 21.71% 13.98% 9.67% 61.20%
Pre-tax Return on Net Worth 62.87% 44.64% 37.71% 1.70%
Pre-tax Return on Assets 49.22% 38.40% 34.06% 4.30%

Additional Ratios Year 1 Year 2 Year 3

Net Profit Margin 17.00% 16.58% 17.62% n.a
Return on Equity 46.93% 33.48% 28.12% n.a

Activity Ratios
Inventory Turnover 10.91 10.26 10.39 n.a
Accounts Payable Turnover 11.25 12.17 12.17 n.a

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Payment Days 27 30 29 n.a

Total Asset Turnover 2.16 1.74 1.44 n.a

Debt Ratios
Debt to Net Worth 0.28 0.16 0.11 n.a
Current Liab. to Liab. 0.66 0.68 0.74 n.a

Liquidity Ratios
Net Working Capital $177,858 $284,304 $408,334 n.a
Interest Coverage 48.16 62.07 104.13 n.a

Additional Ratios
Assets to Sales 0.46 0.58 0.69 n.a
Current Debt/Total Assets 14% 10% 7% n.a
Acid Test 5.05 8.41 11.98 n.a
Sales/Net Worth 2.76 2.02 1.60 n.a
Dividend Payout 0.00 0.00 0.00 n.a

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Appendix
Sales Forecast (With Monthly Detail)
Sales
Forecast

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Sales

Coffee 0% $24,000 $27,000 $28,800 $28,800 $28,800 $28,800 $28,800 $28,800 $29,400 $31,200 $33,000 $33,000
beverages
Coffee beans 0% $6,000 $6,750 $7,200 $7,200 $7,200 $7,200 $7,200 $7,200 $7,350 $7,800 $8,250 $8,250

Pastries, etc. 0% $10,000 $11,250 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,250 $13,000 $13,750 $13,750

Total Sales $40,000 $45,000 $48,000 $48,000 $48,000 $48,000 $48,000 $48,000 $49,000 $52,000 $55,000 $55,000

Direct Cost of Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Sales

Coffee $6,000 $6,750 $7,200 $7,200 $7,200 $7,200 $7,200 $7,200 $7,350 $7,800 $8,250 $8,250
beverages

Coffee beans $3,000 $3,375 $3,600 $3,600 $3,600 $3,600 $3,600 $3,600 $3,675 $3,900 $4,125 $4,125

Pastries, etc. $5,000 $5,625 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,125 $6,500 $6,875 $6,875

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Subtotal $14,000 $15,750 $16,800 $16,800 $16,800 $16,800 $16,800 $16,800 $17,150 $18,200 $19,250 $19,250
Direct Cost of
Sales

Personnel (With Monthly Details)

Personnel
Plan
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Manager 0% $2,917 $2,917 $2,917 $2,917 $2,917 $2,917 $2,917 $2,917 $2,917 $2,917 $2,917 $2,917

Baristas 0% $4,167 $4,167 $4,167 $4,167 $4,167 $4,167 $4,167 $4,167 $4,167 $4,167 $4,167 $4,167

Employees 0% $3,300 $3,300 $3,300 $3,300 $3,300 $3,300 $3,300 $3,300 $3,300 $3,300 $3,300 $3,300

Total People 7 7 7 7 7 7 7 7 7 7 7 7

Total Payroll $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383

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General Assumptions (With Monthly Detail)

General
Assumptions
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Plan Month 1 2 3 4 5 6 7 8 9 10 11 12

Current 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Interest Rate
Long-term 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Interest Rate
Tax Rate 30.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00%

Other 0 0 0 0 0 0 0 0 0 0 0 0

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Profit and Loss Statement (With Monthly Detail)

Pro Forma Profit
and Loss
Month Month Month Month Month Month Month Month Month Month Month Month
1 2 3 4 5 6 7 8 9 10 11 12
Sales $40,000 $45,000 $48,000 $48,000 $48,000 $48,000 $48,000 $48,000 $49,000 $52,000 $55,000 $55,000
Direct Cost of Sales $14,000 $15,750 $16,800 $16,800 $16,800 $16,800 $16,800 $16,800 $17,150 $18,200 $19,250 $19,250
Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Cost of Sales $14,000 $15,750 $16,800 $16,800 $16,800 $16,800 $16,800 $16,800 $17,150 $18,200 $19,250 $19,250

Gross Margin $26,000 $29,250 $31,200 $31,200 $31,200 $31,200 $31,200 $31,200 $31,850 $33,800 $35,750 $35,750
Gross Margin % 65.00% 65.00% 65.00% 65.00% 65.00% 65.00% 65.00% 65.00% 65.00% 65.00% 65.00% 65.00%

Expenses
Payroll $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383
Sales and $2,150 $2,150 $2,150 $2,150 $2,150 $2,150 $2,150 $2,150 $2,150 $2,150 $2,150 $2,150
Marketing and
Other Expenses
Depreciation $450 $450 $450 $450 $450 $450 $450 $450 $450 $450 $450 $450
Rent $0 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400 $4,400
Rent $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500
Maintenance $400 $450 $480 $480 $480 $480 $480 $480 $490 $520 $550 $550
Utilities/Phone $750 $750 $750 $750 $750 $750 $750 $750 $750 $750 $750 $750
Payroll Taxes 15% $1,558 $1,558 $1,558 $1,558 $1,558 $1,558 $1,558 $1,558 $1,558 $1,558 $1,558 $1,558
Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

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Total Operating $16,191 $20,641 $20,671 $20,671 $20,671 $20,671 $20,671 $20,671 $20,681 $20,711 $20,741 $20,741
Expenses

Profit Before $9,809 $8,609 $10,529 $10,529 $10,529 $10,529 $10,529 $10,529 $11,169 $13,089 $15,009 $15,009
Interest and Taxes
EBITDA $10,259 $9,059 $10,979 $10,979 $10,979 $10,979 $10,979 $10,979 $11,619 $13,539 $15,459 $15,459
Interest Expense $248 $245 $243 $241 $239 $236 $234 $232 $229 $227 $225 $223
Taxes Incurred $2,868 $2,091 $2,572 $2,572 $2,573 $2,573 $2,574 $2,574 $2,735 $3,216 $3,696 $3,697

Net Profit $6,693 $6,273 $7,715 $7,716 $7,718 $7,720 $7,721 $7,723 $8,205 $9,647 $11,088 $11,090
Net Profit/Sales 16.73% 13.94% 16.07% 16.08% 16.08% 16.08% 16.09% 16.09% 16.74% 18.55% 20.16% 20.16%

Cash Flow Statement (With Monthly Detail)

Pro Forma Cash Flow
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Cash Received

Cash from Operations

Cash Sales $40,000 $45,000 $48,000 $48,000 $48,000 $48,000 $48,000 $48,000 $49,000 $52,000 $55,000 $55,000
Subtotal Cash from Operations $40,000 $45,000 $48,000 $48,000 $48,000 $48,000 $48,000 $48,000 $49,000 $52,000 $55,000 $55,000

Additional Cash Received

Sales Tax, VAT, HST/GST 0.00% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Received
New Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Other Liabilities (interest- $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
free)
New Long-term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Sales of Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Sales of Long-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Investment Received $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Cash Received $40,000 $45,000 $48,000 $48,000 $48,000 $48,000 $48,000 $48,000 $49,000 $52,000 $55,000 $55,000

Expenditures Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Expenditures from Operations

Cash Spending $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383 $10,383

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Bill Payments $728 $22,112 $29,845 $30,569 $29,450 $29,449 $29,447 $29,445 $29,474 $30,424 $32,727 $34,195
Subtotal Spent on Operations $11,112 $32,496 $40,228 $40,952 $39,834 $39,832 $39,830 $39,829 $39,857 $40,808 $43,110 $44,578

Additional Cash Spent

Sales Tax, VAT, HST/GST Paid $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Out
Principal Repayment of Current $275 $275 $275 $275 $275 $275 $275 $275 $275 $275 $275 $275
Borrowing
Other Liabilities Principal $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Repayment
Long-term Liabilities Principal $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Repayment
Purchase Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Purchase Long-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Dividends $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Cash Spent $11,387 $32,771 $40,503 $41,227 $40,109 $40,107 $40,105 $40,104 $40,132 $41,083 $43,385 $44,853

Net Cash Flow $28,613 $12,229 $7,497 $6,773 $7,891 $7,893 $7,895 $7,896 $8,868 $10,917 $11,615 $10,147

Cash Balance $95,736 $107,966 $115,462 $122,235 $130,127 $138,020 $145,914 $153,811 $162,679 $173,596 $185,211 $195,358

Balance Sheet (With Monthly Detail)

Pro Forma Balance Sheet
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Assets Starting
Balances

Current Assets
Cash $67,123 $95,736 $107,966 $115,462 $122,235 $130,127 $138,020 $145,914 $153,811 $162,679 $173,596 $185,211 $195,358
Inventory $16,027 $15,400 $17,325 $18,480 $18,480 $18,480 $18,480 $18,480 $18,480 $18,865 $20,020 $21,175 $21,175
Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Current Assets $83,150 $111,136 $125,291 $133,942 $140,715 $148,607 $156,500 $164,394 $172,291 $181,544 $193,616 $206,386 $216,533

Long-term Assets
Long-term Assets $59,170 $59,170 $59,170 $59,170 $59,170 $59,170 $59,170 $59,170 $59,170 $59,170 $59,170 $59,170 $59,170
Accumulated Depreciation $0 $450 $900 $1,350 $1,800 $2,250 $2,700 $3,150 $3,600 $4,050 $4,500 $4,950 $5,400
Total Long-term Assets $59,170 $58,720 $58,270 $57,820 $57,370 $56,920 $56,470 $56,020 $55,570 $55,120 $54,670 $54,220 $53,770
Total Assets $142,320 $169,856 $183,561 $191,762 $198,085 $205,527 $212,970 $220,414 $227,861 $236,664 $248,286 $260,606 $270,303

Liabilities and Capital Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Current Liabilities
Accounts Payable $0 $21,118 $28,825 $29,587 $28,469 $28,467 $28,465 $28,464 $28,462 $29,335 $31,586 $33,092 $31,974
Current Borrowing $10,000 $9,725 $9,450 $9,175 $8,900 $8,625 $8,350 $8,075 $7,800 $7,525 $7,250 $6,975 $6,700
Other Current Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Current $10,000 $30,843 $38,275 $38,762 $37,369 $37,092 $36,815 $36,539 $36,262 $36,860 $38,836 $40,067 $38,674
Liabilities

Long-term Liabilities $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000
Total Liabilities $30,000 $50,843 $58,275 $58,762 $57,369 $57,092 $56,815 $56,539 $56,262 $56,860 $58,836 $60,067 $58,674

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Paid-in Capital $140,000 $140,000 $140,000 $140,000 $140,000 $140,000 $140,000 $140,000 $140,000 $140,000 $140,000 $140,000 $140,000
Retained Earnings ($27,680) ($27,680) ($27,680) ($27,680) ($27,680) ($27,680) ($27,680) ($27,680) ($27,680) ($27,680) ($27,680) ($27,680) ($27,680)
Earnings $0 $6,693 $12,966 $20,680 $28,397 $36,115 $43,834 $51,556 $59,279 $67,484 $77,130 $88,218 $99,308
Total Capital $112,320 $119,013 $125,286 $133,000 $140,717 $148,435 $156,154 $163,876 $171,599 $179,804 $189,450 $200,538 $211,628
Total Liabilities and $142,320 $169,856 $183,561 $191,762 $198,085 $205,527 $212,970 $220,414 $227,861 $236,664 $248,286 $260,606 $270,303
Capital

Net Worth $112,320 $119,013 $125,286 $133,000 $140,717 $148,435 $156,154 $163,876 $171,599 $179,804 $189,450 $200,538 $211,628

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