Thai Tai Vietnamese SubsBusiness Plan

Michelle Coupal Michelle Kraft Alan Sklapsky Stephen Yong

Table of Contents1.0 Executive Summary............................................................................................................................... 3

2.0 Introduction............................................................................................................................................ 5

2.1 Mission Statement.............................................................................................................................. 5

2.2 Corporate Goals................................................................................................................................. 5

2.3 Industry Overview.............................................................................................................................. 5

2.3.1 Threats........................................................................................................................................ 5

3.0 Operating Plan....................................................................................................................................... 6

3.1 Business Structure....................................................................................................................... 6

3.1.1 Organizational Structure..........................................................................................................6

3.1.2 Permits and Legal Structure.....................................................................................................6

3.2 Site Plan...................................................................................................................................... 6

3.3 Building and Floor Plan................................................................................................................7

3.3.1 Store Front............................................................................................................................... 7

3.3.2 Production Area....................................................................................................................... 7

3.4 Work Plan.................................................................................................................................... 7

3.5 Health and Safety........................................................................................................................ 8

3.6 Business Day/Week/Month/Year.................................................................................................8

3.7 Sourcing Materials............................................................................................................................. 9

3.8 Performance Metrics.......................................................................................................................... 9

3.8 Inventory Management.................................................................................................................... 10

3.8.1 Point of Sale System..................................................................................................................... 11

4.0 Human Resource Plan.........................................................................................................................11

5.0 Marketing Plan..................................................................................................................................... 12

5.1 Competitive Analysis........................................................................................................................12

5.1.1 Direct Competition.....................................................................................................................12

5.1.2 Indirect Competition................................................................................................................... 12

5.2 Target Market Analysis.................................................................................................................... 13

5.3 Market Analysis................................................................................................................................ 13

5.4 Marketing Mix................................................................................................................................... 13

5.4.1 Product Features....................................................................................................................... 13

5.4.2 Prototypes................................................................................................................................. 14

5.4.3 Pricing Policy............................................................................................................................. 14

5.4.4 Promotion.................................................................................................................................. 14

5.4.5 Distribution Strategy.................................................................................................................. 15

5.5 Sales and Profit Objectives..............................................................................................................15

5.6 Marketing Budget............................................................................................................................. 15

6.0 Financial Plan...................................................................................................................................... 16

6.2 Financial Structure........................................................................................................................... 16

6.3 Financial Analysis............................................................................................................................ 16

6.3.1 Critical Variable Analysis...........................................................................................................17

7.0 Appendix.............................................................................................................................................. 19

1.0 Executive Summary

IntroductionThe mission of Thai Tai’s is “to serve the city of Saskatoon the most consistent, best-tasting Vietnamese

sandwiches at an affordable price using high-quality ingredients”. This will be accomplished by providing

quality products and a memorable customer experience. We want to be the nightly food destination of

choice in Saskatoon; without the next morning regret.

Operations PlanThai Tai will be a corporation with four equal shareholders, who will also be involved in managing

operations. Thai Tai will be located on Broadway Ave. in Saskatoon; it will consist of a walk-in storefront

and a production area for the made to order service. The store will be open from 11am – 8:30 pm Monday

through Wednesday, and 11am -3 am Thursday to Saturday. The maximum capacity for production will

be 180 subs per day. Ingredients and other service providers will be primarily sourced from local suppliers

to ensure fresh products and timely delivery.

The capital budget will include costs for equipment, including production area, and product displays,

totaling approximately $57,000. We plan to use $90,000, including debt and equity, to fund capital budget

for the first year to ensure a positive cash flow.

Human Resources PlanAll four original shareholders will be equally involved in managing operations. Food services workers will

be hired to work at minimum wage with management supervising during the peak hours throughout the

day (ie: 12-2, 4-7 and late night hours on the weekend).

MarketingThai Tai will have the following sales and profit objectives:

To sell an average of 97 submarines per day in Year 1 and to increase to full capacity of 154

subs by Year 5;

To achieve a profit margin of 75%; and

To sell at an average of $7.50 per unit selling price, increasing at the rate inflation.

Competitive Landscape

The competitive landscape for Thai Tai includes direct competition (Subway and other fast food

alternatives) and indirect competition (other sit down restaurant options in the local area or any late night

food substitute).

Target Audience and Positioning StatementThe target audience is the lunch and late night crowd, along with the weekend shopper. We target those

walk-in, passerby customers who will enjoy a healthy alternative with an oriental twist.

The Marketing MixThai Tai’’s Far East menu will provide many options for customers. To gain market share quickly, the

pricing strategy for Thai Tai is to enter the market at a similar cost to the direct competition at approx

$7.50 for our average sandwich. This allows an 80% gross profit margin and a mark-up of 500%.

Thai Tai will use an awareness campaign to introduce ourselves to the market. The campaign will high-

light our unique subs and promote them through various media, including: social media, flyers and word

of mouth promotion.

Thai Tai will sell direct to customers and will be located on a busy street corner on Broadway Avenue in

Nutana, Saskatoon. This location is hip and trendy and will attract many nearby students, workers and

shoppers in our target audience. Modeled after similar Vietnamese sandwich shops located in

comparable locations in other cities (Vancouver, Calgary, etc) which have been very successful, we

believe that our differentiated product will gain a similar following in Saskatoon.

FinancialsThe financial structure of Thai Tai is 45% equity and 55% debt. The financial outlook for the company

looks good with an internal rate of return (IRR) for the company of 44% and a net present value (NPV) of

$206,279.

The critical variables that significantly impact IRR are sales growth, cost of sales and sales volume.

To realize the IRR, we will have to meet our sales targets and keep tight control over costs.

2.0 Introduction

2.1 Mission Statement

Thai Tai’s mission is to: “To serve the city of Saskatoon the most consistent, best-tasting Vietnamese

sandwich’s at an affordable price using high-quality ingredients”.

2.2 Corporate Goals We want to be the #1 destination for lunch and late night eating in Saskatoon

We will provide customers with a healthy alternative to late night food, without the next day regret

Be profitable and expand the business by 2014

2.3 Industry OverviewWe believe Saskatoon is the ideal location for a Vietnamese sub shop. Saskatoon is a young and vibrant

city of 200,000 that grew by 2.8% from 2001-2006 and has a median age of 35.9 years.1 The city has

recently experienced an economic boom, which is attracting young and educated workers from across the

country to well paying jobs. The median family income is $65,268, indicating that residents have some

disposable income.2 We believe this population growth and influx of young people creates a unique

opportunity for us to introduce a Vietnamese sub shop.

Saskatoon is already home to many unique ethnic restaurants, however, the majority of them are on the

west side of Idylwyld Dr, which makes them relatively inaccessible to the lunch and bar crowd. We

believe that a Vietnamese sub shop located in the heart of the Broadway entertainment district would

provide a fresh and unique experience to the young and adventurous lunch and bar crowd.

2.3.1 ThreatsThe threats to our business would include:

Product substitutes (competing restaurants-Subway, Pita Pit, Booster Juice, etc.)

Reliance on suppliers for fresh, high quality ingredients

Ability to attract committed workers

1 Statistics Canada. “2006 Community Profile-Saskatoon.” Available at http://www12.statcan.gc.ca/census-recensement/2006/dp-pd/prof/92-591/details/page.cfm?Lang=E&Geo1=CSD&Code1=4711066&Geo2=PR&Code2=47&Data=Count&SearchText=Saskatoon&SearchType=Begins&SearchPR=01&B1=All&Custom=

2 Ibid.

3.0 Operating Plan

3.1 Business Structure

3.1.1 Organizational StructureThai Tai will have a flat organizational structure,, with four partners sharing all managerial responsibilities.

We will hire part-time, minimum waged employees to handle orders during busy hours (lunch and late

night).

3.1.2 Permits and Legal StructurePrior to opening the restaurant, we will contact the Saskatoon Health Region to arrange for an inspection

of the food preparation facilities and to obtain a provincial health license. We will need several permits to

operate Thai Tai. The permit process can be long and drawn out, so we would start the process as soon

as possible.

The location, 801 Broadway Ave., is already zoned for commercial business, so we would not have to

obtain zoning permits. We would have to obtain the following permits:

Department of Health permits (including fire inspection)

Plumbing and building permits (if required)

Sign permit (for outdoor and sandwich board signs)

Vendor’s licence (to collect PST)

Saskatoon business licence (commercial business licence costs $95)

In addition to these permits, we would need to register the business name with the province and register

with the Workers’ Compensation Board and Occupational Health & Safety. Federally, we would have to

obtain a federal business number, employer business number and a GST number.

Corporate status was selected as the legal structure to enhance access to capital, take advantage of the

income tax deferrals available to new and growing businesses and to ensure protection against any

liabilities that may occur.

3.2 Site PlanThai Tai has chosen the trendy Broadway area in Saskatoon as the future site of the store. The exact

address for the store will be at 801 Broadway Avenue, crossroads of Broadways Avenue and 10th Street.

This choice was made for several reasons:

1) Access to parking. Parking will be available in front of the store, across the street and parallel to the site and around surrounding side streets.

2) Deliveries will be easily accessible into the restaurant via the back alley entrance. The back entrance will lead the hallway before the kitchen. This alley will easily accommodate any delivery trucks and vans and will make the ease of transferring supplies to and from vehicle to store effortless and easy.

3) This site is centrally located in the Broadway entertainment district. It is a popular area for shopping and going to restaurants and pubs.

3.3 Building and Floor Plan

3.3.1 Store FrontThai Tai will serve walk-in traffic and corporate and private customers who pre-order sandwiches for

meetings or events. It is important that the storefront have large, street facing windows to maximize

product visibility for passing traffic. The submarines will be made to order as a take away item. As such,

customer seating areas will be limited to 8 person capacity waiting area. Canned beverages will be

available for purchase along with the sandwiches. Store furnishings and accessories will be based on

traditional Vietnamese culture. One washroom will be located in the storefront area.

3.3.2 Production AreaThe production area will run perpendicular to the entrance way to allow for a flow from sub order to

payment. . The production area will be separated into raw and cooked product areas to mitigate

contamination concerns. A hand washing sink will be located at the entrance to the production area. A

product storage cooler and pantry will be located west end of the production area. Located near the

north end is a fridge to store canned drinks.

Prepping of all products will be done in the kitchen area, which is located at the rear of the store, out of

site from customers.

3.4 Work PlanThe most common task assignments will fall under the categories of production or sales and customer

experience management. Thai tai’s sub production process will begin with food preparation the prior

night so that marinades can sit overnight to achieve the ideal flavour. One hour of prep time before

opening will be needed to prepare sandwich ingredients (julienne vegetables, cook meats, etc.).

Sandwiches are made to order based on menu items listed below. The remaining processes involve

dishwashing, record keeping and general maintenance of the store.

The following list of tasks will be completed as part of sales and customer experience management:

Providing friendly, prompt and personal service to walk in and pre-order customers

Preparing sandwiches and related beverages

Storefront and washroom cleaning as necessary

Receiving telephone orders for off-peak time events.

Two staff members will be required on site to ensure that adequate attention can be paid to customers

and production during peak times.

3.5 Health and SafetyHealth and Safety

As a food service company, Thai Tai will be subject to inspections by regional health authority public

health officer to determine compliance with The Food Safety Regulations and Standards. As part of

maintaining our reputation and health permits, we will all take the Safe Handling of Food course offered

by TrainCan. Courses are offered in Saskatoon, so we would take these courses as soon as possible.

These courses cost $500/per person.

3.6 Business Day/Week/Month/YearThai Tai will operate on Monday through to Saturday, closed on Sundays. Store hours will be from

11:00am to 8:30pm Monday to Wednesday, and 11:00 am to 3:00 am Thursday to Saturday.

Business Day

Shifts will be divided from 10:00am to 3:30pm, 3:30– 8:30pm, and 8:30 pm-3:30 am (Thurs-Sat)

Opening shift:

Responsibilities include: Prepping fresh vegetables for daily sandwiches, cooking meats, opening store,

ensuring adequate supplies and packaging is available.

Closing shift:

Responsibilities include: Prepping meats for next day production, closing and storing of products in

airtight containers, closing and locking the store, cleaning of workstations. Shift premiums will be

awarded for working the late night shift.

Business Week

Inventory of supplies and ingredients

Thorough cleaning conducted by in-house staff to ensure all healthy and safety measurements are upheld

Meet with suppliers to discuss any improvements or concerns

Business Month

Monthly management meetings – agenda will include operations, store hours, marketing and finances

Future marketing plans – includes any promotions or specials offered to customers

Discuss work schedules and shifts

Business Year

Compile financials for the year

Ensure taxes are completed and filed

Analyze any popular trends for future strategies in the new year

Mitigate risks

Evaluate equipment and supplies

3.7 Sourcing MaterialsWe plan to try to source out materials from local providers in order to assure timely and reliable delivery.

Since our business is based on providing low cost, high quality subs, we will also choose suppliers who

provide high quality ingredients at a reasonable price. We will source meat (chicken, beef, shrimp and

pork) from Centennial Food Service, which has a reputation for high quality items and has a location in

Saskatoon. Meat shipments will be received twice a week, on Tuesdays and Saturdays. We will obtain

our buns from Downey’s Bakery in Sutherland, which has extensive experience providing breads and

pastries to many Saskatoon hotels and eateries. Buns will be received every two days to maintain

freshness. The vegetables and spices will come from Sysco Foods. These items will be received three

times a week (Tuesday, Thursday and Saturday). To ensure we are receiving competitive prices, we will

ask existing and potential suppliers to fax quotes for ingredients to us monthly. To ensure quality of

ingredients, we will tour the facilities of existing suppliers.

3.8 Performance MetricsWe would use several performance metrics, financial and non-financial, to track and measure our

restaurant’s performance. These indicators would focus on areas that are critical to our business: cash

flow, inventory management and repeat customers.

Our POS system will capture sales and cost information that we could use to compare to our budgeted

performance. This variance analysis would indicate potential problem areas (ie. menu items with low

margins, escalating costs, etc.) and areas of strength (menu items with high margins, stable costs, etc.).

Another key performance metric would be repeat customers. We plan on the bulk of our business coming

from repeat customers. Our POS system, Maitre’d, would allow tracking of customers through a frequent

customer rewards program (buy 10 subs, get 1 free). This program would help promote repeat

customers.

Inventory turnover would be another important performance metric because it would indicate how well we

are managing our inventory. We would monitor this number over time to ensure that it was not increasing

because this would increase the risk of inventory spoilage. Since ingredient quality is very important to

the success of our business, we would want to ensure we were using the freshest possible ingredients.

3.8 Inventory ManagementProper inventory management is key to the quality of our products, so we need to ensure that inventory is

managed properly. The restaurant will need fresh ingredients, so deliveries will be made throughout the

week. Inventory will be tracked with a perpetual inventory tracking system through the point-of-sale

system.

To control costs and maintain quality, we will check all deliveries against orders and check supplier prices

against quotes. We will make inventory orders that take advantage of quantity breaks without increasing

spoilage.

This doesn’t make sense here --> Table 5.1 highlights capital requirements needed for the restaurant.

Table 5.1 Restaurant Equipment

Thai TaiCapital Budget

(Source: Restaurant Equipment World)Asset Manufacturer Unit CostBuilding Improvements  

Leasehold Improvements Impact Construction 15,000 Cooking Equipment  

Conveyor Oven (2) Ultra-Max 8,874 Meat prep machine Hobart 3,170 Vegetable prep machine Lincoln 338.50

Kitchen Appliances  Industrial fridge (2) Delfield 7,488 Drink Refrigerator Samsung 800 Dish washing station Aero Manufacturing 1,500 Hand washing system Aero Manufacturing 500 Prep food table True Manfacturing 2,385 Storage stand Advance Tabco 298.08 Kitchen accessories (pans, knives, etc.) Various 1,000

Electronic Equipment  Point of sale equipment 2000 IT Solutions 7,000 Bookkeeping system Dell 1,500

Installation costs 5,000 Total Capital Budget   54,853

GST 2,742.67 Total Expenditures 57,596

Thai Tai will require leasehold improvements of $15,000 to convert the existing location into suitable

space for the restaurant. This cost includes demolition, kitchen set up, public washroom renovation and

fixtures. We will require the following cooking equipment: two conveyor ovens for toasting subs, a meat

prep machine for slicing and preparing meat and a vegetable prep machine for slicing and dicing

vegetables. The following kitchen appliances will be required: two industrial fridges for storing perishable

inventory, a drink fridge for cooling and storing pop and juice, a commercial dishwasher, a hand washing

station, a food prep table for assembling subs, a storage stand for storing dry, non-perishable items and

various kitchen accessories (pans, knives, aprons, etc.). The restaurant will also require electronic

equipment: a POS system for ringing through sales and capturing sales and cost data and a bookkeeping

system to maintain the accounting records. The cost for all of these items is approximately $57,000.

3.8.1 Point of Sale SystemWe have evaluated the existing POS systems and have chosen the Maitre’d system. We believe this

system offers the best combination of functionality and flexibility. The system offers:

Touch screen printers

Scalability (can add other computers as the restaurant grows; can add more restaurant locations)

Allows service of more than one customer at a time

Comprehensive cost and revenue reporting (high and low margin items for marketing campaigns and menu decisions)

Perpetual inventory system based on bar codes

Automatic conversion function converts quantity received to quantities used for recipes

Recipes can be displayed to help train employees or for customer enquiries

Automatically generates shopping lists based on minimum stock quantities

E-commerce interface directly with suppliers like Sysco

Customer rewards program-tracks points, etc. (buy 10 get 1 free)

The main benefit of this system is the interconnectivity between product sales and inventory

management. Every time a sale is made, inventory records are automatically updated to reflect the new

levels. Inventory reports can be generated quickly and cheaply, which is important is we want to manage

inventory effectively to keep costs low and quality high. This system would help minimize inventory

spoilage which would help control costs.

4.0 Human Resource Plan

During the initial start-up phase our organizational structure will be flat as all four original shareholders will

be equally involved in managing operations. Food services workers will be hired to work at minimum

wage ($9.50) with management supervising during the peak hours throughout the day (ie: 12-2, 4-7 and

late night hours on the weekend).

Stephen Yong will be the General Manager based on his background working in numerous Asian food

establishments and extensive business background in Saskatoon. Alan Sklapsky will be our Director of

Finance responsible for the development of our cash projections, budgeting and financing requirements.

Going forward, he will continuously monitor the cash position of the company, analyze budget-to-actual

results and be our contact with the bank regarding the capital and working capital financing to be acquired

as well as maintaining relationships with equity financers. Michelle Kraft will be our Director of

Operations, responsible for purchasing and ensuring that the level of quality and consistency is

maintained. Michelle Coupal will be the Marketing Manager in charge of promotional activities and

advertising as well as over-seeing human resource requirements.

All staff and management will be fully trained to prep and make all sandwiches, open/close the shop and

operate the cash register.

5.0 Marketing Plan

5.1 Competitive Analysis5.1.1 Direct Competition As Thai Tai is the first freshly-made Vietnamese Sandwich shop in Saskatoon, there are currently no

direct competitors selling our unique style of subs but the other sub shops and fast food establishments in

the city would need to be considered our direct competition. Direct competitors would be fast food

establishments in the Broadway business district as well as the downtown core especially during the

summer months when the lunch crowd is known to walk across the bridge during the lunch hour. Our

most comparable competition Subway is located in numerous locations throughout the city and also on

Broadway Avenue as well as other well known fast food franchises Mr. Sub, Pita Pit and Booster Juice.

5.1.2 Indirect CompetitionIndirect competition comes in the form of all other food establishments in the Broadway area including sit-

down restaurants (Broadway Cafe, Nutana Cafe, Christie’s Il Secondi, etc), late night entertainment

establishments that serve food (Amigos) and bakeries/cafes (Starbucks, Nutana Bakery) that serve take-

away dining options. The price range for the full-serve restaurants will be higher while the late night and

cafe options would likely be comparable and draw some of the lunch/late night market we are targeting.

5.2 Target Market Analysis1) The Broadway lunch crowd (and downtown business lunch market during the summer) would

include employees of businesses in Nutana along Broadway and students at E’cole Victoria,

Oskayak High School and Nutana Collegiate (high schools within three blocks of Thai Tai).

These groups will be able to walk to Thai Tai over the lunch hour; the business crowd goes out

for lunch approx. 3-5 times per week while the students would go out for lunch 1-2 times per

week. The business crowd would also make larger 10+ sandwich orders for lunch meetings

during the work week.

2) The Broadway area has an active late night entertainment scene that draws from all areas of

Saskatoon. To capture this market and serve their desire for cheap, quick and delicious food

after a long night of music and dancing, Thai Tai plans to be open Thursday – Saturday nights

until 3:00AM. Thai Tai is already perfectly situated in the area surrounded by pubs and late night

establishments (Amigo’s Cantina, Yard and Flagon, Vangelis Tavern, Broadway Theatre and The

Roxy on Broadway) that are all open until 2:00AM when patrons are then out on the streets

looking for the closest, well-lit food establishment that Thai Tai is perfectly situated to capture.

3) Weekend shoppers, festival goers that flock to Broadway as well as those living in the vibrant

community of Nutana can be found strolling along Broadway Avenue on any given Saturday right

in front of Thai Tai – this crowd will make up the demand for a Saturday opening and will be

drawn to Thai Tai through word-of-mouth advertising or our sidewalk board display. Nutana is

known as the cultural hotbed of Saskatoon with annual events such as the Broadway Art

Encounter (June), Saskatoon Fringe Festival (August), Broadway Street Festival (September) all

bring in large crowds of people from outside Nutana to the streets right in front of our location.

5.3 Market Analysis

Market ShareWe expect to attract 5% of our target market, partly due to our trendy location and partly due to our high-

quality and differentiated subs. Despite the fact that our direct competition is located near us, we believe a

product differentiation strategy will work to our advantage – we are selling a product that is new and

different; yet similar enough not to scare away our target market. Based on the success of many of the

Vietnamese restaurants located in the downtown core (often packed during lunch hours) we believe that

the Saskatoon market is ready to embrace Vietnamese subs in a similar fashion.

5.4 Marketing Mix

5.4.1 Product FeaturesThai Tai offers a fresh, new, Far East taste to the sub market; the location will be decorated with an Asian

flair and cater to all ages from the middle-aged business man, the young party-crowd after a long night at

Amigos, the high school student using their allowance for lunch or the young family wandering down

Broadway with a stroller during the summer.

Thai Tai will offer reasonably priced, high quality sub sandwiches. To maintain this offering, we will keep

our menu small with menu items that have simple ingredients. A small menu will allow us to maintain

consistent and high-quality subs. Menu items with simple ingredients will minimize our inventory costs

because we will not have to maintain a wide range of inventory items. Simple ingredients will also

facilitate speedy production and increase our flow-through rate.

We will offer the following subs:

Ultimate sub (spicy)

Buddha veggie

Oriental cold cuts

Pineapple beef

Sate beef/chicken/pork rib (spicy)

Lemongrass beef/chicken

Sate beef onion (spicy)

Curry beef/chicken (spicy)

Teriyaki chicken

Tiger prawn

Charbroiled pork

Prices will vary between $6 (Buddha veggie) and $8 (Ultimate sub). We will add and remove menu items

depending on customer preferences and popularity.

5.4.2 PrototypesRefer to Appendix 2 for sub prototypes

5.4.3 Pricing PolicyTo gain market share quickly, the pricing strategy for Thai Tai is to enter the market at a similar cost to the

direct competition (Subway, Pita Pit, etc) at approx $7.50 for our average sandwich. This allows an 80%

gross profit margin, and a mark-up of 500%.

5.4.4 PromotionThai Tai will use an awareness campaign to introduce ourselves to the market. The campaign will high-

light our unique subs and promote them through various media, including:

Company website

Social media (Facebook, YouTube, Flickr, Twitter, BlogSpot, etc.)

Sandwich board displayed outside our store-front to attract walk-by traffic

Customer loyalty program – repeat customers will receive 1 free sub after purchasing 10

Coupons for discount subs in the SPC coupon book to gain awareness among

high-school/university market (likely makes up a large portion of the late-night crowd we will be

targeting)

Flyers offering $1 off for a sub to be distributed at the colleges, festivals and late night

establishments in the area

We will also have promotional materials available at the store including business cards, stationery,

brochures and product order forms.

After Year 1, we will continue to improve the displays and website, to promote via online social media, to

provide product samples and giveaways and to produce marketing materials. We believe word-of-mouth

advertising will be our strongest promotion tool.

5.4.5 Distribution StrategyThai Tai will sell direct to customers and will be located on a busy street corner on Broadway Avenue in

Nutana, Saskatoon. This location is hip and trendy, and will attract many nearby students, workers and

shoppers in our target audience. Modeled after similar Vietnamese sandwich shops located in

comparable locations in other cities (Vancouver, Calgary, etc) which have been very successful we

believe that our differentiated product will gain a similar following in Saskatoon.

Orders can be placed in person at our convenient location or for large orders over the phone, and can be

either picked up or delivered (for an extra charge).

Our direct competition also sells via storefront in similar areas and locals although many of our direct

competitors do not stay open later and do not attract the late-night market that Thai Tai will cater to.

5.5 Sales and Profit ObjectivesThai Tai Vietnamese Subs has the following sales and profit objectives, which are outlined in our financial

plan:

To sell an average of 97submarines per day in Year 1, and to increase to full capacity of 154

submarines by Year 5;

To achieve a profit margin of 75%; and

To sell at a $7.50 per unit selling price, increasing at the rate inflation.

5.6 Marketing BudgetThe promotional initiatives, as discussed in the promotional section, make up the following marketing

budget for Thai Tai:

Promotional Activities Year 1 Yrs 2-5Display $3,000 $0 Website $5.000 $0 Flyers $5,000 $1,000Pr.oduct Giveaways $8,000 $8,000 Promotional Materials $3,000 $3,000

Total Marketing Costs $24,000 $12,000

6.0 Financial Plan

6.2 Financial StructureThai Tai Sub’s will be financed by approximately 45%equity and 55% by a Canadian Small Business

Loan (CSBL). This provides the prospective shareholders with a leveraged return using traditional small

business financing. The CSBL has maximum cost of debt of prime plus three percent, and has been

incorporated into our financial model. The following is a summary of the financing requirements for Thai

Tai’s:

Table 6.1: Financing RequirementsFinancing Requirements

Expenditure Debt EquityCapital Expenses 50,277 12,569 Forecasted cash shortfall in Year 1 20,138 Incorporation Fees 3,000 Permits and licencses 3,500 Total financing 50,277 39,207 Weight 56% 44%

6.3 Financial Analysis

The following summary forecasts the operating performance of Thai Tai’s over the next five years:

Table 6.2 Summary Income StatementThai Tai

Summary Income StatementFor the Year Ended, December 31

Year 2012 2013 2014 2015 2016Revenue 243,479 268,239 322,391 371,342 390,542 Cost of Sales 48,097 53,964 66,052 77,479 82,980

Gross Profit 195,383 214,275 256,339 293,862 307,562

Total Operating Expenses 193,022 189,669 193,426 197,296 201,281 Earnings before Amortization, Interest, and Taxes 2,361 24,606 62,913 96,567 106,281

CCA 9,186 13,367 10,103 8,030 6,667 Interest Expense 3,017 2,413 1,810 1,207 603

Income before Taxes (9,842) 8,826 51,000 87,330 99,011 Income Taxes - 27% 2,383 13,770 23,579 26,733

Net Income (Loss) (9,842) 6,443 37,230 63,751 72,278

The overall success of Thai Tai’s is based on the company’s ability to exponentially increase demand for

the products through word of mouth and targeted advertising. The product’s popularity in the local

community is imperative to the long-term success of the company. Appendix 1 demonstrates the

estimated sales forecasts based on aggressive sales targets.

6.3.1 Critical Variable Analysis

A significant amount of sensitivity analysis has been performed on the financial analysis. It is imperative

to note that sales growth is the most significant variable to consider in valuing this company:

Table 6.3: Sensitivity Analysis Variable 1 – Sales growthMetric Worst Case – 5% Base Case – 10, 20, 15, 5% Best Case – 18%

Valuation -$21,277 $210,450 $397,311Internal Rate of Return 12.7% 46.2% 44.1%

Payback Period > 5 years 3.3 years 3.1 years

By a significantly bearish scenario of 5% annual growth over the next 5 years, IRR will decrease to 12.7%

and will not make Thai Tai’s a reasonable venture. Under the base case scenario, annual sales targets of

annual growth of 10, 20, 15, and 5% are not unreasonable. These metrics are based on the success of

Thai Tai’s in its original environment, which we believe the operating success can be replicated in

Saskatoon.

The second variable which was considered significant in the analysis of Thai Tai’s is the change in prices

of cost of sales over the forecasted period. There is no doubt that there is a great amount of uncertainty in

food prices for the foreseeable future. As such, Thai Tai’s is a fair example of a company that is exposed

to a significant risk in the change of food prices.

Table 6.4: Sensitivity Analysis Variable 2 – Cost of SalesMetric Worst Case – 4%

inflationBase Case – 2%

inflationBest Case – 1.5%

inflationValuation $190,421 $210,450 $215,295

Internal Rate of Return 32.2% 33.6% 40.0%Payback Period 3.8 years 3.3 years 3.1 years

The estimated gross margin is based on an actual analysis of the inputs in producing the subs and

purchasing the drinks. As such, the analysis has been prepared based on the increase of prices over the

forecasted period. Under the worst case scenario, Thai Tai’s will still earn a significant IRR of 32.2%

which is due to the superior pricing strategy and quality of products that Thai Tai will sell.

The last critical variable examined in the forecasts for Thai Tai’s is the company’s exposure to sales

volume. As noted in Appendix 1, the expected sales volume for subs is 80 units from Monday to

Wednesday, 100 subs for Thursday, and 120 subs for Friday and Saturday. Drinks are projected to be

sold for every second customer, based on the low prices and ease of sale.

Table 6.5: Sensitivity Analysis Variable 3 – Sales VolumeMetric Worst Case – Expectations

decrease 20%Base Case Best Case – Expectation

increase 20%Valuation -$45,279 $210,450 $466,179

Internal Rate of Return 11.6% 46.2% 61.8%Payback Period > 5 years 3.3 years 1.3 years

Under the worst case of a decrease in expectations by 20%, Thai Tai’s will not earn a favorable return

and IRR will decrease to 11.6%. This analysis solidifies the critical point that management of Thai Tai’s

must effectively market the product using efficient target marketing and a key focus on product quality.

6.3.2 Break-even Analysis

Break-even analysis was performed based on the projected five year NPV of $210,450 at a weight

adjusted cost of capital of 15.24%. As shown below, Thai Tai’s projected sales for the five year period

are greater than those required for break-even:

Table 6.6: Break-even AnalysisYear Projected Breakeven Margin of Safety

(units)2012 29,967 31,601 (1,634)

2013 32,963 31,490 1,4732014 39,556 31,000 8,5562015 45,489 30,761 14,7282016 47,764 30,977 16,787

7.0 Appendix

Appendix 1: Sales Growth Projections

Sales Forecasts

Assumptions used:Volume increases 10% 20% 15% 5%Price and Cost Inflation 2%Percentage of drinks sold per sub 50%

Units Sold - SubsDay of the Week 2012 2013 2014 2015 2016Monday 80 88 106 121 128 Tuesday 80 88 106 121 128 Wednesday 80 88 106 121 128 Thursday 100 110 132 152 159 Friday 120 132 158 182 191 Saturday 120 132 158 182 191 Average Daily sales volume 96.67 106.33 127.60 146.74 154.08 Number of days 310.00 310.00 310.00 310.00 310.00 Estimated Annual Sales - subs 29,966.67 32,963.33 39,556.00 45,489.40 47,763.87 Unit sales price 7.50 7.65 7.80 7.96 8.12 Unit cost of sale 1.48 1.51 1.54 1.57 1.60 Total Sales Revenue 224,750.00 247,225.00 296,670.00 341,170.50 358,229.03 Total Cost of Sales 44,350.67 49,761.45 60,908.01 71,445.10 76,517.70 Gross Margin 180,399.33 197,463.55 235,761.99 269,725.40 281,711.32 Gross Margin % 80.3% 79.9% 79.5% 79.1% 78.6%

Units Sold - DrinksDay of the Week 2012 2013 2014 2015 2016Monday 40 44 53 61 64 Tuesday 40 44 53 61 64 Wednesday 40 44 53 61 64 Thursday 50 55 66 76 80 Friday 60 66 79 91 96 Saturday 60 66 79 91 96 Average Daily sales volume 48.33 53.17 63.80 73.37 77.04 Number of days 310.00 310.00 310.00 310.00 310.00 Estimated Annual Sales - drinks 14,983.33 16,481.67 19,778.00 22,744.70 23,881.94 Unit sales price 1.25 1.28 1.30 1.33 1.35 Unit cost of sale 0.25 0.26 0.26 0.27 0.27 Total Sales Revenue 18,729.17 21,014.12 25,721.29 30,171.07 32,313.22 Total Cost of Sales 3,745.83 4,202.83 5,144.26 6,034.21 6,462.64 Gross Margin 14,983.33 16,811.30 20,577.03 24,136.86 25,850.57 Gross Margin % 80.0% 80.0% 80.0% 80.0% 80.0%

Appendix 2:Prototypes

Satay Chicken Sub

Ultimate Sub