Pre-Feasibility Study Fast Food Restaurant

Pre-Feasibility Study

Prime Minister’s Small Business Loan Scheme

(Fast Food Restaurant)

Small and Medium Enterprises Development Authority

Ministry of Industries & Production
Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
4th Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road,
Lahore
Tel: (92 42) 111 111 456, Fax: (92 42) 36304926-7
[email protected]

REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE

PUNJAB SINDH KPK BALOCHISTAN

3rd Floor, Building No. 3, 5TH Floor, Bahria Ground Floor Bungalow No. 15-A
Aiwan-e-Iqbal Complex, Complex II, M.T. Khan Road, State Life Building Chaman Housing Scheme
Egerton Road Lahore, Karachi. The Mall, Peshawar. Airport Road, Quetta.
Tel: (042) 111-111-456 Tel: (021) 111-111-456 Tel: (091) 9213046-47 Tel: (081) 831623, 831702
Fax: (042) 36304926-7 Fax: (021) 5610572 Fax: (091) 286908 Fax: (081) 831922
[email protected] [email protected] [email protected] [email protected]

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Table of Contents
1. DISCLAIMER.....................................................................................................1
2. PURPOSE OF THE DOCUMENT......................................................................2
3. INTRODUCTION TO SMEDA............................................................................2
4. INTRODUCTION TO SCHEME .........................................................................3
5. EXECUTIVE SUMMARY ...................................................................................3
6. BRIEF DESCRIPTION OF PROJECT AND PRODUCT ...................................4
7. CRITICAL FACTORS ........................................................................................5
8. INSTALLED AND OPERATIONAL CAPACITIES ............................................5
9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT ........................................5
10. POTENTIAL TARGET MARKETS / CITIES .................................................6
11. PRODUCTION PROCESS FLOW ................................................................7
12. PROJECT COST SUMMARY .......................................................................8
12.1 PROJECT ECONOMICS ............................................................................... 8
12.2 PROJECT FINANCING ................................................................................. 8
12.3 PROJECT COST......................................................................................... 9
12.4 SPACE REQUIREMENT ............................................................................... 9
12.5 MACHINERY AND EQUIPMENT ................................................................... 10
12.6 FURNITURE AND FIXTURES ....................................................................... 11
12.7 RAW MATERIAL REQUIREMENTS ............................................................... 11
12.8 HUMAN RESOURCE REQUIREMENT ........................................................... 12
12.9 REVENUE GENERATION ........................................................................... 12
12.10 OTHER COSTS ........................................................................................ 13
13. CONTACTS - SUPPLIERS, EXPERTS/CONSULTANTS ..........................15
14. ANNEXURE ................................................................................................16
14.1 ANNEXURE 1 - INCOME STATEMENT .......................................................... 16
14.2 ANNEXURE 2 – STATEMENT OF CASH FLOW .............................................. 17
14.3 ANNEXURE 3 – BALANCE SHEET .............................................................. 18
14.4 USEFUL PROJECT MANAGEMENT TIPS ...................................................... 19
14.5 USEFUL LINKS ........................................................................................ 20
15. KEY ASSUMPTIONS .................................................................................22

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1. DISCLAIMER
This information memorandum is to introduce the subject matter and provide a
general idea and information on the said matter. Although, the material included
in this document is based on data/information gathered from various reliable
sources; however, it is based upon certain assumptions which may differ from
case to case. The information has been provided on as is where is basis without
any warranties or assertions as to the correctness or soundness thereof.
Although, due care and diligence has been taken to compile this document, the
contained information may vary due to any change in any of the concerned
factors, and the actual results may differ substantially from the presented
information. SMEDA, its employees or agents do not assume any liability for any
financial or other loss resulting from this memorandum in consequence of
undertaking this activity. The contained information does not preclude any further
professional advice. The prospective user of this memorandum is encouraged to
carry out additional diligence and gather any information which is necessary for
making an informed decision including taking professional advice from a qualified
consultant/technical expert before taking any decision to act upon the
information.
For more information on services offered by SMEDA, please contact our website:
www.smeda.org.pk

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2. PURPOSE OF THE DOCUMENT

The objective of the pre-feasibility study is primarily to facilitate potential
entrepreneurs in project identification for investment. The project pre-feasibility
may form the basis of an important investment decision and in order to serve this
objective, the document/study covers various aspects of project concept
development, start-up, and production, marketing, finance and business
management.
The purpose of this document is to facilitate potential investors in fast food
restaurant business by providing them with a general understanding of the
business with the intention of supporting potential investors in crucial investment
decisions.
The need to come up with pre-feasibility reports for undocumented or minimally
documented sectors attains greater imminence as the research that precedes
such reports reveal certain thumb rules; best practices developed by existing
enterprises by trial and error, and certain industrial norms that become a guiding
source regarding various aspects of business set-up and it’s successful
management.
Apart from carefully studying the whole document one must consider critical
aspects provided later on, which form basis of any Investment Decision.
3. INTRODUCTION TO SMEDA
The Small and Medium Enterprises Development Authority (SMEDA) was
established in October 1998 with an objective to provide fresh impetus to the
economy through development of Small and Medium Enterprises (SMEs).
With a mission "to assist in employment generation and value addition to the
national income, through development of the SME sector, by helping increase
the number, scale and competitiveness of SMEs", SMEDA has carried out
‘sectoral research’ to identify policy, access to finance, business development
services, strategic initiatives and institutional collaboration and networking
initiatives.
Preparation and dissemination of prefeasibility studies in key areas of investment
has been a successful hallmark of SME facilitation by SMEDA.
Concurrent to the prefeasibility studies, a broad spectrum of business
development services is also offered to the SMEs by SMEDA. These services
include identification of experts and consultants and delivery of need based
capacity building programs of different types in addition to business guidance
through help desk services.

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4. INTRODUCTION TO SCHEME
Prime Minister’s ‘Small Business Loans Scheme’, for young entrepreneurs, with
an allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide
subsidised financing at 8% mark-up per annum for one hundred thousand
(100,000) beneficiaries, through designated financial institutions, initially through
National Bank of Pakistan (NBP) and First Women Bank Ltd. (FWBL).
Small business loans with tenure up to 7 years, and a debt: equity of 90 : 10 will
be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh,
Khyber Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and
Federally Administered Tribal Areas (FATA).
5. EXECUTIVE SUMMARY
The fast food restaurant is proposed to be established at a location that has a
continuous stream of traffic, convenient parking, and is in proximity to other
businesses, preferably near densely populated middle income areas or flat
complexes. Major cities like Karachi, Hyderabad, Sukkur, Larkana, Multan,
Lahore, Gujranwala, Faisalabad, Sialkot, Gujrat, Rawalpindi, Peshawar, Hub and
Quetta etc. are suitable to house the project. Common menu items at the
proposed fast food outlet include sandwiches, burgers, fried chicken, Chinese
soups and Chinese rice variants, French fries, salad and cold drinks.
The fast food would have an installed capacity to serve 335 clients per day;
however the restaurant would initially start business with 140-150 clients. 10
personnel would be required to manage the operations of fast food restaurant.
Total Cost Estimates are Rs. 2,216,365/- with a fixed investment of Rs.
1,894,750/- and an initial working capital requirement of Rs. 321,615/-.
Given the cost assumptions Internal rate of Return (IRR) and payback are 53%
and 2.25 years respectively.
The most critical considerations or factors for success of the project are:
1. Choosing the right location for the fast food outlet
2. Creating the right menu and menu pricing
3. Hiring experienced cooks and staff
4. Knowing the competition

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6. BRIEF DESCRIPTION OF PROJECT AND PRODUCT

Fast food is a name given to food which is prepared with preheated or pre-
cooked ingredients and served to customers in a packaged form for take-away
quickly at outlets called fast-food restaurants. Many fast-food restaurants are part
of restaurant chains or franchise operations, and standardized foodstuffs are
shipped to each restaurant from central locations. There are also simpler fast-
food outlets, such as stands or kiosks, which may or may not provide shelter or
chairs for customers. As the capital requirements to start a fast-food restaurant
are relatively small, individually-owned fast-food restaurants have become
popular and common throughout Pakistan. Market growth largely depends on
population growth and demographics, urbanization and changing lifestyle
patterns and demand for convenience, which signals a good potential for this
type of business.

 Technology: The proposed setup with used fast food cooking machinery
including fryers, grilling machine, soup containers and pre-processing
equipment would serve popular fast food and Chinese cuisine.
 Location: The business is envisaged to be established as a fast food take-
away or satellite outlet with very limited seating capacity on rented premises
or shop of around 500 sqft. near a densely populated area suitable for fast
foods. Major cities like Karachi, Hyderabad, Sukkur, Larkana, Multan, Lahore,
Gujranwala, Faisalabad, Sialkot, Gujrat, Rawalpindi, Peshawar, Hub and
Quetta etc. are suitable to house the project.
 Product: Four popular fast food items, including fried chicken, burgers,
sandwiches and Chinese fried rice and soups, have been selected to be
served separately or as combo meals through the outlet. The restaurant is
proposed to have an installed capacity of serving 335 clients per day but is
estimated to start with 140-150 clients per day.
 Target Market: The middle income segment of major cities of the country
like Karachi, Hyderabad, Sukkur, Larkana, Multan, Lahore, Gujranwala,
Faisalabad, Sialkot, Gujrat, Rawalpindi, Peshawar, Hub and Quetta etc. is the
target market for the project under consideration.
 Employment Generation: The proposed project will provide direct
employment to 10 people. Financial analysis shows the setup shall be
profitable from the very first year of operation.

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7. CRITICAL FACTORS
Whether an entrepreneur is opening a one-of-a-kind fast food no-frills restaurant
or trying to expand an existing fast food outlet into a multi-unit chain, there are
winning principles that can improve the chances of success. Some key success
factors are as follows:
 Selecting the right location and layout
 Hiring employees especially cooks and servers
 Quality & Hygiene
 Creating the right menu
 Menu pricing
 Operational consistency
 Knowing the competition

8. INSTALLED AND OPERATIONAL CAPACITIES

In the fast food restaurant business the installed capacities are mainly dependant
on the location and layout of the outlet, the service style and food concept and
the target market. The proposed fast food business setup is envisaged to be
established as a take-away outlet with very limited seating capacity around it.
The restaurant is expected to serve around 335 customers in a day. At start up
the operational capacities are estimated to be around 140-150 clients. Once the
fast food gains popularity and acceptance sales are expected to increase
annually with the same installed capacity.

9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT

In recent years, much of the expansion in the fast food business has been in the
form of "satellite" outlets. These tend to be smaller in size, with little or no seating
capacity, and are often in nontraditional locations, such as office buildings,
department stores, airports, and gasoline stations; locations chosen specifically
to maximize convenience and consumer accessibility. It is important to find a
location that has a continuous stream of traffic, convenient parking, and is in
proximity to other businesses or densely populated middle income areas/flat
complexes where the target market is available.
Here are some factors to consider when deciding on a location to establish a fast
food outlet:

 Anticipated sales volume. Estimate the sales potential of a location.

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 Accessibility and visibility. Consider how easy it will be for customers to

get to the fast food. If an entrepreneur is relying on strong pedestrian
traffic, it should be considered whether or not nearby businesses will
generate foot traffic.
 The rent-paying capacity of the business. Sales-and-profit projections
give a fair idea of how much revenue can be generated, and that
information can be used to decide how much rent can be paid.
 Restrictive ordinances. Unusually restrictive ordinances can be
encountered that make an otherwise strong site less than ideal.
 Traffic density. Two factors are especially important in this analysis: total
pedestrian traffic during business hours and the percentage of it that is
likely to patronize the food service business.
 Customer parking facilities. The site should provide convenient and
adequate parking and easy access for customers.
 Proximity to other businesses. Neighboring businesses may influence
the fast food’s sales volume, and their presence can have both positive
and negative implications.
 History of the site. The recent history of each site under consideration
should be ascertained before making a final selection.
 Terms of the lease. All the details of the lease must be carefully read, as
it is possible to encounter unacceptable lease terms for an otherwise
excellent site.
 Future development. The local Development Authority / Planning Board
should be consulted to check if any development is planned for the future
that could affect the business, such as bridges, underpasses or any
construction restricting accessibility.
Major cities like Karachi, Hyderabad, Sukkur, Larkana, Multan, Lahore,
Gujranwala, Faisalabad, Sialkot, Gujrat, Rawalpindi, Peshawar, Hub and Quetta
etc. are suitable to house the project.

10. POTENTIAL TARGET MARKETS / CUTOMERS

The fast food restaurant market is a growing segment in Pakistan relying heavily
on the changing lifestyle patterns, population growth of the target age group and
the related increase in employment of women. The fast food consumption has
also augmented due to increase in the employment rate for males / female
population aging between 20 to 29 years (fast food goers). In today's hectic
urban lifestyles, demand for convenience is dominating all other preferences.

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People want quick and convenient meals; they do not want to spend a lot of time
preparing meals, traveling to pick up meals, or waiting for meals in restaurants.
As a result, consumers rely on fast food. However the major chunk of fast-food
goers, the middle income segment, prefers visiting outlets that offer fast food at
affordable prices. Fast Food outlets tend to focus on the “work while you eat” or
“shop while you eat” philosophy and fast food restaurants are rapidly becoming
the eatery "everyone can agree on", with many featuring menu combos for
children, play areas and fancy branding campaigns, designed to appeal to
younger customers.
The proposed fast food restaurant/outlet can be established in all major cities of
the country like Karachi, Hyderabad, Sukkur, Larkana, Multan, Lahore,
Gujranwala, Faisalabad, Sialkot, Gujrat, Rawalpindi, Peshawar, Hub and Quetta
etc., where there is traffic of the aforementioned market segment.

11. PRODUCTION PROCESS FLOW

The service delivery diagram of the proposed fast food restaurant is as follows.

Service Flow Process

Meal preparation
Main course
Drive (Grill/Fry meat Take-
through Fry rice & curry away
customer Place order Prepare/heat soup

Order in
queue Assembling
 Front desk order
 Server

Sideline preparation Dine-in

Walk in
customer

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12. PROJECT COST SUMMARY

A detailed financial model has been developed to analyze the commercial
viability of this project under the Prime Minister’s Small Business Loan Scheme.
Various cost and revenue related assumptions along with results of the analysis
are outlined in this section.
The projected Income Statement, Cash Flow Statement and Balance Sheet are
attached as annexures.

12.1 Project Economics

The following table shows internal rates of return and payback period for fast-
food restaurant starting operations with 140-150 clients.
Table 1 - Project Economics

Description Details
Internal Rate of Return (IRR) 53%
Payback Period (yrs) 2 .25 years
Net Present Value (NPV) Rs 6,967,202

Returns on the project and its profitability are highly dependent on the location,
quality of food and service, efficiency of the service team, interest of the owner
manager and competition.

12.2 Project Financing

Following table provides details of the equity required and variables related to
bank loan;
Table 2 - Project Financing

Description Details
Total Equity (10%) Rs. 221,637
Bank Loan (90%) Rs. 1,994,728
Markup to the Borrower (%age/annum) 08%
Tenure of the Loan (Years) 07

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12.3 Project Cost

Following requirements have been identified for operations of the proposed

business.
Table 3: Capital Investment for the Project

Capital Investment Amount (Rs.)

Renovation Cost 235,000
Furniture & fixtures 181,250
Machinery & Equipment 948,500
Advance Rent and Gas Security Deposit (GSD) 505,000
Preliminary Expenses 25,000
Total Capital Costs 1,894,750
Initial Working Capital 321,615
Total Project Cost 2,216,365

12.4 Space Requirement

The land requirement is around 500 sqft. It is recommended that the fast food
outlet be opened on the ground floor of flat complexes or shopping mall or any
other area with high retail consumer traffic. As per the proposed service style, the
floor space needs to be carefully allocated to allow for maximum space for food
preparation and store. The allocation of space between different sections would
be as follows:

Table 4: Space Requirement

Space Requirement (in ft.) Area Cost of

(Sqft.) Renovation
Amount (Rs.)
Kitchen and preparation 350 175,000
Store 100 30,000
Front desk and waiting area 25 22,500
Waiting area 25 7,500
Total Area 500 235,000

The proposed premises would be acquired on a rental basis with 3 month deposit
and 3 months advance rent after which rent will be payable every month. The
monthly rent is estimated at approximately Rs. 85/ Sq. feet amounting to Rs.
42,500 for the proposed fast food outlet (500 Sq Ft.). The premises renovation

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costs of Rs. 235,000/- would be depreciated at the rate of 10% per annum using
diminishing balance method.

12.5 Machinery and Equipment

Fast-food machines are easily available in the market where and entrepreneur
has the choice to select from international brands such as Spinzer, Frymaster,
Henny Penny, Lincoln, Ayrking, Keating, Mirror, Carpigiani, Lincat, Morretti, Ilsa,
Round-Up, Sanyo, Elettrobar etc. Chinese brands have gained popularity over
the years. The machines can be ordered through international vendors with a
minimum delivery period of 3 months while refurbished / reconditioned machines
are also available. There is also an option to procure used machines from closing
outlets but the durability and reliability factor must be taken into consideration
while buying such machines.
The typical fast food restaurant as outlined above would require the following
machine / equipment for its operations:
Table 5: List of Machinery and Equipment

Cost Total
Description Quantity
Rs/unit Rs.
Freezers (12 cf.) 2 40,000 80,000
Broast Machine (15 Pound
1 630,000 630,000
Capacity)*
Deep Well Fryer (Single Valve
1 40,000 40,000
With 2 Baskets)
Hot Plate for Burgers, Kebab,
1 33,000 33,000
Sandwiches (30"x22")
Bin Marry Soup Container (2
1 50,000 50,000
Valve With Steel Cabinet)
Potato Cutter (8mm) 1 3,500 3,500
Peeler (4.5 Kg Potato Peeling
1 7,000 7,000
Capacity)
Microwave 1 10,000 10,000
Generator 1.5 kva 1 75,000 75,000
Keg rack and others 2 10,000 20,000
Total 948,500

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12.6 Furniture and Fixtures

The project is envisaged to operate as a take-away fast food; however a limited

seating arrangement without shelter around the outlet, similar to existing local
fast foods, would be provided to entertain a maximum of 40 customers. The
following table gives the details of the furniture and fixtures requirement for the
front and back-house operations.
Table 6: Furniture and Fixtures Costs

Description Quantity Cost (Rs.) Amount (Rs.)

Dining Table – Square 10 3,500 35,000
Chairs (Standard 14”) 40 1,500 60,000
Kitchen Cutlery Set 2 2,500 5,000
Dining Cutlery* (Plate, Fork, Knife,
60 150 9,000
Spoon, Glass)
Hot Water Geyser Large 1 20,000 20,000
Lights / CFLs 15 250 3,750
Wall Lights (Large)/ Tube lights 6 750 4,500
Portable Emergency Light 4 2,500 10,000
Working tables/counter 1 15,000 15,000
Counter Chairs 2 1,500 3,000
Office Counter & Chair Set 1 10,000 10,000
Waiting Chairs for Take Away
4 1,500 6,000
Customers
Total 181,250

12.7 Raw Material Requirements

It is assumed that material inventory for 5-6 days would be kept at the restaurant.
The cost of material required is as under.
Table 7: Cost of Raw Material

Description Cost (Rs.)

Material for fried chicken 20,324
Material for burgers 21,165
Material for sandwiches 9,772
Material for Chinese food 19,323
Soft drinks and fries etc. 15,397
Packaging material 1,134
Total Raw Material Cost 87,115

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The raw material cost is estimated to increase by 12% annually.

12.8 Human Resource Requirement

The human resource requirement is as follows:

Table 9: Human Resource Requirement

Description No. of Salary per Total monthly

Employees month (Rs.) salary (Rs.)
Owner Manager 1 28,000 28,000
Kitchen Supervisor 1 15,000 15,000
Cook 3 12,000 36,000
Servers 3 10,000 30,000
Dishwasher 1 10,000 10,000
Cleaner 1 10,000 10,000
Total Staff 10 129,000

Considering the size of the proposed establishment it is assumed that the owner
would be managing the overall affairs of the fast food setup. He will be required
to process and check bills, invoices, and cash and also maintain accounts, etc.
The owner will also ensure safe custody of all keys.
It is essential to hire experienced cooks trained in operating fast food machinery
for the project. The proposed project would need a total of 10 persons to handle
the fast food operations. Salaries of all employees are estimated to increase at
the rate of 10% annually.

12.9 Revenue Generation

The Sales are expected to increase by 12% every year. The 12% annual
increase in revenue is expected to result from a part increase in customer traffic
and part increase in product price. The prices used to calculate the gross
revenue earned are based on the billing rate at which the entrepreneur will
charge the customer.
The item-wise estimated revenue at the fast food restaurant is as follows

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Table 10: Revenue

First Year
Sales First Year
Sales
Item Description Unit Price Sales
Revenue
(Rs./Unit) (No.)
(Rs.)
Chicken Broast (Qtr.) No 145 4,320 626,400
Chicken Broast (Half) No 290 2,880 835,200
Chicken Broast (Full) No 550 1,440 792,000
Chicken Burger No 120 4,320 518,400
Chicken Cheese Burger No 140 3,600 504,000
Beef Burger No 100 3,600 360,000
Beef Cheese Burger No 120 3,600 432,000
Zinger Burger No 140 4,320 604,800
Chicken Sandwich No 120 3,600 432,000
Egg Sandwich No 100 1,440 144,000
Beef Sandwich No 110 720 79,200
Club Sandwich No 140 3,600 504,000
Hot & Sour Soup (2 Servings) No 150 1,440 216,000
Hot & Sour Soup (4 Servings) No 280 720 201,600
Chicken Corn Soup (2
Servings) No 150 1,440 216,000
Chicken Corn Soup (4 201,600
Servings) No 280 720
Plain Rice No 100 720 72,000
Chicken Fried Rice No 160 2,880 460,800
Vegetable Fried Rice No 110 1,080 118,800
Egg Fried Rice No 130 720 93,600
Beef Fried Rice No 150 720 108,000
Beef Chili (w/o rice) No 230 1,440 331,200
Chicken Chili (w/o rice) 1,800 450,000
French Fries (per plate) No 50 1,440 72,000
Cole Slaw No 25 1,440 36,000
Soft Drinks (Large) No 80 2,160 172,800
Soft Drinks (Regular 250ml) No 20 74,880 1,497,600
Total Sales Revenue 10,080,000

12.10 Other Costs

Machinery Maintenance: All machines require routine cleaning and

maintenance after every three months and an annual service which costs

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around 1% to 5% of the total cost depending upon the use of the machine
and operator's skill. The maintenance cost for machinery is assumed at 2.5%
of the depreciated cost of machinery and equipment.
 Rent and deposits: The proposed premises will be acquired on a rental
basis with 3 month deposit and 3 months advance rent after which rent will
be payable on a monthly basis. The rent is estimated to be Rs. 85/
Sqft/month amounting to Rs. 42,500 per month for the proposed fast food
outlet (500 Sq Ft.). A fixed Gas Security amounting to Rs. 250,000/- for gas
connection (GSD) would have to be deposited with the local utility agency.
 Utilities Requirements: The following table presents the estiamted breakup
of utilities on a monthly basis:
Description Monthly
Charges (Rs.)
Electricity 35,000
Gas 22,000
Water 3,000
Telephone 3,000
Total 63,000

 Working Capital Requirements: It is estimated that an additional amount of

approximately Rs. 321,615 will be required as cash in hand to meet the initial
working capital requirements / contingency cash. The requirement is based
on the rent, utilities and salaries expenses for at least one month and 5-6
days’ raw material inventory. The following table gives the break up.
Description Days Charges (Rs.)
Utilities 30 63,000
Salaries 30 129,000
Raw Material 6 87,115
Rent 30 42,500
Total 321,615

 Preliminary Expenses: The provision for preliminary expenses is assumed

to be Rs. 25,000, which will be amortized equally over a 5 year period.
 Miscellaneous Expenses: A monthly figure of Rs. 30,000 (1,000 per day) is
assumed to be incurred for miscellaneous expenses which are expected to
increase at the rate of 10% per annum for the projected period.

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 Financial Charges: It is assumed that long-term financing for 7 years will be

obtained to finance and establish the fast food setup, including
premises/shop renovation, purchase of machinery & equipment, purchase of
inventory etc. This loan facility would be acquired at a rate of 08% per
annum with 84 monthly installments over a period of seven years. The
installments are assumed to be paid at the end of every month.
 Taxation: The business is assumed to be run as a sole proprietorship;
therefore, tax rates applicable on the income of a non salaried individual
taxpayer are used for purpose income tax calculation.
 Cost of Capital: The cost of capital is explained in the following table:
Particulars Rate
Required return on equity 20.0 %
Cost of finance 08.0 %
Weighted average cost of capital 09.2 %

The weighted average cost of capital is based on the debt/equity ratio of

90:10.

13. CONTACTS - SUPPLIERS, EXPERTS/CONSULTANTS

There are many local suppliers of fast food machinery working in Karachi and
other cities that may be contacted for quotes or procurement.
Machinery Supplier Contact
Hussain Engineering
Office #C-34, Modern Complex, Sector 11-1, North Karachi
Karachi
Phone: 021-36979850
Fax: 021-36976570

Director General
National Institute of Food Science and Technology
University of Agriculture, Faisalabad
Phone:041-9200161-70/3011

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14. ANNEXURE

14.1 Annexure 1 - Income Statement

FAST FOOD RESTAURANT

Projected Income Statement (Rs.) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Revenue 10,080,000 11,289,600 12,644,352 14,161,674 15,861,075 17,764,404 19,896,133 22,283,669 24,957,709 27,952,634

Net Sales 10,080,000 11,289,600 12,644,352 14,161,674 15,861,075 17,764,404 19,896,133 22,283,669 24,957,709 27,952,634
Raw Material Cost 6,110,640 6,843,917 7,665,187 8,585,009 9,615,210 10,769,036 12,061,320 13,508,678 15,129,720 16,945,286
Labor & Salaries 1,548,000 1,702,800 1,873,080 2,060,388 2,266,427 2,493,069 2,742,376 3,016,614 3,318,275 3,650,103
Utilities 756,000 831,600 914,760 1,006,236 1,106,860 1,217,546 1,339,300 1,473,230 1,620,553 1,782,608
Cost of Sales 8,414,640 9,378,317 10,453,027 11,651,633 12,988,497 14,479,651 16,142,996 17,998,522 20,068,548 22,377,997
Gross Profit 1,665,360 1,911,283 2,191,325 2,510,041 2,872,578 3,284,754 3,753,136 4,285,146 4,889,161 5,574,636

General Administrative & Selling Expenses

Rent Expense 510,000 561,000 617,100 678,810 746,691 821,360 903,496 993,846 1,093,230 1,202,553
Office & Miscellaneous Expenses 360,000 396,000 435,600 479,160 527,076 579,784 637,762 701,538 771,692 848,861
Amortization Expenses 5,000 5,000 5,000 5,000 5,000 0 0 0 0 0
Depreciation Expense 136,475 122,828 110,545 99,490 89,541 80,587 72,528 65,276 58,748 52,873
Maintenance Expense 21,341 19,207 17,286 15,558 14,002 12,602 11,342 10,207 9,187 8,268
Subtotal 1,032,816 1,104,035 1,185,531 1,278,018 1,382,310 1,494,333 1,625,128 1,770,867 1,932,857 2,112,556
Operating Income 632,544 807,249 1,005,794 1,232,023 1,490,268 1,790,421 2,128,008 2,514,279 2,956,304 3,462,081

Financial Charges (08% Per Annum) 151,573 133,188 113,277 91,713 68,359 43,067 15,676 0 0 0

Earnings Before Taxes 480,971 674,061 892,517 1,140,310 1,421,909 1,747,354 2,112,332 2,514,279 2,956,304 3,462,081
Tax 8,097 27,406 56,378 93,547 135,786 196,971 269,966 351,070 461,576 588,020
Net Profit 472,874 646,655 836,140 1,046,764 1,286,123 1,550,383 1,842,366 2,163,209 2,494,728 2,874,061

Monthly Profit After Tax 39,406 53,888 69,678 87,230 107,177 129,199 153,530 180,267 207,894 239,505

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14.2 Annexure 2 – Statement of Cash Flow

FAST FOOD RESTAURANT

Projected Statement of Cash Flows (Rs.) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Cash Flow From Operating Activities

Net Profit - 472,873.6 646,654.6 836,139.7 1,046,763.5 1,286,122.5 1,550,382.8 1,842,365.5 2,163,209.4 2,494,727.7 2,874,060.5
Add: Depreciation Expense - 136,475.0 122,827.5 110,544.8 99,490.3 89,541.2 80,587.1 72,528.4 65,275.6 58,748.0 52,873.2
Amortization Expense - 5,000.0 5,000.0 5,000.0 5,000.0 5,000.0 - - - - -
(Increase) / Decrease in RM Inventory - (10,454) (11,708) (13,113) (14,687) (16,449) (18,423) (20,634) (23,110) (25,883) (28,989)
Net Cash Flow From Operations - 603,895 762,774 938,571 1,136,567 1,364,215 1,612,547 1,894,260 2,205,375 2,527,593 2,897,945

Cash Flow From Financing Activities

Receipt of Long Term Debt 1,994,728

Repayment of Long Term Debt (221,510) (239,895) (259,806) (281,370) (304,724) (330,016) (357,407) - - -
Owner's Equity 221,636

Net Cash Flow From Financing Activities 2,216,365 (221,510) (239,895) (259,806) (281,370) (304,724) (330,016) (357,407) - - -

Cash Flow From Investing Activities

Construction Cost (235,000)

Office Furniture (948,500)
Equip & M/C (181,250)
Advance Rent (505,000)
Preliminary Expenses (25,000)
Raw Material Inventory (87,115)
Net Cash Flow From Investing Activities (1,981,865) - - - - - - - - - -

NET CASH FLOW 234,500 382,385 522,879 678,765 855,197 1,059,491 1,282,531 1,536,853 2,205,375 2,527,593 2,897,945

Cash at the Beginning of the Period - 234,500 616,885 1,139,764 1,818,528 2,673,725 3,733,216 5,015,747 6,552,600 8,757,976 11,285,568
Cash at the End of the Period 234,500 616,885 1,139,764 1,818,528 2,673,725 3,733,216 5,015,747 6,552,600 8,757,976 11,285,568 14,183,513

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14.3 Annexure 3 – Balance Sheet

FAST FOOD RESTAURANT

Projected Balance Sheet (Rs.) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Assets
Current Assets
Cash & Bank Balance 234,500 616,885 1,139,764 1,818,528 2,673,725 3,733,216 5,015,747 6,552,600 8,757,976 11,285,568 14,183,513
Raw Material Inventory 87,115 97,568 109,277 122,390 137,076 153,526 171,949 192,583 215,692 241,576 270,565
Prepaid Rent and GSD 505,000 505,000 505,000 505,000 505,000 505,000 505,000 505,000 505,000 505,000 505,000
Total Current Assets 826,615 1,219,453 1,754,040 2,445,918 3,315,802 4,391,742 5,692,696 7,250,183 9,478,668 12,032,144 14,959,077

Fixed Assets
Fast Food Machinery 948,500 853,650 768,285 691,457 622,311 560,080 504,072 453,665 408,298 367,468 330,722
Shop 235,000 211,500 190,350 171,315 154,184 138,765 124,889 112,400 101,160 91,044 81,939
Office Fixtures 181,250 163,125 146,813 132,131 118,918 107,026 96,324 86,691 78,022 70,220 63,198
Total Fixed Assets 1,364,750 1,228,275 1,105,448 994,903 895,412 805,871 725,284 652,756 587,480 528,732 475,859

Preliminary Expenses 25,000 20,000 15,000 10,000 5,000 - - - - - -

Total Assets 2,216,365 2,467,728 2,874,488 3,450,821 4,216,214 5,197,613 6,417,980 7,902,939 10,066,148 12,560,876 15,434,936

Owner's Equity 221,636 694,510 1,341,165 2,177,304 3,224,068 4,510,190 6,060,573 7,902,939 10,066,148 12,560,876 15,434,936

Long Term Liability 1,994,728 1,773,218 1,533,323 1,273,517 992,146 687,423 357,407 - - - -

Total Equity & Liabilities 2,216,365 2,467,728 2,874,488 3,450,821 4,216,214 5,197,613 6,417,980 7,902,939 10,066,148 12,560,876 15,434,936

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14.4 Useful Project Management Tips

Technology
 List of Machinery & Equipment

Description Quantity
Freezers (12 cf.) 2
Broast Machine (15 Pound Capacity)* 1
Deep Well Fryer (Single Valve With 2
1
Baskets)
Hot Plate for Burgers, Kebab, Sandwiches
1
(30"x22")
Bin Marry Soup Container (2 Valve With
1
Steel Cabinet)
Potato Cutter (8mm) 1
Peeler (4.5 Kg Potato Peeling Capacity) 1
Microwave 1
Generator 1.5 kva 1
Keg rack and others 2

 Required spare parts & consumables: Suppliers credit agreements and

availability as per schedule of maintenance be ensured before start of
operations.
 Energy Requirement: The energy requirements should be properly assessed
and alternate source of energy for critical operations must be arranged in
advance.
 Machinery Suppliers: Suppliers should be asked for training and after sales
services through a proper contract.
 Quality Assurance Equipment & Standards: Products’ quality standards
must be defined and a system to check them instituted; this improves
credibility.
Marketing
 Product Development & Packaging: Expert's help may be engaged for
product/service and packaging design & development
 Ads & P.O.S. Promotion: Business promotion and dissemination through
banners and launch events is recommended. Product broachers should be
developed from quality service providers.

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 Sales & Distribution Network: Expert's advise and distribution

agreements are required.
 Price - Bulk Discounts, Cost plus Introductory Discounts: Price should
never be allowed to compromise quality. Price during introductory phase may
be lower and used as a promotional tool. Product cost estimates should be
carefully documented before price setting.

Human Resources
 List of Human Resource

Description No. of
Employees
Owner Manager 1
Kitchen Supervisor 1
Cook 3
Servers 3
Dishwasher 1
Cleaner 1
Total Staff 10

 Adequacy & Competencies: Skilled and experienced staff should be

considered an investment even to the extent of offering share in business
profit.
 Performance Based Remuneration: Attempt to manage human
resource cost should be focused through performance measurement and
performance based compensation.
 Training & Skill Development: Encouraging training and skill of self &
employees through experts and exposure of best practices is route to success.
Least cost options for Training and Skill Development (T&SD) may be linked
with compensation benefits and awards.

14.5 Useful Links

Prime Minister’s Office
www.pmo.gov.pk

Small & Medium Enterprises Development Authority (SMEDA)

www.smeda.org.pk

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National Bank of Pakistan (NBP)

www.nbp.com.pk

First Women Bank Limited (FWBL)

www.fwbl.com.pk

Government of Pakistan
www.pakistan.gov.pk

Ministry of Industries & Production

www.moip.gov.pk

Ministry of Education, Training & Standards in Higher Education

http://moptt.gov.pk

Government of Punjab
www.punjab.gov.pk

Government of Sindh
www.sindh.gov.pk

Government of Khyber Pakhtoonkhwa

www.khyberpakhtunkhwa.gov.pk

Government of Balochistan
www.balochistan.gov.pk

Government of Gilgit Baltistan

www.gilgitbaltistan.gov.pk

Government of Azad Jammu & Kashmir

www.ajk.gov.pk

Trade Development Authority of Pakistan (TDAP)

www.tdap.gov.pk

Security Commission of Pakistan (SECP)

www.secp.gov.pk

Federation of Pakistan Chambers of Commerce and Industry (FPCCI)

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www.fpcci.com.pk

State Bank of Pakistan (SBP)

www.sbp.org.pk

National Bank of Pakistan (SBP)

www.nbp.com.pk

First Women Bank Limited (FWBL)

www.fwbl.com.pk

Pakistan Institute of Fashion Design (PIFD)

www.pifd.edu.pk

Pakistan Fashion Design Council (PFDC)

www.pfdc.org

15. KEY ASSUMPTIONS

Particulars Assumption
Sales Increase 12 % per year
Increase in Cost of Raw Materials 12 % per year
Increase in Staff Salaries 10 % per year
Increase in Utilities (Electricity / Water / Gas) 10 % per year
Increase in Rent 10 % per year
Increase in Office Expenses 10 % per year
Debt / Equity Ratio 90 : 10
Depreciation
o Plant Building 10 % per annum (Diminishing Balance)
o Machinery & Equipment 10 % per annum (Diminishing Balance)
o Office Furniture & Equipment 10 % per annum (Diminishing Balance)
Machine Annual Maintenance Cost 2.5% of Written Down Value
Raw Material Inventory 05 days
Loan Period 7 Years
Loan Installments Monthly
Financial Charges (Loan Rate) 08 % per annum
Tax Rate Tax rates for non-salaried individuals

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