Welcome to my comprehensive financial model for a proposed shawarma shop in Oshodi, Lagos. This model is designed to forecast the business's income, balance sheet, and cash flow over its first year of operation. The purpose is to secure a business loan and provide a detailed financial roadmap for the venture.
As a freelancer specializing in financial modeling and analysis, I've crafted this model using industry-standard tools and techniques. It not only meets the requirements set by financial institutions but also serves as a robust template for strategic decision-making.
In this case study, I've developed a detailed financial model for launching a small but ambitious shawarma shop in the bustling area of Oshodi, Lagos. The goal is to create a thriving business that meets local demand and secures a strong foothold in the market. This model is part of an application for a business loan, encompassing comprehensive forecasts for the shop's income, balance sheet, and cash flow.
To open and operate the shawarma shop, the following initial investments are required:
- Shawarma Machine: ₦1,000,000.00
- Furniture and Fixtures: ₦3,500,000.00
- Miscellaneous Inventory: ₦500,000.00 (aluminum foil, raw materials, consumables)
- Cash Reserves: ₦500,000.00
Total Uses of Funds: ₦5,500,000.00
The funds needed will be sourced through a combination of personal investment and external financing:
- Owner's Equity Investment: ₦2,500,000.00 (from personal savings)
- Bank Loan: ₦3,000,000.00
Total Sources of Funds: ₦5,500,000.00
Based on market research and analysis of similar shops in the area, the following revenue assumptions have been made:
- Daily Sales Volume: An average of 120 wraps of shawarma per day throughout the year.
- Product Mix:
- Large Wraps: 40% of total sales
- Small Wraps: 60% of total sales
- Pricing:
- Large Wrap: ₦4,000.00 each
- Small Wrap: ₦3,500.00 each
Projected operating costs for running the shop include:
- Rent Expense: ₦1,200,000 per month
- Consumables Cost: ₦600.00 per wrap (average cost across all wrap sizes)
- Staff Costs:
- Barista's Salary: ₦500,000 per year
- Additional Staff Costs and Benefits: 25% of the barista's salary
- Utilities: ₦75,000 per month (electricity, heat, water)
- Company Income Tax Rate: 30%
Operational assumptions regarding business days and expected fluctuations:
- Monthly Business Days: Adjusted per month to reflect holidays and weekends.
- Seasonal Adjustments: Sales volume projections account for seasonal trends and peak periods to ensure realistic forecasting.
I believe that the main drivers of profitability for the shop will be the average number of wraps sold per day and the rent paid. To account for potential variations, I've implemented a scenario analysis:
-
Worst-Case Scenario:
- Reduce wraps sold per day by 20 wraps.
- Increase rent by 10%.
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Best-Case Scenario:
- Increase wraps sold per day by 20 wraps.
- Reduce rent by 10%.
These scenarios help gauge the financial impact of changes in key business drivers, ensuring robust planning and risk management.
The income statement projects the shop's profitability over the first year:
- Revenue Calculation:
- Calculate the total number of wraps sold per day, adjusted for seasonality.
- Split the total wraps into large and small based on the 40/60 ratio.
- Multiply the number of wraps by their respective prices to compute monthly revenue.
- Cost of Goods Sold (COGS):
- Multiply the total wraps sold by the consumables cost per wrap.
- Operating Expenses:
- Include rent, staff salaries, utilities, and other overheads.
- Depreciation:
- Apply straight-line depreciation for fixed assets.
- Net Income Before Tax:
- Revenue minus COGS and operating expenses.
- Net Income After Tax:
- Apply the 30% income tax rate.
The balance sheet provides a snapshot of assets, liabilities, and equity:
- Assets:
- Current Assets: Cash and inventory.
- Fixed Assets: Shawarma machine, furniture, and fixtures (less accumulated depreciation).
- Liabilities:
- Short-Term Liabilities: Any payables or accrued expenses.
- Long-Term Liabilities: Bank loan.
- Equity:
- Owner's equity investment.
- Retained earnings.
The cash flow statement tracks the inflow and outflow of cash:
- Cash Flows from Operating Activities:
- Cash receipts from sales.
- Cash payments for COGS and operating expenses.
- Cash Flows from Investing Activities:
- Initial purchase of fixed assets (reflected as cash outflows).
- Cash Flows from Financing Activities:
- Proceeds from the bank loan.
- Owner's equity contribution.
A detailed depreciation schedule using the straight-line method:
- Shawarma Machine:
- Cost: ₦1,000,000.00
- Useful Life: 3 years
- Annual Depreciation: ₦333,333.33
- Furniture and Fixtures:
- Cost: ₦3,500,000.00
- Useful Life: 10 years
- Annual Depreciation: ₦350,000.00
This schedule impacts both the income statement (through depreciation expense) and the balance sheet (through accumulated depreciation).
This financial model offers a thorough and realistic projection of the shawarma shop's financial performance in its initial year. It demonstrates:
- Profitability Potential: With detailed revenue and expense projections, the model showcases the business's ability to generate profit.
- Financial Viability: The balance sheet and cash flow statement confirm the shop's capacity to meet its financial obligations.
- Strategic Planning: The model serves as a valuable tool for strategic decision-making and financial planning.
As a dedicated freelancer in financial modeling, I bring precision, expertise, and a keen understanding of business dynamics to every project. If you're looking for a professional to help turn your business ideas into concrete financial plans, let's connect!
- Email: ugwupaschal@gmail.com
- LinkedIn: LinkedIn Profile
- GitHub Portfolio: Github Link
Your vision, my expertise—together, we'll build a solid financial foundation for success.