Golden Days

Disclaimer: This example is meant to illustrate how to set assumptions for a business forecasting on CASFLO APP. It is not a real company.

Golden Days is an American company founded in 2012 in LA. It is specialized in planning events, such as ceremonies, conferences and charities. All services provided by Golden Days are supplied by in-house resources instead of subcontracting other companies. It operates on a regional basis (in the LA area) and due to its strong market presence, it is planning to expand its brand to other locations through a franchise.

The franchisee will generate profit from a well-established brand, while benefiting from knowledge, a wide network of contacts (potential clients and suppliers) and a Golden Days’ strong marketing strategy. The franchisee will operate exactly like Golden Days’ business in LA (the franchisor): the same services, goals and strategies.

Exploratory contacts have been made and a potential franchisee is studying the feasibility of starting a Golden Days business in New York. This is the business case for the NY franchise, which will involve an initial franchise fee, a royalty fee and a deposit guarantee.

Business case

Revenue model

Golden Days’ revenues come from an array of services.

  • Event Planners manage, organize and schedule the ceremonies, making sure that everything goes according to the plan and to the demands of the client.
  • The Catering team takes responsibility for the food served during an event.
  • Interior Designers take charge of the decoration of the space, create styles for the space of the event, whilst advising clients on the best locations. They provide guidance on the decoration of events.
  • Lighting and Sound Installers evaluate equipment needs and take full charge of the gear needed for installation and operation, as well as its removal and maintenance.
  • The Hosting Team is composed by photographers, presenters and promoters.
  • Designing and Printing involves the creation of an event’s image, its invitations, posters, sets, stationary and other design items.
  • Budget Analysts adjust the planning of an event and its cost to the budget of the client. They provide advice to clients on how to control their expenses according to their budget. They can still present alternatives and solutions, according to a certain budget, when clients do not have a clear idea of the type of event they want.

Investment and operations chronogram

The franchisee will have to hire workers and invest in equipment and machinery. It will start operating in 2020. The franchisee will carry out more investment between 2020 and 2022, due to an expected increase in the number of clients and events which will require more equipment. The number of employees will also grow.

Forecasting assumptions

Revenues

The services include event planning, catering, designing and printing, interior design, lighting and sound installation, hosting (photographers, presenters and promoters) and budget analysis. Because some services require additional investment, the franchisee will not provide all services immediately in 2020.

The franchisee has divided the estimates according to an interval size:

  • Small events (up to 100 people)
  • Medium events (from 100 to 300 people)
  • Big events (more than 300 people).

Quantities

The quantity estimates are based on Golden Days experience an on the franchisee expectations. The franchisee does not expect carrying out any event in the first year. It also expects that te number of events grow every year.  These are the estimates of the number of events for each type of event:

Number of events 2019 2020 2021 2022 2023
Small 0 20 23 26 28
Medium 0 14 20 25 28
Big 0 5 10 13 15
Prices

The forecasted fees are based on estimates made through a market research and based on expected margins for each area.

Event Planning
Average fee (in $) 2019 2020 2021 2022 2023
Small 0 4 000,00 4 000,00 4 000,00 4 000,00
Medium 0 5 750,00 5 750,00 5 750,00 5 750,00
Big 0 7 000,00 7 000,00 7 000,00 7 000,00
Catering
Average fee (in $) 2019 2020 2021 2022 2023
Small 0 0 3 500,00 3 500,00 3 500,00
Medium 0 0 7 300,00 7 300,00 7 300,00
Big 0 0 10 200,00 10 200,00 10 200,00
Lighting and Sound
Average fee (in $) 2019 2020 2021 2022 2023
Small 0 2 800,00 2 800,00 2 800,00 2 800,00
Medium 0 4 650,00 4 650,00 4 650,00 4 650,00
Big 0 6 000,00 6 000,00 6 000,00 6 000,00
Interior Design
Average fee (in $) 2019 2020 2021 2022 2023
Small 0 3 200,00 3 200,00 3 200,00 3 200,00
Medium 0 5 900,00 5 900,00 5 900,00 5 900,00
Big 0 9 000,00 9 000,00 9 000,00 9 000,00
Photography
Average fee (in $) 2019 2020 2021 2022 2023
Small 0 2 000,00 2 000,00 2 000,00 2 000,00
Medium 0 4 000,00 4 000,00 4 000,00 4 000,00
Big 0 6 000,00 6 000,00 6 000,00 6 000,00
Presenters
Average fee (in $) 2019 2020 2021 2022 2023
Small 0 500,00 500,00 500,00 500,00
Medium 0 700,00 700,00 700,00 700,00
Big 0 900,00 900,00 900,00 900,00
Promoters
Average fee (in $) 2019 2020 2021 2022 2023
Small 0 400,00 400,00 400,00 400,00
Medium 0 600,00 600,00 600,00 600,00
Big 0 900,00 900,00 900,00 900,00
Budget Analysis
Average fee (in $) 2019 2020 2021 2022 2023
Small 0 500,00 500,00 500,00 500,00
Medium 0 750,00 750,00 750,00 750,00
Big 0 1 000,00 1 000,00 1 000,00 1 000,00
Designing and Printing
Average fee (in $) 2019 2020 2021 2022 2023
Small 0 600,00 600,00 600,00 600,00
Medium 0 850,00 850,00 850,00 850,00
Big 0 1 100,00 1 100,00 1 100,00 1 100,00
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Raw Materials and Consumables

Given that Golden Days is service based, it will use few raw materials. Its costs will be mainly composed of employees’ salaries and other compensations. Nevertheless, since the company will produce the food to be served by the catering service, it will automatically incur in costs with raw materials, namely food produces. It is estimated that the catering will bear a raw material and consumable costs around 15% of the revenue of this service.

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Operating Expenses

The expenses can be related with:

  • the services provided, such as the rent of the spaces, training for cooks and light and sound installers, renting of decoration, transportation of materials to and from events;
  • the facilities where the company will be established; for example, the rent of the new offices and respective utilities, cleaning services, IT programs, communications, security, and more;
  • the setup of the business, such as Legal, Financial and Technological Advisories, Marketing and Communications Services, the initial cost of the Franchise and respective royalties, and so on.
  • to use the Golden Days brand, besides the initial franchise fee, the franchisee has agreed to pay a fixed yearly royalty to Golden Days LA of 90 000 $.

The Operating Expenses are estimated to be:

Operating Expenses 2019 2020 2021 2022 2023
Rent of spaces 0,00$ 16 500,00$ 25 000,00$ 36 500,00$ 44 000,00$
Training 0,00$ 0,00$ 7 000,00$ 7 000,00$ 7 000,00$
Renting of decoration 0,00$ 18 500,00$ 34 200,00$ 42 500,00$ 48 800,00$
Renting of Light and Sound equipment 0,00$ 11 000,00$ 15 880,00$ 19 970,00$ 30 360,00$
Uniforms 0,00$ 3 500,00$ 8 000,00$ 8 000,00$ 5 000,00$
Transportation of material to and from events 0,00$ 1 850,00$ 6 900,00$ 8 060,00$ 9 500,00$
Rent of new offices 2 500,00$ 15 000,00$ 16 000,00$ 16 000,00$ 16 000,00$
Utilities 450,00$ 6 500,00$ 9 500,00$ 9 500,00$ 9 500,00$
Cleaning and Maintenance Services 500,00$ 2 000,00$ 2 000,00$ 2 000,00$ 2 000,00$
Office Amenities 200,00$ 1 500,00$ 3 000,00$ 3 000,00$ 3 000,00$
Communications 350,00$ 2 500,00$ 3 000,00$ 3 000,00$ 3 000,00$
Legal Advisory 2 000,00$ 8 000,00$ 8 000,00$ 5 000,00$ 5 000,00$
Financial Advisory 1 500,00$ 5 000,00$ 2 000,00$ 2 000,00$ 2 000,00$
Technological advisory 1 500,00$ 4 000,00$ 4 000,00 $ 2 500,00 $ 3 250,00$
IT programmes 0,00$ 3 000,00$ 3 500,00$ 4 000,00$ 4 000,00$
Marketing and Design Services 0,00$ 1 000,00$ 1 500,00$ 2 000,00$ 2 000,00$
Communications services 0,00$ 9 000,00$ 11 500,00$ 9 000,00$ 9 000,00$
Insurance Services 5 000,00$ 5 000,00$ 10 000,00$ 10 000,00$ 10 000,00$
Security 0,00$ 10 000,00$ 20 000,00$ 20 000,00$ 20 000,00$
Franchise Initial Cost 70 000,00$ 0,00$ 0,00$ 0,00$ 0,00$
Hire presenters 0,00$ 10 000,00$ 20 000,00$ 27 500,00$ 41 000,00$
Royalties 0,00$ 21 478,00$ 48 541,00$ 59 950,00$ 67 168,00$
Waiters and Cooks 0,00$ 0,00$ 150 000,00$ 180 000,00$ 210 000,00$
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Employees

The project will officially start in October of 2019. During the rest of this year, only employees for the Accounting and Financial Services, Marketing, Sales and Design Services, and Human Resources will be hired. An accountant will be employed right in the beginning of October, while the Marketing and Sales worker and the two Human Resources workers only start in November. In 2020, the number of workers will increase. It is important to note that:

  • Golden Days does not employ presenters. Due to the variability of prices (they depend from person to person, and on his/her degree of popularity and experience), it is very difficult to set an average salary and the company prefers to subcontract.
  • Photographers work during the events and are also responsible for the service of Designing and Printing. Therefore, both services will be offered from July of 2020 onwards and the respective employees will only start working in the second semester on that year;
  • During this year, no waiters or cooks are employed since catering will only be offered the next year.
  • Part of the waiters and cooks will be employed and part will be subcontracted.

These are the estimates of the average number of employees per year:

Number of Employees per Year 2019 2020 2021 2022 2023
Event Planners 4 5 6 6
Interior Designers 2 2 3 3
Waiters and Cooks 10 15 18
Lighting and Sound Installers 5 5 5 6
Photographers and Designers 2 2 2 3
Doormen 2 2 3 3
Budget Analysts 1 1 2 2
Marketing, Sales and Design Services 1 2 2 3 3
Accounting and Financial Services 1 2 2 3 3
Human Resources 2 3 2 1 1
Receptionists 1 1 1 1
Executive Director 1 1 1 1 1

The franchisee of Golden Days expects to pay the following amounts to employees:

Employees Yearly Gross Salary Prizes and Bonus Non-social security costs
Event Planners 21 350,00$ 500,00$ 1 000,00$
Interior Designers 21 350,00$ 500,00$ 1 000,00$
Waiters and Cooks 10 675,00$ 250,00$ 1 000,00$
Lighting and Sound Installers 21 350,00$ 500,00$ 1 000,00$
Photographers and Designers 21 350,00$ 500,00$ 1 000,00$
Promoters 10 700,00$ 250,00$ 1 000,00$
Budget Analysts 21 335,00$ 500,00$ 1 000,00$
Marketing, Sales and Design Services 21 400,00$ 500,00$ 1 000,00$
Accounting and Financial Services 21 400,00$ 500,00$ 1 000,00$
Receptionists 21 330,00$ 500,00$ 1 000,00$
Human Resources 21 400,00$ 500,00$ 1 000,00$
Executive Director 30 000,00$ 500,00$ 1 000,00$

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Other Gains and Costs

Investment and Operational Subsidies

The franchisee of Golden Days decided to apply for a subsidy of the US Government with the purpose of obtaining some monetary aid to start the business, hire the necessary workers and find the right facilities and respective services. Since the franchisor is very well known and is bringing a lot of development into the industry, this franchisee is seen as a potential success and the Government accepted to subsidize it. The company then received 100,000$ in 2019 and 50,000$ in 2020.

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Investment

The investment made by the company is spread through the several years of the project and relies on the purchase of cooking machinery and other cooking supplies, photographical and printing material, computers and similar equipment, and office equipment.

2019 2020 2021 2022
Photographical and Printing Material
Quantity 7,00 5,00 5,00
Price 200,00$ 200,00$ 200,00$
Total Investment 1 400,00$ 1 000,00$ 1 000,00$
Computers and similar equipment
Quantity 4,00 15,00 15,00
Price 1 000,00$ 1 000,00$ 1 000,00$
Total Investment 4 000,00$ 15 000,00$ 15 000,00$
Office equipment
Quantity 15,00 5,00 15,00
Price 100,00$ 60,00$ 60,00$
Total Investment 1 500,00$ 300,00$ 900,00$
Cooking machinery
Quantity 10,00 5,00
Price 1 000,00$ 1 000,00$
Total Investment 10 000,00$ 5 000,00$
Other cooking supplies
Quantity 15,00 10,00
Price 40,00$ 40,00$
Total Investment 600,00$ 400,00$

Although catering is only available from 2021 on, cooking machinery has to be acquired early in 2020 due to the fact that it not all the material is available when the purchase is made and even the equipment that is already available takes some time to arrive.

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Financing

Issued Capital

The franchisee shareholder expects to deploy 200,000$ in share capital to finance the early stage of activity. In the following two years, it will apply another 200,000$ and 100,000$ respectively.

Equity Loans

During the first 3 years, the franchisee shareholder will give financial assistance to finance the project, introducing 10,000$, 10,000$ and 20,000$ in 2019, 2020 and 2021, respectively, at an interest rate of 4%. In 2023, the shareholders plan to finance the company with more 20,000$, expecting the annual interest rate to be constant at 4%.

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Other Assets and Liabilities

Noncurrent Assets

The franchisee will have to pay a deposit of 50,000$ (to be returned in the end) to the franchisor as a guarantee that all the rules set by the original company and all the services and processes respect the franchise agreement. Because the franchisee intends to own the right for more than one year, it as a noncurrent asset.

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Feasibility Analysis

The 10-year US Government Bonds were considered as the risk-free asset for this project. They have been presenting a decreasing behavior for the last year, being around 2.08% at the moment, and are expected to keep decreasing, so a rate of 2% was then considered as risk free rate. Following the same rationale for the Market Portfolio and for the Market Risk Premium, these were estimated to have the values of 6% and 4%, respectively.

As for the Beta, it was obtained from the estimation of the Beta of the respective industry, considering a group of 168 companies and reaching a value of 1.25. From this procedure, we also got a debt-to-equity ratio of around 36%, allowing us to establish an equity weight of 74%.

Finally, and after a careful research, we found that the American interest rates were recorded at 2.5%.

Taking all of the above into consideration, we were able to get:

  • Cost of Equity = 7,00%
  • Cost of Debt = 1,50%
  • WACC = 5,57%
  • Perpetuity growth = 3,9%
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