Feasibility of Patio Construction Proposal

MEMO

ABC Management Consulting

1234 No 3 Rd

Richmond, BC V1A 2B3

604-123-4567

plaker@businessmc.com

April 2nd 2005

ATTENTION: Craig King & Paul Regensburg, Owners; Chesters Place Restaurant, Ft McMurray, Alberta.

RE: FEASIBILITY OF PATIO CONSTRUCTION PROPOSAL - April 2005

Gentlemen,

I have done a complete analysis of your company's current situation, focusing specifically on the feasibility of your proposed project of a patio addition to the current location. The attached report will give you a comprehensive analysis of the situation, with the highest degree of reliability and accuracy possible, taking into consideration the available information of past financial results from the restaurant to project the future profitability of the proposed patio and its ability to recoup the costs of construction. Additional analysis will also include; the projected break even point for this project, detailed analysis of any relevant costs, suggestions for financing, examination of any qualitative factors affecting the project, and my final recommendation for moving forward.

Please feel free to contact me if you have any questions or concerns about the information I have provided you. It has been a pleasure working with you as always and I look forward to hearing from you to discuss this analysis or any other future or follow up issues which may require consultation.

Sincerely,

Paul Laker

ABC Management Consulting

TABLE OF CONTENTS

EXECUTIVE SUMMARY.....................................................................1

QUALITATIVE ANALYSIS..................................................................1

-current weekly income statement under variable costing...............................2

-projections with the patio expansion - 1st month weekly income statements.......3

highlighting payment of principle & interest on loan to finance patio

-yearly operating income projections 2005/06 w/patio built (April 05)...............6

-Depreciation Expense on Patio explained..................................................6

-Break Even Analysis for Patio Project......................................................7

QUANTITATIVE ANALYSIS

-Positive factors contributing to success of patio project.................................8

-Possible negatives to opening patio..........................................................8

FINAL RECOMMENDATION...............................................................9

EXECUTIVE SUMMARY

I have done a complete analysis of the proposal to build a Patio at your Ft McMurray location of Chester's Place Restaurant in order to assess the profitability prospects of the project. This unique service offering would, if constructed, be the first of its kind in the area and add significant competitive advantage to your business. The proposed patio expansion would increase your current seating capacity by 44% from 225 to 325 adding 100 seats to take advantage of 5 months/year of seasonal patio dining. Currently there is very limited patio dining availability for Ft McMurray residents, a population with the highest average income in the country, many residents working in the Oil & Gas industry which shows strong signs of long term sustainability in this region. These statistics indicate the probability of high percentages of disposable income for local residents, your customers, and is an indicator that local businesses will benefit on average.

This report explains the detailed analysis conducted of both qualitative and quantitative factors which you as the business owners must consider when making your final decision on whether or not to proceed with the patio addition. My final recommendation to go ahead with the immediate construction of the patio, to get full value out of the current 2005 peak patio season, is supported by calculations determining the Break Even point for the investment, which will be achieved in a short 14 months After a brief disruption in income levels, as a result of incurring the cost of the patio (approx. $65k) in 2005, causing annual operating income to drop slightly below average, in 2006 onwards due to the increases patio sale, yearly projected operating income will increase to approx. $50k greater than previous average expected operating income levels.

QUANTITATIVE ANALYSIS:

Before we can begin looking at the viability of the proposed patio addition to your restaurant we should first look at the current operations and assess its profitability. Below is an Income Statement which reflects the average weekly numbers using a two month period at Chester's as a sample. Assuming that future numbers do not vary much from this period we should have a fairly reliable basis from which to forecast future revenues and expenses. We have used a variable costing method. Since controllable costs (utilities, linen, cleaning products, glassware, etc...) remain pretty much constant we have entered them as a fixed expense.

Income statement reflecting Chester's current average weekly income under variable costing:

INCOME STATEMENT CHESTERS

(Weekly)-Variable Costing

Average Weekly Sales

(225 tables) $54,618

Less Variable Expenses:

Variable