A feasibility study of setting up a restaurant

Abstract

This dissertation is an exercise to help a potential entrepreneur to conclude whether it is financially feasible to open a fast food restaurant, operating an American franchise named Samurai Sam Teriyaki Grill, in San Gwann, Malta. This franchise is one of several franchises owned by Kahala Corporations. It specializes in the provision of Japanese food with an emphasis on the need to have healthier food in the fast food industry. The location of the projected restaurant was a rented take-away outlet situated in San Gwann. A sketch of the layout of the restaurant is found in Appendix 1. The catering service is being operated under the name Big Bites but the owner has goodwill and the equipment for a sum of money. Teriyaki Grill website provided the necessary information regarding the agreement between the franchiser and the franchisee (reproduced in Appendix 1) and the menu offered. The cost per dish in the local context was calculated by weighing the ingredients and cooking all the dishes on the menu and then adapting local prices subject to the conditions of the franchise agreement. Since the present fast food restaurant has its own history, it was decided to base financial projections on the current demand experienced by the present owner since these are known facts. The initial capital expenditure and the operating expenditure were then estimated in order to provide a projected Income Statement and a Cash Flow Forecast. Investment appraisal techniques were then applied to evaluate the feasibility of the proposed project. After evaluating the demand in the particular location and assessing the results of the projections and estimations, the conclusion arrived at was that the project was profitable but not viable and therefore it was not considered feasible. The final chapter explains the reasons for this negative assessment and makes recommendations to the potential entrepreneur that could render this project feasible. The choices of a better location or the increase in demand in the present location were suggested as alternative means to improve the cash flows and hence the Net Present Value of the investment in the proposed project.