4. Finance
4.3. Prospect of Financial Position in Three Years
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Basing on the prior analysis on capex, costs and expenses, Viet Village currently considering the capital mobilization by (1) self-finance and (2) bank loan. Whilst the self – finance will be conducted right after receiving the investment license and incorporation licenses, the loaning process will be performed in advance before Viet Village successfully obtaining the said licenses from authorities because any company in Taiwan is required to pay up his/her registered capital within 30 days, counting from registration date. Therefore, in order to meet the capital deadline, the loaning process will be done one month in advance before licensing formality.
In terms of loan, Viet Village will enroll for Small and Medium Enterprise Administration under the Ministry of Economic Affairs that allows a start-up company to get a loan up to NTD 18,000,000. But Viet Village only intends to apply for a sum of NTD 2,500,000 only.
Hence, the capital plan of Viet Village is summarized as follows:
Capital plan Amount Performance date
Self-finance NTD 1,049,256 After licensing
Young Entrepreneur Financing Loan NTD 2,500,000 After licensing
4.3. Prospect of Financial Position in Three Years
This part mentions about the prospect of financial position of Viet Village in three years.
Although the figures mentioned below are originated from the foregoing contents, the
restaurant makes some assumptions that might happen during the first establishment and after stable operation to as accurate as possible revenues, costs and expenses to determine
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breakeven point, payback period and, the time at which Viet Village could start earning profit. Hence, in the event the time of profit-making is earlier than the end of third operating year, the restaurant business is deemed to be potential and Viet Village can expect more profit in the future, otherwise, the business plan should be adjusted or closed to cut loss.
Assumptions of occupancy rate
In order to clarify the sales revenue of Viet Village, an assumption of customer flow/
occupancy rate should be made to estimate the number of customers indeed spending their money on restaurant and, this assumption is driven by reputation of Viet Village and seasonal factors. As a start-up restaurant, it is unreasonable to expect an occupancy rate of 100%
during the first month, however, this rate is expected to increase in the following year, depending on the performance of marketing branding process and advertising but cannot reach the absolute rate because Viet Village, after all, is a new entrant in the restaurant market. Meanwhile, the seasonal factors such as peak and off-peak seasons, month of public holidays, etc. not only decide the marketing campaign of Viet Village but also have a great impact on the sales of the restaurant. For more details, January is the first -ranked month of holidays of Taiwan with averagely eight days of Lunar New Year, followed by October with five days and April with three days while December is considered the month of exotic holiday (Christmas and New Year Eve) and year-end parties, which means, Viet Village can expect a higher sale in these months. Although other non-seasonal weather such as summer break, winter break of students can be skeptical because the restaurant does not focus on these customer target, the location near Rao He night market indicates that the tourists or local visitors to this area somehow affect the sales of Viet Village. In other words, if the tourism
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industry experiences any negative impact due to market trends or disease outbreak, the sales will drop.
Besides, according to “How Long is Too Long to Wait for a Table at a Restaurant”38, the dining time of a specific customer depends on what kind of restaurant and how bad he/she wants to stay there, on average, a customer probably spends around 40 minutes per meal at restaurant. This length of time is to determine table turnover rate, thereby clarifying how many servings per shift a table can serve. Accordingly, the lengths of lunchtime and dinner time are respectively 03 hours and 04 hours, equivalent to the table turnover rates of 4.5 and 6. In order words, a table unit can welcome 4.5 customer visits for lunch time or 6.0 customer visits for dinner time. However, basing on due care principal, the official turnover rates are estimated at 3.0 for both shifts.
Hence, assumptions below are made on the basis that Viet Village starts her business on January and, the occupancy rate starts at 40% for the first operating month and increases 5%
before reaching 60% at the fourth month thanks to the performance of marketing branding and advertising. As said, as 100% is an absolutely ideal rate and the economic downturn after COVID -19 outbreak, it is reasonable to believe that the citizens prefer to cutting spending and cooking at home and therefore, for due care purpose, the common occupancy rate of Viet Village after the fifth month will turn around 60% because Viet Village is just a new
restaurant and, the brand awareness remains low as compared to other competitors. Besides, it is assumed that the restaurant’s customer traffic in April, October and December (because of the number of public holidays during these months) and also in June, July and August
38 How Long is Too Long to Wait for a Table at a Restaurant by Laura Hahnefeld, issued by Phoenix New Times on June 13, 2012
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(because people spend more time in restaurant during summer time in Taiwan) will increase by 10%, therefore, the occupancy rate of these months will become higher than others.
However, although January and February are inclusive of new year vacation, people tend to spend time with families and, as a normal business practice here in Taiwan, the restaurants often close during this vacation, which means, the number of servings of Viet Village will decrease in these two months, causing a decline of revenue in January and February and, the decline rate is assumed to be at 10%.
Furthermore, the menu offering of Viet Village will be refreshed after the first year and, together with the reputation after one year of operation and the economic rehabilitation (which enables the citizens to retrieve their former spending habit), the average occupancy rate of the second year will increase to 70% with the same annual fluctuations as mentioned above. Meanwhile, the average occupancy rate of the third year will be stabilized at 80%.
Consequently, the occupancy rates and total servings per month of Viet Village are estimated based on the following factors:
- Total seats of Viet Village: 38 seats (equivalent to 76 seats for two work shifts);
- Total business days per month: 28 days;
- Table turnover rate: 3.0;
- Viet Village starts business as from January of YYYY year;
- Occupancy rates: 40% for the first operating month and increases by 5% before reaching 60%
after three first operating months and fixed at 60% for the regular months in the first year.
In addition, the occupancy rates in April, June, July, August, October and December will
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increase by 5% while decline by 5% in January and February as explained above. And, the occupancy rates of second and third years fluctuate as mentioned above.
- Monthly serving = (Total seats * turnover rate * occupancy rate) *28
Criteria Year 1 Monthly
serving Year 2 Monthly
serving Year 3 Monthly serving
Month of operation
Jan 40% 2,554 60% 3,830 70% 4,469
Feb 45% 2,873 60% 3,830 70% 4,469
Mar 50% 3,192 70% 4,469 80% 5,107
Apr 60% 3,830 70% 4,469 80% 5,107
May 60% 3,830 70% 4,469 80% 5,107
Jun 65% 4,150 80% 5,107 90% 5,746
Jul 65% 4,150 80% 5,107 90% 5,746
Aug 65% 4,150 80% 5,107 90% 5,746
Sep 55% 3,511 70% 4,469 80% 5,107
Oct 65% 4,150 80% 5,107 90% 5,746
Nov 60% 3,830 70% 4,469 80% 5,107
Dec 65% 4,150 80% 5,107 90% 5,746
Prospect of financial position in three years
The prospect of financial position of Viet Village provides an overview of pro forma Statement of Comprehensive Income for the restaurant business in three years, including revenues, costs and expenses, gross profit and, profit after tax, and summarizes the results of operations year by year. This Statement of Comprehensive Income is also a premise to clarify payback period and financial indicators, which are used to determine if the restaurant
effectively operates or not.
Firstly, to serve the computation of accounting entries in Statement of Comprehensive Incomes, an assumption on per capita spending as per customer is calculated on the basis of the average amount between normal serving and secret deal servings. Viet Village serves both
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lunch and dinner time with 38 seats for each shift, which means, the total seats serving per day is 76 seats. Again, for due care purpose, Viet Village assumes that, on average, a
customer having meal at the restaurant is expected to order one course, one side dish/ dessert and, one drink and, therefore, his/ her average spending is calculated based on the menu price above with following details:
Order Amount (NTD)
Average spending on ordinary dish per customer 343 Average spending on Secret Deal per customer 380
Average spending 361.5
Secondly, because Viet Village carries out quite a lot of promotion programs along the year and, this promotion costs should be recorded as a revenue deduction for all three years at an accumulated and fixed amount of NTD 300,000 per year and, this amount is allocated to April, October and December’s only with the amount of NTD 100,000 because these months are believed to incur most of public holidays in Taiwan. Although other months have minor public days, too, the promotion costs will not be recorded because of negligible amounts as compared to the first-mentioned months.
Thirdly, in terms of the indirect expenses, except for the monthly rental, depreciation of fixed assets, allocated amounts of initial capex, Viet Village incurs the administration overheads for power, water, gas, etc., which are collectively fixed at NTD 645,000 per year (or, from NTD 50,000 to NTD 65,000 per month), a salary expense on two indirect laborers (i.e. cashier and admin executive) with an amount of NTD 617,633 per year (or, NTD 54,421 per month) and, a miscellaneous amount of NTD 180,000 per year (or, NTD 15,000 per month) for other
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infrequently incurred expenses on staff’s birthdays, condolence, wedding, accident allowances, etc. that might incur during the operations; basically, the spending on miscellaneous expenses are to ensure the benefits for the employees for the purpose of strengthen the attachment between Viet Village and her employees, thereby increasing their performance results.
Fourthly, it is about the inflation rate of Taiwan. This business plan is made in the scenario that the author will indeed set up Viet Village in 2021. According to a research of
Statista.com into the inflation rate of Taiwan from 1984 to 202439, the inflation rates of Taiwan in 2022 and 2023 are around 1.44% and 1.40%, which means, the financial figures of these two fiscal years should be multiplied by 1.44% and 1.40% respectively for Cost of Goods Sold (because the prices of input raw materials increased while the direct laborers should be paid a higher salary to compensate with the inflation rate), Administrative Overheads, Salaries of Indirect Workers and, Miscellaneous (because the prices of water, power, gas, etc. will increase while indirect workers also expect a higher salary), for a more realistic scenario that matches the economic circumstance of Taiwan during this period. This assumption will affect the costs and expenses of Viet Village in second year and third year.
39 The statistics figures of Taiwan: Inflation Rate from 1984 to 2024, were published on November 26,2019 by H. Pletcher on Statista.com. This statistic specifies the inflation rate of Taiwan from 1984 to 2018 with the projection until 2024.
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Figure 14. Inflation Rates of Taiwan from 1984 to 2024 (partially chart) Fifthly, just like any other business, the owner of Viet Village also pays attention to the employees’ benefits by paying the rational salary and other associated insurances or rewards for what they contribute. In the third year of operation, Viet Village will apply a pay rise of 5% on as a sincere thanks for both direct and indirect laborers. And, this is the reason why the Costs of Goods Sold and Operating Expenses of the third year will increase as the
consequence of the growth of salaries expenses.
Last but not least, according to the Income Tax Act of Taiwan, any profit-seeking companies in this country is obliged for a corporate income tax liability (hereinafter referred to as CIT), which is computed on the basis of the CIT assessable revenue shown in the audited Statement of Comprehensive Income, which is excluded from all costs, expenses, losses and other tax
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liabilities. Besides, the applicable CIT rates40 of Taiwan are 0% for companies’ earnings lower than NTD 120,000 per year and 20% for those having earnings higher than NTD 120,000 per year.
Hence, the pro-forma Statement of Comprehensive Incomes of Viet Village in three operating years is as follows:
Viet Village Restaurant
Statement of Comprehensive Incomes For fiscal years from 2021 to 2023
Unit: NTD
No. Item 2021 2022 2023
1 Sales revenue 15,664,301 19,731,827 22,443,511
2 VAT deduction from revenue 575,928 721,719 821,021
3 Sales discount 300,000 300,000 300,000
4 Costs of goods sold 7,146,252 8,297,968 9,255,552
5 Net revenue 7,642,121 10,412,140 12,066,938
6 Administration overheads 654,288 654,288 656,877
7 Marketing 720,000 720,000 720,000
8 Depreciation of fixed assets 156,000 156,000 156,000
9 Office rental 2,160,000 2,160,000 2,160,000
10 Allocation of rental deposit 120,000 120,000 120,000 11 Allocation of premises
renovation 666,667 666,667 666,667
12 Allocation of reserve fund 153,694 153,694 153,694
40 These CIT rates take effect as from January 01, 2018 onwards. However, as for the companies having CIT assessable revenues less than TWD 500,000 per year the CIT rate is 18% in 2018, 19% in 2019, and 20% in 2020 if taxable income exceeds TWD 120,000.
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No. Item 2021 2022 2023
13 Loan interest41 34,000 34,000 34,000
14 Salary expenses for indirect
worker 933,733 933,733 989,858
15 Miscellaneous 180,000 182,592 182,520
16 Total operating expenses 5,778,382 5,780,974 5,839,616 17 Accounting profit/ loss before
tax 1,863,739 4,631,165 6,227,322
18 CIT rate 20% 20% 20%
19 CIT liability 372,748 926,233 1,245,464
20 Net profit after tax 1,490,991 3,704,932 4,981,858
1.1. 41 The interest rate applicable to Young Entrepreneur Financing Loan is calculated by the rate of 2-year deposit announced by Chung Hwa Post Bank (0.785% as at April 16,2020) plus 0.575%.
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Breakdown of Statement of Comprehensive Income – First Operating Year (Unit: NTD) Total
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Occupancy rate 40% 45% 50% 60% 60% 65% 65% 65% 55% 65% 60% 65%
Monthly serving 2,554 2,155 3,192 3,830 3,830 4,150 4,150 4,150 3,511 4,150 3,511 4,150
Gross revenue 923, 126 Deduction of 5%
input VAT Direct ingredients 244,
316 Direct labors 253,
169 Total costs of goods
sold
Net revenue 391,
701 Depreciation of fixed
assets Office rental 180,
000 Allocation of rental
deposit Allocation of reserve
fund for operations
12,8 Loan interest 2,83
3 Salary expenses for
indirect worker
profit/loss before tax (85,
CIT liability incurred
by month - - 15,2 Profit after tax (85,
022)
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Breakdown of Statement of Comprehensive Income – Second Operating Year (Unit: NTD) Total
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Deduction of 5%
input VAT Direct ingredients 371,
751 Direct labors 253,
169 Total costs of goods
sold
Net revenue 709,
122 Depreciation of fixed
assets Office rental 180,
000 Allocation of rental
deposit Allocation of reserve
fund for operations
12,8 Loan interest 2,83
3 Salary expenses for
indirect worker
profit/loss before tax 230,
CIT liability incurred by month Profit after tax 184,
278
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Breakdown of Statement of Comprehensive Income –Third Operating Year (Unit: NTD) Total
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Deduction of 5%
input VAT Direct ingredients 433,
538 Direct labors 269,
372 Total costs of goods
sold
Net revenue 853,
464 Depreciation of fixed
assets Office rental 180,
000 Allocation of rental
deposit Allocation of reserve
fund for operations
2,83 Loan interest 12,8
08 Salary expenses for
indirect worker
profit/loss before tax 370,
CIT liability incurred by month Profit after tax 296,
695
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According to the said Statement of Comprehensive Income, Viet Village indeed earns profit in the first operating year and, the payback period is after 19 months. Although this estimate is quite positive for a young start-up, it is possible because all of the costs and expense that might incur from the restaurant business are overestimated while the revenues are
underestimated for due care purpose. And, the ratio between gross revenues and total costs and expenses of three years is around 1.2, or the gross revenue remains 1.2 higher than the costs and expenses actually incurred, so, even the costs and expenses are higher than expected amounts mentioned above, the probability that the revenues can cover all costs and expenses is high.
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