Thursday, April 26, 2012

Whataburger Franchise


Executive Summary:

This document is for the proposal of a Whataburger franchise. In this document you will find:
1: The company background out lining the history of Whataburger and how their business is doing today.
2: A description of the property where this Whataburger is being proposed, in Montgomery, Tx.
3: A market analysis describing the area around the proposed site as well as the demographics of the peoples living in the area.
4: An analysis of the financial planning that it will take to accomplish this project.
5: A section on how I plan on financing this investment

Company Background:

“Way back in 1950, an adventurous and determined entrepreneur named Harmon Dobson opened up the world’s first Whataburger on Ayers Street in Corpus Christi, Texas. He had a simple goal, to serve a burger
so big that it took two hands to hold and so good that with one bite customers would say, “What a burger!” He succeeded on both accounts and turned that one little burger stand into a legend known throughout Texas
and the South.

Today, each and every Whataburger is made to order, right when it’s ordered. And they’re still made with 100% pure American beef and served on a big toasted five-inch bun with all ‘the extras’ to suit your taste. Grilled jalapenos, extra bacon, three slices of cheese, no tomatoes, extra pickles? No problem, your Whataburger will be made just like you like it 24 hours a day 7 days a week.

More than half a century later, with Harmon’s son, Tom, at the company helm, Whataburger still remains family-owned and operated. Employees at Whataburger are even referred to as Family Members and it is the privilege and promise of each and every one to uphold the tradition that Harmon began. So now with over 700 Whataburger restaurants across ten states, road-trippers and hometown folks alike continue gathering under the big orange and white roofs for the fresh made to order burgers and friendly service.”1

Property/Project Description:

I am proposing to open a Whataburger franchise in Montgomery, Tx. The proposed Whataburger franchise will be located at 1916 Eva Street, Montgomery Tx, 77356. It is a roughly 1.5 acre, (65,340 sq ft.), plot with 200 ft. on the main highway that runs through Montgomery. It is also less than one mile from Montgomery High School with easy ingress/egress traveling both East and West.





 The actual building will be roughly 3,300 square feet in size, and the rest of the property will be used for necessary parking space. The Whataburger sign will be 35 ft in the air with the actual sign its self being 12 ft x 12 ft. with 12 inch letters on it. 




Market Analysis:

The primary target market for this business are the students at Montgomery High School with a  total of roughly 3,000 students. The restaurant will be on their way to and from school each day where they can get breakfast and lunch. I have done research by talking to some of the students from the school and 90% said they would stop at Whataburger for at least one of the meals. There are only two fast food restaurant competitors in Montgomery which are McDonalds and Subway. 

One of the franchise’s strengths is the fact that it is one of the few restaurants in the city as well as its close vicinity to the school. Also, the Montgomery area is growing at a rapid rate due to its proximity to Lake Conroe. A weakness is that due to lack of traffic during evening hours, there might not be a whole lot of sales during this time. However, I believe that the amount of sales in the morning and afternoon will make up for this. An opportunity for this investment is to talk to the school and see if the Whataburger would be able to provide the concessions for the football games on Friday nights. No threats come to mind at this time due to the low number of fast food restaurants in the area. 

Although the population of Montgomery City is only 640, this is because the city itself is not very large. However, within the area are roughly 51,000 people. This does not include all of the people who travel the highway running through the city going to college station, especially for the football games. 12,000 of these residents are under 18 who is our primary target market.


Financial Analysis:

The required start up costs for a Whataburger franchise are $600,000 which includes the construction of the building. The average sales per unit of a Whataburger is $1,709,000/yr2 with a projected growth of 4.1%. The average monthly franchise fee for the food industry is 5%. The average profit margin for the fast food, and more specifically the burger industry, is around 15%3. So with the profit margin and the franchise fee the operating expenses should be roughly 90% of the revenue. We will use this as our most likely scenario, with our worst and best case scenarios being 10% and 20% profit margin respectively. Other Whataburger franchises are selling anywhere from $1,200,000 to $1,900,000. With this I will use a $1,500,000 as a most likely scenario selling price with the far ends of the scale as my worst and best case scenarios.  The required rate of return that I will be expecting on this investment is 10%.

Financing:


To start this investment I will need $830,000 which includes the cost of the land and costs required by Whataburger. I can get a loan with the following characteristics:

LTV:                           75%
Interest rate:               4.5%
Amortization period:   20 yrs
PMTS:                       $5400/ mo
Holding period:           10 yrs

Discount points are not a realistic option at this time because interest rates are so low no one is buying a cheaper rate. For the rest of the amount of the investment, I will have raised that amount of capital by myself from previous ventures.





Most Likely Scenario
























Year 0 1 2 3 4 5 6 7 8 9 10

PGI $0.00 $1,709,000.00 $1,779,069.00 $1,852,010.83 $1,927,943.27 $2,006,988.95 $2,089,275.49 $2,174,935.79 $2,264,108.16 $2,356,936.59 $2,453,570.99

OI $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

(VCL) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

EGI $0.00 $1,709,000.00 $1,779,069.00 $1,852,010.83 $1,927,943.27 $2,006,988.95 $2,089,275.49 $2,174,935.79 $2,264,108.16 $2,356,936.59 $2,453,570.99

(OE) $0.00 $1,538,100.00 $1,601,162.10 $1,666,809.75 $1,735,148.95 $1,806,290.05 $1,880,347.94 $1,957,442.21 $2,037,697.34 $2,121,242.93 $2,208,213.89

NOI $0.00 $170,900.00 $177,906.90 $185,201.08 $192,794.33 $200,698.89 $208,927.55 $217,493.58 $226,410.82 $235,693.66 $245,357.10

(DS)
$64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00

BTCF $0.00 $106,100.00 $113,106.90 $120,401.08 $127,994.33 $135,898.89 $144,127.55 $152,693.58 $161,610.82 $170,893.66 $180,557.10

(Tax) $0.00 $37,135.00 $39,587.42 $42,140.38 $44,798.01 $47,564.61 $50,444.64 $53,442.75 $56,563.79 $59,812.78 $63,194.98

Selling Price $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $1,500,000.00

ATCF ($830,000.00) $68,965.00 $73,519.48 $78,260.70 $83,196.31 $88,334.28 $93,682.91 $99,250.83 $105,047.03 $111,080.88 $1,617,362.11






















Residual Cap rate 16% IRR 14%











NPV $261,288.19

 
Worst Case Scenario
























Year 0 1 2 3 4 5 6 7 8 9 10

PGI $0.00 $1,709,000.00 $1,779,069.00 $1,852,010.83 $1,927,943.27 $2,006,988.95 $2,089,275.49 $2,174,935.79 $2,264,108.16 $2,356,936.59 $2,453,570.99

OI $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

(VCL) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

EGI $0.00 $1,709,000.00 $1,779,069.00 $1,852,010.83 $1,927,943.27 $2,006,988.95 $2,089,275.49 $2,174,935.79 $2,264,108.16 $2,356,936.59 $2,453,570.99

(OE) $0.00 $1,623,550.00 $1,690,115.55 $1,759,410.29 $1,831,546.11 $1,906,639.50 $1,984,811.72 $2,066,189.00 $2,150,902.75 $2,239,089.76 $2,330,892.44

NOI $0.00 $85,450.00 $88,953.45 $92,600.54 $96,397.16 $100,349.45 $104,463.77 $108,746.79 $113,205.41 $117,846.83 $122,678.55

(DS)
$64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00

BTCF $0.00 $20,650.00 $24,153.45 $27,800.54 $31,597.16 $35,549.45 $39,663.77 $43,946.79 $48,405.41 $53,046.83 $57,878.55

(Tax) $0.00 $7,227.50 $8,453.71 $9,730.19 $11,059.01 $12,442.31 $13,882.32 $15,381.38 $16,941.89 $18,566.39 $20,257.49

Selling Price $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $1,200,000.00

ATCF ($830,000.00) $13,422.50 $15,699.74 $18,070.35 $20,538.16 $23,107.14 $25,781.45 $28,565.41 $31,463.52 $34,480.44 $1,237,621.06






















Residual Cap rate 10% IRR 6%











NPV ($206,546.91)
 
Best Case Scenario
























Year 0 1 2 3 4 5 6 7 8 9 10

PGI $0.00 $1,709,000.00 $1,779,069.00 $1,852,010.83 $1,927,943.27 $2,006,988.95 $2,089,275.49 $2,174,935.79 $2,264,108.16 $2,356,936.59 $2,453,570.99

OI $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

(VCL) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

EGI $0.00 $1,709,000.00 $1,779,069.00 $1,852,010.83 $1,927,943.27 $2,006,988.95 $2,089,275.49 $2,174,935.79 $2,264,108.16 $2,356,936.59 $2,453,570.99

(OE) $0.00 $1,452,650.00 $1,512,208.65 $1,574,209.20 $1,638,751.78 $1,705,940.61 $1,775,884.17 $1,848,695.42 $1,924,491.93 $2,003,396.10 $2,085,535.34

NOI $0.00 $256,350.00 $266,860.35 $277,801.62 $289,191.49 $301,048.34 $313,391.32 $326,240.37 $339,616.22 $353,540.49 $368,035.65

(DS)
$64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00 $64,800.00

BTCF $0.00 $191,550.00 $202,060.35 $213,001.62 $224,391.49 $236,248.34 $248,591.32 $261,440.37 $274,816.22 $288,740.49 $303,235.65

(Tax) $0.00 $67,042.50 $70,721.12 $74,550.57 $78,537.02 $82,686.92 $87,006.96 $91,504.13 $96,185.68 $101,059.17 $106,132.48

Selling Price $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $1,900,000.00

ATCF ($830,000.00) $124,507.50 $131,339.23 $138,451.06 $145,854.47 $153,561.42 $161,584.36 $169,936.24 $178,630.55 $187,681.32 $2,097,103.17






















Residual Cap rate 19% IRR 22%











NPV $764,172.68



Works Cited