Business Plan for the Nightclub

The Business Plan for the Nightclub

Executive Summary 

Luca Tempo 100 Club is a new trendy night club formed as a result of the partnership of Luca Pacioli and Alan. The nightclub will focus on attracting young professionals of age 20 to 25 years old.  

In this report, we have incorporated a mission statement to provide direction for the business and motivation to employees, a list of short, medium and long term objectives and a SWOT (strengths, weaknesses, opportunities and threats) analysis.  In addition, a small commercial space has become available next to the club as the current owner of the property is eager to sell it away.  To assess the viability of the expansion project, we have applied the payback period and the net present value in our analysis.  

Once opened, Luca Tempo 100 Club will have the exceptional service crew headed by Lidia, full- time manager of the bar, to guide its success.  The following report also comprises of our analysis of the membership fee (using the cost volume profit analysis) under various scenarios for the membership scheme and the profitability of the “The Big Deal” program (using the special order analysis).  

Introduction

The purposes of this report are to highlight the suggested name for the new club, set out the mission statement and objectives as well as identify the strengths, weaknesses, opportunities and threats of the business.  In addition, through our analysis, we have assessed the profitability of the expansion project under task three, the membership scheme under task four and “The Big Deal” program under task five.  The details of our report are as follow. 

Task One

We have decided to name the club, Luca Tempo 100 Club.  This is because it is relatively short, simple and easy to pronounce.  It also provides a hint on what our business is about and the choice of fast music, which often appeals to young adults.  We feel that using your name would give a unique touch to the club’s name.  Since our venture is a small business that is not well known yet and we may have limited marketing funds, having a memorable name would aid in the word-of-mouth publicity.  Furthermore, the chosen business name, which sounds trendy, would appeal to the target market and it does not limit the business growing potential (Naming a New Business 2009). 

Task Two

Mission statement: Our mission is to create an exceptional nightclub environment that satisfies the changing taste and expectations of our core customers i.e. 20 to 25 years old young professionals.

Short term Objective (0 to 12 months):

• Launch club venue with a highly publicized grand opening night party on 01/05/2010. 
• Control food cost below 30% of food revenue by 31/12/2010. 
• Control total beverage cost below 25% of beverage revenue by 31/01/2011 (Night club Business Plan 2010).

Medium term Objective (1 to 3 years):

• Increase sales of food and beverages by 25% by 31/07/2011. 
• Increase number of loyal customers via membership scheme to 2500 by 31/12/2011. 
• Exceed $1.5 million in annual sales by May 2013. 

Long term Objective (4 to 5 years):

To be able to expand business by opening three more branches across the city district and acquire a total of 10,000 members by the fifth year of plan implementation.

Strengths, Weaknesses, Opportunities and Threats:

Strengths: 

• Partners have relevant business experiences.

Since we have many years of experience in running a night club business (stated in the executive summary), we would be able to contribute our business acumen and lessons learnt from past failures in the partnership to speed up our success.

• Unique program---“The Big Deal”.

This program, which caters to young doctors, engineers, accountants and lawyers, is one of a kind and sets us apart from our competitors.  

Weaknesses: 

• Not well established.

The Luca Tempo 100 Club is a new club, which most young professionals are unfamiliar with.  In terms of admission fees, it may be higher than well established clubs as our costs may be running high initially due to low sales.

• May face lack of commitment by partners. 

The management of the nightclub is a part time vocation for us thus we may not be highly motivated to improve the quality of the club’s service.  The hiring of Lidia, who is a full time manager for Luca Tempo 100 club, will help to ensure that the club’s service standard is not hugely compromise.

Opportunities: 

• Young professionals (20 to 25 years old) are becoming more affluent and have higher disposable incomes hence are more likely to spend on entertainment.

• Online reservation service for professionals (tech savvy people) who wish to book venue for special events (birthday celebration, office gathering, etc.) can be made available on our corporate website.

• Invitation of famous pop celebrities can help to attract more young professionals to patron our club as they would be excited to get up close with their idols.  This may also boost our membership. 

• Expansion to more branches across the city district can be considered when business opportunities present to capture a bigger market share.  

• Invite new partners to raise more funds so as to have more capital for business expansion.

Threats: 

• Aggressive, strong competitors may pose a threat to our business as they are well established and thus have a strong customer base.  It may be difficult to carve out our own market share unless we have a unique selling point. 

• Government regulations may pose a hindrance to our business.  An example is the smoking regulation which may prohibit smoking in night clubs or restrict it to limited areas.  This may deter professionals, who smoke from patronizing our club.

• Young adults are increasingly more interested in leading a healthy lifestyle and are opting for natural products.  This may make our alcoholic/ fizzy drinks and fried finger food less attractive to them and thus affect sales.  Unless we extend our beverage and food range to offer healthier choices, we may lose some health-conscious consumers.

• Night clubs are potential sites for drug smuggling and this may get our business into trouble with the law.  It may also damage our business reputation if it is publicized in the newspaper.  Appointing some staff to ensure that our customers are clubbing responsibly will be a good precaution. 

• Another potential threat is the location of the club.  As it is not stated in the question where the club is situated, we do not have a clear idea where the club is located.  If the location is infamous for high crime rate or population density in that region is low, it may affect the number of potential customers patronizing our club. 

Task Three

The two methods we used for the project evaluations are the payback period and net present value method.

Net annual cash flow for each year of the expansion plan

Year	0	1	2	3	4	5
Cost of Property	(200,000)	-	-	-	-	-
Cost of Renovating	(15,000)	-	-	-	-	-
Increase in drink sales	-	90,000	75,000	65,000	48,000	35,000
Increase cost of security	-	(15,000)	(15,000)	(13,000)	(12,000)	(9,000)
Increase cost of bar staff	-	(20,000)	(20,000)	(16,000)	(14,000)	(10,000)
Residual Value	-					215,000
Net Annual Cash Flow	(215,000)	55,000	40,000	36,000	22,000	231,000

PAYBACK PERIOD

Year	Net Annual Cash Flow	Total Recovered
1	55,000	55,000
2	40,000	95,000
3	36,000	131,000
4	22,000	153,000
5	231,000	384,000

Payback Period = 4 yrs + [(215,000 – 153,000) / 231,000] x 12

Payback Period = 4 yrs + 3.22 months

Payback Period = 4 yrs 4 months

NET PRESENT VALUE (NPV)

PV = 55,000/1.11 + 40,000/ (1.11)² + 36,000/ (1.11)³ + 22,000/ (1.11)⁴ + 231,000/ (1.11)⁵ 

PV = 259,916.67 

NPV = 259,916.67 – 215,000

NPV = $44,916.67

The payback period of four years and four months is less than the intended holding period of five years.  However, the property will only be sold at the end of year five, which means that, in reality, we cannot recover our initial cost until the completion of sale of the property.  Hence, the expansion should not be undertaken though our NPV is greater than zero.

Task Four

Sunk cost (do not have any effect on future cost): Lidia’s wages of $7,000

Issue 1:

Variable Cost = 1,000 + 3,000 + 640 

(cost of making membership cards, cost of finger food for ‘members nights’ (2 functions), cost of posting newsletters to members (4 times per year) ) 

VC = $4,640

VC per member = $4,640/200 = $23.20

Fixed Cost = 1,500 + 4,000 = $5,500 

(cost of entertainment on ‘members nights’ (2 functions) and wages to doorman )

Profit = SP(X) + Contribution – VC(X) – FC 

0 = SP (200) + 2,000 – 4,640 – 5,500 

SP = $40.70

Therefore, the minimum selling price of the membership should be $40.70.

Issue 2:

• Total fixed cost: 1500 + 4000 + 2000 = $7,500

(cost of entertainment on ‘members nights’ (2 functions) , wages to doorman and advertisement campaign )

Total Variable Cost: (1000 + 3000 + 640)/200 = $23.20

0 = SP (350) + 2,000 – 23.20(350) – 7,500 

SP= $38.91

Therefore, the minimum selling price for the membership would be $38.91.

• 0 = 35(X) + 2,000 – 23.20(X) – 7,500 

X = 467 members

A total of 467 members would be required for the membership scheme to break even.

Issue 3:

VC = 1,000 + 640 = $1,640

VC per member = $1,640/200 = $8.20

Total VC = $8.20 + $15 = $23.20

0 = SP (200) – 23.20(200) – 4,000 

SP = $43.20 

The minimum selling price for the membership scheme is $43.20 if the ‘membership nights’ are eliminated.

Task Five

Sunk cost: Cost of security of $600

Variable cost: Cost of finger food of $10 per person

Additional fixed cost: Cost of hiring a DJ of $800 and hire of PA equipment of $400

Payment of professional bodies 15,000

Sale of drinks (1000 x 1.50 x 4)   6,000

Less: Variable cost (1000 x 10) (10,000)

Less: Opportunity cost (600 x 3 x 2)   (3,600)

Less: Additional fixed cost (800 + 400)   (1,200)

Income $ 6,200

Since the cost of hosting “The Big Deal” did not exceed our budget of $15,000, we can carry out the event and meet the expectations of the professional bodies without losing money.

References

Naming a New Business. 2009. http://www.starting-a-smallbusiness.com/naming-a-new-business.html (accessed January 14, 2011).

Night club Business Plan. 2010. http://www.bplans.com/nightclub_business_plan/executive_summary_fc.cfm (accessed January 14, 2011).