ADM Project

Examining Cost of Mini Enterprises

(Small Restaurants)

For our ADM (Accounting for Decision Making) project as a part of the MBA course, we have studied 2 local eateries, here in Bhubaneswar- Breathe by Biswajit, an upcoming multi-cuisine restaurant and Foodesto, a teeming roadside food truck. Both of them are small-scale establishments which do not maintain robust books of account. We tried our best to capture their business in the accounting frameworks we learned in class. Let us take you through our journey!

Breathe by Biswajit

Breathe by Biswajit is a multi-cuisine restaurant located in the heart of Bhubaneswar which offers a wide variety of dishes ranging from North Indian to Chinese. This restaurant has been rated as the most hygienic restaurant in Bhubaneswar on Zomato. He set up the business over a year ago, financed by a loan of Rs. 30-40 lakhs taken over a period of 10 years. The restaurant makes daily sales of Rs. 50,000 approximately. The place is run by a staff of 19 people including cooks and waiters. According to the owner, about a quarter of the restaurant’s sales happen over Zomato.

We have identified the following business model for the restaurant.

Business Model of Breathe by Biswajit

On an average day, this restaurant is run with a cash-in-hand of Rs. 10,000 and bank balance of Rs. 1 lakh. The restaurant is located in Unit 4, on land leased by the BMC. He pays a rent of Rs. 20,000 per month for it. An investment of Rs. 9-10 lakhs was made in the PPE, a year ago during the setting up of the business. Another 2-3 lakhs was spent on furniture. Other than the fixed costs, the business incurs variable costs on salary, electricity, gas and rent. The business is financed through a bank loan of Rs. 30 lakhs with an interest rate of 15% to be repaid over a period of 10 years. The EMI comes down approximately to Rs. 50,000 per month.

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Considering all of these factors, we have estimated that he will reach his breakeven point when he makes cumulative sales of Rs. 8,88,500. Assuming daily sales of Rs. 50,000 (as claimed by the owner), the business should break-even within 1 month. The balance sheet, income statement and other accounting statements of the business prepared by the team can be found here.

Foodesto

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The second place we visited was a food truck called Foodesto. A mobile restaurant on the streets of Bhubaneswar, it has a wide range of offerings. They serve different kinds of bread, rice, salad, lasagna, snacks and sizzlers. They also offer milkshakes and mocktails. Run by a staff of 6 people, the food truck has an average profit margin of 12-15%, according to the owner.

Business Model of Foodesto

The business is financed by a loan of Rs. 6 lakhs at an interest rate of 16% over 3 years. The food truck is a second-hand vehicle which he bought for Rs. 5 lakhs. He spends Rs. 6000 per month on fuel, on an average. The fixed cost for the business includes equipment bought for Rs. 1.5 lakhs. He operates his business with cash reserves of Rs. 1 lakh and consumes approximately Rs. 5000 worth of raw materials everyday which he purchases on credit. The food truck employs 2 chefs who are paid Rs. 18000 per month, whereas, the other workers are paid Rs. 8000. The group has done financial accounting and cost accounting for the business which can be seen here. We found that the business was running a loss of Rs. 27,000 in the month of October.

The objective of this project was to learn to create financial statements from scratch and to be able to do cost analysis using accounting frameworks. It was an insightful experience, being practically exposed to small-scale businesses and doing a real-life balancing of their books of account. It was a great learning experience and we hope to apply our learning in our own careers, soon enough!