In 2017 there were more than 44,000 Subway franchises throughout the world. This makes Subway the most popular franchise in the world. If you are looking to open your first Subway store or your 10th store, you will probably need to secure some financing from a bank or an investor.
In order to secure a business loan for a startup you will likely be asked to provide a set of financial projections. So I have developed a financial projection template specifically for a new Subway franchise.
My goal with this blog post is to walk you through the Subway financial projection template that I have created, so this will effectively serve as your User Guide for those who have purchased the financial model.
- Complete your projections by entering in your own assumptions in the blue highlighted cells on each “Input” tab
- If you have any questions about the model as you go, please email email@example.com
Input – Assumptions
The first tab is the Assumptions tab where you can enter in a number of general assumptions. Every cell that is highlighted in blue you can change. I have included some default numbers in each box, but you can change those for your specific situation.
I will walk through each section below:
Subway Startup Costs
This list of startup expenses and ranges comes from FranchiseDirect.
As you know more about your specific costs you can update these numbers.
Additionally, you can select the month that each expense will be spent during your Pre-open Phase. You will notice that some cells are not blue, so you should not change them. These months are determined based on your assumptions in the “Timeline for Opening Store” section.
Timeline for Opening Store
Below you will be able to add some assumptions related to your timeline for opening the store.
Next you can fill out some of your general assumptions for the Subway store.
A couple of notes on this section:
- Starting cash balance – should be your starting cash balance on day 0 before you have paid the franchise fee or started any construction, etc. This would not include cash that you will receive from loans or investors.
- % of inventory held as a percentage of monthly sales – is just asking how much inventory will you have in the store at any given time. Let’s say you get one truck delivery per week, and there are 4 weeks in a month, that would mean you generally have about 1 week worth of inventory on hand, or 25% of monthly sales.
- # of years of useful life for equipment – this is just asking how many years will your equipment last before you have to replace it.
- Labor cost as a % of sales – Subway corporate, or other franchise owners might be able to give you a good estimate here, but generally for similar restaurant concepts you could expect between 25% and 33% for this assumption. If you plan to work in the restaurant as an owner, you could drive down labor cost significantly, so keep that in mind.
- Food cost as a % of sales – Again you could ask corporate or another franchise owner, but 30% is probably pretty close.
- Franchise royalty – Subway charges 8% of sales as a royalty fee.
- Annual inflation rate for operating expenses – For your expenses like utilities, rent, insurance, etc you can enter in an expected annual increase for these expenses. 3% is probably a good place to start.
For your fixed assets all you need to enter is a salvage cost assumption. This just means, “what do you think you could sell your fixed assets for after their useful life is over?” It is probably safe to just assume $0.
In this section you can add investments and the month the investment is received. The assumption is that all investments would be received during the Pre-Opening Phase.
In this section you can add a Construction Loan. The model assumes that you have a Construction Loan phase where you pay interest only during the Pre-Opening Phase and then the loan will convert into a term loan once the store opens for operation.
CIT Direct Capital is one lender that specifically provides financing to Subway franchises.
Input – Sales
In this section you will enter in your sales projection assumptions. According to Business Insider the average Subway franchise has annual sales of $490,000. But this will vary greatly based on your location, so you may need to make some adjustments.
In this section you can assume an average order amount and a growth rate of that average order amount. Then you can assume the # of monthly orders and a growth rate for that as well.
Input – Operating Expenses
In the operating expense section there are 2 types of expenses. Fixed monthly expenses like rent, utilities, telephone etc and then expenses that scale with revenue. Advertising, payment processing, sales tax and franchise fees are all expenses that are a % of monthly sales.
Input – Salaries
In the salaries section it is very likely that you won’t have any salaried employees. The wages for your hourly workers are already included in the “Labor Cost as a % of Sales” so all of the Sandwich artists and cashiers etc would be part of that labor cost. If you have a general manager that doesn’t actually do any of the food preparation then they might not be included in the labor cost, and should be added as a separate salary.
Input – Loans
On the Loans tab you can add loans that you might have once you enter the “Operating Phase.” The first loan entered by default is your construction loan being termed out. The model assumes that you will pay off your construction loan through a term loan starting to pay interest and principal during the first month of operations.
You can also add other loans if you think you might need an additional loan.
Once you enter in all of your assumptions you will be able to review a number of reports. Here is a sampling of some of the reports, tables and graphs below: