As final year students in School of Business, you and three other friends decided to start your own business rather than joining the workforce. After all, you reasoned that it is the best time to be entrepreneurs before age and other family commitments catch up. In order to start a business in a structured way, you believe that obtaining a franchise is the best approach to start a business without any prior experience.

Since one of the members is a dance aficionado with a Grade 8 certificate from the Royal Academy of Dance, your team contacted a franchise owner in USA that specialises in dance enrichment programmes for 5 to 12 years old children. The franchisor, Let’s Dance Kids International Inc., was founded in 1996 and has a well-established franchising programme for countries outside the USA. Let’s Dance Kids International Inc.’ signature dance programmes for children focus on both physical development and mental well-being. It has a proven curriculum that is constantly updated to adapt to the changing market and customer needs around the world.

Excited over the possibilities of starting this franchise in Singapore, you obtained the following information from the USA franchisor:

1. An initial and one-time fee of USD20,000 is immediately payable upon signing the franchising agreement. The franchisor will provide guidance and support to start the business. There is a minimum commitment period of 3 years for the franchise agreement.
2. The franchisee may open any number of outlets but will be restricted to Singapore only.
3. The franchisee must appoint a master dance instructor to travel to the USA for programme induction, training and certification purposes. The total estimated cost of air tickets, lodging and other travel expenses is estimated to be around USD12,000 for one person for a total duration of 7 days. The master dance instructor will in turn train other dance instructors in Singapore.
   

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4. The franchisee can only market and sell courses authorised by the franchisor, and the franchisee must follow the marketing and branding guides provided. The franchisee cannot represent other dance programmes or franchises.
5. The franchisee is expected to plan and carry out appropriate level of marketing activities in Singapore.
6. There will be three key dance programmes to be introduced in Singapore: Let’s Dance Kids’ Start (5 to 6 years old), Let’s Dance Kids’ Together (7 to 9 years old), and Let’s Dance Kids’ Excel (10 to 12 years old). Each programme consists of 30 lessons per year, and each lesson is 2-hours in duration. The franchisee is allowed to determine the appropriate fees for Singapore market.
7. There shall be a 10% royalty payment for net fees collected, payable to the franchisor on a monthly basis.
8. There shall be annual fee of USD8,000 payable from the start of second year onwards. This is to maintain the franchise programme and for continual marketing and business support.
9. The franchisor will provide a cloud-based student management and billing platform for the franchisee’s use. The use of this software is provided free-of-charge to all franchisees.
10. The franchisee is responsible for the day-to-day operations and management of the dance school in line with the franchise operating procedures which will be made available to the franchisee upon signing the franchise agreement.

 

Eager to commence this business, your team identified Sime Darby Centre at 896 Dunearn Rd, Singapore 589472, as a potential location for the dance school with a total floor size of 800 square feet, which can be partitioned into a few classrooms. The lease agreement is for two (2) years at SGD15 per square feet per month. Your team has pulled together SGD60,000 as initial capital. There are no other external equity partners to the business. Based on your financial projections for two (2) years, this capital is insufficient, and the team plans to apply for a bank loan to cover the shortfall.

Required:

As part of the bank loan application process, you are required to appraise the business concept and analyse the information provided above to construct a financial analysis with two (2) years financial projections on a monthly basis. Your analysis must be based on the information provided above and to be completed in the excel template provided.