Major Risks and Financial Analysis of the Sweet Berry Bakery Company - Assignment Example

Business Plan Final Report of the project: of the numbers: of the Company Sweet Berry Bakery Company Address: Telephone: Fax numbers: Email: Web page: Key company contacts and their titles: Description of the business The Sweet Berry Bakery Company is a small pastry business that is to be opened as a new business venture in the food retail industry of Canada. The business will focus on developing and delivering innovative bakery products and customized services to the target customer groups. The company is presently selling its bakery products through an online store. However, now it aims to open up a brick and mortar store for the physical delivery of products to the customers. Sweet Berry Bakery Company plans to take up a successful business model similar to the one used by Indulge Bakery Company which conducts its business in Colorado. A letter of transmittal Organization of the report The report is prepared for developing and presenting a business plan for the launch of a new business. The business under consideration in this business plan is a bakery business which will be opened up in the form of physical stores in the food retail market of Canada. The report starts with a small discussion regarding what the business will be about and where it will be opened up. This is followed by an introduction that would help the reader of the business plan to understand the main goals of the business plan and act as a guiding section for the reader to keep a track of the whole business plan and its different sections. The report is written in clear and simple language with proper headings and subheadings provided in each section so that the reader of the business plan is able to understand every part of the report easily. Simple words and small well-constructed sentences have been used to make the business plan easily readable as well as easily comprehendible. The business plan includes a section for the analysis of the internal and external factors that may directly or indirectly impact the business. Apart from this, a thorough financial analysis has also been conducted to understand the financial scopes and performances of the Sweet Berry Baker Company in the next 3 years. Thus, the marketing, operational and financial requirements and constraints have been studied in detail while preparing this business plan. Probability of implementation The business plan is prepared with the aim of attracting investments from different types of institutional and individual investors like venture capitalists, private equity firms, angel investors, banks and other financial institutions, corporate institutions, private investors etc. Also, the business plan would serve as a document for setting the initial operational standards, product and service requirements and features and the functioning requirements of the Sweet Berry Bakery Company in the near future. The business plan includes an assessment of the products and services, the target customer groups, market analysis of the Canada food retail market, competitor analysis in the same market, facility and operability analysis for the business etc. Apart from these factors, the value proposition elements for the bakery house are also identified and discussed. The analysis of the human resources required including their skill sets and gaps in skills and expertise are discussed. Also, a business contingency plan is developed to act as the backup plan for the bakery house in case the initial plans for the business do not seem to succeed in the new market. The business plan can be implemented to understand the present situation of the Canada food retail industry and also to understand the gaps and opportunities present in this segment. This would help the clientele to use this report as a referring and guiding document while setting up the new business and developing suitable strategies to acquire success, sustainability, profitability and competitiveness in this market. Challenges A number of challenges were faced in the process of development and documentation of the report. The analysis of the products and service standards and qualities had to be done on the basis of the differentiated requirements of the selected market. The collection of data related to the food retail segment of Canada was a difficult process because many necessary data are not adequately available in the public domain. The financial projections had to be prepared on the basis of a number of assumptions which may differ from the actual scenarios of operating in the market. These may act as hindrances to the achievement of the sales and revenues by the company in the practical scenario. Suggestions In order to improve this kind of work prepped in the next session, several things are to be considered right from the concept formulation stage of preparing the business plan. All the necessary data that would be used in developing the business plan should be collected beforehand. Also, it should be ensured that collected market data are up to date and valid. Apart from this, the financial projections of the business should be prepared based on the practical situations in the external business environment and by mapping the internal financial and operational resources and capabilities of the business with the standard requirements of the industry. Introduction This case study focuses on the Sweet Berry Bakery Company. It is a manufacturer of bakery products. The firm deals in the food retail industry. Presently the company is focusing on implementing its venture concepts for developing the financial condition of the business. The notion of this venture is to develop innovative bakery products and service for its customer. This concept will also help the company to evaluate and develop its future plans, costs, problems etc. It expects that with the involvement of more capital of some individuals and groups the company can become financial stronger and develop its business. In venture concept individuals get involved into the business in the search of undertaking bid profits. New business ideas are developed for this which helps in the growth of the business (Allen, 2011). A high risk is involved into it. For implementing any plan or business proposal intensive research and planning is to be done. Presently the organization is selling its products online or through its stories. But this is specific to one region. This case study also focuses on the process of ordering its products through online or through stores. It highlights the company’s process of customizing the products according the needs and tastes of its customers. This company manufactures different varieties of bakery products for its different segments of targeted customers. Keeping in mind about its elder customers the company manufactures products with exotic ingredients such as cassava, miller etc. This company follows the business model of Indulge bakery of Colorado. Locally the company does not have any such strong competitors. Small traditional bakeries are there which are not up to the level of Sweet Berry Bakery Company. This firm mainly targets the young customers, working woman etc. who are very fond of bakery products. It also needs many other facilities like advertising, marketing and technological improvements for developing its business. A detailed of financial report of the company covering the its balance sheet, income statements of each month of venture capital is operation is shown in this case study. The assumption about the clients, production cost, and product and services price of Sweet Berry Bakery Company is projected here. The infrastructural cost required to accompany the company plans are also discussed in this case (Fullen and Podmoroff, 2006). Discussion The product or service The Sweet Berry Bakery Company manufactures bake products. In the food retail industry bake products have huge demands. This company continued to satisfy its customers by developing its products. Sweet Berry Bakery Company’s products included fresh bread, cakes rolls, and pastries etc. These products are demanded by the customers on the daily basis. The company also makes customized pastries. For manufacturing these customized pastries the company provided the facility to its customers to log into the company’s website and choose the ingredients for making the pastries. By offering this facility the company is allowing its customers to specify their needs. It also helps them to purchase product according to their medical concerns and health. Sweet Berry Bakery Company also produces cake without using dairy products on the demand of its clients who are lactose intolerant. There are many value propositions of this company. It provides the facilities many facilities to its customers for purchasing its products. The potential clients The targeted customers of The Sweet Berry Bakery Company are all young working professionals. Middle class people, mother, old ladies are also potential customers of the company. Its product is also consumed by the older age group of people. The company has chosen its target market very carefully. To some extent a young mother is expected to be a young working professional. This means that she does not have ample time to bake products which tastes good and healthy. As she is working so she can have disposable income. This is the place where the company mainly focuses. The company advertises about its website in a wide way which attracts this targeted customers who can easily choose the type of the pastry they want which their selected ingredients. The young people are also very fond of having bake foods. This targeted customer helps the company to increase its sales. The people having unique dietary requirements are also its potential customers. The value proposition The organization’s main value proposition is it manufactures customized baked food product according to the taste and need of its customers. It provides 24 hours of service. Its customer can order its product on any time and the company will deliver the order within two hours. This company has equipment’s which provide it a turnaround of 24 hours. But other bakeries require 72 hours for completion of custom order. The Sweet Berry Bakery Company uses exotic ingredients which are healthier than normal wheat flour. The online presence of the company makes its customer base wider. It serves customized food to its buyers with a unique decoration. The company has in-house artists who draw the face of person on the cake and make it special. Instead of sending flower or fruit basket to someone the firm introduced the unique idea of sending cupcake baskets. The contract with its suppliers enables them to purchase goods in a fixed cost which is not influenced by fluctuations. For this the company gets the valued positioned which helps them to keep the expenses of the suppliers constant (Blackwell, 2011) The facilities needed The organization requires the facilities of manufacturing special cakes which can be produced in a mass for supplying to the super market. It should have the facility of conducting intensive research on its customer and innovating new products. The company should have the facility of getting sponsors for benefitting the company financially. It must have a team who is dedicated in planning and preparing new trading ideas. The company should be located near the central part of the business district. This facility of proper location will enhance its sale. It also needs two motorcycles to facilitate its delivery process. The firm is going to launch new products such as bread manufactured from sweet potato flour. So it must have the technological facility to support this. The company needs to have excellent marketing and advertising facilities (Lee, 2011). The basis for believing your claims These facilities are required for Sweet Berry Bakery Company in order to maintain a balance between its realistic expenses and its financial projections. This business is first of this kind so the company needs to market and advertise in product in such a way that it creates awareness among its customers. Initially the company invests in its suppliers, bakery equipment etc. so it needs to have its location in the central part of the business districts for accessing its different requirements easily. If the company has well equipped technical facilities then the investors will be interested to do different types of financial investments. It will also help to evaluate the company about its long term planning, costs and troubles. Supplying its huge amount of products in the supermarket will facilitate the company to increase its sales and develop franchise stores out of its state. Current skill sets and gaps The present set skill of Sweet Berry Bakery Company involves in selling customized pastries which are very tasty and healthy with unique designs made on them by the company’s artists. It takes online orders 24 hours through its websites and delivers that within two hours. The firm possesses the skill of making exotic flavored baked products. It manufactures product in a low cost. Sweet Berry Bakery Company has a variety of baked products. It has manufactures its product in such a way that it attracts many customers. The gap of this firm is it has not expanded its business to other regions. So it is losing the chance to explore new markets. The company is also facing a gap to be in touch with many other suppliers as the firm is not located in the central business area. Major Risk The major risk of Sweet Berry Bakery Company is the firm is uncertain about its new business proposal of introducing venture capital and its effects. Some of the traditional bakery shops of that region are its competitor. It also faces the risk that its new competitor can make an attempt to start the business by following Sweet Berry Bakery Company’s strategies of customizing the products, manufacturing unique flavored products, operating the business in a low cost etc. It is a small level business. So there is a chance that big company can overtake it (Bangs, 2005). Contingency business plan If the business of Sweet Berry Bakery Company does not move as it is planed then the company should have a contingency plan for developing its business. Presently the company is planning to introduce venture concept in its business for developing itself. It expects that this will benefit the company financially as by this process individuals or groups can join the business and raise its fund. But if the company is unsuccessful in that then it should have the plan in developing its customer base by extensive advertising of its products. It can also provide different offers and discounts in its bakery products for attractive more customers. The company has to generate more revenue for making it financially stronger. The firm can expand its business in other places for acquiring more customers. Financial Analysis Financial Overview The financial analyses of the Sweet Berry Bakery Company are done for a period of 3 years in order to understand the feasibility and profitability of the new business venture. The forecasted financial statements including the balance sheet and the profit and loss statements for a period of 3 years are developed to understand the projected sales, profit levels, assets, liabilities, fixed costs, variable cost etc. associated with the new business venture. Also, the break-even analysis is conducted for the company so as to identify the break-even point for the bakery business both in terms of time period and sales amount (Periasamy, 2009). The major assumptions considered in the financial projections and analyses are the infrastructure costs, the costs of the products and services, the operational costs, the client numbers and the prices of the bakery products and associated services provided in the bakery house (Sofat and Hiro, 2008). Fixed cost and variable cost calculation The sales from the bakery business in the first 3 years are found to be 70% of the revenues. The initial investment required for the business would be CAD 2.04 million. The fixed cost for the business in the first year is expected to be CAD 2409764. The breakup of the fixed cost incurred by the Sweet Berry Bakery Company in the fort year of its operation is given in Table 1. The variable cost for the business in the first year of its operations amounts to CAD 898709. The breakup of the variable costs incurred by the Sweet Berry Bakery Business in the first year of its operation is given in Table 2. Table 1 Fixed cost (in CAD) Administration expense 780,000 Administration benefits expense 78,000 Building rental expense 900,000 Electricity expense Outlet 360,000 Communications expense 15,600 Office expenses 7,800 Depreciation expense 143,975 Amortization of pre-operating costs 12,000 Promotional expense 112,389 Total fixed cost 2,409,764 Table 2 Variable cost (in CAD) Operation costs 1 (direct labor) 236,667 Operating costs 3 (direct electricity) 240,000 Operating costs 4 (direct water) 20,708 Operating costs 5 (direct gas) 345,139 Travelling expense 56,195 Total variable cost 898,709 The Sweet Berry Bakery Company would be established as a partnership venture which means that the profits and risks in the business would be shared by the partners. The venture has an equity and liability ratio of 1:9. Financial Statement Analysis The financial statements prepared for the Sweet Berry Bakery Company indicate that the company would be a highly profitable venture. This is because the business would be developed in a unique segment of the market in which the level of competition is very low and also because the Bakery Company would produce innovative and differentiated products and services. The Net Present Value (NPV) for the company is calculated at CAD 8.29 million. The Payback Period for the venture is 2.77 years and the Internal Rate of Return for the bakery business would be 51%. All the investment appraisal calculations indicate that the business venture is a highly profitable and feasible one. The financial calculations indicate that the new venture meets the necessary capital requirements, profitability, productivity and efficiency levels (Khan, 2004). Also, it can be established that the financial prospects of the new bakery business venture are very promising. This is because, not only the sales of products and services in this company are projected to be high, but also the cost of sales in the company is much controlled. Therefore, the gross profit levels in the company can be also be maintained at good numbers. The net profit amounts in the 3 years are found to be impressive which means that the Sweet Berry Bakery House would be much efficient in retaining its earnings into the company and create a reserve of earnings. This would act as a beneficial factor for the future business activities like business expansion, diversification, growth, acquisition etc. The total revenues from the bakery business are high in all the three years under consideration. Also, the sales have been forecasted to increasing on a steady basis. The revenues generated in the company for the 3 years under consideration are CAD 11238910, CAD 13419982, CAD 15747024, respectively. Also, the gross and net profits of the company are as per the expectations from the industry and as such, it can be said that the company would be a highly profitable venture in the retail food items segment in which it will operate (Pandey, 2006). The projected gross profits for the 3 years are CAD 2714,552, CAD 3282,766 and CAD 1890,722, respectively. However, the cost of sales of the goods and services in the bakery company is high. This is because the operations and productions of the company need continuous high expenditure. Also, the initial expenditures required for setting up the bakery houses, stores etc. are also significantly high. Though the operability of the company is a main business factor to be considered, yet if managed properly, the costs can be controlled in the most beneficial manner. The fixed costs in the business are high while the variable costs and production costs are in a controllable level. The projected financial statements including the balance sheet statement and the profit and loss statement for the Sweet Berry Bakery Business for 3 years are given in Appendix 1 and Appendix 2. Break even analysis Table 3 Break Even Analysis Total Fixed Cost (A) 2,409,764 Gross Profit (B) 2,714,552 Sales (C) 11,238,910 Break Even time (years) 0.2 Contribution margin 24% Break even sales 9977013 The break even analysis for the company is done to understand when the business would cover up its initial expenses and start making profits. The break-even point for the business is found to be remarkably less at 0.2 years. This indicates that the company can recover its initial expenses incurred in setting up the business through the high level of sales in the first year only. Also, the break even sales amount for the company is CAD 9977013 which is achieved in some months because the sale of the bakery house in the first year is impressively high at CAD 11,238,910. The contribution margin for the company is also quite good at 24%. Overall the break even analysis indicates that the company if controlled an operated properly it is likely to emerge as a highly profitable and successful business in the Canada food retail segment (Baker and Powell, 2009). The break even analysis of the Sweet Berry Bakery Business is given in the table above (Table 3). Conclusion According to the case study the company should develop its venture concept in a strong way that it gives a huge support to the company. The firm should do a detailed research for implementing its new business plans as it will create a strong impact on its customers. Presently the company has only local presence. It is suggested that the company should expand its market for developing its new customer base and increasing its business. If the location of Sweet Berry Bakery Company is in the main business center of the country then it can get ample chances to achieve its goals. This is because many investors, suppliers, customers prefer proper location which helps them to get in touch with the company easily. It is beneficial for the company to increase and develop new variety of products which will serve different types of customers. It will increase its target audience. Popularizing the brand by marking and advertising helps to build its awareness peoples mind. The financial analysis for the Sweet Berry Baker House indicates that the owners of this company should immediately consider setting up the business in a brick and mortar form. This can be done while conducting the electronic commerce business of the company simultaneously. Since, the forecasted revenues and profits of the company are projected to be high in all the coming 3 years of its operation, therefore, it can be said that the owners should consider opening the bakery houses of the company in the food retail market of Canada. The financial projections also indicate much stability for the bakery business in the coming three years. The business plan can be used as a complete document that can be presented to the private and public investors as well as to the individual and institutional investors with the aim of accessing the initial investment requirements for the business. References Allen, K. (2011). Launching New Ventures: An Entrepreneurial Approach. Canada: Cengage Learning. Baker, H. K. and Powell, G. (2009). Understanding Financial Management: A Practical Guide. New Jersey: John Wiley & Sons. Bangs. D. (2005). Business Plans Made Easy, 3/e. Canada: Entrepreneur Press. Blackwell, E. (2011). How to Prepare a Business Plan: Create Your Strategy; Forecast Your Finances; Produce That Persuasive Plan. London: Kogan Page Publishers. Fullen, S and Podmoroff, D. (2006). How to Write a Great Business Plan for Your Small Business in 60 Minutes or Less. Florida: Atlantic Publishing Company. Khan, M. Y. (2004). Financial Management: Text, Problems and Cases, 4e. Delhi: Tata McGraw-Hill Education. Lee. J. (2011). The Right-brain Business Plan: A Creative, Visual Map for Success. California: New World Library. Pandey, I. M. (2006). Finance: A Management Guide For Managing Company Funds And Profits. New Delhi: PHI Learning Pvt. Ltd. Periasamy, P. (2009). Financial Management, 2E. New Delhi: Tata McGraw-Hill Education. Sofat, D. & Hiro, I. (2008). Basic Accounting. New Delhi: PHI Learning Pvt. Ltd. Appendices Appendix 1: Projected Income Statement for Sweet Berry Bakery Company Appendix 2: Projected Balance sheet for Sweet Berry Bakery Company Read More