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Lentil Pasta Sauce

Executive Summary

Introduction

XXXXX Foods is a lentil pasta sauce processor that is located in SK. XXXXX

Foods will have a total of five members sitting on the board of directors which includes

two internal and three external members.

XXXXX Foods will purchase cleaned lentils from a local producer. The lentils

will be cleaned and delivered for processing. They will enter a niche market with a

premium gourmet lentil pasta sauce. The product will then be marketed through Calgary

Coop out of Calgary Alberta, and eventually through Sobeys in both Alberta and

Saskatchewan.

Operations Plan

XXXXX Foods will be located in SK. The primary vehicle access, allows ease

for sourcing product in and out of the facility. The facility is a 3500ft2 floor heated,

insulated building which will be required for production of the pasta sauce.

The production will begin with the lentils being boiled in a steam jacket kettle,

which will then be transported into the mixing kettle that will contain the tomato paste.

From there the sauce will be placed into 750ml jars, sealed and shipped to the

distributors. XXXXX Foods will begin production at 70,000 units in the first year which

will leave room for expansion in the future. The majority of the production line will be

purchased from Alard Equipment and Handling Innovations.

Human Resources

XXXXX Foods will employ a total 7 employees and increased to 9 by year six

when production increases. The plant manager will be responsible for the day to day

operations. The sales manager will be in charge of selling and marketing the product.

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They will need to be in contact with distributors and consumers to learn and invent new

ways to market the lentil pasta sauce. The secretary will be involved in the day to day

administration and regular secretarial duties. The plant workers will be in charge of the

processing, filling and shipping/receiving of the lentil pasta sauce production.

Marketing Plan:

XXXXX pasta sauce will be sold in 750 ml glass jars, XXXXX is a lentil

enriched tomato pasta sauce that will appeal to vegetarians and health conscious

individuals within a niche market. The sauce will be produced and packaged at the

XXXXX Foods production facility in SK and shipped to the Sobeys and Federated Coop

Limited (FCL) warehouses in Calgary, AB for distribution.

As the health food industry becomes more health conscious, and vegetarians are

looking for additional meat alternatives, XXXXX will become a greater demand.

XXXXX will be marketed in the health food, specialty food aisle. This offers the product

two advantages, the first being a healthy pasta sauce choice, because of the protein found

in lentils. The second opportunity is the focus towards vegetarians, as a meat

replacement.

The specialty nature of the product allows there to be room for a mark-up in price

in comparison with competing pasta sauces. A reasonable mark-up is 25% above

XXXXX competitors. XXXXX will be strategically priced at $5.88 which is a 25%

markup over main stream sauces. The objective of the marketing strategy is to supply

Calgary FCL and Sobeys stores with XXXXX in year one, expanding to the surrounding

Calgary area in Alberta in year two and three, with a long term goal of supplying the

province of Alberta with XXXXX, While obtaining sales targets of 10% of the total

target market each year, 30% of the target market will be aware of the product by year

three.

Awareness of the product will be the primary objective of the XXXXX Foods

marketing team. The Calgary Vegetarian Resource magazine will be used as a main

resource because this magazine has no charge to advertise. In store taste tests will also be

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used as well as advertising in fliers, in both the Co-op and Sobeys fliers. XXXXX Foods

are also going to advertise in the Country Women, and Flare magazines, because these

magazines target the main segment of the target audience.

Financial Plan

Ten years of financial projections have been made of XXXXX Foods. All costs

including selling prices, expenses and salaries have been inflated at 2% every year.

Financing will be a mix of debt and equity, but will rely more heavily on equity. A loan

of $115,000 will be taken on representing 30% of the land and building costs and will be

repaid over a 15 year period.

Critical variables involved in the financial analysis are the selling price of

individual jars, the production and sales per year, and the beginning owner’s equity

investment. These variable all have a huge impact on the level of success experienced by

the company. The selling price has the largest impact on whether the company succeeds

or fails, followed by the production levels.

Given the current market prices for pasta sauce, the base run shows the plan to be

unfeasible. A positive cash flow cannot be sustained without a substantial initial owner

equity investment of $1,625,000. The following break down of the financing budget is

based on the building and land costs, as well as covering the working capital required for

the first year of operations. This represents the absolute minimum investment to operate

for year 1.

Net Present Value of Investment $-913,535

Internal Rate of Return on Equity Investment and Internal Rate of Return on

Equity Investment are both negative 100%, meaning that the company is bankrupt. In

order for the IRR to become positive and therefore make the plan feasible, either price

levels or production levels must increase by 35% or 52% respectively.

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Conclusion

The base plan will be unfeasible and in order for XXXXX Foods to have a

feasible base run the company will either have to charge more for their product or

increase unit production.

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Table of ContentsExecutive Summary..............................................................................................................iTable of Contents.................................................................................................................vList of Figures..................................................................................................................viiiList of Tables......................................................................................................................ix1.0 Operations Plan..............................................................................................................1

1.1 Product Description...................................................................................................11.2 Organizational Structure............................................................................................11.3 Site Plan.....................................................................................................................21.4 Building and floor plans............................................................................................41.5 Steps Required for Processing Lentil Sauce..............................................................6

1.5.1 Raw Materials Delivered....................................................................................61.5.2 Raw Lentils Weighed.........................................................................................61.5.3 First steam jacket kettle......................................................................................71.5.4 Ingredients Measured..........................................................................................81.5.5 Second Stem Jacket Kettle..................................................................................81.5.6 Pumps Transferred Sauce to Filling Machine....................................................91.5.7 First Person Passes Empty Jars...........................................................................91.5.8 Semiautomatic Filling Machine........................................................................101.5.9 Full jars are Capped..........................................................................................101.5.10 Labeling and Packaging..................................................................................101.5.11 Finished Product to Storage............................................................................111.5.12 Delivery to Warehouses in Calgary................................................................11

1.6 Average Business Cycles.........................................................................................111.6.1 Average Business Day......................................................................................121.6.2 Average Business Month..................................................................................13

1.7 Quality control.........................................................................................................131.7.1 HACCP.............................................................................................................14

1.8 Supply/service analysis............................................................................................141.9 Capital Budget.........................................................................................................151.10 Cost of Goods Sold................................................................................................151.11 Cash Management.................................................................................................18

1.11.1 Inventories......................................................................................................191.11.2 Accounts Receivable......................................................................................191.11.3 Accounts Payable............................................................................................201.11.4 Cash Conversion Cycle...................................................................................20

2.0 Human Resources Plan................................................................................................212.1 Plant (operation) Manager (1):................................................................................212.2 Sales Manager (1):...................................................................................................212.3 Secretary (1):...........................................................................................................212.4 Plant workers...........................................................................................................212.5 Training Programs...................................................................................................222.6 Compensation..........................................................................................................22

3.0 The Marketing Plan.....................................................................................................24

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3.1 Overview..................................................................................................................243.2 Marketing Mix (4 P’s).............................................................................................24

3.2.1 Product..............................................................................................................243.2.2 Place..................................................................................................................243.2.3 Price..................................................................................................................253.2.4 Promotion.........................................................................................................25

3.3 Segmentation, Targeting, and Positioning...............................................................253.3.1 Segment............................................................................................................253.3.2 Target................................................................................................................263.3.3 Position.............................................................................................................26

3.4 SWOT Analysis.......................................................................................................263.4.1 Internal Strengths..............................................................................................263.4.2 Internal Weaknesses.........................................................................................263.4.3 External Opportunities......................................................................................273.4.4 External Threats................................................................................................27

3.5 Market Analysis.......................................................................................................273.5.1 Past Performance..............................................................................................273.5.2 Market...............................................................................................................273.5.3 Competition......................................................................................................273.5.4 Product/Service Features..................................................................................273.5.5 Customers.........................................................................................................283.5.6 Opportunity.......................................................................................................29

3.6 Marketing Strategy..................................................................................................293.6.1 Sales and Profits...............................................................................................293.6.2 Select Markets/Product/Service Mix................................................................30

3.7 Selling and Advertising...........................................................................................313.7.1 Product Placement............................................................................................313.7.2 Magazine Advertising.......................................................................................323.7.3 Flyers and Coupons..........................................................................................323.7.4 Business Cards..................................................................................................323.7.5 Taste Tests........................................................................................................323.7.6 Web Page..........................................................................................................323.7.7 Travel................................................................................................................333.7.8 Freight...............................................................................................................33

4.0 Financial Plan..............................................................................................................344.1 Financing.................................................................................................................344.2 Balance Sheet...........................................................................................................354.3 Economic Forecast...................................................................................................364.4 Unit Cost of Production...........................................................................................364.5 Financial Performance Analysis..............................................................................37

4.5.1 Critical Variables..............................................................................................374.5.2 Risk Analysis....................................................................................................374.5.3 Breakeven Analysis..........................................................................................384.5.4 Alternative Salary Scenario..............................................................................404.5.5 Contingency Plan..............................................................................................41

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4.6 Conclusion...............................................................................................................415.0 References....................................................................................................................426.0 Appendix A..................................................................................................................437.0 Appendix B..................................................................................................................45

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List of Figures

Figure 1.1 Organizational Structure for XXXXX Foods...............................................2

Figure 1.2 Site Plan............................................................................................................3

Figure 1.3 Floor Plan.........................................................................................................4

Figure 1.4 Flow of Production..........................................................................................5

Figure 1.5 200kg Scale.......................................................................................................6

Figure 1.6 Stainless Steele Containers.............................................................................7

Figure 1.7 Steam Jacket Kettles......................................................................................7

Figure 1.8 Steam Jacket Kettles with Scraper...............................................................8

Figure 1.9 Transfer pump.................................................................................................9

Figure 1.10 Stainless Steel Table.....................................................................................9

Figure 1.11 Filling Line ..................................................................................................10

Figure 1.12 Pallet Jack...................................................................................................11

Figure 3.1 Channels of Distribution:.............................................................................30

Figure 4.1 Breakeven Analysis Using Change in Wholesale Price..............................39

Figure 4.2 Breakeven Analysis Using Change in Yearly Production...............................39

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List of TablesTable 1.1 Capital Budget Summary...............................................................................16

Table 1.2 Breakdown of equipment cost........................................................................16

Table 1.3 Cost of Goods Manufactured.........................................................................17

Table 1.4 Cost of Goods Sold..........................................................................................18

Table 1.5 Average days Inventory..................................................................................19

Table 1.6 Inventory costs................................................................................................19

Table 1.7 Cash Conversion Cycle...................................................................................20

Table 2.1 Plant manager salary and benefits for 2007.................................................23

Table 2.2 Secretary and sales manager salaries and benefits for 2007.......................23

Table 2.3 Annual wages and benefits for all 4 plant workers in 2007........................23

Table 3.1 Competition.....................................................................................................28

Table 3.2 Marketing Budget Plan..................................................................................31

Table 4.1 Financing Plan for XXXXX Foods................................................................35

Table 4.2 Balance Sheet for XXXXX Foods as at December 31, 2007........................35

Table 4.3 Unit Cost of Production in 2014 (first year of full production)..................36

Table 4.4 Sensitivity of Critical Variables....................................................................38

Table 4.5 Changes in Key Numbers After Proposed Changes..........................................41

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1.0 Operations Plan

1.1 Product Description

The product being produced by XXXXX foods is a lentil pasta sauce. This sauce

consists of cooked lentils and spices and ingredients such as chopped onion, oregano,

basil, salt, garlic powder, parsley, and vegetable bouillon. All of these ingredients will be

added to the tomato sauce during production.

1.2 Organizational Structure

XXXXX Foods is presently a partnership. We will be forming a corporation with

a board of directors that consists of five members, two internal and three external.

Forming a corporation will allow the company to seek capital more easily. The internal

board members will be the founders of the company. The external will consist of three

members yet to be determined. Possibilities for this position are shareholders and

investors. Under the board of directors will be the president/plant manager who oversees

the day-to-day operation of the plant and delegates jobs for employees working on the

plant. The owner will be in this managerial position as well as on the board. Working

bellow the president/plant manager will be vice-president/secretary treasurer as well as

six general laborers working in the plant. A marketing/sales manager position will also

be implemented into the structure and will be discussed further in the marketing module

of this business plan. The company’s organizational structure is organized into the chart

below (Figure 1.1). The simplicity of the structure makes it a perfect fit for a small

company like XXXXX. The organizational structure avoids being top heavy in that

David and the owners will consume the roles of President; Vice-president, secretary, and

treasurer. Therefore, high wages will not be paid to outside individuals consuming these

dominant roles.

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Figure 1.1 Organizational Structure for XXXXX Foods

1.3 Site Plan

XXXXX Foods will be located in Saskatchewan. XXXXX Foods will be located off the

highway on a service road. XXXXX Foods will have a 2 ½ acre lot located just

north of the Saskatchewan Wheat Pool storage bins. The sight will have two

entrances into the lot, one will be an entrance/exit for workers, and the other will be

an entrance/exit for truck drivers to eliminate confusion for traffic arriving at the

same time. There will be parking on the North side of the building to avoid

congestion in front of the building. The building will be located as close to the

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Board of directors-52 internal. 3 external

President/Plant Manager

(4) Plant workers

Vice-President/Secretary Treasurer Sales Manager

2

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service road as possible but still allow transport trucks enough room to turn and

access the loading dock at the back of the building. The entire location will be

graveled and maintained with fresh graveled every 2 years.


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Figure 1.2 Site Plan

1.4 Building and floor plans


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The proposed building will be a completely insulated 3500 ft2 building with

electrical and plumbing and will be covered with a fully weather bearing metal siding.

Of the 3500ft2 floor space, 2500ft2 will be used for the production line and storage area.

The remaining 1000ft2 will be for two offices, two change/bathrooms for the employees,

customers and transport drivers and a lunch and coffee room for the employees.

Figure 1.3 Floor Plan


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Figure 1.4 Flow of Production

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A.Raw, cleaned lentils arrive in Totes.

B. First Steam Jacket Kettle E.

Second Steam Jacket Kettle with Agitator

D.Ingredients measured and added to tomato sauce

G.

Filling LineF. Jars put in Position

H. CappingI.

Labeling

J. Storage

K. Retail Sales

C.Ingredients taken from storage

6

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1.5 Steps Required for Processing Lentil Sauce

The following steps required assume that the plant is at full capacity and requires

a total of six plant laborers to produce 130,000 jars.

1.5.1 Raw Materials Delivered

The raw goods used to produce the lentil pasta sauce will be delivered to the

processing plant by various suppliers that are outlined in the supply/services analysis of

the operations plan. When the trucks arrive at the loading dock of XXXXX foods, the

plant manager will ensure the trucks are unloaded and the products are placed in the raw

goods storage room in the processing plant.

1.5.2 Raw Lentils Weighed

Raw cleaned bags of lentils are brought from storage to the scales located beside

the first steam jacket kettle. This is where enough lentils for one batch are weighed by

scooping lentils from the bag into a stainless steel container. (employee 1).

Figure 2.5 200kg Scale. (Scales Galore. Available at

http://www.goscales.com)


http://www.goscales.com/

Lentil Pasta Sauce

Figure 1.6 Stainless Steele Containers.

(Handling Inovations. Available at http://www.handlinginnovations.com)

1.5.3 First steam jacket kettle

The weighed lentils are placed in the first steam jacket kettle. Once in the kettle

the lentils are cooked for 1 hour. Then cooked lentils from the kettle are poured out into

a stainless steel container and transferred to the next kettle. (Employee 1)

Figure 1.7 Steam Jacket Kettle. (Alard equipment. Available at

http://www.alard-equipment.com)


http://www.alard-equipment.com/

http://www.handlinginnovations.com/

Lentil Pasta Sauce

1.5.4 Ingredients Measured

The spices and ingredients are weighed on scales then added to the correct

amount of tomato paste in another additional stainless steel container. This container

consisting of the tomato sauce and spices is taken to the second kettle. This is done by an

additional employee. (Employee 2)

1.5.5 Second Stem Jacket Kettle

This kettle is called a scraper kettle because it has an agitator built in that allows it

to mix the tomato sauce and cooked lentils. This is where the cooked lentils from the

first kettle are added to the formulated sauce from the previous step. Once in this kettle

the lentils are mixed with the tomato sauce to give the desired consistency. After mixing

for 25 minuets the kettle is dumped into the container located beside the filling machine.

(Employee 2)

Figure 1.8 Steam Jacket Kettle with Scraper. (Alard Equipment. Available at

http://www.alard-equipment.com)


http://www.alard-equipment.com/

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1.5.6 Pumps Transferred Sauce to Filling Machine

Pumps located on the container that the sauce was dumped into in the previous

step, transfers the sauce to the filling machine though tubes. (Employee 2)

Figure 1.9 Transfer pump. (Volumetric Technologies. Available at

http://www.volumetrictechnologies.com)

1.5.7 First Person Passes Empty Jars

Jars that had been brought out from storage at the beginning of the day are set on

the table and passed to the filling machine operator. (Employee 3)

Figure 1.10 Stainless Steel Table. (Handling innovations. Available at

http://www.handlinginnovations.com)



http://www.volumetrictechnologies.com/

Lentil Pasta Sauce

1.5.8 Semiautomatic Filling Machine

This is the step where the sauce is placed into the jars by the filling machine.

Semiautomatic filling occurs which means one employee must operate the machine by

using a foot peddle to cause sauce to flow into the jar. The filling machine sits on a

stainless steel table. (Employee 4)

Figure 1.11 Filling Line (A Packing Systems. Available at

http://www.apackaging.com)

1.5.9 Full jars are Capped

After the jars have been filled in the previous step, they are passed manually by

the filling machine operator to the capper. At this step the jars are manually capped by an

additional employee. (Employee 5) Three total employees are needed to carry out steps

1.5.7 to 1.5.9.

1.5.10 Labeling and Packaging

At this step the full and capped jars are passed along a table by the employee in

the previous step to an additional employee. This employee is responsible for manually

placing labels on the jars, then placing the labeled jars into a box. Each box holds 12

jars. The boxes are sitting on a pallet for easy transport with a pallet jack. (Employee 6 )


http://www.apackaging.com/

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1.5.11 Finished Product to Storage

The finished product in the boxes sitting on a pallet is transferred to storage by the

labeling employee, once the pallet has the proper amount of full boxes on it. The

employee will use a pallet jack to transfer the pallets of finished products to storage. This

step will only be done twice a day because each pallet will hold 18 boxes of finished

product, and the plant can produce 29 boxes of finished product in one working day.

(Employee 6)

Figure 1.12 Pallet Jack. (Handling Innovations. Available at

http://www.handlinginnovations.com)

1.5.12 Delivery to Warehouses in Calgary

Palettes of finished product will be loaded onto a truck from the Risdale trucking

company. This truck will transport the finished product to the warehouses for Calgary

Co-Op and Sobeys in Calgary Alberta.

1.6 Average Business Cycles

This average business cycle is for year 8 (2014) of XXXXX Foods when plant

will operate at maximum capacity. The average business cycle will be consistent from

day to day, week to week, and year to year. There is no large increase in pasta sauce

consumption at any point in time in a given year, so production each day, week, month,

and year will remain constant. The Plant will operate 8 hours a day, five days a week and


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52 weeks a year. The plant will not be open on statutory holidays and 6 plant workers

will be employed year round. The plant will produce 130,000 jars of lentil pasta sauce in

a year.

1.6.1 Average Business Day

The average day will consist of processing the lentil pasta sauce by the process

outlined earlier in the flow of work section. The employee responsible for cooking the

raw lentils in the first kettle will begin their work day at 8:00am and end at 4:00pm.

The five other plant workers will start at 9:00am and end at 5:00pm. The cook must be

dressed in proper work attire and begin cooking at 8:00am. The five additional

employees must be dressed in proper work attire and begin work in processing area by

9:00am. Proper work attire includes latex gloves, hair nets which are provided at the

plant, as well as proper work clothing that employees are responsible for purchasing. All

employees must change clothing in the change room provided. The processing line will

run continuously through out the day. Employees will rotate two at a time for a 45min

lunch break. First two employees have a lunch break from 11:15am to 12:00pm. The

next two employee’s lunch break runs from 12:00pm to 12:45pm. The final two

employees will have a lunch break from 12:45pm to 1:30pm. The other three salary

employees including the secretary, plant manager, and marketing manager will begin

their work day at 8:00am and end at 5:00pm. End finished product at the end of the day

will be 540 jars. Cleaning of the work stations will be completed by 5:00pm each day.

This is the responsibility of the plant workers, so processing should be completed by 4:30

to allow time for cleaning. The secretaries work day will consist of answering phone calls

to the plant, as well as ensuring delivery trucks are showing up at the scheduled times.

The plant managers day will consist of keeping the processing line in operation and

ensuring delivery trucks are loaded and unloaded when they arrive at the processing

plant. The marketing manager will be responsible for marketing the lentil pasta sauce

through Calgary Co-Op and Sobeys.


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1.6.2 Average Business Month

In an average business month XXXXX foods will produce 10,834 jars. Delivery

of finished goods will occur once a month which works out to one time every 15 days.

Delivery of raw materials such as jars, spices, and tomato paste will occur once a month.

1.7 Quality control

The Canadian Food Inspection Agency (CFIA) has product regulations that

XXXXX Foods must follow when making the pasta sauce that will be food for human

consumption. XXXXX Foods will have to follow these regulations:

1. Building must be situated on the proper land where the land can be drained, be

easily accessible for transport, and be free from congestion.

2. Building must be properly managed with good drainage off of building, be

closed in to be free from entrance of birds and insects. It must be basically

sound and in good repair. Must have the capacity to receive and house the

raw and finished products.

3. Have the proper equipment to handle merchandise which are to stay in

location and not taken out of the work area. If new or used merchandise needs

mechanical work, they must be cleaned, sanitized and inspected.

4. Have proper cleaning and sanitizing measures in place

5. Make sure that work area is properly managed and cleaned

6. Inspection must be done on all products

7. Employees must follow appropriate dress attire which would include hair nets,

gloves and some type of clothes to keep outside materials getting into product.

8. Do not bring in any objects (gum, tobacco, etc.) that can infect or fall into the

food

9. All packaging procedures must be followed

10. Proper labeling of products must be established before shipment out.


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1.7.1 HACCP

HACCP (Hazard Analysis of Critical Control Points) is used to analyze the sauce

production and distribution systems. The steps are:

1. Identify potential safety hazards such as spills, equipment malfunctions and

human error.

2. Determine where and when to prevent these problems that may occur.

3. Be sure to set some types of limits to control potential problems and set up

methods to monitor critical limits.

4. Have procedures in place to handle and correct problems if critical limits are

exceeded. Such as spill kits, Material Safety Data Sheets (MSDS) and

equipment contact numbers.

5. Accurate records must be kept and routine evaluations must be done to check

if controls are effective.

6. Periodic audits must be done to ensure the HACCP system is in working

order.

XXXXX Foods is not required to follow HACCP guidelines, but will follow them in case

the regulations are changed at a later date. In this case, their production will already be in

line with the regulations and alterations to the production process will not have to be

made. (CFIA, 2006)

1.8 Supply/service analysis

XXXXX Foods will have a minimal amount of suppliers in order to get as many

supplies as possible from one venue. Saputo’s is the choice of supplier for the spices, and

Costco for the tomato sauce. The cleaned and ready to eat lentils will be supplied from

David Krause and will be delivered to the plant in proportional size for the demand

needed at the time. The production line equipment consists of two steam jacket kettles, a


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filling line, scale, scoops, containers, pallet jacks and stainless steel tables. The steam

jacket kettles and filling lines come from Alard Equipment. The scales for weighing

lentils and ingredients come from Scales Galore. The scoops are from Rose Scientific

Ltd, and the stainless steel container, table and pallet jack come from Handling

Innovations. The printing plates and labels come from Custom Labels Inc. Boxes for

shipping come from packagingprice.com. Jars with lids for the sauce are purchased from

Ampak. Computers/printers are from Future Shop and office desks will come from

Staples business depot. A detailed list of suppliers can be found in Appendix A.

1.9 Capital Budget

Table 1.1 is a summary capital budget for 2007. A detailed description of costs in the

capital budget can be found in Appendix B. Table 1.1 shows cost of land purchased. The

cost of the building previously described in floor plan section, including water, natural

gas, electricity and sewage installation. Also included in the capital budget summary is a

cost of landscaping for the site. Processing equipment costs are broken down in Table

1.2 to give the total on the capital budget summary. Office equipment includes

computers required as well as office desks. The total capital required is 364,174 for the

first year 2007. Total capital required = total capital costs (387,876) + total working

capital (23,702) for a total of $411,678.

1.10 Cost of Goods Sold

Cost of goods sold is summarized in table 1.4 by adding beginning inventory, cost

of gods produced, cost of goods available for sale, and ending inventory to give cost of

goods sold.


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Table 1.1 Capital Budget Summary

Table 1.2 Breakdown of equipment cost


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Table 1.3 Cost of Goods Manufactured


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Table 1.4 Cost of Goods Sold

1.11 Cash Management

During the first one to two months of operation, there will be little to no cash flow

into the company. This start up period will be spent getting ready for production. The

following month will include building up enough finished product inventory to supply

retailers with product. Following the initial three months of start up, cash flow should

stay relatively constant as there is no seasonal market for selling pasta sauce and there are

no plans to operate the plant on a seasonal basis.


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1.11.1 Inventories

Inventory will include the raw cleaned lentils used in the sauce. Lentils cleaned

to food quality will be brought in as needed, resulting in a very small amount of raw lentil

inventory in the plant at any given time. Other raw materials will consist of the tomato

paste and spices needed for the sauce and will be ordered as needed from suppliers.

Finished products inventory will be relatively low because products will be shipped every

15 days to warehouses for Sobeys and Calgary Co-Op both located in Calgary Alberta.

The values of raw inventory, inventory in progress and finished inventory come from the

values in the capital budget.

Table 1.5 Average days Inventory

Table 1.6 Inventory costs

1.11.2 Accounts Receivable

XXXXX Foods will have only accounts receivable for Calgary CO-Op and

Sobeys because they are the only retailers for the product. The company will adopt a

discount policy such of 2/25 net 45 to help there competitive stance in an already

competitive market. The clients will receive 2% discount if paid before day 25 of the

receivable. The average days for receivables will be 45 days. In year one accounts

receivable is calculated as: Total sales Revenue x (Avg. days payable/365)

Accounts receivable for 2007 = 288,400 x (45/365) = $35,556 in 2007.


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1.11.3 Accounts Payable

The accounts payable policy will be flexible to take interest rates into account and

compare the cost of carrying a line of credit versus the cost of not taking discounts being

offered by suppliers. It has also been found that some suppliers deal in cash on delivery

only, in which case there will be no account payable and the payment will need to be

made in cash and possibly financed through a line of credit. The average days payable

will be 30 days. In year one accounts payable is calculated as: CGM – CCA expense +

Administration & Marketing salaries, wages, and benefits x (Avg. days payable/365

days) = Accounts payable

Acc. Payable for 2007 = (336,954 – 358 + 92,689) x (30/365) = 33,476 for 2007.

1.11.4 Cash Conversion Cycle

The average days of raw material inventory will be 30 days for the raw materials.

The average days of finished goods inventory on operation site will be 15 days. The

average day’s receivable is 45 days. This is summarized in table 1.7.

Table 1.7 Cash Conversion Cycle


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2.0 Human Resources Plan

2.1 Plant (operation) Manager (1): will be in charge of the production plant.

The duties involved include overlooking day to day production on the floor, coordinating

shipping and receiving, assisting with any problems that may occur in the plant as well as

operating as the HACCP coordinator. The manager will be personally involved with

sanitation inspections of machinery, equipment and plant production area. These

inspections should be done at least semi annual and will follow the HACCP process

requirements. The plant manager will be trained in all safety regulations program. The

plant manager salary will start at $50,000 + $6,400 in benefits = $56,400 for the 2007

year. Table 2.1 describes how benefits are calculated for the plant manager.

2.2 Sales Manager (1): Will be in charge of selling and marketing the product. Their

base salary will be $50,000 + $4,523 in benefits. Total Salary and benefits is $54,523 for

the 2007 year. The employee filling this position will need to have some experience

and/or post secondary education in business value or marketing. They will need to be in

contact with the distributors, frequently learning and inventing new ways to market and

sell the pasta sauce. Table 2.2 describes benefits for sales manager.

2.3 Secretary (1): Will be involved in administration including paying of bills, payroll

and accounting in general. Also ordering of supplies, ordering and receiving information

from the future retails such as invoicing, and directing phone calls to whomever the caller

may need to talk to. They will be responsible for entering data such as sales numbers or

information on new retails. Computer skills will be an asset towards the secretary

position and the position will pay $35,000 + $3,166 in benefits = $38,166/year. Table 2.2

describes benefits for secretary.

2.4 Plant workers: Four total plant employees will be making the sauce which will

change to six when the plant reaches full production. This will include unloading and

loading of transport trucks and moving both raw and finished products to storage. The


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job descriptions for plant workers have been covered in the flow of work. The laborers

are required to follow proper sanitation requirements while cooking the lentils and

mixing the sauce. They will have to be trained to work each machine in the facility and

will be put through first aid classes. Qualifications include a high school education and

upward. These positions will be paid on wage bases of $12.50/hour with benefits to aid

in keeping high employee moral and keep them within the company. Annual wages for

each employee will be $26,000 + $4,836 in benefits = $30,836/year for each of the six

employees. In year one the total plant laborer wages: $30,836 x 4 employees =

$123,344/year plus the plant managers $56,400 gives a total of $179,744. Table 2.3

summarizes benefits and wages for 4 employees in 2007.

2.5 Training Programs

All of the employees from XXXXX Foods will be put through training programs such as

fire escape plans and will be familiar with all MSDS booklets in case of an emergency.

They will be shown an emergency plant evacuation plan at least twice per operational

year. Every employee will be trained to work all pieces of processing equipment.

Employees will rotate jobs within the plant to let them experience all aspects of food

processing as well as to decrease repetitiveness for the employees. This should increase

moral and production. The plant equipment training will be performed by the plant

manager.

2.6 Compensation

All plant workers will be eligible for workers compensation if on the job injuries

occur. Compensation will only be paid to the physical laborers and not to the

management team rates are all included in the tables 2.1 -2.3.


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Table 2.1 Plant manager salary and benefits for 2007

Table 2.2 Secretary and sales manager salaries and benefits for 2007

Table 2.3 Annual wages and benefits for all 4 plant workers in 2007


Lentil Pasta Sauce

3.0 The Marketing Plan

3.1 Overview

"XXXXX is a legume based pasta sauce providing essential protein and fiber

requirements for vegetarian inclined diets as well as the health conscious individual,

within one convenient readymade serving."

3.2 Marketing Mix (4 P’s)

3.2.1 Product

The sauce will be sold in 750 ml glass jars, packing 12 jars to a box and 80 boxes

to a pallet. The total production of year one will be 70,000 jars. XXXXX is a lentil

enriched tomato pasta sauce that will appeal to vegetarians and health food fanatics alike.

The sauce will be produced and packaged at the XXXXX Foods production facility in SK

and shipped to the Sobey’s and Federated Coop Limited (FCL) warehouses in Calgary,

AB for distribution.

3.2.2 Place

XXXXX will be manufactured at Saskatchewan, where a new facility will be

constructed in the spring of 2007. The advantage of constructing a building at this

location is the accessibility to the plant by the owners. From the plant, trucking will

transport the product to Calgary. The product will be sold at the retail level through

Coop grocery stores in the Calgary area, as well as through Sobeys’ Alberta and later in

the Saskatchewan locations. Given the nutritional qualities of the sauce, it would be best

placed alongside products with similar appeal. Although this strategy runs the risk of

being passed over for a competing product, it does insure that the consumer sees the

product as an option. If the sauce is shelved out of context, it could be passed over

completely by potential buyers. Another goal related to product placement within the

store is having the jars shelved between eye level and belt height. This small detail could

mean the difference between the jar catching the buyer’s eye and being hidden out of

sight. The ideal store placement would be on an end cap at the end of the aisle which


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would give a more exclusive position drawing more attention to the new product and its

benefits.

3.2.3Price

The specialty nature of the product means there is room for mark-up in

comparison with competing pasta sauces. In comparing mainstream sauces to organic

sauce it is concluded that a reasonable mark-up for XXXXX would be 25% above its

competitors. Being the target market is made up of people who are willing to spend a

higher portion of disposable income on food, assumes the premium for the product will

be easily accepted. Although this product is not organic, its noble qualities appeal to a

similar market. The product is priced in line with an organic sauce, the retail price of

organic sauce is in the range of $4.35- $4.50, therefore a retail price of $5.88 will be the

goal for XXXX pasta sauce based on a 30 % mark up from the wholesale price, with a

wholesale price of $4.12

3.2.4Promotion

As with any new product, product awareness is extremely important. Although

the pasta sauce market has many competitors, XXXXX stands alone in the pulse enriched

sauce market; this niche product is a novelty quality that will be used to penetrate sales,

requiring a promotional strategy to establish brand loyalty. The promotional strategy will

based on magazine advertisements in the Calgary Vegetarian Resource; Flair, Country

Women; weekly flyers through Sobeys and FCL, as well as in-store taste testing, and

internet websites.

3.3 Segmentation, Targeting, and Positioning

3.3.1 Segment

Due to the increased interest in vegetarianism, as well as consumers becoming

more health conscious. There are two main target segments for XXXX, the Vegetarian

and Vegetarian inclined population, as well as the female health conscious population.

Both of these segments are targeted out of Calgary FCL and Sobey’s grocery chains.


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3.3.2 Target

The target market is the vegetarian population in Calgary, as well as the female

health conscious individuals in Calgary as well. XXXX Foods will position XXXXX

into the urban centers, because 4% of urban populations are vegetarian; 78% of

vegetarians are female and as such 72% of this segment is between 20 and 39 years of

age. (Calgary Vegetarian Resource).

3.3.3 Position

The image that XXXXX foods is portraying of XXXXX is a healthy meat

alternative for the vegetarian population, as well as a healthy protein supplement to the

health conscious individual. XXXXX will be marketed in the health food aisle.

3.4 SWOT Analysis

3.4.1 Internal Strengths

▪ New product to the pasta market

▪ Only pulse based pasta sauces in the market

▪ Lentils promoted as healthy and important parts of the diet.

▪ Continuous supply of lentils (98% of Canada’s lentil production in Sask.) (Pulse

Canada).

3.4.2 Internal Weaknesses

▪ “One Shot” first impression market – there are many existing products, most consumers

will only buy this product once if it fails to impress them

▪ XXXXX is a new firm

▪ No brand loyalty has been developed

▪ Large initial investment with production


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3.4.3 External Opportunities

▪ Increase in vegetarian popularity due to increasing health awareness

▪ Lentils used as a meat replacement

▪ Offers a choice to vegetarian consumers of protein sources

3.4.4 External Threats

▪ Established competition (dominated by few large firms)

▪ Risk of having to import ingredients to make the product

▪ Pulse crops are not widely consumed throughout Canada

3.5 Market Analysis

3.5.1 Past Performance

XXXXX Foods, is a new business and as such they are trying to establish their

presence in the market place. This is a niche product and therefore will be marketed as a

specialty sauce, within a unique marketplace.

3.5.2 Market

In Canada 4% of the population is vegetarian, (Calgary Vegetarian Resource). In

Calgary, where XXXXX will be marketed 4.7% of total grocery shelf space is devoted to

pasta sauce, and furthermore 20,000 people in one week pass through a FCL store in

Calgary. (Federated Co-op, 2005).

3.5.3 Competition

XXXXX will have many competitors in the pasta sauce market. Table 3.1

summarizes these competitors, as well as their prices.

3.5.4 Product/Service Features

This product fits into a niche market appealing to health conscious individuals,

and the Vegetarian population that is why this product has an opportunity over its

competitors. XXXXX is a lentil, protein pasta sauce offering a healthy choice as a meat

alternative, which is an appealing aspect to both segments in the target market.


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Table 3.1 Competition

Product NamePackage Size

(ml)Price ($)

Catelli Garden Select 700 2.27

Prego Traditional 675 2.98

Ragu 700 2.48

Rozoni Portabello Mushroom 700 3.48

Healthy Choice Traditional 700 2.98

Classico di Basilicata 700 2.98

Compliments Traditional 700 2.77

Compliments Organic 700 5.48

Primo 680 2.48

Hunt’s Thick and Rich 680 1.98

Catelli Spaghetti Sauce with meat 398 1.48

3.5.5 Customers

By looking at the attributes of the lentil pasta sauce that XXXXX Foods will be

marketing, and the current trends of the health food industry, the intended target is the

active, vegetarian, as well as the health conscious female consumer. Due to the

occurrence of these individuals being concentrated in larger urban centers, we will focus

on the city of Calgary. This equates to approximately 40 000 persons. (Calgary

Vegetarian Resource, 2005). Calgary was chosen because of its relative population; high

percentage of young individuals, as well as the expanding growth of the city. This will

aid in marketing/advertising and product movement of XXXXX’s early life.


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The customer segment chosen to be focused on is the increasing vegetarian

population found in large urban centers. Health concerned and conscious consumers are

beginning to switch more towards the vegetarian inclined diets. Requirements of a high

value protein source, cholesterol free products, and high dietary fibre found in legumes

and pulses are recommended in everyday diets of vegetarians. (Calgary Vegetarian

Resource, 2005).

3.5.6 Opportunity

As society today becomes more health conscious, and vegetarians are looking for

additional meat alternatives, XXXXX will be of a greater demand. XXXXX will be

marketed in the health food, specialty aisle. This offers the product two advantages, the

first being a healthy pasta sauce choice, because of the protein found in lentils. The

second opportunity is the focus towards vegetarians, as a meat replacement. In targeting

both attributes of the sectors within the two grocery chains; XXXXX has realm of

opportunity. In the beginning stages of XXXXX development, the product will be

marketed to Calgary, and surrounding area’s. XXXXX Foods will then look at

expanding into the Saskatchewan market of the Sobey’s grocery chain as a long term

opportunity.

3.6 Marketing Strategy

3.6.1 Sales and Profits

XXXXX is strategically priced at $5.88 which is a 25% markup over main stream

sauces, such as Compliments Organic pasta sauce. The objective of the marketing

strategy is to supply Calgary FCL and Sobey’s stores with product in year one, with a

production capacity of 70,000 jars. Expanding to surrounding areas in Alberta in year

two, with a long term goal of supplying the province of Saskatchewan with XXXXX.

While obtaining sales targets of 10% of the total target market each year, 30% of the

target market will be aware of the product by year three. Urban populations have a

higher population of vegetarians compared to rural (4%), as well as the majority of


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vegetarians are female aged 20 to 39 years of age. (Statistics Canada, 2005). It is these

reasons that XXXXX will be positioned into the urban centers, of Calgary Alberta.

Figure 3.1 Channels of Distribution

XXXXX will be transported from the warehouse where the sauce is produced to

FCL and Sobey’s warehouses in Calgary. Once the product is present in the warehouse,

the company’s will distribute XXXXX to the Calgary FCL as well as Sobey’s grocery

chains in the first year, expanding to the surrounding area of Calgary in year two and

three. With a long term goal of eventually expanding into the Saskatchewan market of the

Sobey’s grocery chain.

3.6.2 Select Markets/Product/Service Mix

The goal of XXXXX pasta sauce is to generate product awareness, into the target

market. Because the target market is realistic, and is not a dominate segment of

Calgary’s population, the goal will be attainable. The product is only targeted to

individuals who are looking for a product similar to XXXXX. Being the product has no

direct competition within the market; because there is no other lentil containing pasta

sauces, this is a beneficial attribute of XXXXX entering a niche product into the specialty

food industry.

3.7 Selling and Advertising

Awareness of the product will be the primary objective of the XXXXX Foods

marketing team. The Calgary Vegetarian Resource magazine will be used as a main

resource because this magazine has no charge to advertise in, it will give an unbiased

opinion to our consumers, while also creating a demand for XXXXX. In store taste tests

will also be used through advertising in flyers, in both the Co-op and Sobey’s. XXXXX

foods are also going to advertise in the Country Women, and Flare magazines, because


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these magazines target the main segment of the target market, therefore presenting the

product to the end consumer directly.

3.7.1 Product Placement

The $15,000 fee is the cost of having the pasta sauce on the shelf in Sobeys stores

in Calgary as well as all Calgary Co-ops in. This number is a quote from the sales

managers at both the Sobeys and Co-op offices. It is approximately $8000 for Sobeys

stores and $7000 for Calgary Co-op. The sauce will be placed as an end cap display in

the stores. This means the pasta sauce is located at the end of the row of products facing

customers as they walk into the store. The $15,000 includes having the sauce delivered

from the warehouses and placed on the shelves in all the stores.

Table 3.2 Marketing Budget Plan

Advertising Product Placement in Store $ 15,000Magazine Advertising $ 10,135Flyers and coupons $ 15,000Brochures/Business cards $ 300Total Advertising $ 40,435

Taste tests in stores $ 5,000Web page $ 200Travel expenses $ 4,800Total Promotion $ 5,350 Freight $ 20,540Total Marketing Expenses $ 70,975

3.7.2 Magazine Advertising

The $10,135 is an annual fee to place an advertisement for XXXXX in Flair, and

Country Women magazines across western Canada. This price is based on a half page

add in every issue. The reason Flair, and Country Women were chosen was because

these magazines are purchased by a large proportion of the target audience, 68% of Flair

female readership are between the ages of 18-49 ( Flair magazine, 2004), which is the

main target market for XXXXX Foods.


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3.7.3 Flyers and Coupons

The $14,000 is an annual fee to have the product in both the Sobeys and Co-op’s

monthly flyers. This is a great way to increase customer awareness, of the product. The

coupons will be in the flyers beside the advertisement for the product.

3.7.4 Business Cards

It will cost $300 to get business cards made for XXXXX Foods, that include

David and Vicky Krauses contact information on them.

3.7.5 Taste Tests

XXXXX Foods will spend $5000 a year on setting up taste tests in the stores that

the sauce is sold in. The taste tests will be done three times a year, during three different

seasons, to reach as many customers as possible. (ex. Summer, spring, fall seasons).

3.7.6 Web Page

The $200 expense will be to update and maintain the already existing website.


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3.7.7 Travel

The $4,800 is based on a yearly travel expense. Because XXXXX Foods is based

on a wholesale distribution to Sobeys and Calgary Co-op travel expenses to drive and sell

this product will be low. The numbers are based on approximately ten trips to Calgary

where the offices and stores for Sobeys and Calgary Co-op are located.

3.7.8 Freight

The yearly cost of freight is $20,540.00. This number is based from trucking,

from Saskatchewan to Calgary Alberta, based on the estimated trips will haul XXXXX,

to both retail stores in Calgary.


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4.0 Financial Plan

4.1 Financing

XXXXX Foods will rely heavily on owner equity to cover the cost of

construction, as well as the costs of operation in the early years. Because of the high risk

factor associated with this business plan, as well as the relatively remote location of the

plant, a substantial bank loan can not be acquired without offering other security.

Although the amount is less than desired, XXXXX will be pursuing a bank loan to help

cover the high costs of construction.

The loan taken on as long term debt will be valued at $115,000. This is 30% of

the building and equipment costs and will carry an interest rate of 8%. The loan amount

and interest rate are based on estimations by TD Canada in Swift Current and will be paid

back over a 15 year period. Although taking on a loan will negatively affect the already

terrible IRR of XXXXX, it is included to lessen the amount of equity required which is

already very high.

In addition to the loan, XXXXX will be seeking outside investors to help raise the

required equity. These investors will be taken on as shareholders to be paid in

accordance to the dividend policy that has been set. In the case of a business failure, any

debt holders will be paid out first, and the shareholders will be paid out of any remaining

assets if any are left. The dividend policy is based on the total working capital and the

dividend policy factor is chosen such that the company does not pay out dividends if it

results in a negative cash flow. The dividend factors are very high in this plan because

company can not afford to pay any dividends in any of the first ten years of operation.

Investors will be extremely hard to find given the small chance of being paid a dividend.

As well, the complete absence of an external rate of return makes this business an

unattractive option for potential investors.

Although the interest on long term debt is taken into account when calculating

profits, it is a relatively small percentage of the losses observed in the net income and


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ending cash flow values. While interest on debt will represent an expense for the

company, the loan only covers a small amount of the total capital required.

After examining the base run of the financial situation of XXXXX Foods, the plan

appears to be unfeasible. The ending cash flow in every year comes up negative unless a

huge initial equity investment of 1,625,000 is made. This number is far too high to be

realistic and does not fix the company’s financial problems, only nurses it through the

first 10 years of operation to maintain a positive cash flow. The following financing

budget uses values that would let XXXXX construct the plant and maintain operations in

year one, but would run into cash flow problems at the end of year one as well as in

following years.

Table 4.1 Financing Plan for XXXXX Foods

Schedule 7: Financing Budget 2007

Long Term Debt $115,000

Owner’s Equity 485,000

Total $500,000

4.2 Balance Sheet

The balance sheet as of December 31, 2007 can be seen in Table 4.2. Some

important numbers to take notice of are the negative cash balance and the large amount of

owner’s equity.

Table 4.2 Balance Sheet for XXXXX Foods as at December 31, 2007

Assets LiabilitiesCurrent Assets Current Liabilities Cash $(101,026) Accounts Payable $33,476 Accounts receivable 35,556 Total inventories 21,621 Long Term LiabilitiesTotal current Assets $(43,849) Long term debt 110,765

Total Liablities $ 144,240

Long Term Assets Buildings, Machinery & Equip. $387,875 Owner’s Equity Accumulated C.C.A. (22,358) Owner Equity $385,000 Land 1 Retained Earnings (207,571)Total Long Term Assets $365,519 Total Owner Equity $ 177,429


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Total Assets $321,669 Total Liabilities & Equity $321,669

Because there is not currently a plant in operation, the land, building and

equipment all need be purchased new. A more in depth brakedown of the building and

equipment costs are shown in Schedule 6 Appendix B. Because the balance sheet shown

is for the end of the first year, it shows accounts payable and receivables that represent 2

weeks of finished product inventory, as well as one months worth of production worth of

raw materials inventory.

4.3 Economic Forecast

The inflation rate was set at 2% every year for the next ten years of production.

All input prices and revenues are adjusted to reflect this rate of inflation. The interest on

the long term debt was set at 8% and remains constant over the ten year plan, although it

important to note the loan is planned to be paid off over a 15 year period.

4.4 Unit Cost of Production

A break down of XXXXX’s production cost per jar of XXXXX can be broken

down into individual components including direct materials, overhead costs per unit,

direct labour, and marketing costs. This analysis can be seen in Table 4.3.

Table 4.3 Unit Cost of Production in 2014 (first year of full production)

Ingredients costs $0.20Packaging 0.99 Total materials per jar $1.19

Direct labour $1.80Overhead cost 0.60 Total Unit Cost of Production $3.59

Marketing and Administration $1.50

Total Unit Cost per Jar $5.09


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4.5 Financial Performance Analysis

The financial situation of XXXXX Foods is looking very unattractive. As the

business model stands, the plan is unfeasible. The business experiences negative cash

flows in each of the nest projected ten years of operation. The model also shows a net

loss in every year. Although the losses decrease as the life of the company goes on, the

net loss at the end of the tenth production year is still $110,000. The company’s net

present value (NPV) at 20% required rate of return was calculated using a required return

on equity and has a value of $-913,535 which indicates a poor investment because the

value is extremely negative. The internal rate of return (IRR) and external rate of return

(ERR) were 100% negative.

4.5.1 Critical Variables

The critical values for this financial model are wholesale price per jar and the

level of production per year. These two values have a great impact on whether the

business succeeds or fails. Other variables such as the price of labour and price of input

materials are minimal in comparison.

4.5.2 Risk Analysis

Because the business plan is unfeasible in its current state, the values in the base

run financial model can be considered to be the worst case scenario. The critical values

to be examined have been found to have the greatest impact on the current financial

situation. Given the current market prices for pasta sauce, the breakeven scenarios can be

considered to be the best case scenario. The variables found to be most critical are found

in Table 4.4. The values in the best case scenario represent what the price or volume

produced must be to give a positive NPV in year one.


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Table 4.4 Sensitivity of Critical Variables

Base Case

(worst)

Best Case

(breakeven year 1)

% Change

Wholesale price per Jar $4.12 $6.36 54

Volume Produced 70,000 121,382 173

As shown in the tables, the XXXXX Foods financial models are more sensitive to

a change in price than in volume. A smaller percentage change in price can allow the

company to reach its breakeven levels in comparison to increasing production. Because

of the unreasonable levels of price increase required and the increased production levels

that are beyond plant capacity, a combination of both would be required to allow the plan

to be feasible.

Since the base model of the plan is unfeasible, there is no concern over how much

decrease is allowable for both production levels and wholesale price. In the case

presented in the preceding pages, all numbers were found using the breakeven levels as a

basis for the best case scenario facing the company.

4.5.3 Breakeven Analysis

Figures 4.1 and 4.2 show the breakeven analysis by altering the wholesale price of

the sauce and the level of production respectively. As shown by Figure 4.1, the

breakeven prices that are required are all much higher than the base price of $4.12 per jar.

These prices, although attractive to the goals of the plan, are unrealistic in the pasta sauce

market. To obtain wholesale prices of $4.12, the retail selling price would have to be

$7.22 to reach the cash flow breakeven, and $9.04 to breakeven the net income. These

prices are far too high in comparison to other products that are already available on the

market. A more detailed comparison of competing products is given in the marketing

section of this plan.


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0

1

2

3

4

5

6

7

8

1 2 3 4 5 6 7 8 9 10

Year

Pric

e pe

r Jar

base cash flow break even net income break even economic break even

Figure 4.1 Breakeven Analysis Using Change in Wholesale Price

0

50000

100000

150000

200000

250000

1 2 3 4 5 6 7 8 9 10

Year

Jars

Pro

duce

d pe

r Yea

r

base cash flow break even net income break even economic break even

Figure 4.2 Breakeven Analysis Using Change in Yearly Production


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Figure 4.2 shows the levels of production that would result in breakeven scenario

for both cash flow and net income. These levels are both substantially higher than the

base levels. In early years, there may be a slight possibility of producing more than the

base run if experienced workers are hired. Even in the case of finding, skilled employees,

the higher production levels are only a positive if the extra product can be sold. Because

this product is unique, it is unlikely that any such skilled employees will be easy to find,

especially when considering the low wage levels, and the relatively remote area of

Shaunavon. It is also important to note that the estimated production capacity of the plant

being built is 130,000 jars of sauce. The required levels of production required to break

even are higher than capacity in every year with the exception of year one.

4.5.4 Alternative Salary Scenario

The business plan presented represents ideal numbers of employees and

competitive salaries. As with many businesses that are owned and operated by the same

individuals, it may be of interest to examine what will happen to the financial model if

the owner’s take on more responsibility to streamline the number of employees, or take a

cut in pay in an effort to make the business succeed. The following section will examine

how the financial model will be affected if the secretarial services are done for free, as

well as the position of plant manager taking on the duties of the sales manager and taking

a $10,000 pay cut. In addition, the assumption will be made that by intensively training

hired employees, production will be more efficient and one wage earning employee can

be eliminated. The wage for the remaining workers will stay at the same level to stay

competitive with other positions with similar required qualifications.

If the changes listed are made, the financial situation of the company does see

improvement. The ending cash flow at the end of the first year becomes positive, but is

followed by three years of negative flows. This is a huge improvement over the base

model in which all years ended in a negative cash flow. Another improvement can be

seen in the net income category. In the base run, all year showed losses, and in the

revised run, the company showed net income in the fifth year. The net present value also

showed improvement, changing from $-913,535 to $-319,599. The final noteworthy

changes come in the values of the IRR and ERR. The based run showed that a negative


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return to owner’s equity that made a calculation impossible, and after changes were made

the values were: IRR = -1.0% and ERR = -0.9%. These levels are beginning to approach

a positive level and make the business plan look like a more attractive possibility. In

addition to the listed changed, the cash flow could be positive and thus make the plan

feasible if the initial owner equity investment was raised to $430,000. The added start up

capital would allow the company to keep a positive cash flow throughout the first ten

year of operation. Table 4.5 summarized the effect that the changed listed above have on

some of the key numbers of the financial model.

Table 4.5 Changes in Key Numbers After Proposed Changes

Year 1 Year 5 Year 10Net Income ($) -74,497 15,503 50,784Ending Cash Balance ($) 67,814 48,371 259,242NPV ($) -327,099IRR -0.9%ERR -1.0%

4.5.5 Contingency Plan

As an alternative building a plant and running all operations out of Shaunavon,

the option of co-packing could be investigated. This alternative was investigated by

colleagues in a separate planning class and was a scenario that showed positive returns.

Although that scenario showed positive returns, the levels were low. It may be an option

in early years to build funds within the company to assist in the building and

establishment of a plant.

4.6 Conclusion

After running the financial model, it is found that the plan is unfeasible. The

negative ending cash flows mean that the model doesn’t work. If XXXXX Foods is still

intending to construct a plant, there needs to be some changes in the employment

structure, as well as some re-evaluation in the scope and size of the project. If the

financial figures are ignored and the plan is followed as written, finding investors to

finance the project will be nearly impossible to recruit, and their investments will be lost

within a few years.


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5.0 References

Websites:

Alard Equipment: Available at - http://www.alard-equipment.com/we_buy.htm

Calgary Vegetarian Resource: Available at - http://www.calgaryveg.com

Country Women Magazine: Available at - http://www.countrywomanmagazine.com

Federated Co-op: Available at - http://www.fcl.ca

Handling Innovations: Available at - http://www.handlinginnovations.com

Flare Magazine: Available at - http://www.flare.com

Future Shop: Available at - http://www.futureshop.ca

Pulse Canada: Available at - http://www.pulsecanada.com

XXXXX Foods: Available at - http://www.XXXXXfoods.com

Rose Scientific Ltd: Available at - http://www.rosesci.com

Scale Galore: Available at - http://www.scalesgalore.com

Sobey’s Grocery Chain: Available at - http://www.sobeys.ca

Staples Business Depot: Available at - http://www.staples.ca

Statistics Canada: Available at - http://www.statcan.ca

Quotes:

Ampack: Available at - http://www.ampack.co

Costco: Available at - http://www.costco.ca

Custom Labels Inc: Available at – http://customlabelsinc.com

D and D Lumber

Risdale Trucking: Available at - http://www.sasktrucking.com

Saputo’s: Available at - http://www.saputo.ca

Saskpower: Available at - http://www.saskpower.com

Sasktel: Available at - http://www.sasktel.ca

ULine: Available at - http://www.uline.com


http://www.uline.com/

http://www.sasktel.ca/

http://www.saskpower.com/

http://www.saputo.ca/

http://www.sasktrucking.com/

http://customlabelsinc.com/

http://www.costco.ca/

http://www.ampack.co/

http://www.statcan.ca/

http://www.staples.ca/

http://www.sobeys.ca/

http://www.scalesgalore.com/

http://www.rosesci.com/

http://www.pulsewisefoods.com/

http://www.pulsecanada.com/

http://www.futureshop.ca/

http://www.flare.com/


http://www.fcl.ca/

http://www.countrywomanmagazine.com/

http://www.calgaryveg.com/

http://www.alard-equipment.com/we_buy.htm

Lentil Pasta Sauce

6.0 Appendix A


Lentil Pasta Sauce


Lentil Pasta Sauce

7.0 Appendix B


organizational structure: - student agribusiness …agbusinessplans.usask.ca/files/lentil pasta...

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