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TRANSCRIPT
Feasibility Study
2002
Prepared by:Scott Cortus
Tandra FraserJuliana LittmanCeleste Nordal
Comm 492.3 Agribusiness Venture ManagementCollege of Agriculture
University of Saskatchewan
Feasibility Study
TABLE OF CONTENTSTable of Contents............................................................................................. iiList of Tables and Figures............................................................................... ivExecutive Summary......................................................................................... v1.0 Introduction............................................................................................... 1
1.1 Organization........................................................................................................ 11.2 Mission Statement............................................................................................... 11.3 Goals and Objectives.......................................................................................... 1
2.0 Industry Overview..................................................................................... 12.1 Background......................................................................................................... 12.2 Trends.................................................................................................................. 22.3 Potential Problems.............................................................................................. 3
3.0 Operations Plan........................................................................................ 33.1 Location............................................................................................................... 43.2 The Yard Site....................................................................................................... 53.3 Lodge Plan........................................................................................................... 63.4 Capacity............................................................................................................... 63.5 Land Rental and Cattle Board Arrangements................................................... 73.6 Booking Policies and Procedures..................................................................... 83.7 Capital Expenditures.......................................................................................... 8
3.7.1 Building............................................................................................... 83.7.2 Office................................................................................................... 83.7.3 Kitchen................................................................................................ 93.7.4 Cleaning Equipment.......................................................................... 103.7.5 Lounge................................................................................................ 113.7.6 Bedrooms........................................................................................... 113.7.7 Bathrooms.......................................................................................... 123.7.8 Yard Equipment................................................................................. 133.7.9 Truck and Trailer................................................................................ 143.7.10 Livestock............................................................................................ 143.7.11 Tack..................................................................................................... 15
3.8 Tour Plan............................................................................................................. 163.9 Operating Expenses........................................................................................... 19
3.9.1 Telephone and Internet Expenses.................................................... 193.9.2 Employee Training............................................................................. 203.9.3 Office Expenses................................................................................. 203.9.4 Food Expenses.................................................................................. 203.9.5 Livestock Expenses........................................................................... 213.9.6 Building Expenses............................................................................. 213.9.7 Vehicle Lease Expense...................................................................... 223.9.8 Insurance Expenses.......................................................................... 233.9.9 Business License, Fees and Memberships..................................... 243.9.10 Fuel and Vehicle Maintenance.......................................................... 243.9.11 Tour Related Costs............................................................................ 25
4.0 Marketing Plan.......................................................................................... 264.1 Introduction......................................................................................................... 264.2 Market Analysis................................................................................................... 26
4.2.1 The Market.......................................................................................... 264.2.2 Competition........................................................................................ 27
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4.2.3 Target Market..................................................................................... 284.2.3.1 Typical Customer.................................................................. 284.2.3.2 Customer Behavior............................................................... 28
4.3 Marketing Strategy.............................................................................................. 294.3.1 Sales and Profit Objectives............................................................... 294.3.2 Promotion........................................................................................... 304.3.3 Pricing Policy..................................................................................... 304.3.4 Advertising......................................................................................... 314.3.5 Marketing Budget............................................................................... 314.3.6 Competitive Strategy......................................................................... 32
5.0 Human Resources Plan............................................................................ 325.1 Introduction......................................................................................................... 325.2 Full-Time Employees.......................................................................................... 33
5.2.1 General Manager................................................................................ 335.2.2 Barn Manager..................................................................................... 33
5.3 Summer Employees............................................................................................ 345.3.1 Head Cook.......................................................................................... 345.3.2 Assistant Cook................................................................................... 345.3.3 Housekeeper...................................................................................... 345.3.4 Tour Guides........................................................................................ 35
5.4 Training................................................................................................................ 355.5 Employee Benefits.............................................................................................. 36
5.5.1 Full-Time Employees......................................................................... 365.5.2 Summer Employees........................................................................... 36
5.6 Five-Year Wage and Salary Costs Projections................................................. 375.7 Human Resource Strategy................................................................................. 37
6.0 Financial Plan............................................................................................ 376.1 Financing Budget................................................................................................ 386.2 Dividend Policy................................................................................................... 396.3 Economic Forecast............................................................................................. 396.4 Opening Balance Sheet...................................................................................... 396.5 Working Capital................................................................................................... 406.6 Other Expense Assumptions............................................................................. 406.7 Ratio Analysis..................................................................................................... 406.8 Financial Analysis............................................................................................... 416.9 Sensitivity Analysis............................................................................................ 416.10 Break-Even Analysis........................................................................................... 44
7.0 Summary.................................................................................................... 46
8.0 Future Considerations.............................................................................. 46
9.0 References................................................................................................. 47
Appendix A. 10-Year Financial Projections.................................................. 49Appendix B. Quotations and Prices.............................................................. 59Appendix C. Insurance Application and Requirements............................... 68Appendix D. SCVA Accreditation Form........................................................ 74Appendix E. SWOT Analysis.......................................................................... 76
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LIST OF TABLES AND FIGURES
Table A. Capital Requirements..................................................................................... viiTable B. Financing Mix.................................................................................................. ixTable C. Summary of Financial Results....................................................................... ixTable D. Financial Ratios.............................................................................................. xTable E. Average Break-Even Quantities.................................................................... xTable F. Sensitivity to Number of Customers............................................................. xTable G. Sensitivity to Operating Expenses................................................................ xTable H. Sensitivity to Package Prices........................................................................ xTable J. Sensitivity to Capital Costs............................................................................ xTable K. Sensitivity to Cost of Building....................................................................... xiTable L. Base Case Financial Results......................................................................... xiTable 1. Office Equipment Capital Expenditures........................................................ 9Table 2. Kitchen Appliances......................................................................................... 9Table 3. Dishware Capital Expenditures..................................................................... 10Table 4. Capital Required for Cleaning....................................................................... 10Table 5. Furnishings for Lounge and Eating Area..................................................... 11Table 6. Furnishings and Other Capital for Bedrooms.............................................. 11Table 7. Capital Expenditures for Bathrooms............................................................. 12Table 8. Capital Expenditures for Yard Equipment.................................................... 13Table 9. Tack Purchases.............................................................................................. 15Table 10. Office Supplies Expense................................................................................ 20Table 11. Food Expenses............................................................................................... 20Table 12. Building Maintenance Expenses................................................................... 22Table 13. Fuel and Vehicle Maintenance Costs............................................................ 24Table 14. Costs for Attending Attractions During Tours............................................. 25Table 15. Expenditures by Visitors to Canada for 1999 Overnight Stays.................. 27Table 16. Marketing Budget........................................................................................... 31Table 17. Training Expense............................................................................................ 35Table 18. 5-Year Estimate of Employee Benefits.......................................................... 36Table 19. 5-Year Estimate of Total Wages and Salary Costs....................................... 37Table 20. Financing Plan................................................................................................ 38Table 21. Debt Amortization Schedule on Long Term Debt........................................ 38Table 22. Opening Balance Sheet.................................................................................. 39Table 23. Financial Ratios.............................................................................................. 40Table 24. Sensitivity to Number of Customers............................................................. 41Table 25. Sensitivity to Operating Expenses................................................................ 42Table 26. Sensitivity to Package Prices........................................................................ 42Table 27. Sensitivity to Capital Requirements.............................................................. 42Table 28. Sensitivity to Lodge........................................................................................ 43Table 29. Break-Even Analysis...................................................................................... 44 Figure A. Site Plan........................................................................................................... vFigure B. Lodge Plan...................................................................................................... viFigure C. Typical Week at Prairie Pride Retreat............................................................ viFigure D. Hierarchy of Employees at Prairie Pride Retreat......................................... ixFigure 1. Map Showing Location................................................................................... 4Figure 2. The Yard Plan.................................................................................................. 5Figure 3. The Lodge Plan............................................................................................... 6Figure 4. Land Layout.................................................................................................... 7Figure 5. Schedule of Activities..................................................................................... 18Figure 6. Human Resource Hierarchy........................................................................... 33Figure 7. Sensitivity Analysis........................................................................................ 44Figure 8. Break Even Analysis.......................................................................................45
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EXECUTIVE SUMMARY
The main objective of Prairie Pride Retreat is to provide tourists with a healthy and
enjoyable vacation experience in Southwest Saskatchewan. It is a privately owned corporation.
Prairie Pride Retreat will offer one-week vacation packages that incorporate riding and local tours
to tourists during the summer months.
Operations
Prairie Pride Retreat will be located near Robsart, Saskatchewan. 320 acres of land will
be purchased for $85,000 through Lane Realty Corporation. A lodge consisting of 6 double
rooms and 1 suite will be built on the land for the guests to stay in. Capacity will be set at 14
people per week but it is not expected to reach capacity every week. An attendance of 12 people
each week assumes that bookings will be 85% of capacity. Figure A provides a site plan and
Figure B a lodge plan.
Figure A. Site Plan.
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Figure B. Lodge Plan.
Tours at Prairie Pride Retreat are run on an all-inclusive weekly basis. Each week horseback
riding tours will be given as well as tours to local attractions. A typical week schedule for Prairie
Pride Retreat is shown in Figure C.
Figure C. Typical week at Prairie Pride Retreat.
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The total capital and set-up costs required by Prairie Pride Retreat is $532,666 (Table A), which
will be financed through a combination of a bank loan and shareholders’ equity.
Table A. Capital Requirements.
Office Supplies 1,778Computer 1,499Appliances 4,459Furniture 22,481Tractor 22,000Truck 48,000Trailer 27,655Livestock 43,250Tack 13,484Outdoor Equipment 2,376Land 15,000Buildings 60,000Lodge 260,053Fuel Tank 3,478Kitchen 5,154Fences 2,000Total $532,666
Marketing
As a guest ranch and tour service in Southwest Saskatchewan, there are a few sources of
competition. There are no competitors who offer the exact services as Prairie Pride Retreat but
competition exists in other tourist venues. This includes guest ranches and vacation farms in
Saskatchewan and Alberta, tour package providers in Western Canada, and even other planned
holiday providers, such as immersion tourism. The size of the potential markets for Prairie Pride
Retreats is huge. United States and Japan will be the main target markets.
The typical customer visiting Prairie Pride Retreat will be 30-50 years old. This age group is
targeted because people in this category usually have a reasonable income and are interested in
trying new things. The characteristic occupation of these people would be professionals who have
an income of $35,000 or greater. These people live and work in urban areas and desire a
vacation that consists of outdoor activities in a peaceful and natural setting. The family life cycle
of the customers will be middle-aged married couples with or without children, and also middle-
aged single people. The main factors that influence the customer’s decision to purchase are
price, income, advertising, seasonality of customer’s occupation, and age of the family.
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The majority of advertising will be accomplished through Prairie Pride Retreat’s webpage, which
is assessable on a global basis. Tradeshows which international visitors already attend, word of
mouth, and advertising through tourism associations will be the other major methods of
marketing. Trips can be purchased through travel agents, the website, e-mail, or by phone.
Prairie Pride Retreat utilizes a market-based pricing policy. There are no competitors who offer
the exact services Prairie Pride Retreat does. The early bird price is $1,450, as opposed to the
regular price of $1,575. This includes airport pick-up at Calgary International, meals,
knowledgeable guides, and bus tours to neighbouring tourist sites. The package will be available
for 18 weeks from May through September. During the first season it is expected that 8 people
will stay at the ranch each week. Year two will accommodate 10 people per week and in year
three 12 people are expected per week. Fourteen people per week is full capacity for operating.
The profit objective is to make at least 15% return on investment during year 3 and after. Losses
are expected in years 1 and 2.
Prairie Pride Retreat is situated in a great location, which gives it a competitive advantage. The
guest ranch is located in the beautiful and scenic Cypress Hills region. There are many local
attractions in the area and tours will include locations such as Cypress Hills Provincial Park,
Eastend Dinosaur Museum, The Big Muddy Badlands, and Grasslands National Park. Horseback
riding through the Cypress Hills region will be offered. Guests are provided with a comfortable,
clean place to stay and delicious meals. Prairie Pride Retreat will meet their customers’ needs
through an all-inclusive vacation setting managed by friendly and reliable employees.
Human Resources
Prairie Pride Retreat will employ 2 permanent full-time employees and 5 temporary full-time
employees. The hierarchy is shown in Figure D. To ensure the comfort and safety of guests,
only friendly, responsible staff will be hired. The guides must have three years of riding
experience, as well as being certified in first aid and CPR. The cook will be trained in food safety
and handling techniques.
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Manager
Head CookBarn Manager
AssistantCook
HousekeeperTourLeader
TourLeader
Figure D. Hierarchy of employees at Prairie Pride Retreat.
Financial
Prairie Pride Retreat will require $600,000 in financing in order to meet all financial obligations.
The breakdown of this financing is shown in Table B.
Table B. Financing Plan.
Financing PlanBank Debt Financing $200,000Equity Financing $400,000Total Financing $600,000
Table C shows the financial results for years 1, 2, 3, 5, and 10. Results in years 1 to 3 differ
because of changes in the expected number of guests. Beyond this point, sales are expected to
remain constant.
Table C. Summary of Financial Results.
Year 1 Year 2 Year 3 Year 5 Year 10Net Income (after taxes) -36,364 -23,699 38,840 43,412 70,890Net Cash Flow 80,524 14,280 40,093 22,015 12,557Dividends Paid 0 0 23,304 32,205 52,589Growth in Revenues 27.0% 22.1% 2.0% 2.0%Growth in Total Operating Expenses 18.3% -0.1% 0.3% 0.2%
Table D is a summary of the key financial ratios for Prairie Pride Retreat.
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Table D. Financial Ratios.Financial Ratios 2002 2006 2011
Liquidity RatiosCurrent Ratio 5 9 13Solvency RatiosDebt Ratio 36% 26% 4%Debt to Equity Ratio 55.6% 35.5% 4.3%Profitability RatiosNet Profit Margin -16.4% 12.1% 17.9%Return on Assets -6.4% 8.1% 12.4%Return on Equity -10% 11% 13%Other RatiosKey Operating Exp. as a % of Sales 116% 85% 78%
Table E shows the number of vacation packages that must be sold each year to break even.
Table E. The number of packages for each of the Early Bird Special and the Regular Price that must be sold in order to break even. These numbers have been calculated as an average over 10 years.
Base Case Net Income Quantity Break Even
Cash Flow Break Even
Economic Break Even
103 71 54 110
A summary of the sensitivity analysis for Prairie Pride Retreat is shown in Table F.
Table F. Sensitivity of Prairie Pride Retreat’s internal rate of return to changes in critical variables.
IRR (%) Base Case Worst Case Best CaseNumber of customers 8.4% -3.2% 17.6%Operating expenses 8.4% n/a 26.6%Package price 8.4% n/a 27.5%Investment capital 8.4% 3.5% 14.8%
Prairie Pride Retreat's most critical variables according to the sensitivity analysis, ranked from
most important to least important are:
1) Number of Customers
2) Package Price
3) Operating Expenses
4) Investment Capital
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Table G shows the base case financial results for Prairie Pride Retreat. Average annual net
income is calculated after taxes.
Table G. Base Case Financial Results (15% discount rate).
NPV IRR Average Annual Cash Flows
Average Annual Net Income
-99,803 8.4% 30,893 37,002
Summary
From the base case financial projections, the financial break-even analysis, and the calculated IRR and NPV, it appears that Prairie Pride Retreat is an economically infeasible business. Prairie Pride Retreat has very high initial capital costs with the construction of a new lodge. It is expected that Prairie Pride Retreat could earn a positive income and cash flow, however, the expected average return on equity investment is only 8.4%.
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Main Report
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1.0 Introduction
1.1 Organization
Prairie Pride Retreat is a tourist venue based in southwest Saskatchewan. It is a privately owned
corporation. Prairie Pride Retreat will offer one-week vacation packages that incorporate riding
and local tours to tourists during the summer months.
1.2 Mission Statement
To provide tourists with a healthy and enjoyable vacation experience in southwest Saskatchewan.
1.3 Goals and Objectives
Goal: To study the feasibility of a tourist venue in southwest Saskatchewan and create a
functional business plan for Prairie Pride Retreat.
Objectives: Establish an operations plan for this facility.
Establish a human resources plan to discuss employment needs for this business.
Establish a marketing plan to address the product, promotion, pricing, and location of
this business.
Establish accurate accounting and financial projections that will determine financing,
costs, and returns in the short and long run, and determine the risk of this business
venture.
2.0 Industry Overview
2.1 Background
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Tourism is one of the fastest growing economic activities in Saskatchewan. In 2000, statistics
from Saskatchewan Economic and Co-operative Development (SECD), tourism generated $1.16
billion in revenue for Saskatchewan, and employed, both directly and indirectly, more than 49,000
people, or 1 in every 10 workers in the province. A variety of unique historical attractions and
diverse landscapes are scattered throughout the province. It was because of this that
Saskatchewan established Canada’s first industry-driven tourism authority, Tourism
Saskatchewan (SECD). Tourism Saskatchewan is responsible for:
Tourism marketing and public awareness;
Visitor and information service;
Education and training;
Research and policy development;
Destination area planning and development; and
Tourism grants program administration.
Income generated directly from tourism in Saskatchewan was between 250 and 300 million
dollars between 1993-1995. This indicates that tourism is a thriving and stable business in
Saskatchewan. Segmentation for guest ranches is not available because there are few located
within the province.
2.2 Trends
As baby-boomers get older and their children start to leave home, they have more free time.
Many are also nearing retirement age. These people are looking for vacations, but many do not
have time to plan them. As time goes on, however, the age structure will shift and there will be
fewer people within our target market.
Many farmers are looking to diversify into ventures that are not closely related economically to
farming. Tourism is not closely correlated to farming (Holden 2001). Because of this, more
farmers may be exploring the option of a tourism business as a way to diversify their farming
business. This may lead to an increase in the number of players in this business, which may
increase competition.
The value of the Canadian dollar in terms of the American dollar and foreign currencies may work
for or against Prairie Pride Retreat. The exchange rate of our dollar is currently low, and this may
attract residents of the United States and Europe to travel in Canada. However, the low
exchange rate also works against the business. When goods are purchased from the United
States, the business will have to pay a lot more for the goods.
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Another trend that may affect Prairie Pride Retreat is the decline in air travel due to current global
events. The September 11th terrorist attacks on the United States have created the perception for
many people that international travel is unsafe, especially to the United States. Prairie Pride
Retreat may be able to establish itself as a safe getaway for customers, because the general
worldwide perception of Canada is that it is a safe and friendly country. The War Against
Terrorism may further decrease “luxury” spending, and this may decrease the number of
travelers.
2.3 Potential Problems
There are some potential problems that may affect the viability of Prairie Pride Retreat.
Ease of entry into the market is relatively simple, and the time it would take for a competitor to
bring a competing service to market could be as little as a couple of months.
This business depends on the weather. A drought in Southern Saskatchewan may affect the
viability of this business, both by increasing costs, and by changing the landscapes and making
our offering less attractive.
3.0 Operations Plan
Prairie Pride Retreat has a maximum capacity of 14 people per week. The business will operate
from late April until the beginning of September and will offer one-week tourism packages
incorporating riding and site seeing for 18 weeks. Tours will not be available for one week during
July due to the promotion activities at the Calgary Stampede by the permanent staff.
The first section of the operations plan discusses the location of Prairie Pride Retreat. After this,
diagrams of the yard site and the lodge are shown. Capacity and booking policies and
procedures are discussed in the following sections.
This tourism business is capital intensive. Capital expenditures are discussed in section 3.7. The
tour agenda for a typical week is then discussed, followed by an explanation of the operating
expenses.
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3.1 Location
Prairie Pride Retreat will be located 4 miles North of Robsart, Saskatchewan and 18 miles from
Cypress Hills Park. A star on the map in Figure 1 indicates the location.
Figure 1. Prairie Pride Retreat is located in southwest Saskatchewan.
320 acres of land will be purchased for $85,000 through Lane Realty Corporation. This includes:
2 quarters, 280 acres cultivated
3 metal bins, 2 x 1,650 bushels, 1 x 2,500 bushels
36 ft x 50 ft barn, 18 ft x 24 ft. cement floor garage, 14 ft x 22 ft garage, 40 ft x 60 ft
Quonset, 18 ft x 12 ft cement floor shed
1 ¼ storey home (3 bedrooms, 2 bath)
Well with good drinking water
A lodge will be built on the land for the guests to stay in. A firepit, horseshoe pit and garden will
be added to the landscape. Patio furniture will also be placed outside so the guests can relax
and enjoy the scenery.
A copy of the real estate listing is included in Appendix B.
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3.2 The Yard Site
Garden
Lodge
Shelterbelt
Horseshoe pit
FirepitHouseGarage
Quonset
Barnnn
Bins
nnss
Figure 2. The yard plan.
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3.3 Lodge Plan
22 ft
64 ft
18 ft
16 ft
Stor
age
Lounge
4 ft
34 ft
90 ft
Registration Office
Kitchen & Eating Area
Double
Suite
Figure 3. Floor plan of the lodge that will be constructed.
The lodge will contain six double rooms, one suite, a lounge, kitchen and eating area, and a
storage room. It will be 3,060 square feet and will cost approximately $245,000 to build (quoted
by Bob at Burron Lumber). Each bedroom is 15’x18’, and the suite is 16’x22’. Each room has a
bathroom. The hallway is 4’ wide, the registration office is 13’x16’, the lounge/lobby is 16’x19’.
The kitchen and dining room will be 16’x24’, and the storage room will be 8’x16’.
Each double room will have two double beds, a nightstand, dresser, and bed lamp along with
accessories. The suite has a king-size bed and a double hide-a-bed. The lounge has couches
and chairs as well as a large screen television and a bar.
3.4 Capacity
The lodge has 6 rooms and 1 suite. Capacity will be set at 14 people per week. However, it is not
expected to reach capacity every week. For this reason, the financial statements are calculated
with an expected attendance of 8 in the first year, 10 in the second year, and 12 in each year
beyond. An attendance of 12 people each week assumes that bookings will be 85% of capacity.
The option of renting out open rooms to travelers by the night has been considered. However, it
was decided that this would detract from the guest ranch experience for the target clientele.
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3.5 Land Rental and Cattle Boarding Arrangements
Prairie Pride Retreat will purchase 320 acres of land. Of this, 270 acres of cultivated land will not
be required for business activities, and will be rented out. A cash rental agreement will be used.
According to Saskatchewan Agriculture and Food, land rental prices run between $2,500 and
$3,000 per quarter in the Rural Municipality of Reno, #51, the rural municipality where Prairie
Pride Retreat is located. Based on $2,500 per quarter, income from land rental will be $4,220 per
year. This number will be inflated by 5% every three years. The reason for this is because land
rental prices do not increase every year. The land will be rented to a local grain farmer.
Arrangements will be made to create trails on this person’s land, in exchange for the lower land
rental price.
Cattle are needed to provide a “farm experience” for the guests of Prairie Pride Retreat. Because
of the high costs of feeding cattle during the winter, a decision has been made to board cattle
during the summer. 15 cow-calf pairs will be boarded for a local farmer. The arrangement that
will be made is that Prairie Pride Retreat will provide feed for the cattle from May until August.
The owner will incur all transportation and veterinary costs, and any other expenses that may
arise. As well, the owner will be expected to take care of the horses and livestock and keep an
eye on the farm when the staff is away on promotional business (i.e., Denver and Calgary).
Farmyard
20 acres
Trees – 30 acres
Hay
80 acres
Grain
190 acres
Figure 4. Land layout.
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3.6 Booking Policies and Procedures
Vacations at Prairie Pride Retreat can be purchased by phone, travel agents, mail, or e-mail.
Stays must be purchased in advance, and if they are purchased at least 5 months in advance
then the guest will receive the early bird price. The early bird price is $1,450, as opposed to the
regular price of $1,575. Half of the vacation price must be paid upon booking, with the remainder
paid upon arrival at the ranch. Guests may pay by credit card, debit card, cash, cheque, or
money order.
3.7 Capital Expenditures
3.7.1 Building
The total cost of the building is $245,000. This includes all labour costs associated with the
building of the lodge as well as the material costs and electrical wiring. Plumbing costs were
estimated to be $6,198 (Centennial Plumbing and Heating). The heating and air conditioning was
also provided by Centennial Plumbing and Heating at $8,643. The telephone wiring includes two
additional jacks at $87 per jack and the wiring that is required for this from SaskTel. Electrical
hookup has an annual fee of $25. This makes the total capital costs of the building $290,053.
3.7.2 Office
Office capital is made up of 2 desks costing $200 each, 2 chairs at $120 each, a fax/printer/copier
machine for $300 and a filing cabinet that costs $430. The total office capital is $1,538.18. 3
telephones will be purchased from Sears. Two will be located in the office, and one will be in the
lounge. The main office phone will be purchased for $55, while the other two phones will cost
$20 each. A high-quality camera will be purchased from Future Shop. The Canon SureShot 85
Zoom Platinum costs $130, and has auto-focus, a long-range flash, and a 2-foot focus depth. An
Optex Digiblue camera bag will also be purchased for $15.
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Cell phones will be purchased through Jump.ca. The manager’s phone is a Nokia 3285i, a model
which offers an extended calling area and CDMA coverage, 3.5 hours of talk time, and storage for
200 numbers. This phone costs $79.95 with a 2-year activation. The barn manager’s phone
(which will be carried in the 1-ton truck when travelling) will be an Audiovox CDM135XL digital
CDMA, and a 180 minute talk time. The phone comes with a lithium battery and a AC and
desktop charger. One important feature of the phone is that it has a vibration ringer option that
can be used when the manager is working around the horses. The cost of this phone is $79.95
with a 2-year activation. A third phone will be leased. Lease costs are included in the operating
expenses section. A further description of the cell phones is included in Appendix B.
Table 1. Office equipment capital expenditures.
Item Cost per Unit
Units Purchased
Total Cost
Cell Phones 80 2 160 Telephones 55 1 55 Telephones 20 2 40 Desk 200 2 400 Chair 120 2 240 Fax/printer/copier 300 1 300 Filing cabinet 438 1 438 Camera and Equipment 145 1 145 Office Capital 1778
A COMPAQ Presario 1200CA Notebook computer will also be purchased from Staples for
$1,499. The computer will be used both for marketing and office work.
3.7.3 Kitchen
For the kitchen we will need to purchase a 30” range, two 17 cubic foot fridges, and a 21.7 cubic
foot deep freezer, a microwave ($130), a dishwasher ($560), and a barbecue ($170). The total
cost of the kitchen appliances is $4,459.
Table 2. Kitchen appliances.
Appliances Cost per Unit
Units Purchased
Total Cost
Stove 1,000 1 1,000Fridge 1,000 2 2,000Deep Freeze 600 1 600Microwave 130 1 130
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Dishwasher 560 1 560Barbeque 169 1 169Total Appliances 4,459
The kitchen will also need cookware, cutlery, dinnerware, a coffee maker and other equipment
that will be purchased for $695.
Table 3. Dishware capital expenditures.
Dishware Price Quantity TotalStainless Steel Cookware (11piece set) 100 1 100Corningwear (11 pieces) 40 1 4013x16 cookie sheets (2) 20 1 209" cake pan 15 2 30Mixing bowl set (5 pieces) 10 1 1012 cup coffee maker 60 2 120Knife set (10 pieces) 20 1 20Corelle dinnerware sets (20 pieces) 36 6 215Oneida flatwear (65 pieces) 20 3 60Drinking glasses 8 5 40Water container 40 1 40Total Dishware 695
The expected total cost of kitchen capital is $5,154.
3.7.4 Cleaning Equipment
A vacuum will be purchased from Future Shop. The washer and dryer will be purchased from
Sears. The cost of a cleaning cart has been estimated because prices were not available.
Table 4. Capital expenditures for cleaning equipment.
Appliances Cost per Item
Quantity Purchased
Total Price
Vacuum 350 1 350Washer 900 1 900Dryer 600 1 600Cleaning cart 135 1 135 Total Cleaning Capital 1,985
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3.7.5 Lounge
Furniture for the lounge and eating area includes five sets of tables and 4 chairs, two couches,
two barstools, three armchairs, a television and VCR and a coffee table. The cost of furnishing
the lounge is $5,760, which is necessary to ensure the comfort of our guests. The TV and VCR
are purchased from Sears; the rest is from the Brick.
Table 5. Furnishings for lounge and eating area.
Item Cost Per Item
Quantity Purchased
Total Price
Table & chair set 370 5 1,850Couches 700 2 1,400Bar stools 40 2 80Arm chairs 400 3 1,20032" TV 850 1 850VCR 180 1 180Coffee tables 200 1 200Total lodge furniture capital 5,760
3.7.6 Bedrooms
Each of the seven bedrooms will be equipped with a dresser and nightstand. The six double
rooms will be furnished with two double beds and the suite will be furnished with a king size bed
and a hide-a-bed. Each room will also have sheets, comforters, blankets and a mattress cover
for each bed, curtains, a lamp, wastebasket, and an alarm/clock radio. The total bedroom capital
is $16,721.31. $8,000 plus inflation will be spent every 5 years for replacing sheets and other
items.
Table 6. Furnishings and other capital expenditures for the bedrooms.
Product Supplier Quantity Purchased
Unit Price Total Price
ComforterDouble Sears 14 70 980King Sears 1 100 100SheetsDouble Sears 24 60 1,440King Sears 2 90 180Curtains Sears 7 60 420
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BlanketsDouble Sears 20 30 600King Sears 2 40 80Pillow Sears 35 8 280Lamp Sears 7 45 315Wastebasket Sears 7 6 42Mattress cover Sears 15 40 600Alarm clock/radio Sears 7 13 91Bedroom FurnitureDresser Sears 7 550 3,850Night stand Sears 7 200 1400Mattress & FoundationDouble Sears 12 350 4,200King Sears 1 435 435Bed FrameDouble Sears 12 70 840King Sears 1 90 90Sofa bed Sears 1 780 780Bedroom Capital 2,475 16,721
3.7.7 Bathrooms
In each bathroom there will be towels, bathmats, wastebaskets and miscellaneous toiletries. 40
bath, 40 hand and 40 face towels will be purchased from Sears as well as 14 bath mats, 8 rubber
bath mats, and 7 wastebaskets.
Table 7. Capital expenditures for bathrooms.
Cost per unit
Quantity Purchased
Year 1 Year 5 Source
Bath towels 9 40 360 451 SearsHand towels 5 40 220 228 SearsFace towels 3 40 140 145 SearsBath mat 10 14 140 145 SearsRubber bath mat 10 8 80 88 WalmartWastebasket 6 7 42 WalmartTotal Bathroom Capital 981 1,058
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3.7.8 Yard Equipment
It will be important to the business that the yard is aesthetically pleasing. Equipment will be
purchased to maintain the yard, including hoses, trimmers, shovels, garbage cans, and a
wheelbarrow. The purchases are shown in table 8. All yard equipment prices are courtesy of
Canadian Tire.
Table 8. Capital expenditures for yard equipment.
Item Cost per item
Number purchased
Total cost
Wheel barrow 90 1 90Galvanized watering can 25 1 25Hose hide-away reel box 60 1 60Garden hose (100ft) 50 1 50Garden hose (50 ft) 37 1 37Soaker hoses (100ft) 19 2 38Rake 15 2 30Grass shears 15 1 15Hedge trimmers 27 1 27Yardworks lopping shears 27 1 27Weedeater Prolite trimmer 150 1 150Hand cultivator, trowel and dandelion digger
7 1 7
6 pack work gloves 10 1 10Snow shovel 15 1 15Spade 20 1 20Hoe 13 1 13Fire extinguishers 35 4 140Garbage cans 12 3 36TOTAL 790
Yard furniture includes 4 Nostalgic slat park benches purchased for $49.99 each from Canadian
Tire. Two patio table sets will be purchased. Each set includes one table, umbrella, 4 chairs, and
chair cushions. These will be purchased from the Real Canadian SuperStore for $249.99 each.
A 1986 diesel 2-wheel drive model 3910 Ford tractor will be purchased used from Saskatoon
Farm Equipment. This cabbed tractor comes with a front-end loader, rear blade, 3-point hitch,
snowblower, lawnmower, and rototiller. The tractor will be needed around the barnyard and yard
for maintenance and feeding. The cost of the tractor was quoted at $22,000.
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A fuel tank will be purchased for diesel fuel. The cost of the fuel tank, pump, and set-up and
delivery is $3,478 Canadian. The quote was provided by Fairfield Maintenance, an American
supplier of fuel tanks that operates mostly by internet orders.
Some fencing will be required to achieve the desired set-up. As well, because horses are known
to be hard on fences, it is expected that some fence will have to be replaced periodically. $2000
is allocated for the first year. As well $400 has been allocated every four years. Fencing is a
capital expenditure.
3.7.9 Truck and Trailer
A 2002 4WD Dodge 1-ton dual wheel truck will be bought from Humbolt Dodge. This truck will be
used for hauling the horse trailer during the summer, and will serve as the business vehicle
during the off-season. The truck has some options (air, tilt, cruise, CD player), and the purchase
price of $48,000 includes the cost of the trailer hitch and installation.
To haul 15 horses, a 28 foot stock trailer will be required. Flaman Trailers of Saskatoon offers a
28’ aluminum trailer with a sealed front tack area for $27,655. A quote for the trailer is provided in
Appendix B.
3.7.10 Livestock
Prairie Pride Retreat will purchase 14 horses. To meet insurance requirements, horses must be
at least 5 years of age, and well schooled. No stallions may be used. Prairie Pride Retreat will
purchase well-broke, quiet, gentle, seasoned trail-ride horses suitable for beginner and
intermediate riders. Dependable mares and geldings of any breed will be purchased from several
locations by private sale throughout Saskatchewan and Alberta. At least two of the horses will be
under 14.2hh (ponies) that are suitable for children and smaller riders. The expected cost of
these horses (based on advertisements from the Western Producer) is $3,000 each. One
replacement horse will be purchased each year. Replacement may be required for horses that
become injured or die, or for horses that lack suitability for our program.
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Other livestock will be purchased to provide a realistic “farm” experience. Five sheep, a donkey,
two goats, and ducks and chickens will be purchased. Based on prices from the Western
Producer, expected costs are $ 300 for the donkey, $200 for each goat, $100 per sheep, and $30
for ducks and $20 for chickens. Due to the costs of feeding cattle over winter, arrangements will
be made with an area farmer to “board” 15 cow-calf pairs during the summer. Prairie Pride
Retreat will pay for the feed, and the farmer will incur hauling and veterinary costs. In exchange
for board, the cattle farmer will care for the livestock and keep an eye on the farm while the staff
are away on promotional business (i.e., Denver and Calgary trips).
Sample advertisements from the Western Producer are included for all livestock in Appendix B.
3.7.11 Tack
Tack will be purchased from two sources. The majority will be bought from Greenhawk
Equestrian, a mail-order business located in Mississauga, Ontario. Saddlebags will be purchased
from Stateline Tack, an American mail-order company. A description of the tack is attached in
appendix B. Total tack costs are $13,484.
Table 9. Tack purchases for Prairie Pride Retreat.
Product Supplier Quantity Purchased
Unit Price Total Price
Circle D Roper Saddle, 16" Greenhawk Equestrian 7 649 4,543Circle D Pleasure Saddle, 15"
Greenhawk Equestrian 5 489 2,445
Lil' Dude Stirrups Greenhawk Equestrian 2 115 230Saddle pad Greenhawk Equestrian 12 70 840Saddle bag Stateline Tack 12 27 US 486Weaver fleece cinch Greenhawk Equestrian 12 32 384Bridle Greenhawk Equestrian 12 30 360Bit – Training snaffle with D
Greenhawk Equestrian 12 35 420
Chin strap Greenhawk Equestrian 12 6.50 78Reins Greenhawk Equestrian 15 25 375Weaver breast collar Greenhawk Equestrian 12 70 840Weaver adjustable halter Greenhawk Equestrian 14 27 378Cotton lead rope Greenhawk Equestrian 20 10 200Shipping boots Greenhawk Equestrian 14 45 630Riding helmet Greenhawk Equestrian 15 85 1,275TOTAL TACK 13,484
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One of the insurance requirements details that trail ride staff must have a method with which to
communicate with the barn at all times. Four 2-way radios will be purchased from Future Shop
to meet this requirement. The radios have a 3.3 km range, and will allow staff to communicate
with the trail riding head, who will carry one of the cell phones. These radios cost $100 for each
set of 2, for a total of $200.
3.8 Tour Plan
A tour plan for a typical week is laid out in figure 5. Guests will be picked up at Calgary
International Airport on Sunday, and will be driven to the farm in the van. When they arrive at the
farm, they will be treated to a home-cooked meal. There are no activities scheduled for the
evening as many guests will have jet-lag.
Monday morning, guests will be cooked breakfast. Monday morning’s activities include a tour of
the farm and a review of rules and safety procedures. After this, guests will be taken to the barn,
where the farm manager will match them with a horse after assessing their riding ability and
personality. After lunch, the guests will tour a local operational grain farm and will be able to see
different farming activities, ranging from seeding to haying to harvest, depending on the time of
year. Before supper, guests will have an opportunity to ride around the yard and become
comfortable with their horses. After supper, there will be a cowboy campfire and fellowship
complete with cowboy poetry.
Tuesday’s breakfast will be early, as guests will be gone all day on a bus tour of Eastend and
area. Guests will see the Fossil Research Station and the Tyranasaurus Rex Interpretive Centre
at Eastend. A picnic lunch will be eaten at Chimney Coulee. Guests will then tour the three
attractions at Chimney Coulee: a Hudson Bay Company Trading Post, a North West Mounted
Police Post, and a Metis winter camp. Guests will eat supper in an Eastend restaurant before
they visit the Wilkinson Memorial Observatory to view the stars through modern star-watching
equipment.
On Wednesday, guests will ride at Cypress Hills Interprovincial Park. The staff will haul the
horses in the truck while one summer student drives the 15-passenger van with the guests.
Lunch will be packed in the saddlebags so guests get a true trail-ride experience. In the late
afternoon, guests will return to the ranch. Interested guests may golf at Swift Current’s Elmwood
Golf Course in the evening.
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On Thursday, guests will be taken on a bus tour of Wood Mountain, Big Muddy, and Grasslands
National Park. The first visits will be to Notekeu Museum in Ponteix, and St. Victor’s Petroglyphs.
A picnic lunch will be eaten in the Big Muddy Badlands, possibly near the outlaw caves. On the
way home, the tour will drive through Grasslands National Park. The evening will be open so
guests can enjoy the yard or ride or choose other activities.
On Friday, guests will tour through the Grasslands National Park. Some hikes may be arranged.
Guests will return to the farm for lunch, and then in the afternoon, they will be taken to Cypress
Hills Interprovincial Park, where they may enjoy a variety of activities, from shopping to boating.
Guests may return to the farm for supper and another cowboy campfire, or during some weeks,
guests may stay in the park for supper and then take part in events in the evening.
Saturday, guests will be provided breakfast, and then they may choose to take part in several
activities on the farm: gardening, riding, or relaxing. After supper, group photos will be taken, and
then there will be time for final visiting.
Sunday, guests will leave for Calgary at 7:00 AM. The next set of guests will be picked up, and
the week will begin all over again.
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Figure 5. Schedule of activities for a typical operating week during the summer.
During the winter, the permanent employees will be busy with the marketing of the business and
general upkeep of the ranch. No guests will be staying at the resort during this time.
Strategic marketing and advertising plans will be created. Networking and internet upkeep will be
the responsibility of the farm manager during this time. The barn manager, in consultation with
the farm manager, will discuss herd and livestock management; i.e. purchasing and selling
livestock, horse training, etc. Any indoor building maintenance or repairs would also be cared
for during the winter months.
A market could develop for Christmas getaways or business Christmas parties. It is expected
that the farm manager would look into or promote any inquiries to this sector of the business (This
option was not explored in this business plan, but could be explored at a later date).
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3.9 Operating Expenses
All operating expenses after year 1 will be adjusted for inflation.
3.9.1 Telephone and Internet Expenses
The telephone and cell phone expense includes the telephone long distance, and rental of 1 cell
phone and cellular long distance. Two cells have been purchased since they will be needed on a
year round basis. The telephone will cost $2,000 ($167 per month). This price includes a
Canada Any Time Long Distance Bundle and two SmartTouch® features on our phone as well as
MessageManager®. An allowance has been made for international calls each month. The
telephone will be available to visitors free of charge (at the discretion of management).
The cell phone rental and long distance is $4,252. The manager’s phone will have a PrimeTime
Plus 475 plan. This includes 475 minutes of free airtime, and the bill caps out at $150 per month.
The first minute of every incoming call is free. As well, a second plan, the Distance 400 will be
purchased for this phone. This costs $100 per month, and includes 400 minutes of free long
distance including airtime. The total long distance calls for the manager’s phone will be $3,000
per year. The barn manager’s phone will also have 2 plans. The PrimeTime Plus 200 plan
includes 200 minutes of free airtime and the first minute of every incoming call free. This plan
costs $40 per month. The second plan is the Distance Plan. For $35 per month, the phone will
be covered for 100 free minutes of long distance including airtime. The cell phone for the 15-
passenger van will be rented from Jump.ca. The cost of this is $4 per month. This phone will be
rented for 4 months each year on the Express 400 plan. This plan costs $49 per month for a
monthly plan. As well, the Distance Plan will also be purchased for this phone. This plan
includes 100 free minutes of long distance and airtime. The total cost for this phone each year is
$352. Total annual cellular telephone expenses are $4,252.
High speed internet will be provided by SaskTel. High speed internet is $49.95 per month.
SaskTel offers free installation and the first and sixth months free. Because of this, during the
first year, internet costs will be $500, and in the second year this cost will increase to $600.
By the end of 2002 SaskTel will provide high-speed internet Saskatchewan-wide. Quotes are based on the current price of high-speed internet as it is provided right now.
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3.9.2 Employee Training
Since there is always the risk of injury on horseback tours, our employees must be trained in CPR
and first aid. Both cooks must take a safe food handling course. Descriptions of these courses
are given in the human resource training section.
3.9.3 Office Expenses
Office expenses consist of miscellaneous items used to run the office. Each year, paper, printer
toner, pens, and floppy disks will be needed. The business will spend $144 on office supplies.
Table 10. Office expenses.
Item Supplier Price Quantity TotalPaper (500 sheets) Staples 10 5 51Printer Toner Staples 65 1 65Pens (12) Staples 1.48 5 7.40Floppy Disks (10) Staples 10 2 21Total Office Expenses 144
3.9.4 Food Expenses
The total cost of feeding the employees and guests for the first season is $29,400. This was
calculated by multiplying the number of operating days (98) by the number of people (tourists +
staff). This number was then multiplied by $20, which is the estimated cost/person/day. Since
we expect the number of guests to increase in years two and three, food costs will increase to
$33,320 and $37,240 respectively. After year three the food costs will inflate each year by 2%.
Table 11. Summer food expenses projected over 3 years.
Year 1 Year 2 Year 3Cost/Person/day $ 20 $ 20 $ 20 # of days 98 98 98# of tourists 8 10 12# of staff 7 7 7Total cost 29,400 33,320 37,240
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3.9.5 Livestock Expenses
$135 per horse was allocated each year for veterinary expenses for the horses. This cost will
include a regular de-worming and vaccination program, and will also leave room for other
expenses that may arise. Because only 12 guests are expected each week, horses that become
sick or injured will not be used during that time. $300 has been allotted to veterinary expenses
each year for the other livestock.
Feed costs have been calculated for the business-owned horses (14), the horses that will be
used by the employees (3), the boarded cattle for the summer (15) and the other livestock. The
winter feed costs are calculated for 15 horses (including one for the barn manager) and the other
livestock. Horses will be fed 2.5 pounds of oats each day and square-baled alfalfa brome grass.
The cost of oats is $2.75 per bushel, while hay is $2.50 per bale (delivered to our yard). 457
bushels of oats will be fed per year and 1,158 bales of hay per year. The total horse feed costs
will be $4,101.75 annually. Cattle will be fed round hay bales that cost $40 each. Summer
feeding will require 32 bales, and 8 will be purchased for the other livestock. As well, 200 bushels
of barley will be purchased for the other livestock throughout the year. Barley costs $3.50 per
bushel (this is lower than market cost because feed barley will be purchased and CWB
deductions and transportation costs have been taken into consideration). The cost to feed the
cattle and other livestock each year will be $3,500. Total feed costs will be $7,602.
3.9.6 Building Expenses
Gas and electrical inspections are required each year. Each inspection will take approximately
two hours. The gas and electrical inspections cost $160 and $107 respectively. The barn and the
interior of the lodge will need to be painted every 5 years at a cost of $800 each. Light bulbs for
the building will cost $25. Carpet cleaning will need to be done each year for $180. The total
maintenance expense in year 1 is $2,340. In years 2 to 4, the maintenance will cost $209 and
years when painting occur the expense rises by $1,600.
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Table 12. Building maintenance expenses.
Description $/hour # of Hours
Year 1
Year2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Gas inspection
80 2 161 164
Electrical inspection
54 2 107 109
Painting of barn
800 1 800 816 0 0 0 832 0
Painting of interiors
800 1 800 816 0 0 0 832 0
Light bulbs 1 25 25 26 26 27 27 28 28 29 29 30 Carpet Cleaning
90 2 180 184 187 191 195 199 203 207 211 215
Building Maintenance Expense
2,340 209 213 490 1,854 226 231 235 1,905 245
Power will be supplied through SaskPower. The cost for power is $0.0736 per kW hour. The
lodge will be heated with gas. SaskEnergy will provide gas at a cost of $0.2724 per cubic meter.
The cost of energy averages $150 per hundred square feet per year. For a 3,000 square foot
lodge the cost will be $4,500. Power is estimated to be $4,500 per year for the lodge and yard.
Miscellaneous items such as shampoo, soap, and shower caps will cost $1,000 per season.
In order to keep the lodge clean, there is a housekeeping expense of $500 each year for cleaning
supplies.
3.9.7 Vehicle Lease Expense
Prairie Pride Retreat plans to lease a 15-passenger van from The Driving Force in Regina. The
cost of this lease is $1,250 per month, including insurance and plates. 3,000 km is allowed each
month. However, an additional 7,000 km will be put on the van during the tourist season.
Additional kilometers cost $0.30 each. Because there is no collision package on the van,
additional insurance will be purchased (also from The Driving Force) for $750. The deductible on
the van is $700. The total cost of our van, including rental, insurance, and plates is $14,150 per
year.
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3.9.8 Insurance Expenses
Truck registration will be provided by SGI. The cost of registering the truck is $1,096. The quote
for insurance was provided by Butler Byers Insurance in Saskatoon. The truck is valued at
$54,240 (taxes included), and insurance is based on a $350 collision deductible and a $200 road
hazard glass deductible with $2 million liability. A waiver of deductible for wildlife claims will also
be purchased. The total of the insurance was $888. Total insurance and registration costs are
$1,984. Insurance costs for trucks are based on repair costs, as well as value. Insurance and
registration costs will remain the same each year. This takes into account the increasing repair
costs for the truck, the declining value, and inflation. SGI has suggested that this is the most
accurate estimate they can make for insurance and registration expenses. The quotation from
Butler Byers is included in Appendix B.
Trailer plates will be purchased through SGI. Trailer registration is calculated assuming a
replacement value of $31,640. The trailer registration will remain the same each year. This takes
into account the declining value of the trailer and the increasing cost for insurance. SGI has
suggested that this is the most accurate estimate they can make for insurance.
Liability insurance will be purchased through Capri Insurance of Kelowna, B.C. Capri offers a $5
million commercial liability insurance package especially designed for trail ride and overnight
trips, as well as day trips to points of interest. The employees’ horses will also be insured both on
and off of the premises to a maximum value of $5,000 each. The policy costs $1,990 per year.
The policy has several stipulations. The quote is attached as Appendix B. A copy of the policy
application and requirements is attached as Appendix C.
Due to insurance requirements, a camera must be carried on tours at all times. As well, photos
will be taken for promotional purposes. It is expected that 6 rolls of film will be purchased and
developed each year. Film costs $8.99 for a pack of 3 rolls. This will be purchased from Future
Shop. Film developing at Shoppers Drug Mart in Swift Current costs $8.99 per roll for doubles.
The total film costs per year are $72.
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3.9.9 Business License, Fees and Memberships
Business registration costs $110, and this must be renewed every 3 years. Incorporation fees
are $310. Incorporation is a one-time expense. The Government of Saskatchewan Department
of Justice provided this quote.
To operate a bed and breakfast or tourism operation, a business must be a member of the
Saskatchewan Country Vacations Association. There is a $100 application fee and a $125
annual membership fee. This cost is included in the business license expense.
Prairie Pride Retreat will also buy a membership to Tourism Saskatchewan and The Cowboy
Trail. Both of these organizations promote tourist providers. These costs are included in the
marketing budget because they will provide links to the webpage from their websites.
3.9.10 Fuel and Vehicle Maintenance
Fuel vehicle and maintenance costs are summarized in Table 13. The van uses gas, while the
truck is a diesel. To determine the total fuel costs, the road plan was assessed and the number
of kilometers was determined. The van should get 18 miles to the gallon, while the truck will
average 17 miles to the gallon. Using these numbers, the number of liters of fuel was calculated.
This was multiplied by the cost of fuel. The costs for fuel have been estimated, but prices may
fluctuate substantially. Once the total number of kilometers was calculated for each vehicle, this
was used to determine the number of oil changes that would be needed. Oil changes will be
performed every 5,000 km. The cost for tires was calculated assuming that one in every 4 tires
will need to be replaced each year. The cost to put all new tires on the trailer, van, and truck is
$1200. Miscellaneous costs include wiper fluid, extra oil, and other small items. The diesel fuel
for the tractor has been estimated at $400 per year.
Table 13. Fuel and vehicle maintenance costs for year 1.
Description Cost Quantity Total CostGas Costs (/L) $ 0.70 6188 $ 4,331 Diesel Fuel (/L) $ 0.65 2858 $ 1,858 Oil Changes $ 70 11 $ 770 Tires $ 1,200 0.25 $ 300 Miscellaneous $ 100 1 $ 100 Tractor $ 400 1 $ 400 Total $ 7,759
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3.9.11 Tour-Related Costs
During the operating season the guests and guides will be visiting eleven different tourist
attractions each week. The total cost was calculated by multiplying the expected number of
packages sold by the cost per person. East-End T-rex, Paleontology Interpretive Centre and the
Wilkinson Memorial Observatory cost $5 per person. The Hudson Bay Company Trading Post,
North West Mounted Police Post, Metis Winter Camp, and St. Victors charge $3 per person while
the Notekeu Heritage Museum charges $4. The cost of a 9-hole round of golf at the Elmwood
Golf Course is $25. A yearly vehicle park entry pass will be purchased for Cypress Hills
Interprovincial Park for $42. A local grain farmer will be paid $20 per hour to show guests his
farm and machinery. The tour will take 3 hours; the total cost per week is $60. Since the number
of visitors is expected to increase in years two and three, the total tour expenses increases for
these years. In year three the total tour expenses is $13,462. In subsequent years the prices will
be adjusted for inflation in the attraction prices.
Table 14. Costs for attending attractions during tours.
Attraction Cost/person Cost Yr 1 Cost Yr 2 Cost Yr 3East End T-rex 5 720 918 1,102 Paleontology interpretive centre 5 720 918 1,102 Wilkinson memorial observatory 5 720 918 1,102 Hudson Bay Company Trading Post 3 432 551 661 North West Mounted Police Post 3 432 551 661 Metis winter camp 3 432 551 661 Notekeu Heritage Museum 4 576 734 881 St. Victors 3 432 551 661 Elmwood Golf Course 25 3,600 4,590 5,508 Cypress Hills Interprovincial park (yearly) 42 42.84 43.70 44.57Grain farm (weekly) 60 1,080 1,080 1,080Total tour expenses 9,187 11,405 13,462
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4.0 Marketing Plan
4.1 Introduction
From a farming perspective, the southwest part of this province is often considered to be
unproductive and less desirable, but from a tourism perspective, SouthWest Saskatchewan is an
exciting place to be. The following paragraph contains information that would be included in a
brochure for Prairie Pride Retreat.
Based out of Robsart, a stone’s throw from Cypress Hills Inter-provincial Park, Prairie Pride
Retreat will offer a seven day package during the summer months. This enjoyable week will
incorporate trail riding on reliable horses, and well-planned tours of local attractions. The tour will
provide a snapshot of the West – horse-back riding, including rides in the Cypress Hills, a tour of
an operational grain farm, site-seeing in the Cypress Hills and Grasslands National Park, and a
cowboy campfire. There will be time at Eastend to see the tyrannosaurus rex and paleontology
sites and also the Wilkinson Memorial Observatory, so that visitors can view the “Living Skies” of
Saskatchewan through modern stargazing equipment. The Big Muddy is home to the hide-outs
used by outlaws, and Chimney Coulee has 3 major tourist attractions: a Hudson Bay Company
Trading Post, a North West Mounted Police post, and a Metis winter camp. In Ponteix, guests
will visit the Notukeu Heritage Museum, home of one of the largest archaeological collections in
Southern Saskatchewan. There will be an opportunity to take pictures at St. Victor’s, where
Indians carved petroglyphs of human figures, faces and animals on a cliff-top rock to influence
buffalo hunts. Swift Current’s Elmwood Golf Course is listed in the top ten in Saskatchewan, and
golfing will be offered as an optional evening activity.
4.2 Market Analysis
4.2.1 The Market
The size of the potential markets for Prairie Pride Retreats is huge. The United States, Japan,
and Europe will be the main target markets. According to Statistics Canada, people living in the
United States, United Kingdom and Japan make frequent trips to Canada and make high
expenditures while there. This is illustrated in Table 15.
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Table 15. Expenditures by visitors to Canada, Top 15 countries of origin, 1999 overnight stays.
Country of Origin Spending in Canada, C$ millions
Trips Nights spent, thousands
United States 7,149 15,180 58,471United Kingdom 883 780 5,725Japan 572 516 3,192Germany 481 392 5,158France 465 414 4,895Taiwan 227 194 1,835Australia 194 162 1,835Switzerland 141 101 1,299South Korea 136 99 819Mexico 130 127 1,126Hong Kong 128 134 1,198Netherlands 125 121 1,609Italy 108 111 1,257Israel 58 62 569India 47 62 808
Source: Statistics Canada, Culture, Tourism, and the Centre for Education Statistics
The top fifteen states will be the focus of our advertising (New York, Michigan, Washington,
Washington, California, Ohio, Pennsylvania, Massachusetts, Illinois, Minnesota, Texas, New
Jersey, Wisconsin, Florida, Maine, and Virginia).
In the future the target markets of Prairie Pride may be adjusted according to trends which impact
future sales.
4.2.2 Competition
As a guest ranch and tour service in SouthWest Saskatchewan, there are a few sources of
competition. Competition exists in other tourist venues, such as guest ranches and vacation
farms in Saskatchewan and Alberta, tour package providers in Western Canada, and even other
planned holiday providers, such as immersion tourism. Because Prairie Pride Retreat is targeting
customers who want a planned vacation, hotels are not considered a source of competition.
The tourist industry that provides competition for Prairie Pride Retreat consists of many small
businesses that each have a very small share of the market.
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4.2.3 Target Market
4.2.3.1 Typical Customer
The typical customer that will be targeted is 30-50 years old. This age group is targeted because
people in this category usually have a reasonable income and are interested in trying new things.
Customers will probably be equal male and female and they will have a medium to high-income
level, probably over $35,000 per year. The typical occupation of these people would be
professionals such as doctors and dentists, managers, and office workers. These people work
indoors most of the time and would be more likely to want a vacation that consists of outdoor
activities. The family life cycle of the customers will be middle-aged married couples with or
without children, and also middle-aged single people. Most customers will likely come from urban
areas since city people are most likely to want a quiet, peaceful, vacation where they can escape
the busy city life.
4.2.3.2 Customer Behavior
Factors influencing a customer’s decision to purchase:
Price: The package offered be Prairie Pride Retreat has a price that is competitive
with other guest ranches. Prices are discussed in more detail in section 4.3.3.
Income: people with medium to high income will be targeted since a customer would
need a reasonable disposable income to afford a vacation like that offered by Prairie
Pride Retreat.
Advertising: Advertising is a very important factor since people must know that
Prairie Pride Retreat exists and be familiar with its services before they will consider it for
their vacation.
Seasonality of customer’s occupation: People with certain occupations that are
very demanding during the summer months, such as farming, are not able to get away for
an entire week during the summer. Therefore, it would be difficult for these people to find
time to stay at the guest ranch.
Age of family: People with young children may not be able to go on a vacation like
this since young children cannot go horseback riding.
The purchase of a vacation package from Prairie Pride Retreat would probably just be a one-time
purchase, although there would be some people who would return to the ranch year after year or
every couple of years. It is hoped that people who have stayed with Prairie Pride Retreat will
have enjoyed their vacation so much that they will recommend it to all of their friends.
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Customers will purchase vacations at Prairie Pride Retreat for the summer months (May-August),
but they should book their holiday in advance since there will be an Early-Bird Special. This
means that people who book their stay 5 months before will get a $125 discount from the regular
price. Trips can be purchased through travel agents, the website, e-mail, or by phone.
The preferences and needs of a typical customer are a stress free vacation with the
entertainment provided. Customers are likely looking to escape the busy city life and enjoy a
quiet, peaceful, country atmosphere. They also require a comfortable, clean place to stay with
delicious meals.
Prairie Pride Retreat will meet their customers’ needs through an all-inclusive vacation setting on
a ranch in the beautiful Cypress Hills. The package will include daily entertainment such as
horseback rides and tours. The business will have modern, comfortable lodging and home-
cooked meals prepared by an excellent cook. Also, only down-to-earth, friendly staff will be
employed.
4.3 Marketing Strategy
4.3.1 Sales and Profit Objectives
The objective of Prairie Pride Retreat is to be a viable long-term tourist business that provides
tours for 18 weeks during the summer. During the season the expected demand by tourists is 8
people per week during our first year of operation, 10 people per week during year 2, and 12
people per week each year thereafter. Full capacity is 14 people per week. The profit objectives
are to make at least 15% return on investment during year 3 and after; losses are expected in
years 1 and 2.
It is important that the employees of Prairie Pride Retreat develop a strong relationship with
customers in order to encourage either return visits or positive word-of-mouth advertising. Prairie
Pride Retreat will increase publicity about southwest Saskatchewan, and will provide tourists with
an opportunity for a worry-free vacation while touring local attractions. The business will provide
economic spin-offs in the area, including employment, and indirect money pumped into the local
economy.
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4.3.2 Promotion
Prairie Pride Retreat plans to attend the Calgary Stampede and the Denver National Western
Show. The Calgary Stampede is “The Greatest Outdoor Show on Earth” because Prairie Pride
Retreat is so close to Calgary, it would be easy to set up a booth. The budget is based for nine
days at Calgary, and sixteen days in Denver. The Denver National Western consists of a stock
show, rodeo, and horse show. The majority of the booths at this trade show are agricultural in
nature, and since this business is both of an agricultural, but more so tourist nature, Prairie Pride
Retreat will stand out at this large show. The fee for a booth (12’x8’) for the duration of these
shows is $1,100. (Denver National is converted to Canadian funds). $175 ($111.83 American)
has been allotted per day per person for the Denver show. It is expected that both
representatives will stay in the same room. An allowance of $225 per day per person has been
set up for the Calgary Stampede. This allowance is to cover hotels and meals for the manager
and barn manager. The flight costs for Denver are $679 per person. Two people will attend these
shows. It should be noted that while the barn manager is away, arrangements will be made with
the cattle owners to take care of the farm.
4.3.3 Pricing Policy
Prairie Pride Retreat has a lot of control over its prices. There are no competitors who offer the
exact services Prairie Pride Retreat does, so it is hard to do “comparison shopping”. Most other
ranches charge $150 to $200 per person per day including meals and accommodations, and on-
the-ranch activities, however, only a few ranches incorporate tours. A tour package of the
Rockies costs $256 per person per day plus incidentals.
The pricing policy will be market-based, with prices set relatively similar to other guest ranches
and tour providers, at $225 per person per day, which works out to $1,575 per person for a seven
day stay. The tour package will be sold at the same price in different markets. An early-bird
special will be offered for $1,450 to tourists that book at least 5 months in advance. Prices will be
adjusted by a 2% increase each year to reflect inflation.
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4.3.4 Advertising
The success of Prairie Pride Retreat depends on the number of customers that purchase a
vacation package. Advertising will be a very important part of the marketing campaign. Most
advertising will be done via the internet. A webpage will be designed for advertising purposes.
This webpage will have several pages, and will be linked to The Cowboy Trail and Tourism
Saskatchewan’s webpages. Webpage development costs are $100/hour, and a webpage similar
to those set up by competitors will take 5 hours to design.
Pamphlets and business cards will be printed. These will be used at Calgary Stampede and
Denver National Western Stock Show to promote our tourism destination. As well, colour
brochures and pamphlets with details about the vacation package will be printed and sent out
when people inquire for more information and for when customers register.
4.3.5 Marketing Budget
Table 16. Marketing budget for Prairie Pride Retreat for year 1.
Item Cost Total CostTrade Booth Allowance Calgary Stampede 1,100
Denver National Western 1,738 2,838 Travel Allowance Hotel and meals 5,808
Flight 1,358 7,166 Pamphlets 6000@$0.18/pamphlet 1,080 Business Cards 6000@$0.0774/card 464 Brochure [email protected]/sheet 7,620 Webpage 500
Linked to Sask Tourism 50 Assoc. w/ Cowboy Trail 180
Laptop*Sales Staff Salary*TOTAL 19,899
* Even though a laptop and sales staff salary should be part of the marketing budget, the costs
are not broken down. These costs are included in the human resources and operations
budgets.
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4.3.6 Competitive Strategy
Prairie Pride Retreat will offer a high quality product that is different from most competitors and is
available at a reasonable price. The vacation being offered is different from that of competitors
because Prairie Pride Retreat offers both tours and horseback riding in the same vacation
package. Most competitors offer either tours or horseback riding, but Prairie Pride Retreat will
offer both in the same package.
One competitive advantage of Prairie Pride Retreat is a great location. The guest ranch is
located in the beautiful and scenic Cypress Hills region, a location that is unique and different
from most competitors. There are many local attractions in the area and tours will include
locations such as Cypress Hills Provincial Park, Eastend Dinosaur Museum, The Big Muddy
Badlands, and Grasslands National Park. Horseback riding through the Cypress Hills region will
be offered.
Prairie Pride Retreat offers a high quality vacation at a price that is very reasonable. The
getaway will offer a newly built, comfortable lodge for guests to stay in. It will also include fresh,
delicious, home-cooked meals prepared by excellent cooks, and daily entertainment including
tours and horseback riding. This will all be offered at the competitive price of
$1,575/person/week.
5.0 Human Resources Plan
5.1 Introduction
Prairie Pride Retreat’s human resource team will consist of seven employees. Two of the
employees will be full-time permanent employees with a yearly salary. These employees are the
Manager and Barn Manager. The Manager will be employed year round because this person
must promote the product and take care of any other business during the months that tours are
not offered. The Barn Manager is also employed year round since this individual must look after
the animals and farmyard year-round. The other five employees will be temporary employees
that will only be employed for the four summer months. The five temporary employees include
the Head Cook, Assistant Cook, Housekeeper, and two Student Tour Leaders. These employees
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will be employed from May 1 until September 1. The student tour leaders will be given the week
of Calgary Stampede off with full pay in lieu of overtime.
Manager
Head CookBarn Manager
AssistantCook
HousekeeperTourLeader
TourLeader
Figure 6. Human resource hierarchy.
5.2 Full-Time Employees
5.2.1 General Manager
The Manager will be a full-time permanent employee. The individual for this job must have a
degree in commerce with a major in marketing. The wage for this job will start at $38,000 per year
with a two-percent raise each year. Duties for this job include accounting and money
management for the entire facilities, human resource management, booking tours, purchasing
equipment, and marketing during the winter months.
5.2.2 Barn Manager
The Barn Manager will be a full-time permanent employee. This individual will report to the
manager. The person for this job must have at least three years guiding experience. The wage
for this job will start at $30,000 per year with a two-percent raise every year. The barn manager
will also receive free meals during the summer months and free lodging in the house on the
ranch. Duties for this job include managing the barn and looking after the animals, organizing
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tours, and sometimes leading tours. The barn manager is also supervisor to the two summer
student tour leaders. In the off-season, the barn manager will be responsible for caring for the
livestock and performing building maintenance. As well, this individual will assist the general
manager with marketing activities.
5.3 Summer Employees
5.3.1 Head Cook
The Head Cook will be a full-time temporary employee whose job will run for the summer months
while the guest ranch is open. This individual will report to the manager. No special training is
required for this position but the individual must be able to prepare excellent home cooked meals.
The wage for this job will start at $2,100 per month. An individual returning to this position year
after year will get a $75.00 raise each year to a maximum wage of $2,400 per month. Duties will
include meal planning, ordering food, preparing meals, and cleaning the kitchen. The head cook
is also supervisor to the assistant cook and housekeeper.
5.3.2 Assistant Cook
The Assistant Cook will be a part-time temporary employee for the summer months (30 hours per
week). This individual will report to the head cook. No special training is required for this position
but the individual must be able to prepare excellent home cooked meals. The wage for this job
will start at $11.00 per hour. An individual returning to this position year after year will get a $0.58
raise each year to a maximum wage of $13.33 per hour. Duties include preparing meals and
cleaning the kitchen whenever the head cook is away.
5.3.3 Housekeeper
The Housekeeper will be a full-time temporary employee for the summer months. This individual
will report to the head cook. No special training is required for this position. The wage for this
position will start at $1,500 per month. Individuals returning to this position will get a $75.00 raise
each year to a maximum wage of $1,800 per month. Duties will include cleaning the rooms and
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the rest of the lodge, groundskeeper duties and yard work, and also performing any other odd
jobs that need to be done at busy periods.
5.3.4 Tour Guides
The Student Tour Leaders will be two full-time temporary employees. They will report to the barn
manager. Individuals in these positions must currently attend university; preferably the College of
Agriculture and they also must have at least three years of horse riding experience. The wage for
these positions will start at $2,000 per month including room and board. Students returning to
these positions will get a $100.00 raise each year to a maximum wage of $2,200 per month. The
same students can occupy these positions for a maximum of three consecutive years. Duties will
include entertaining guests, leading tours, and assisting the barn manager with other duties,
including yard care, when needed. These employees will receive one week of paid holidays
during July while the full-time staff is at the Calgary Stampede doing promotions.
5.4 Training
All employees at Prairie Pride Retreat must have First Aid and CPR training. Therefore, all
permanent and temporary employees will take a First Aid and CPR course at the expense of the
company. The First Aid and CPR course is an 18-hour course that covers basic First Aid and
CPR training. The cost of this course is $90 per person. The course is only valid for three years
and therefore permanent employees will take a refresher course every three years. The refresher
course is an 8 hour course and is about $45 per person. For temporary positions the First Aid
and CPR course will have to be taken every year unless the same individual returns to the
position year after year.
Both cooks will need to take a safe food-handling course. At this training, the cooks will learn
sanitary food handling techniques and the principles of Hazard Analysis and Critical Control
Points (HACCP) as they are applied to safe food handling. This is a ten-hour course and the cost
is $145 per person. This training will cost Prairie Pride Retreat $290 per year.
Table 17. Employee training expenses.
Training Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
First Aid and CPR Training
580 400 400 490 580 400 400 490 580 400
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Safe Food Handling Course
290 290 290 290 290 290 290 290 290 290
Total Employee Training
870 690 690 780 870 690 690 780 870 690
5.5 Employee Benefits
5.5.1 Full-Time Permanent Employees
The two full-time permanent employees in this company are the Manager and Barn Manager.
These employees will receive many benefits including Employment Insurance, Canada Pension
Plan, Workers Compensation, and a Medical, Dental, and Optical Plan.
5.5.2 Summer Employees
The temporary employees include the Head Cook, Assistant Cook, Housekeeper, and Tour
Leaders. Benefits for these employees include Employment Insurance, Canada Pension Plan,
Holiday Pay, and Workers Compensation.
Table 18. Five-year estimate of employee benefits*.
Benefit 5-year EstimateEmployment Insurance 3.15% 17,260Canada Pension Plan 4.30% 23,561Workers Compensation 2.00% 10,959Medical, Dental, Optical (F/T Perm. Staff) 1.30% 4,600Holiday Pay (Temporary Staff) 6.00% 11,643TOTAL 68,023
*A ten-year estimate of employee benefits is included in the financial plan.
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5.6 Five-Year Wage and Salary Costs Projections
Table 19. Five-year estimate of total wage and salary costs*.
Employee Year 1 Year 2 Year 3 Year 4 Year 5Manager 38,000 38,760 39,535 40,326 41,132Barn Manager 30,000 30,600 31,212 31,836 32,473Head Cook 8,400 8,700 9,000 9,300 9,600Assistant Cook 5,940 6,255 6,570 6,885 7,200Housekeeper 6,000 6,300 6,600 6,900 7,200Tour Leader 8,000 8,400 8,800 8,000 8,400Tour Leader 8,000 8,400 8,800 8,000 8,400TOTAL WAGES 104,341 107,417 110,520 111,251 114,410
* A ten-year estimate of total wage and salary costs is in the financial plan.
5.7 Human Resource Strategy
Permanent employees will get a two-percent raise every year that they are with Prairie Pride
Retreat. This will give employees an incentive to do the job to their best ability and stay with the
company. Temporary employees that return to their position will also get a raise every year until
they reach the maximum wage for the job. This should encourage employees to return to their
position year after year.
6.0 Financial Plan
In order to calculate the financial statements, it has been assumed that half of the guests each
year will purchase an early bird special and the other half of the guests will purchase at regular
price. This may not actually reflect the bookings of the ranch, so income may not be as estimated
each year.
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6.1 Financing Budget
In order to meet all financial obligations, Prairie Pride Retreat will require $600,000 in financing.
The following table shows the financing mix.
Table 20. Financing plan for Prairie Pride Retreat.
Source AmountBank Debt Financing $200,000Equity Financing $400,000Total Financing $600,000
To fund the business, 400 shares, valued at $1,000 each, will be sold. Canadian controlled
private corporations may have up to 50 shareholders, which must be family, friends, and business
associates.
The other $200,000 will be obtained through a bank loan. The bank loan will have the following
terms:
- Amortized over a 10 year period
- Interest rate of 8%
Table 21 shows the debt amortization schedule.
Table 21. Debt amortization schedule for 10-year loan.
Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Beginning Balance
- 186,194
171,284
155,181
137,789
119,006
98,721
76,813
53,152
27,598
Additions 200,000
- - - - - - - - -
Payment 29,806
29,806
29,806
29,806
29,806
29,806
29,806
29,806
29,806
29,806
Interest 16,000
14,896
13,703
12,414
11,023
9,521
7,898
6,145
4,252
2,208
Principal 13,806
14,910
16,103
17,391
18,783
20,285
21,908
23,661
25,554
27,598
Ending Balance
186,194
171,284
155,181
137,789
119,006
98,721
76,813
53,152
27,598
0
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6.2 Dividend Policy
Dividends will be paid to shareholders when Prairie Pride Retreat makes a profit. The dividend
policy is to pay dividends at 60% of net income. The remaining net income will be retained in the
business.
6.3 Economic Forecast
To arrive at the base case projections, a 2% inflation rate has been used. All prices and
expenses have been inflated by 2% per year for the 10 year planning horizon. It should be noted,
however, that the land rental charge is inflated by 5% every 3 years. There is a growth in sales
up until year 3. After this point, operations will be at 86% capacity, which is the expected
average.
6.4 Opening Balance Sheet
Table 22. Opening balance sheet for Prairie Pride Retreat for November 1, 2001.
Assets Cash 66,334Buildings and Equipment 532,666
Total Assets 600,000
Liabilities and EquityLiabilities Long Term Debt 200,000
Equity Equity Capital 400,000
Total Liabilities and Equity 600,000
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6.5 Working Capital
Working capital assumptions have been made using an average period of 30 days for accounts
payable. Prairie Pride Retreat will not have accounts receivable or significant inventory. There is
no accounts receivable because customers will pay for their tourist packages before they arrive at
the farm. This is a standard practice in the tourism industry.
6.6 Other Expense Assumptions
Some assumptions were made when determining prices. Some building maintenance
assumptions were made. As well, veterinary costs were estimated. Finally, the cost of the
horses was based on market price from the Western Producer, but all 14 horses may not be able
to be purchased for this price. Truck registration and insurance cannot be determined for the ten-
year period because insurance for the truck is based on the costs of repairs for the model, not the
value of the truck. After some discussion with SGI, they felt that taking into account both the
declining cost and inflation the costs could be assumed to be the same each year. The same
assumption will be made for the trailer; however, trailer insurance is based on the value of the
trailer and not the repair costs.
Power and energy costs have been estimated. Due to the unstable nature of energy pricing and
the recent price hikes, inflation by 2% on natural gas and power bills is not expected to be
accurate. Natural gas and power prices have been inflated by 8% each year.
6.7 Ratio Analysis
Table 23. Financial ratios for years 1, 5, and 10.
Financial Ratios 2002 2006 2011Liquidity RatiosCurrent Ratio 5 9 13Solvency RatiosDebt Ratio 36% 26% 4%Debt to Equity Ratio 55.6% 35.5% 4.3%Profitability RatiosNet Profit Margin -16.4% 12.1% 17.9%Return on Assets -6.4% 8.1% 12.4%Return on Equity -10% 11% 13%Other RatiosKey Operating Exp. As a % of Sales 116% 85% 78%
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6.8 Financial Analysis
There are two main variables that are critical to the success of Prairie Pride Retreat: the number
of customers that attend each year, and the price that those customers are charged. This will be
affected by the successfulness of the advertising and the cost of the tourism package as
compared to those offered by competing businesses. As well, trends such as air travel and
weather will affect the number of customers who will attend.
6.9 Sensitivity Analysis
This business was found to be most sensitive with respect to package price, fluctuations in
operating expenses, number of customers, and investment capital. In the sensitivity analysis, the
package price was fluctuated 20% for both the early bird packages and the regular packages. In
the best case, where early bird packages would cost $1,740 and regular packages $1,890, the
IRR increased from 8.4% to 27.5%. When the package prices dropped, the IRR was unavailable
because the business will only have a positive cash flow in 2002 and never be able to have a
positive cash flow.
Table 24. Sensitivity to changes in number of customers.
(+/- 20%) Year 1 Year 2 Year 3+ NPV IRRBase Case 8 10 12 -99,806 8.4%Worst Case 6 8 10 -242,031 -3.2%Best Case 10 12 14 42,425 17.6%
The operating expenses are also a source of sensitivity for this business. Again, a 20%
fluctuation was used to determine the NPV and IRR. The best case showed a positive NPV
($197,915) from a negative one (-$99,803), and an increase to 27% IRR. The worst case could
not assess an IRR, again because the cash flow was negative. The NPV also changed from a
negative NPV in the worst and base cases to a positive in the best case.
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Table 25. Sensitivity to changes in operating expenses.
(+/- 20%) NPV IRRBase Case 258,384 -99,803 8.4%Worst Case 310,061 -397,521 n/aBest Case 206,707 197,915 26.6%
Prairie Pride Retreat can host as many as 14 people per week. If this target is met in three years,
with a growth rate of 20% between the first and second year, and 17% between the second and
third year, the IRR will increase to from 8.4% to 17.6%, and the NPV will change from –$99,803
to $42,425.
Table 26. Sensitivity to changes in pricing of packages.
(+/- 20%) Early Regular NPV IRRBase Case 1,450 1,575 -99,803 8.4%Worst Case 1,160 1,260 -423,622 n/aBest Case 1,740 1,890 224,028 27.5%
This business has a large amount of investment capital. With the standard 20% fluctuation in
these costs, the IRR fluctuates from 8.4% to 3.5% in the worst case to 8.4% to 14.8% in the best
case. The NPV remains negative, however the best case shows a negative NPV of only -$2,786
compared to a base case NPV of -$99,803.
Table 27. Sensitivity to changes in capital investment required.
(+/- 20%) NPV IRRBase Case 532,666 -99,803 8.4%Worst Case 639,199 -196,819 3.5%Best Case 426,133 -2,786 14.8%
This business has a large investment to finance right off the start, the lodge. To show the
sensitivity of the size and cost of this building, the following chart has been added. It shows an
increase and decrease in the base building cost of 20%.
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Table 28. Sensitivity to changes in cost of lodge.
(+/- 20%) NPV IRRBase Case 260,053 -99,803 8.4%Worst Case 312,064 -145,029 6.0%Best Case 208,042 -54,576 11.1%
Table 29. Summary of sensitivity analysis.
IRR (%) Base Case Worst Case Best CaseNumber of customers 8.4% -3.2% 17.6%Operating expenses 8.4% n/a 26.6%Package price 8.4% n/a 27.5%Investment capital 8.4% 3.5% 14.8%
Figure 7. Graph showing sensitivity of net present value to changes in the number of customers, operating expenses, package price, and investment capital.
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6.10 Break-Even Analysis
Table 29. The number of packages for each of the Early Bird Special and the Regular Price that must be sold in order to break even. These numbers have been calculated as an average over 10 years.
Base CaseBreak Even
Net Income Quantity Break Even
Cash Flow Break Even
Economic Break Even
103 71 54 110
6.10.1 Base Case
The base case is composed of the number of people per week that is expected by the company
multiplied by the number of weeks of vacancy. The average occupancy is fixed at 12 people per
week after year 3, which is below the maximum capacity of 14.
6.10.2 Net Income Break-Even
This occupancy shows the number of people that are required to stay at the retreat per year to
make net income equal to zero. In year one, this figure is 114% of the base case, meaning that
the company will experience a loss. In year 2, this figure is 112% of the base case, again
showing that the company would experience a loss if the base case were experienced in actual
operation. However in the third year, the break even for net income is equal to 72% of the base
case, meaning that the company would experience a positive net income if the base case is
experienced. This implies that, after year 3, the number of guests could fall by 28% from the
expected level before the business starts to lose money. Instead of an average of 12 people per
week, the occupancy could fall to an average of 8.6 people per week.
6.10.3 Cash Flow Break Even
This break even shows the quantity of packages that need to be sold if the cash flow was to equal
zero. In a ten-year package sale projection, the sales are adequate to keep the cash flow
positive. The result is very similar to the net income break even levels.
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6.10.4 Economic Break Even
The economic break even shows the relationship between package sales and the net present
value of equity. Due to the 15% required return on equity that has been set for this company, the
base case will not produce an economic profit (or an IRR level greater than the required return of
15%). Full occupancy would be required to achieve an IRR greater than 15%.
Figure 8. Break-even analysis.
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7.0 Summary
The feasibility study for Prairie Pride Retreat was calculated based on a discount rate of 15%.
Although Prairie Pride Retreat has a positive net income after year three, it is not considered to
be a feasible business since the IRR is below 15%. The numbers used in the business analysis
are conservative and reasonable estimates acquired through contacts in the industry. When the
sensitivity analysis was conducted, it was determined that the number of customers and the price
of the packages are critical to the success of the business. Prairie Pride Retreat realizes that
increasing its prices may decrease the numbers of customers that can visit.
Finding a method of decreasing capital expenditures or operating expenses may make Prairie
Pride Retreat feasible without having to increase prices. Since the current plan hosts a maximum
of 14 guests, the expected capacity can not be increased without increasing capital expenditures.
If Prairie Pride Retreat could be made feasible, business operations would begin on November 1,
2002. The business would start by buying the land in southwest Saskatchewan and building a
lodge to accommodate guests. Once the building is constructed and the horses are ready to ride,
Prairie Pride Retreat could recruit the employees and begin hosting guests.
8.0 Future Considerations
The proposed business plan for Prairie Pride Retreat was found to be infeasible, therefore some
changes would have to be made in order for this business to become an attractive investment. A
possibility that could be explored would be to increase the price of the guest packages. If the
price was increased by 20% (to $1,740 as opposed to $1,575) the business becomes a very
profitable venture, with an internal rate of return of 27.5%. The capital costs were high since this
business plan proposed constructing a new lodge that would cost over $250,000. Also, the
operating expenses for Prairie Pride Retreat are high because the business offers both tours of
local attractions and horseback rides in one vacation package. Prairie Pride Retreat may need to
focus on just one of these forms of entertainment, instead of trying to offer them both. This would
reduce both operating expenses and capital costs, which may turn Prairie Pride Retreat into a
profitable business.
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9.0 ReferencesBurron Lumber Co. Saskatoon, Saskatchewan. Bob. Quote for building. 652-0304.
Butler Buyers Insurance. Saskatoon, Saskatchewan. D. Lehmann. Quote for truck insurance. [email protected]
Calgary Stampede. http://www.calgarystampede.com/stampede/facilities/big_four_building.html
Canadian Tire. www.canadiantire.com
Capri Insurance. Sarah Simpson. Equine and Farm Department. 204 Capri Office Tower. 1835 Gordon Drive, Kelowna, BC. V1Y 3H5. (250)860-2426. Fax: (250)860-1213.
Centennial Plumbing and Heating. 710-51st St. East Saskatoon, Saskatchewan S7K 4K4 Phone: (306) 665-5373, Dennis.
Delorme, Connie and Don. Robsart, Saskatchewan. Information about the town of Robsart and surrounding area. [email protected].
Denver National Western Stock Show. www.nationalwestern.com/
Fairfield Maintenance.store.fairfieldmaintenance.com/se…0special%linings%20may%20may%20be%20required
First aid training. http://www.cadvision.com/nanook/first_aid.html
Flaman Trailers. Dean Piermantier. 1-888-435-2626, Fax: (306)934-1151. September 21, 2001.
Future Shop On-Line. www.futureshop.ca
Jump.ca www.jump.ca. Accessed October 2001.
Government of Saskatchewan. www.gov.sk.ca/newsrel/2001/05/30-381.html
Government of Saskatchewan, Department of Justice. [email protected]. October 22, 2001.
Greenhawk Equestrian Catalogue. 5510 Ambler Drive, Unit #4, Mississauga, Ontario L4W 2V1 Tel: 905-238-5502
Holden, Kristian. 2001. Thesis Proposal. Department of Agricultural Economics. University of Saskatchewan, Saskatoon, SK.
Lane Realty. http://www.lanerealtycorp.com/feature_sheets/sw_cypress_hills_320.jpg.
Safe Food Handling Course. http://www.southeastcollege.org/VocationalTechnical/scn-foodworker.htm
SaskEnergy. 1-800-567-8899.
SaskPower. (306)566-2121.
Saskatchewan Country Vacations Association. Dalelene Yelland, Executive Director. 709 King Street, Saskatoon, SK. S7N 0N6. (306)652-4350.
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Feasibility Study
Saskatchewan Country Vacations Association. Rise and Shine With Us. Membership Information Guide, March 2001.
Saskatchewan Economic and Co-Operative Development. http://www.gov.sk/econdev/locating/quickfct.shtml.
Saskatoon Farm Equipment. Used Equipment Sales Department. Saskatoon, Saskatchewan. (306) 934-4686.
SaskTel. www.sasktel.com. (306)310-7253.
Sears. www.sears.ca.
SGI Customer Service Centre. Information on vehicle insurance policies. Greg Franks. (306)751-1667, or toll-free 1-800-667-9868.
Shoppers Drug Mart. 367 Central Ave N, Swift Current, Saskatchewan S9H 0L5 (306)773-8349.
South 20 Chrysler. Highway 20 South, P.O. Box 670, Humboldt, SK Canada S0K 2A0 phone: (306)682-3900.
Staples Online. http://www.staples.ca/.
Stateline Tack Catalogue. 1-888-839-9640. 190 Vine Wood Lane, Plymouth, MN 55442
Statistics Canada. http://www.statcan.ca/.
The Cowboy Trail. Farm and Ranch Vacations on the Cowboy Trail. www.thecowboytrail.com, [email protected], November 2001.
The Brick. www.thebrick.com
The Driving Force. 931-9559. Todd. November 2001.
Tourism Saskatchewan. http://www.sasktourism.com/.
Walmart. http://www.walmart.com/index.gsp?cat=0&dept=0&path=0.
Western Producer. September 20, 2001 issue.
Wirsig Farm and Ranch Vacations. [email protected]. Information on guest ranch operation in Alberta. Erlene Wilson.
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