Shellys Confectionery Pty Ltd Business Model - Example

Executive Summary Shelly’s Confectionery Pty Ltd will be established in Sydney in a bid to produce and sell high end confectionery products to both wholesalers and retailers. The ingredients will initially be sourced from suppliers within Sydney but as the business grows, we can source directly from consumers. The business opportunity exists since though there are many confectionery businesses in Sydney, we will offer high quality products that will only be manufactured using stevia and hence everyone looking for heathy products will be welcome to try our products. Sydney has more than 5 million people but we are only targeting 5,000 of them initially but as the business grows, we are optimistic of increased numbers while we plan to expand to other regions. Our competitive advantage lies in the provision of high-end baked products whose ingredients will be sourced directly from producers in a bid to ensure quality and cost reduction. Our value proposition is to provide individuals as well as businesses customers in Sydney with confectionery products that are of fine quality, supreme taste as well as unique original designs. As such, we will use premium pricing for our products. The business’s initial startup capital is estimated to be $162,000 that will be financed through contributions from the five directors to the tune of $80,000, an angel investment of $62,000 and a bank loan of $20,000. Since we project profitability from the first year, the loan will be paid within the first five years with the angel capitalist being paid 20% of any profits that we make. The founders possess the requisite knowledge and skills that are necessary for running the business. As such, the owners will be the company’s sole employees for the first year but as the business expands, the company will be able to hire more employees. From the projected financials, the company is an attractive investment and we hope to attract more investors to partner with us in our journey of prosperity. Table of Contents Executive Summary 1 Business Model Canvas 3 Market Feasibility 4 Technical Feasibility 6 Financial Feasibility 8 Projected sales 8 Projected Selling Price per Unit 9 Projected revenue 9 Start-up costs 10 Profit and loss accounts 10 General financial numbers indicating the attractiveness of the business 11 Conclusion on the attractiveness of the business 12 Human Resources Feasibility 13 The owners of the business 13 Ownership structure 14 The company’s manpower requirements 15 The company’s growth strategy 15 References: 16 Appendices 17 Appendix 1 17 Start-up Costing for Shelly’s Confectionery Pty Ltd 2017 17 Profit & Loss for Shelly’s Confectionery Pty Ltd as at [2017] 19 Shelly’s Confectionery Pty Ltd Business Plan Business Model Canvas Shelly’s Confectionery Pty Ltd Business Model Canvas Key Partners Suppliers of various ingredients Commercial agents Packaging companies Transporters Key activities Raw materials collection and processing Chocolate and cake production Packaging the products Distribution and sales Marketing the products After sales services Value proposition -We offer high quality products that are eco-friendly sourced and made devoid of sugar. We only use stevia Customer relationships -We view customers as most important clients. -We aim at giving a better quality of life to our customers while establishing and managing the relationship between the company and the customer and striving to Make it stronger. Customer segments -We sell our products to whole population especially families and those with celebration events and those looking for a healthier way of living without necessarily stopping to consume what they like most Key resources Processing and production machines, cocoa, wheat flour, oven , molds, additives technology, human resources, knowledge resources publicity Distribution Channels -Retailers, -Wholesalers -Supermarket Shelly’s online point of sale -Commercial agents Cost structure Production costs Marketing costs Distribution costs Commercial agents costs Technology costs Employee costs Cost of raw materials Revenue streams Sales in all the channels Publicity in the online point of sale Promotions New clients Market Feasibility The confectionery market in Australia is a vibrant one with its revenue hitting $7 billion in 2016. The market employs more than 11,700 employees and consists of more than 350 businesses. The market’s annual growth rate is estimated at 2.9%. It is worth noting that the market has not yet reached its full capacity as the demand for various confectionery products such as chocolates and cakes continue to grow. The market in which we intend to launch is Sydney and with a population of over five million people, we perceive a great market potential and hence the probability of success is very high. Currently, the customers have been getting their supplies from the numerous competitors who exist in the market including Mondelez International, Inc., Mars Incorporated, Nestle S A among others. Our customers are situated everywhere in Sydney and indeed in the entire Australia (airgroup.com.au, 2017). This is because we will target family moms who plan for family meals as well as celebrators who use various confectioneries in their various celebrations. As stated above, the market that we are targeting has a population of over five million people. However, we target to have at least 5,000 customers among them during the first year of operations and since we are going to offer superior quality products, we expect our growth rate to surpass the industry growth rate. Thus, we target a growth rate of 5 percent. There are many external factors that come to bear as far as establishing Shelly’s confectionery is concerned. Politically, Australian government has put in place various policies to support development and growth of business. The government does not impose any handles to the establishment of a confectionery business. However, there are various regulations and laws that have been put in place to govern the management of business so as to ensure that our production is safe for consumers. These will be explained below. The business is also affected by the economic conditions that prevail in the country. At times, confectionery is seen as a luxury and hence people’s incomes greatly determine the demand. At the moment, Australia has been recording economic growth implying that people increasingly have money in their pockets to buy our products. Socially, the threat of terrorism has come to bear since if our products find their way into the hands of terrorists, they can tamper with them thus affecting masses. Thus, there is need to ensure adequate security of our products during the entire production process. There has also been growing consciousness on healthy confectionery in the pursuit of improved health. In addition, there has also been increasing concern on environmental conservation which calls upon us to use environmentally friendly packaging if our products are to find adequate demand and in order to stay at the right side of the law. As such, we aim at taking advantage of these factors to produce highly competitive products so as to be able to compete in the highly competitive industry thus obtaining a substantial market share. Ideally, entry into the market should be easy. However, this is not the case and indeed many firms find it hard to enter the market. The availability of numerous substitutes that are of lower prices is the main barrier to entry. For one to compete well in the market, you have to keep the costs very low so that you can offer your products at competitive prices. Margins are very low for the market. In addition, brand loyalty in the market is very high among customers and hence securing a substantial market share is hard and takes time. To successfully operate in the market, it calls for a lot of knowledge and experience in producing high quality products since customers demand high quality products otherwise they leave to the competitors and substitutes. Fortunately, some of our directors have many years’ experience in the industry and we are hence well placed to overcome the barriers and even outperform the market. Technical Feasibility There are many options for developing the technology including off the shelf, designing our self and subcontracting. In our case, we opted for off the shelf option whereby we have been looking for all the machines and technology we need from those who sell them. We will be producing all the products we aim at selling including cakes and chocolates in our confectionery factory in Sydney for sale to retailers and wholesalers. However, we have also subcontracted Nestle Foods to manufacture some chocolates and cakes in our brand name before we can secure all the technology required for their production. As such, our initial in house production will be limited to just a few types of products with the rest being subcontracted. However, this is expected to last only for a few months before we start doing all our production in-house. To operate successfully, we require numerous resources. The resources include raw materials such as wheat flour, cocoa beans, and various additives among others. To start with, we have made arrangements with various suppliers who will be supplying us. In the long run, we intend to purchase the raw materials directly from farmers with cocoa beans coming from as far as Africa in a bid to ensure quality while keeping our cost of production low. We also need skills in confectionery production, managerial and marketing skills. In this regard, the directors have experience in various areas and where there is deficit, we will ensure that we recruit people who have the necessary skills (Raynor and Ahmed, 2013). We will also need production facilities and equipment’s. For the facilities, we have leased an industrial building at the industrial area while the production machines and equipment will be purchased and installed when we are ready for operations. In addition, we will need various delivery vans. To start with, the directors have agreed to purchase two delivery vans with the number expected to increase as the production increases. The directors will also avail their personal vehicles for their use in the company before the company has enough money to purchase other vehicles. There are a number of laws and regulations put in place to govern the operation of confectionery businesses in Australia. The business will deal with food products and hence we have to comply with the various food related laws and regulations including the food act. We also have to comply with food standards code on food labelling and advertising as well as the product safety requirements of Australian Consumer Law of 2010 as well as various laws on competition. In addition, we have to adhere to environmental legislation by ensuring that our activities do not destroy the environment including the use of environmental friendly packaging. In addition, we have to obtain various business licenses that are required before we start operations. This being a food business, all our employees will have to obtain various personal certifications on health and hygiene. On the other hand, all our production staff will have to be professionally certified in their areas of production. The company also intends to establish a research and design department that will be responsible for coming up with superior offerings for our customers. As such, we intend to abide by all laws relating to patents, trademarks and copyrights. During our research, we have not discovered any moral or ethical issues we are uncomfortable with. However, we note that people are increasingly conscious of their health and hence the need to ensure healthy production. Thus, we will use high quality production materials that will enhance the health of our consumers. Our production will also be done morally and ethically ensuring that we compete on quality and pricing and not on the basis of unethical production. There are many technological changes that have occurred that may affect the business. The rise of digital technology has greatly enhanced how production is conducted and how marketing and selling is done. Today’s customer is more informed than ever before. As such, the company will invest in the latest technology to ensure high quality and innovative production while investing in digital shops as well as digital marketing platforms to enhance our marketing and sales thus resulting in increased revenue and hence profitability. Financial Feasibility As stated above, the company will mainly deal with the production and sale of various types of Shelly cakes and Shelly chocolates. The projected sales units for the various confectionery items we will be offering is as shown in the table below; Projected sales Shelly’s Confectionery Projected sales in units’ year 1: Products Jan Feb March Apr. May Jun Jul Aug Sept Oct Nov Dec Year 1 Cakes 10 20 15 35 22 20 30 25 30 35 40 45 327 Cup Cakes 25 60 50 65 70 70 65 60 70 80 85 90 790 Cookies 100 150 200 200 250 300 300 350 400 450 500 550 3750 Pies 10 15 20 20 25 30 35 30 30 40 50 55 360 Chocolate bars 80 160 270 330 250 270 220 245 285 300 335 400 3145 Wedding cakes 5 5 5 5 10 5 8 10 12 11 15 20 111 Shelly Classic 50 55 70 65 78 80 85 80 80 100 110 150 1083 Projected Selling Price per Unit The projected selling price per unit together with associated costs are outlined in the table below Products Selling price per unit Cost of production per unit Cakes 2.5 1.3 Cup Cakes 3.5 1.7 Cookies 1.5 0.6 Pies 20 9 Chocolate bars 2.5 1.5 Wedding cakes 500 220 Shelly Classic 50 28 Projected revenue From the projected units of production, we project the following revenue Products No. of Units Annual sales revenue Cost of sales Cakes 327 817.5 425.10 Cup Cakes 790 2,765 1,343 Cookies 3750 5,625 2,250 Pies 360 7,200 3,240 Chocolate bars 3145 7,862.5 4,717.50 Wedding cakes 111 55,500 24,420 Shelly Classic 1083 54,150 30,324 Total 133,920 66,719.60 Start-up costs Shelley’s Confectionery pty Ltd will need $162,000 in order to start operations. Of these, $61,750 will be used for start-up costs while $100,250 will be for capital expenses. The breakdown is shown on appendix 1 below. Profit and loss accounts The company’s projected trading profit and loss accounts are set out on appendix 2 below; Financing Directors contributions $80,000 Angel investor $62,000 Loan from bank $20,000 Total $162,000 The above are the possible sources of funding for the business. Each of the directors have agreed to contribute $19,000 towards the establishment of the business. The chances of getting the money is high since most of the directors have already deposited the money in the company’s account with the rest giving specific dates that the money should have been deposited in the account. We also have identified an Angel investor who has agreed to contribute $62,000 towards the venture and the probability of getting the money is assured given that the investor and the company have already signed a binding contract and the money should be in the account soon. Finally, the bank has agreed to lend us $20,000. This money is already in the account and what is remaining is the commencement of the business. In a bid to obtain the loan, two of our directors gave their cars as collateral. On the other hand, the angel investor has come into an agreement with the company to be paid 20% of the profit every year as a return to the investment. General financial numbers indicating the attractiveness of the business Gross margin = gross profit/ sales Year 1 = 66,720/ 133,920 = 49.82% Year 2= 123,180/205,770 = 59.86% Year 3 = 29620/389,840 = 56.34% Net Profit Margin = Net profit/ Sales Year 1 = 19,600/133,920 = 14.64% Year 2 =53,430/205,770 = 25.97% Year 3= 114,320/ 389,840= 29.32% Return on investment = Net profit/Investment Year 1 = 19,600/162,000 = 12.1% Year 2 = 53,430/256,000 = 20.87% Year 3 = 114,320/ 370,000 = 30.90% Payback period Year 1 = $19,600 Year 2 = $53,430 Total so far = 73,030 Remaining = 88,970 Third year = 114,320 Thus payback period = 2 years and 88,970/114,320 Payback period = 2.78 years Break even The company will break even in the first year and will also realize a net profit of $19,600 on top of breaking even. Conclusion on the attractiveness of the business Looking at the above figures, it is clear that the company is projected to be highly profitable. All the indications are that the company’s performance will be well above the industry average thanks to the superior quality products and the cost cutting measures we will employ. However, it is assumed that the economy will continue performing well and that we can be able to reach the level of sales projected so as to be able to achieve the projected financial performance and hence the company’s success. As such, potential investors should find the business attractive and hence have confidence as they invest their funds into the company that they will achieve attractive returns. Human Resources Feasibility Management of a confectionery business calls for a lot of experience in manufacturing of confectionery products. It also calls for managerial and marketing skills. The advantage that Shelly’s Confectionery will have is that its directors are well equipped with all the necessary skills and experiences. Thus, we plan that the directors will be the only employees of the business to start with. However, additional employees will be added as the business grows in a bid to effectively meet the needs of customers. We project that by the end of the first year, we will have employed six more employees with each employee being paid on an hourly basis. In this regard, we aim at recruiting employees who have the necessary skills and experience for survival in the industry. The owners of the business Shelly’s Confectionery pty limited will be co-owned by five directors who are listed below; Shelly James –She initiated the business idea and will be the chief chef and the managing director initially. She brings with him a wealth of experience having worked in three five star hotels. In addition, her master’s in business administration adequately equips her for managerial aspects of Shelly’s Confectionery. Wendi Schutten- She will act as the assistant chef and the finance director. Her extensive experience in the bakery industry after working with a number of bakers equips her for the role. She has experience in cake decoration while she also holds a bachelor’s degree in finance from Michigan University. Jared White – He will be our marketing director and will also head the research and design team. He has extensive marketing knowledge having previously worked as a marketing director for Nestle foods. He holds a marketing degree from Oxford University. Michelle Joel – She has extensive knowledge in human resources development. As such, she will be in charge of customer care and will also help in marketing of the products. She will eventually be our marketing director. She holds a degree in human resources management from Harvard University and has worked in several organizations in managerial roles. Josephine White – she is our designate board chairperson having held various board positions in a number of companies. She holds a bachelor of commerce and has been running her small bakery shop for many years having attained a bakery certificate as part of her hobby. She will however not be involved in the day to day management of the business owing to her commitments elsewhere. Ownership structure Shelly’s Confectionery pty Ltd is a privately owned business owned by the individuals listed above. There is no intention of changing the ownership structure in the long run. The company’s manpower requirements In order to succeed, we need to find the right employees. This will be achieved by contracting a recruitment company who will be charged with the responsibility of finding the right employees for us. Furthermore, all the directors have experience in the field and with the help of our human resources director, we will be able to find the right employees from among the many who will apply. As stated above, employees will be compensated on an hourly basis. However as the company size increases, we will introduce commissions for our sales and marketing teams in a bid to motivate them into getting more and more sales. Employees will be motivated through bonuses and competitive pay. Furthermore, we plan to introduce share ownership schemes as the company size increases with shares being allocated on the basis of employee performance. The human resources director will be in charge of employee training and development. As such, the director will identify skills gaps while monitoring the market for new training opportunities that will be regularly availed to our employees. For those willing to advance their education while still working, study leaves will be availed with their salaries being guaranteed. The company’s growth strategy By providing quality offerings, we are certain that the company will grow at high rate. As such, quality will be monitored from the kind of feedback we get from our customers (Mullins, 2016). As such, we will regularly conduct customer surveys in order to gauge how they value our products as far as quality is concerned. If the results of the surveys are negative, then necessary corrective actions will be undertaken. We will also continuously invest in research in order to continually come up with new ways of quality improvement and management. At the moment, we plan to introduce a one branch company that will only serve Sydney city. However, we are optimistic of growth as we continue to offer high quality products. As such, we anticipate that after five years, the company will have grown into other states. We will thus have to establish state divisions with each state being headed by a director. The divisions will be semi-autonomous but will still report to the head office. As the company grows, employees will be provided with growth opportunities with those excelling being promoted up to divisional directors. As such, each employee joining the company will be assured of career growth. References: Raynor, M& Ahmed, M2013, Three rules for making a company truly great, Retrieved on 17th May 2017, from; https://hbr.org/2013/04/three-rules-for-making-a-company-truly-great airgroup.com.au, 2017, Confectionery, Retrieved on 17th May 2017, from; https://www.aigroup.com.au/business-services/industrysectors/confectionery/ Mullins, J2016, How to start a business with very little money, Retrievd on 17th May 2017, from; https://www.wsj.com/articles/how-to-start-a-business-with-very-little-money- 1422244844 Appendices Appendix 1 Start-up Costing for Shelly’s Confectionery Pty Ltd 2017 START-UP COSTS Cost ($) EQUIPMENT/CAPITAL COSTS Cost ($) Registrations  500 Business purchase price  - Business name  200 Franchise fees  - Licenses  1000 Start-up capital  100,250 Permits  200 Plant & equipment   Domain names  2000 Vehicles  20,000 Trade marks/designs/patents  - Computer equipment  5,000 Vehicle registration  1500 Computer software 2,500  Membership fees  500 Phones 2,500 Accountant fees  2500 Fax machine  3,000 Solicitor fees  1500 Security system  1,500 Rental lease cost (Rent advance/deposit)  5000 machinery and equipment 50,000 Utility connections & bonds (Electricity, gas, water)  1500 Furniture  5,000 Phone connection  500 Shop fitout  2,500 Internet connection  500  Cash  8,250 Computer software  2500     Training  5000     Wages  25000     Stock/raw materials  5000     Insurance       Building & contents  -     Vehicle  1500     Public liability  2000     Professional indemnity  1500     Product liability  500     Workers compensation  2500     Business assets  5000     Business revenue  2500     Printing  150     Stationery & office supplies  200     Marketing & advertising       Total start-up costs $61,7500 Total equipment/capital costs $100,250 Profit & Loss for Shelly’s Confectionery Pty Ltd as at [2017] PROFIT & LOSS Month 1 Month n Year 1 Year 2 Year 3 Sales      133,920  205,770 389,840 less cost of goods sold      66,720  82,590 170,220 More…      -   Gross profit/net sales $0 $0 $67,200 $123,180 $219,6200 Expenses         Accountant fees      1000  1,100 2000 Advertising & marketing      5000  6200 7500 Bank fees & charges      500  500 550 Bank interest      2000  2000 2000 Credit card fees      250  200 250 Utilities (electricity, gas, water)      2500  3000 4000 Telephone      1500  1200 1500 Lease/loan payments      1150  1150 1150 Rent & rates      -   Motor vehicle expenses      3500  3750 4250 Repairs & maintenance      1250  1500 1700 Stationery & printing      350  300 400 Insurance      3200  3700 4000 Superannuation      1500  2000 2500 Income tax      8,400  22400 48500 Wages (including PAYG)      15000  20000 25000 Miscellaneous expenses      500  750 1000 Total expenses $0 $0 $47,600 $69,750 $105,300 NET PROFIT (Net Income) $0 $0 $19,600 $53,430 $114320 Read More