Cool Moose Creamery - Essay Example

?  Finance Table of Content Answer 3 Answer 2 6 Reference 11 Appendix 11 Answer This is a business plan of a new franchisee development of an icecream company Cool Moose Creamery which is a one year young company located in Alliston, Ontario. The franchise will be set up in a city in United Kingdom. In the new franchisee, a new product will added with the existing product line up of this company. This report is about the financial assessment of the overall business plan. This financial analysis report is related to the feasibility of this new franchisee development by four partners who are willing to invest equally for this business. So, this financial planning assessment determines the feasibility of this business according to the current demand of the product and growth of the parent company Cool Moose Creamery. In this report a qualitative analysis has been made by supported by facts and data from the Cool Moose’s business. The new franchisee of this company will be taken and set up by total four partners among one has already invested $10,000 for developing new product and other three are interested in this business who will equally invest $10,000 each in cash this business. The amount they are willing to invest is $10,000 in cash each. One of the partners already developed a new product related to the product line up of this business. The name of the product is Snofroze which is confectionary food like frozen snacks. The partners have decided that this product will influence the demand of itself as well as the existing products of the company whose franchisee will be taken. The partners agree to take a quarter of the new business each in return of $30,000 each. The partners will set up a shop where they will set up the franchisee business of the company. Actually the main aim of them is to get a brand name to include their developed product in the existing product line up of the brand. For developing this shop the company need to buy fixtures and fittings for the shop and other machineries. One of necessary machineries, the company need buy is single-head soft-serve machine. The partners have decided to take bank loan for buying the necessary fixed assets and initial cost for setting up the ice cream shop. Apart from, purchase of fixed assets related cost the company need to pay a flat fee upfront for taking up the franchisee. For all these initial expenses the partners have decided to take bank loan of $20,000. They are expecting to payback this amount in monthly instalments basis to the bank within a maximum payback period over 3 years. Total investment for this business is $160,000 which will be invested by the four partners equally and each of them will be getting a quarter stake of the company and also the selling writs of the new product Snofroze. Another $20,000 will be added in the total initial investment that will be taken from bank loan. So, total initial capital is $180,000. The company has decided to break even this initial investment from the total profit of 3 years. So, in the first three years the company needs to earn an average profit of $60,000 per year. If the company only focus on selling the product Snowfroz then it needs to sell total 60,000 pieces of the Snoforze and approximately 167 pieces daily if the profit per unit of the product is assumed as $1. So, the competitive price of a single Snowfroz is assumed as $2 and the cost of sells is assumed as 1 which includes production cost and other contributed cost per unit. 360 opening days of the shop is considered in this analysis and 5 days is deducted for closing of the shop regarding any issues. So, if the company can 167 unit per day at a assumed price of $2 per unit then the company can breakeven in next three years from the starting of its operation. The company will sell the products in the shop and also they will distribute in the many restaurants in the city. The product will get a good demand in the market as it is a confectionary snacks product. So, the company will do business selling also apart from retail sells in the shop. So, the breakeven of this business will be earlier than it is expected in a worst case scenario where the company need to sell only 167 units daily. The revenue from the b2b sells is not considered in the financial budget for determining the breakeven of this new venture. The company has the possibility to generate substantial revenue by selling to other business like other hotel and restaurants. The interest rate of the bank will be added at the time repayment of the loan amount i.e. after three years. It is assumed that the company able to earn profit of this minimum amount by extra sells than sells of minimum 167 units per unit day till three years. So, from the wholesales to other business the extra profit the company will be able to generate. Another important cost of production which is not included in the cost of production but this amount will also be covered by the revenue from other business not from retail sales in the shop. The operating cost of this business is included in the cost of sales. Operating cost includes rent, salaries to the employees, electricity, internet, cost of distribution, promotional cost and other. The unit price of the product will be double of its cost of production. As, it is small confectionary business, the company has decided to make unit profit similar to the total unit cost of sales so that the company can breakeven its investment or pay back its initial investment including the bank loan in next three years. So, the estimated financials of the company has been made in such a way that the company generate profit similar to its total investment including the total interest on investment of three years. It is expected by the partners of the company that Answer 2 The company has decided to expand its product line and for this reason, it needs to purchase soft-serve ice cream machine for the shop. Apart from products like scooped ice cream, frozen yogurt, milkshakes, floats, SnowfroZ etc, the company wants offer soft-serve ice cream. This product will increase the sales of the company and the partners are expecting that this will also increase the market share in the target market. The partners have though that the business can be expanded by only increasing the sales from the single shop. This will be possible if the product line up is increased. Installing soft serve ice cream machine will increase the production of soft serve ice cream product. This type of machines is very popular in the world’s top fast food restaurant chains as there is no need of extra equipment and labour for the production soft serve ice cream. So, this machine can produce faster than manual production process. Though this machine produce a single type of frozen dairy product but it is smother than other scoped ice cream. The final product can be redesigned if the product from machines is dispensed in different shape. There are single, double and triple head machines available in the market. The single head machine can produce only a single vanilla flavour but the triple head machine can produce vanilla, chocolate and a mix of vanilla and chocolate both. For a single head machine, $15,000 needs to invest where as a triple head machine costs $25,000. Both the machines have standard productive lives of 10 years. Though the investment for this machine is comparatively higher than other equipment in the shop but it can produce different quality product with a faster production rate. The maintenance cost and operating cost of this machine is not much higher. So, the partners are expecting good feasibility of adding this machine in the shop and they are expecting to get a good return from this investment in this machine. The quality of the soft serve ice cream is better than the scooped ice cream. The potential customers, who prefer soft serve ice cream, will not go to other ice cream parlour who offers this product. So, the machine can fill this gap or weakness of this business even it will become most important strength of the company. The partners thought that they will offer soft serve ice cream in lower price than the average competitive price in the market. So, the shop can attract the existing customers other company who currently offering this product to the potential ice cream customers in the target market. The company will charge $2.5 for a single soft serve ice cream which is $0.5 more expensive from the regular scooped ice cream. A single soft serve ice cream is grams in weight. The customers can chose either cone or cup for the each of the serve for the same price. It is estimated that after installing this machine sales will increase and 2800 servings vanilla flavour will be sold if the single head machines is installed. For a triple head the sales will increase like more 1200 servings in an operating year. A detail estimation of the cost of production of a single serve has been developed by current market price of the ingredients. The soft-serve mix that is used in the machine costs $30 per bag from which total 120 servings can be made. Other costs along with the soft serve cream are the spoons and cup $0.07. Napkins cost $5 for 500. All these particulars can be getting from a single supplier who can generally give 15 days’ credit term. So, the company can keep inventory for at minimum 10 days, so that it can easily pay the supplier by getting sufficient time to sell. Although the oft serve ice cream is expected to increase sales but it can also decrease the other product like scooped ice cream. So, a cannibalization can occur in company’s profit as revenue from scooped ice cream might decrease. But the machine also can produce scooped ice cream and 1400 servings can be made if the company install a triple head. Scoped ice cream will priced at $2.50 per servings and the cost of per unit production will be average 31`% of sales. There are some issues regarding the operation of this machine. So the company needs to consider these issues for the feasibility analysis of this machine. The main problem is the cleaning of these machines. For cleaning of these machines additional effort and time need to be provided by the employees of the shop and if this machine is not cleaned every other night then the machines might be susceptive to bacteria and can crate food borne illnesses to the customers. The extra cost would be the labour cost of extra 1 hour for cleaning of a single head and 1.5 hour for a triple head machine. The estimated labour charge is $10.25 per hour, this amount need to pay extra for a single head machine in the shop (Taylor. 2012). The soft serve mix required of cooling as it comes into market in bag of liquid water. So, a small refrigerator is needed for this mix and it costs $150 which is also a cost related to instalment of this machine. The utility cost will also increase for using both the soft serve machine and the refrigerator. The estimated cost for this is $150 for a single head and $350 for a triple head machine for the operating period of four month. To install this machine in the shop, the partners have found that there need a higher one time investment if they purchase a new machine and new refrigerator. The bank will provide $15,000 loan for a single head machine and $25000 for a triple head machine. The current annual interest rate is five 9%. The company will pay back the loan amount with the applicable total interest in next three years. For this the company needs to pay equal monthly instalment for the next three years. The partners have another option to reduce the initial investment for installing this machine. They can buy used machines which will cost $2,000 for a single head machine and $12,000 cost for a triple head machine. One extra ion case of used is the delivery cost which is $150. The use of used machine will reduce the capital investment for this business and this will be reflected in the return on investment and the payback period of the loan as well as the investment of the partners. The figures will be deceased by the use of used machine. But the partners have done a market research i.e. they collected feedback from the ice cream shops in the market. Maximum of the respondents are not satisfied with the used machine, the only benefit is the lower investment. The used machines required technical services at a quarterly basis which needs extra cost as the company will not get free service from the company of the machines as it is old machine. So, by analysing the feasibility of the used machines, it is expected that the new machines will be better for the long term business prospective though it requires a higher investment at the initial time. So, the return on investment analysis of the investment on this machine has been done considering the purchase of a triple head machine as the company desire to offer variety of flavoured products to compete with the existing companies in the market. The total cost for the instalment of triple head soft serve machine includes the cost of refrigerator cost also. So, total cost will be $25,150.00. The operating cost for triple head machine is $300 annually which includes the cleaning cost of the machine which is actually the labour cost. A triple head machine can produce 4000 servings annually whereas a single head machine cans 2800 only. Total cost of soft serve ice cream mix for 40000 servings will be $1000. Total cost of cup and spoon for 4000 serving will be $28 and for 4000 napkin will be $40. So, total cost of production or cost of sells will be $1,368 which includes the other cost related to the production and sales of this amount of servings in an operating year. The total revenue from the expected sales of 4000 servings is $10,000 which is possible only for triple head machine. So, total gross sales are $8,332 in operating year. Return on investment of $25,150 is 33.13% in the first operating year of this business. For calculating playback period, the same sales and cost sales are taken. So, according to similar assumption in the next three years of its operation, the company can payback this amount of soft serve machine related investment in 3.3 years. Reference Taylor. 2012. Use of Soft-serve ice cream machines. [online]. Available at: www.taylor-company.com/product/equipment.htm. [Accessed on June 14, 2012]. Appendix Particulars Cost 1 Triple head machine $25,000.00 1 Refrigerator $150.00 Total cost $25,150.00 Operating cost $300.00 servings cost of yearly 4000 unit   soft serve mix cost $1,000.00 cup & spoon $28.00 napkin $40.00 Total cost of production of 4000 unit annually $1,368.00 Particulars year1 Sales $10,000.00 Operating cost $300.00 Cost of estimated sales $1,368.00 Gross profit $8,332.00 Return on Investment 33.13% Payback period (years) 3.3 Interest rate = 9% annually   Read More