Accounting For Business - Essay Example

Executive Summary Combined Poultry Products provides top quality poultry products, manufactured in China, to the poultry industries of Pakistan and South Africa. The company is a limited partneCNYhip. Combined Poultry is a Chinese based company which is focused on manufacturing the best quality poultry feed with the use of latest equipment and best quality, abundantly available raw materials, and then exports the poultry products to South Africa while also catering to the needs of local poultry farmers in China. The rising demand of poultry as a food item due to rise in living standards has resulted in a large market segment of poultry farms which require feed for chicken. The aim of our company is to provide these farmerswith the best quality organic poultry feed at a reasonable price.. The first step of this transformation is the writing of a business plan. This plan is being used as an internal document to assist in the development of the business. The Industry Poultry feed industry is not a new one in the market; it has developed with the poultry management practices. The industry has an elastic growth with the growth in demand for poultry. However, the traditional poultry feed industry, which is in China and Africa, comprises mostly of either local farmers who sell their by-products of grains to poultry farmers of fishermen who sell the dead fish. No research and development has been made on a large scale in this industry in these regions. However, in other developed countries such as USA, poultry feed industry has developed a lot. And with research and development in the product, the companies have formed a new type of organic feed which is not only highly nutritious, but also cheaper than other sources of poultry feed. The Market The market for poultry feed in Africa has a huge potential. Initially, we will be catering to some countries of Africa such as South Africa and Uganda. The reason to choose Uganda is that recently there has been a decline in supply of chicken due to rising prices of poultry which owes to the high prices of chicken feed in the region. The local farmers rely on grain farmers and fishermen to supply them with the feed which is of low quality and very expensive. “The high prices of grains are posing a big challenge to the poultry industry in Uganda yet consumersdo not expect chicken prices to go up,” said Mr Joseph Muguluma, the Treasurer of the Poultry Association of Uganda. The other market for supply of poultry feed in the local poultry farms of China. The case in China is similar to that of African countries where prices for poultry feed are on the rise due to increasing prices of grains. An alternate, low cost solution to the poultry farmers is the supply of organic poultry feed which we will supply them from China. Management The management team of Combined Poultry Products is a highly skilled team with yeaCNY of experience in the relevant fields which are directly or indirectly related to the poultry feed export industry. Our team consists of diversified members who have work experiences in both China and Africa; hence they will have little problems in working in the international markets. The head office will be located in China from where the company would manage all the operations of the company such as delivery of product by suppliers, transportation and receiving of products in Africa and finally the marketing and distribution in the relevant markets. The company also plans to open its branches in Africa in order to keep a track on the whole work process and at the same time seek new opportunities. Marketing Our target market is two-fold: poultry farmers and retailers like farm stores that sell to people running backyard poultry projects or simply keeping pets. Hence, we will adopt two marketing approaches: business to business and directly to the local people. We plan to hire salesman from the local industry to directly visit farmers and advertise the product through free sampling and presentations. For people, we will use the BTL marketing approaches at retail shops. Risks The risks associated with our industry is only the lack of awareness among farmers for using organic poultry feed. As most of the farmers are uneducated in our target market, we might face a lot of resistance in convincing them to switch to organic feed which is not only cheaper but also has other benefits such as nutrition. Future Outlook After the successful completion of our initial project, we plan to enter other segments such as cattle and livestock feed which have an equal demand in the market. We have divided our future planning into three different milestones: first one is to achieve a large market share in the poultry feed supplies in Africa and China, second one involves product widening and including cattle feed and livestock feed in our operations. Finally, our goal is to become one of the largest suppliers of organic poultry feed internationally. Product The sole product of the venture is the organic feed for poultry, mainly chicken. The organic feed mainly consists of the following ingredients: whole corn soft white wheat hard red winter wheat barley oat groats sunflower seeds peanuts sesame seeds wheat bran lentils All of these ingredients are grown in the region and are easily available for processing. The feed would contain vitamin B, Calcium, protein and iron that would provide the poultry with growth, reproductive health, nervous, resistance to disease and many other functions. Operations Plan Our operation plan will be spread over three steps: 1. Manufacturing the feed 2. Transportation of manufactured goods 3. Distribution of the manufactured goods through regional offices. Step 1 We will manufacture the feed after gathering all the necessary raw materials from the suppliers. The quality parameters have been set as the international industry standards. By doing extensive R&D, we will produce products customized to the environment of Africa. This will be done later because as our business progresses, we will learn more and more about the dynamics of the African market. Step 2 The feed can be transported to Africa form the port located near our manufacturing plant, saving us a lot of money. The goods will be shipped to Egypt initially then other local head offices will be opened in countries where market prospects are high. Step 3 Once the feed is shipped to South Africa (this is where our Africa headquarters will be located), it will be sold in their local market as well as other markets (but through South Africa). The key to operations at this point is to give the best sales and after sales services so that we develop a rapport with our customers. This will also ensure repeat purchases. As market prospects develop in other areas/countries we will establish zonal headquarters there so that logistics can be coordinated. Marketing Plan Marketing Strategy of the Venture Our product: poultry feed is an essential requirement of the poultry farms. Primarily, it comes under the classification of an Industrial Marketing, business to business (B2B) product. In order to cater to this segment we would be mainly endeavor to build a reputation by proving our quality. In products like industrial where a business sells to another business which uses it to sell its latter finished product, good reputation is essential. That is we would have to make sure that the Word Of Mouth publicity is ensured. For Consumer Marketing (B2C) we would be targeting the retail stores where Pets foods are stocked and where they are sold. Special discounts or upfront cash in the form of slotting fees may be given to push our product on the trade level. We may also be contacting various veterinaries and the vets who would in turn endorse our product to people who have pets when they come to them. Assessment of Risk Weaknesses of the Business It wouldn’t be fair to say that any business can never has any weakness or flaw in it; in fact there is always room for mistakes or shortcomings no matter how sound the idea seems. Similarly, our business idea has few shortcomings that might resist us to achieve the core purpose of it. First, the issue of awareness might be there because farmers are usually not knowledgeable or trained enough to adapt to new measures for better results. Some of them might get resistant or skeptical to use the imported feed due to some misconceptions that might be in there mind regarding the quality or reliability of the feed. Another concern that many international business come across is of exchange rates or fluctuation in the value of the currency. Financial Plan Initial Capital Investment CNY. 1 Land Purchase 250,000 2 Factory Building 200,000 3 Equipment Units Costs Bagging Equipment 1 100,000 100,000 Boilers 1 70,000 70,000 Computer Process Control 1 50,000 50,000 Conveyors 1 30,000 30,000 Mixers 2 10,000 20,000 Dryers 2 10,000 20,000 Scales 2 10,000 20,000 Grinders 2 10,000 20,000 Total Equipment Cost 330,000 4 Export Licensing Fees 150,000 Total Capital 930,000 The above table shows the initial investment required to start the business. The land is easily available near the suburbs of Karachi through government leasing and is very cost effective means of obtaining the land for commercial use. It will be 200 yard square area. Moreover the table also shows the list of equipments that will be used for poultry feed manufacturing. The last item is the export licensing fees which represents the standard cost for obtaining the license to export. The total capital needed equals CNY. 930,000. Pro Forma Income Statement Pro Forma Income Statement CNY. Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Sales 4,882,475 4,347,200 4,347,200 4,347,200 4,347,200 COGS Direct Material 2,745,000 2,440,000 2,440,000 2,440,000 2,440,000 Direct Labor 50,000 50,000 50,000 50,000 50,000 Overhead (Utilities) 960,750 854,000 854,000 854,000 854,000 Total 3,755,750 3,344,000 3,344,000 3,344,000 3,344,000 COGS per Unit 83.46 83.60 83.60 83.60 83.60 Gross Profit 1,126,725 1,003,200 1,003,200 1,003,200 1,003,200 Selling & Admin Expense Salaries Working Team Members (2) 0 0 0 0 0 Distribution Expense 40,000 40,000 40,000 40,000 40,000 Depreciation 7,167 7,167 7,167 7,167 7,167 Office Expense 10,000 10,000 10,000 10,000 10,000 Total 57,167 57,167 57,167 57,167 57,167 Fixed Expense Land Purchase 250,000 Export Licensing Fees 150,000 Total 400,000 Net Income 669,558 946,033 946,033 946,033 946,033 1. Direct materials will be purchased at the rate of CNY. 61 per kg bag. The DM cost will also depend on the number of units produced. 2. We will employ 5 labors at CNY. 10,000 monthly salary. When the production level increases after six months two more will be hired at the same salary. After year one, the salary of the labor will be increased to CNY. 15,000. And after year two, one more man will be hired to handle increased production level. 3. Overhead is linked to direct material which equals 35% of direct material cost. 4. The sales revenue is determined by the product of production units and sale price. The price per unit is determined by 30% percent above the COGS per unit. 5. Land purchase and export licensing fee is considered as first year expense. 6. The tax rate is 35%. Cash Flow Projections Cash Flow Projections Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Net Income 435,213 614,922 614,922 614,922 614,922 614,922 Add: Depreciation 7,167 7,167 7,167 7,167 7,167 7,167 Operating Cash Flows 442,380 622,088 622,088 622,088 622,088 622,088 Land (250,000) Factory Building (200,000) Equipment (330,000) Export Licensing Fees (150,000) Investing Cash Flows (930,000) Financing 1,000,000 Less: Dividends 0 (590,984) (590,984) (590,984) (590,984) (590,984) Net Cash Flows (417,620) 31,104 31,104 31,104 31,104 31,104 Beg Cash Flow 0 (417,620) (386,516) (355,412) (324,307) (293,203) End Cash Flow (417,620) (386,516) (355,412) (324,307) (293,203) (262,098) The first month presents heavy cash investment in land, factory building, equipment and export licensing fees, hence first month will not provide any dividend to the members. As shown in the table above, the cash flow will start turning positive from March, 2011. Pro Forma Balance Sheet Pro Forma Balance Sheet Jun 2010 – May 2011 Jun 2011 – May 2012 Jun 2012 – May 2013 Asset Cash 846,062 1,771,997 3,019,877 Inventory 7560000 10080000 10080000 Account Receivable 10,796,500 10,842,000 14,430,000 Land 250,000 250,000 250,000 Factory 180,000 160,000 140,000 Equipment 264,000 198,000 132,000 Total Asset 9,100,062 12,459,997 13,621,877 Liabilities Account Payable 8,305,000 8,340,000 11,100,000 Equity Capital Invested 1,000,000 1,000,000 1,000,000 Retained Earnings 556,901 1,396,836 2,558,716 Total Liabilities and Equity 9,861,901 10,736,836 14,658,716 References Chen, Jie. (2005). Poultry production in china and the potential for using enzyme preparations. Laboratory of Animal Physiology and Biochemistry, Nanjing Agricultural University, Nanjing, PR China 210095, Retrieved from http://www.idrc.ca/en/ev-30911-201-1-DO_TOPIC.html Pet food and animal feed manufacturing in china . (2010). IBISWORLD INDUSTRY MARKET RESEARCH REPORT, Retrieved from http://www.bharatbook.com/detail.asp?id=133052&rt=Pet-Food-and-Animal-Feed-Manufacturing-in-China.html China builds massive poultry feed mill in bangladesh. (2008). World Poultry, Retrieved from http://www.worldpoultry.net/news/china-builds-massive-poultry-feed-mill-in-bangladesh-2577.html China to become dominant force in animal feed market. (2010). World Poultry, Retrieved from http://www.worldpoultry.net/news/china-to-become-dominant-force-in-animal-feed-market-7379.html Castellin, C. (2006). Sustainability of poultry production using the emergy approach: comparison of conventional and organic rearing systems. Science direct, Retrieved from http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6T3Y-4J2M6T7-8&_user=10&_coverDate=06/30/2006&_rdoc=1&_fmt=high&_orig=search&_sort=d&_docanchor=&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=cce8a528277c8ab5433c64bfb02e77f8 Read More