Financial Plan for Fruit Business - Research Paper Example

Finance Project 0 Introduction:- The United Arab Emirates is a fast-growing country and a multinational and multicultural country. The country majorly relies on imports for its primary commodities and consumption. As a result, therefore, there is a requirement for agricultural investments so as to enhance food security. Access to food, however, remains one of an essential fundamental element of human well-being. The 2013 GCC food industry through its report has indeed established that there is an increase in food consumption within the United Arab Emirates. The country is said to have witnessed and embraced an increase in its workforce, thereby translating into an increase in food consumption. The increased working population has led to rising affluence and a hectic lifestyle which contributes to a priority for fast and easy meal options. According to the study conducted in 2013, the company established that the workforce had a preference for Ready-to-eat meals and frozen processed foods thereby raising their demands. In regard to the expanding market, the company seeks to open up a new fruit business in the country. Likewise, due to the looming financial crisis, the company aims to prepare and analyze its financial plan so as to be able to support the growth plans. 2.0 The Business Structure:- Every business established in any place would desire to make up a profit and never a loss. Despite the fact, some company’s do make losses as a consequence of individual decisions whereas some make profits and others even supernormal profits. The GCC food industry is not an exception of the fact that a company it desires to make profits at the end of its sales. It is a basic business concept that the more one risks, the more profits he is likely to make. Likewise, as a business concept, a new business takes a period of between three to four years to settle, pick up and give away profits. But even so, the GCC food industry has come up with a budget plan with an estimated initial cash outflow higher than the requirement. The increasing food consumption has been successful in the United Arab Emirates. Consequently, the juice and smoothie brand has been a successful product all over the world. The GCC food industry’s fruit firm will seek to put to use abundant nutritious fruits in coming up with its products so as to promote and advance a healthy advertisement campaign as well as attract conscious health goers. The GCC food industry’s fruit business firm will open up three juice and smoothie bars and consequently continue to expand in entertainment sports, shopping centers, and fruit booths. The fruit company’s startup cost is AED 250,000. The company’s primary source of the startup cost will come from GCC Food Company, that will account for AED 100,000; which is 40% of the total startup cost. The remaining 60% will be done by acquiring a loan from a financial institution for five years. The fruit firm will have its services divided into three sections: Fruit shops Juice smoothies and cocktails Fruit salads The fruit shops section aims at providing fresh and best quality fruits to customers at affordable rates. Likewise, the fruit shops aim will also to acquire fresh fruits from the local farmers and help raise their living standards. However, the main challenge in the section is to ensure the fruits remain fresh and stay in good taste for use by the customers. The sections target audience will be the working middle and high-class personalities in the nation who are always seeking fresh and best quality food products for their daily consumption. The section will avail fruits such as pineapples, apples, bananas, lemons, oranges and grapes among others. The juice smoothies and cocktail sections primary aim is to provide fresh and best quality juices to its consumers at affordable rates. The high technology available in the United Arab Emirates will be a plus for the fruit firm. However, one of the challenges for the section is the acquisition for ripe fruits for the smoothies. The section will seek to abide by the rules of the country’s food control department who are quite strict on hygiene and food quality. The fruit salad section will provide the United Arab Emirates market with different types of salads. For instance, the section will provide a salad made of pear, passion fruit, Satsuma mandarin, and kiwifruit. The sections target audience will be the large workforce and the teenagers. Besides, the section will target the middle class and high class who always look for quality fruit products. 3.0 Aim & Mission:- The new fruit business will seek to provide fresh and good quality fruits to the consumers at an affordable price in the market. The firm will also seek to purchase fruits from farmers at an affordable market price and improve the living standards of the fruit producers. 4.0 Marketing Strategies:- With the coming of the fruit business firm and the growing market, there is needed to come up with expert and dynamic marketing strategies. As a result of the fast and ever growing competing market in the country, the business will require engaging in an effective commercialization of its products and services. In starting the fruit business firm, we are targeting the growing workforce in the country as well as the youths who prefer a quick meal option. As well, the fruit company will target the working population who most of the time depend on taking fruits while at their workplaces. Likewise, selling the beverage juices from the fruits will be an excellent relief during the day as it offers relief from the sun’s heat. Similarly, the firm looks at the teenagers and the youth as one of its primary target audience. The reason is they always want to spend most of their time sitting and talking over fruit juices and cocktails with their friends and family members. As a result, therefore, the company will come up with fruit booths from which people will be able to purchase fruits, fruit juices, and cocktail juices. The business firm will also construct fruit shops and centers where customers will be able to access and take their juicy fruit smoothies like the nectar juice. The company has a vast target market that covers almost the larger population of the United Arab Emirates. The business target market covers approximately all demographics with an emphasis on the school goers, pupils, students and young professionals. Consequently, therefore, the company seeks to put up structures and franchises closer to the learning institutions, in towns and near shopping centers. As well, the firm will also engage learning systems in trying to put up fruit shops in the education institutions to help enhance the marketing of its products. The marketing will involve putting up stores using the company’s well-known market brand to aid in solidifying the name of the new franchise. However, the strategy will result in an addition to the already high business start-up costs; however, it may be the smartest and most efficient way to market the company. Besides, the company will require conducting an in-depth research on the going market prices of the products it is to introduce into the market. The company will need charging slightly less as compared to the other competitors in order to gain a foothold in the diverse and competitive market. Despite the company’s goal to make profits, the strategy would result in a little income for the firm for the first few accounting periods at the onset of the implementation. Even so, the fact that there are few smoothie, juice bars and fruit centers in the market now translates to the fact that the potential of a new business firm is excellent. However, the potentiality will be efficient if only an effective strategy is in place so as effectively to corner a section of the health food market. The GCC food industry in establishing the new fruit business will fill the market gaps and tap the market in the nation while keeping with its aim of providing healthy food. The firm as well will put to use social media platforms and social events to market its products to customers. The application of social networking platforms that are free will significantly impact on the company’s income since most people, both adults and kids are more active in social media. To date, most teenagers and youths do not watch the television sets, news, listen to radios or read newspapers but always get news through the social media platforms such as Facebook and Twitter. Therefore, creating a hype of the fruit products on the sites will draw their attention fast enough. The company as well will engage in social events and will seek to join the management of the activities to offer them some support like vouchers and publicity. The company will also conduct free sample testing to draw the attention of other groups of people such as the elders. In addition, the firm will offer discounts on some of its products as a marketing strategy to help create a buzz in the market and draw much attention of its customers. 5.0 Capital Structure The company requires a total amount of AED 250000 to keep the business on course. The GCC food company will issue out AED 100000 from its income to aid in running the fruit business. The fruit firm will also acquire a loan of AED 150000 from a financial institution for the operation of the enterprise. The loan will get back to the financial institutions with a reducing interest of 10% per annum for the next five years. The firm will also pay a five percent processing fee to the financial institution. Accounted for below are the details of the amount required for the business operation:- GCC funding = AED 100,000 Loan Amount = AED 150,000 Duration = 5 yrs Interest Rate = 10% per annum Processing Fee 5% = 7500 Total Payable = AED191223.38 60 Monthly Installments = AED3187.06 Total Interest = AED41223.39 6.0 Financial Structures:- 6.1 Revenue:- The fruit firm’s revenues will get categorized into three categories: § Fruit shops § Juice smoothies and cocktails § Fruit salads 6.1.1 Fruits Shop: - the fruit shop is expected to offer quite some good revenue to the firm since an average customer to the store will be supposed to spend around AED 20 per kg of a fruit. However, the price of the fruits expects to increase to about AED 25 per kg five months later and by 10% per year. The company’s projected growth of its products in the next five months is high as at that point in time; the firm shall have picked up and settled. The company seeks to sell at least 75 kg and 90kg at AED 25 per month by the closure of the first two years. Likewise, the firm will sell about 100 kg, 110kg and 150 kg at AED 30 per month in the subsequent years. 6.1.2 Juice smoothies and cocktails: - juice smoothies and cocktail will retail at an average price of AED 25 for the first one year. The firm projects at shilling 150 glasses per month during the first year cumulating AED 3750 per month and AED 45000 by the end of the year. However, the business is to pick up in the next four months after which a glass of cocktail and smoothies will retail at AED 30. The firm projects at selling 2000 glasses in the second year 2500, 2800 and 3000 glasses in the subsequent years. 6.1.3 Fruit salads: - the company as well seeks to make revenue from fruit salads. The fruit salads will attempt to sell 2500 tins at AED 10 for the first one year. Afterward, the firm will raise the fruit salads’ price to AED 15 and vary the prices to fit the market demands at different points in time. The four years, the firm projects at selling approximately 3000, 4000, 4500 and 5000 tins respectively. The fruit juice company’s growth revenue is as follows 6.2 Costs 6.2.1 Cost of Sales: - The ingredients of the fruit smoothies, fruit salads will be available in the fruit shops. However, the company will pay for the expense of acquiring the fruits as well as for the labor. As a result, therefore, the cost of sales for the fruit shops and the fruit smoothies is expected to be around 15%. The primary cost for the firm is purchasing the blenders that will be a one-time cost. As well, the company will need to pay the workers although the salaries and remuneration have gotten fixed in the monthly payments and get accounted for in the human resources. As a result, therefore, the ingredients costs for salads are very low just at 5%. Therefore, At an average, the firm’s cost of sales percentage compared to the sale is 12.30%. 6.2.2 Human Recourses:- Human resources render an essential role in any business. The Human Resource entails skills and the taste in ones hand to acquire the best mix of ingredients to achieve a goal. The company’s total human resources, remuneration per month are anticipated to be approximately AED 4000. The salary will increase with AED 500 per year 6.2.3 Operating Expenses:- So as to meet its daily activities, the firm will part ways with various operating expenses. The costs include logistics, purchasing of fruits, parking bags, glasses, straws Logistics and Credit card charges that get incurred daily or monthly. Besides, the firm will also bear some annual fixed expenses such as trade license purchase and renewal, IT setup & consultancy, and accounting services. 6.2.4 Rent and Occupancy:- Renting is one of the significant costs that businesses have to contend with in the United Arab Emirates. As a consequence of the escalating borrowing rates of premises within the shopping and town centers, the firm has chosen to own a place of its own so as to save on the costs. The firm is going to put up structures on the purchased piece of land, to be able to serve its activities from the venue. However, the company will rent out certain places within or close to the institutions to tap the readily available markets at the place. The rented homes are to cost AED 25 per square feet per month, and the firm is renting shops of approximately AED 250 square feet. Henceforth, the total rent payable by the firm will be AED 75000. However, as a rule, the rents of the places are to hike up every three years by 10% per month. As a result, therefore, the firm will pay a rent of AED 30 per month, totaling to AED 90000 for the fourth and fifth years. The legal system as well provides for Insurance of all shops in the country. In abiding by the law, the company will pay an insurance cover for the stores of approximately AED12000 per year. 6.2.5 Assets- Machines and equipment:- The firm requires putting in place assets in the shop such as refrigerators, blenders, cocktail machines and refrigerated vans for transporting and delivering products to the consumers. The acquisition of the tools and equipment’s is required to total to about AED 95,000. The firm plans to purchase best tools and ensure a frequent servicing of the machines. The regular maintenance shall ensure there are no future defaults, mishaps or any complaints with the machines. The company also looks forward to decorating their shops at a total cost of AED10, 000. 7.0 Financial Statements 7.1 Start-up Costs:- The firms start-up value is high since it is a good and service aligned business. The table below displays the startup costs. START-UP COSTS Cost (AED) Total Fruit shops 15,000   Fruit smoothies and cocktail 25,000   Fruit salads 20,000 Total Cost Of Sale   60,000 Working Capital 35,000 Payroll/Human Resources     Basic Salaries 48,000   Total Human Resources   48,000 Operating Expenses     Fruits Purchase 2,800   Phone and Internet 700   Parking bags 600   Glasses 600   Credit Card Charges 500   It Setup & Consultancy 400   Trade License 2,500   Straws 200   Accounting Service 500   Total Operating Expenses   8,801 Rent/Occupancy 75,000   Insurance 12,000   Total Rent/Occupancy   87,000 Shop Fit out& Decoration   10,000 Total start-up costs   248,801 7. 2 Cash flows Statement:- The business sales get made and projected only when payments get made to the firm. After that, expenses and profit can be calculated. Expected cash flows are as follows. Five Year Performa Cash Flows           Year 1 Year 2 Year 3 Year 4 Year 5 Revenues               Fruit shops 22,500 27,000 36,000 39,600 54,000 Fruit smoothies and cocktails 45,000 60,000 75,000 84,000 90,000 Fruit salads 25,000 45,000 60,000 67,500 75,000 Total Revenues 92,500 132,000 171,000 191,100 219,000     43% 30% 12% 15% Costs               Fruit shops 3,375 4,050 5,400 5,940 8,100 Fruit smoothies and cocktails 6,750 9,000 11,250 12,600 13,500 Fruit salads 1,250 2,250 3,000 3,375 4,500 Total Cost of Sale 11,375 15,300 19,650 21,915 26,100 Gross profit 81,125 116,700 151,350 169,185 192,900 Payroll/Human Resources       Basic Salaries 48,000 48,500 49,000 49,500 50,000   Operating Expenses       Fruits Purchase 2,800 3,000 3,300 3,300 3,500 Phone and Internet 700 700 700 700 700 Parking bags 600 700 800 1000 1000 Glasses 600 800 800 800 800 Credit Card Charges 500 500 550 600 650 It Setup & Consultancy 400 500 1,000 1000 1000 Trade License 2,500 1,500 1,500 1,500 1,500 Straws 200 200 300 300 500 Accounting Service 500 500 500 500 500 Total Operating Expenses  8,801 8,400 9,150 9,700 10,150 Rent/Occupancy 75,000 75,000 75,000 90,000 90,000 Insurance 12,000 12,000  12,000  12,000 12,000 Total Rent/Occupancy 87,000 87,000 87,000 102,000 102,000 Assets - Furniture / Equipment       Machines & Equipment 95,000 0 0 0 0 Shop Fit out and Decoration 10,000 0 0 0 0         Finance Charges           Interest with principal amount 40,000 40,000 40,000 40,000 40,000 Total Finance Charges 40,000 40,000 40,000 40,000 40,000 Total Costs 208,801 103,400 105,150 121,200 122,150 Net Income       Net Income / (Loss) (127,676) 13,300 46,200 47,985 70,750         Investor Net Income (127,676) 13,300 46,200 47,985 70,750         Initial Cash Investment 250,000 0 0 0 0 Cash on Hand 122,324 135,624 181,824 229,809 300,559 7.3 Profit and loss Statement The company’s equipments and fit outs are expected to last for a decade, as a result. Therefore, the cost of all the equipments is divided equally among all the ten years. Five Year Performa Cash Flows           Year 1 Year 2 Year 3 Year 4 Year 5 Revenues               Fruit shops 22,500 27,000 36,000 39,600 54,000 Fruit smoothies and cocktails 45,000 60,000 75,000 84,000 90,000 Fruit salads 25,000 45,000 60,000 67,500 75,000 Total Revenues 92,500 132,000 171,000 191,100 219,000     43% 30% 12% 15% Costs               Fruit shops 3,375 4,050 5,400 5,940 8,100 Fruit smoothies and cocktails 6,750 9,000 11,250 12,600 13,500 Fruit salads 1,250 2,250 3,000 3,375 4,500 Total Cost of Sale 11,375 15,300 19,650 21,915 26,100 Gross profit 81,125 116,700 151,350 169,185 192,900 Payroll/Human Resources       Basic Salaries 48,000 48,500 49,000 49,500 50,000   Operating Expenses       Fruits Purchase 2,800 3,000 3,300 3,300 3,500 Phone and Internet 700 700 700 700 700 Parking bags 600 700 800 1000 1000 Glasses 600 800 800 800 800 Credit Card Charges 500 500 550 600 650 It Setup & Consultancy 400 500 1,000 1000 1000 Trade License 2,500 1,500 1,500 1,500 1,500 Straws 200 200 300 300 500 Accounting Service 500 500 500 500 500 Total Operating Expenses  8,801 8,400 9,150 9,700 10,150 Rent/Occupancy 75,000 75,000 75,000 90,000 90,000 Insurance 12,000 12,000  12,000  12,000 12,000 Total Rent/Occupancy 87,000 87,000 87,000 102,000 102,000 Assets - Furniture / Equipment Depreciation     Machines & Equipment 9500 9500 9500 9500 9500 Shop Fit out and Decoration 2000 2000 2000 2000 2000  One time shop fee amortization 0  0  0  0 0 Finance Charges           Interest with principal amount 40,000 40,000 40,000 40,000 40,000 Total Finance Charges 40,000 40,000 40,000 40,000 40,000 Total Costs 115,301 115,400 116,650 132,700 133,650 Net Income       Net Income / (Loss) (34,176) 1,300 34,700 58,400 59,250         Return on sales -37% 1% 20% 31% 27% 7.4 Return on Sales:- Return on sales displays the overall sale’s net income in all the years. The return on sales displays the firms’ net income growth over the years. The first years return on sales is negative and gradually increases at a steady pace. 8.0 Conclusion:- The fruit business is a firm dealing with fruit sales, smoothies and cocktail and fruit salad sales. The firm will be of great success if it gets effectively managed and if it embraces effective customer relations. The company will seek to establish fruit stores in urban areas, shopping centers, and near institutions to tap the ready markets. Besides, the businesses will employ many people and ensure proper hygienic standards get maintained. References:- Aleid, S. M. (January 01, 2013). Date Fruit Processing and Processed Products. 171-202. Hui, Y. H., Barta, J., & Cano, M. P. (2006). Handbook of Fruits and Fruit Processing: Science and Technology. Hoboken: John Wiley & Sons. International, B. P. I. (2013). How to invest, start and run profitable business in the United Arab Emirates guide. S.l.: Intl Business Pubns Usa. The GCC food industry report by Alphen Capital 10.0 Appendix:- 10.1 Loan Repayments GCC Funding 100000 Total Time Period: 3 Years Interest Rate: 10% Loan amount: 150,000 Processing fees: 7500 Total payable: 357,150 36 monthly payments of: 5754.17 Total interest: 49650 Read More