Business Plan for Pretzels Galore - Essay Example

P r e t z e l s G a l o r e B U S I N E S S P L A N Prepared by: Table of Contents Executive Summary Vision and Mission 2 Product Description 3 Recipe 3 The Market 4 The Competitor 5 The Proposition 5 Organizational Structure……………………………………………………………………………………………………………6 Marketing Strategy……………………………………………………………………………………………………………………7 The Financial Plan 8 Projected Sales Based on Contracts Secured 9 Projected Income Statement 10 Cash Budget 11 Comments 12 Appendices 12 Appendix I Break Even Point 12 Computation of Breakeven Point 13 Appendix II Direct Materials Budget 14 Appendix III Manufacturing and Operations Overhead Budget 15 Company Name: Pretzels Galore I. Executive summary Pretzel’s Galore was created by Mr. and Mrs. John and Marsha Smith whose first exposure in the market was through their attendance in the annual state fair selling the first variety of pretzels. Over the years, it has created a significant following enough to have market base to continue and sustain the business yearly. While it started as a mere pretzel booth during annual state fair, the business became ripe for expansion especially with the introduction of new selection of pretzels now offered at the state fairs. The business has proven itself to be viable in the market evident with its regular success on annual state fairs. While the pioneers of the business are now ready to retire, the second generation is now ready to take over the business not only for the continuity of the business but also to expand its operation. Such expansion will entail the setting up of a store location to offer the pretzels and its new selection not only during annual state fairs, but whole year round. Its customer will no longer have to wait during annual state fairs to avail of the pretzels and its new selection but can now go to a permanent location where they can avail of the product. Such expansion and setting up of store location however needs more capitalization. To this end, the present owner, son of the original owners Mr. and Mrs. Smith, will infuse a $ 50,000 capitalization to finance the expansion. The additional $50,000 loan with additional credit line will be used to cover the additional equipment to expand production and to cover additional overheads. Vision: To continue and expand the operation of Pretzels Galore and be able to cater to its unserved market by making Pretzels Galore available through a fixed store location creating and developing delicious, innovative, and a wider array of pretzels selection to the highest quality that will be appealing to different age groups and across different market segment and enhance the company’s market base and profitability. Mission: To become the leading provider of pretzel in the next two years through its distinct and delectable taste and by offering a wider array of Pretzels that is innovative and appealing while competitive in price. II. Business Description Pretzel is a unique knot like shape type of baked food made from dough and can be offered in a variety of soft and hard varieties and savory or sweet flavors. It originated from Europe and has a distinct symmetrical looped form. Pretzels Galore was a creation of Mr. and Mrs. John Smith who after years of participation in annual state fair has created a market following owing to the distinct taste and flavor of its pretzels. This was enhanced by the second generation of the Smiths who after experimenting for new flavors of the original pretzels has developed a new product line for the Pretzels Galore. The Recipe of Pretzels Galore is the following (for one dozen): 1. Flour per cup 0.15 2. Sugar per cup 0.15 3. Dry yeast per cup 0.50 4. Butter, shortening, Oil per 1/2 cup 1.00 5. Egg per cup 0.10 6. Salt per 1/2 cup 0.75 7. Specialty ingredients 2.00 III. The Market During annual state fair, the pretzel’s booth which was originated by the undersigned’s parents, has, without fail attracted patronage that it run successfully for years. Its client base ranged from middle aged people who are already accustomed to the taste of pretzel to younger age groups who found fondness in eating pretzels. Through the years, the same clientele had always anticipated the participation of Pretzels Galore booth at annual state fair to partake of the taste of its pretzels. Such, its clientele base continue to increase with referrals adding to previous referrals that a fix store location is needed to be in place to make the pretzels available to the pretzel consuming public even during a regular day. The unserved market of Pretzels Galore are the same regular customers during annual state fairs who are only able to partake the pretzels during annual state fairs. Such, if the sales of the pretzel booth during the annual state fair can be made regular through a permanent store location, the potential increase in income can be exponential; with the occasional sale being made regular. That is without even considering the ripple effect of marketing with present customer’s referring the pretzels to other customers. The Competitor There is no business without competition. As in the case of Pretzels Galore, there are two competitors in the local market which is the ABC Pretzels and XYZ Pretzels. Pretzels Galore however has a more distinct advantage over the two competitors. Foremost is the taste. Almost all of the customers who were surveyed for their taste preference for pretzels overwhelmingly responded that they like the distinct taste of Pretzels Galore over its competition. Next is tradition. The other two competitors being recently incorporated, has no history of their pretzels to speak of. Pretzel, being a baked delicacy consumed by families for centuries and several generations, adds tradition as part of the charm of this baked delicacy. The two other competitors do not have this quality of which Pretzels Galore has a distinct advantage. IV. The Proposition. The Pretzel industry values lineage and tradition. Pretzel being present for centuries and usually handed down from the previous generation to the next, makes lineage as part of the charm of the product. It also gives the consumer a certain degree of confidence of the quality of product if the pretzel continued to exist for generation. Taste is also a distinct advantage of Pretzels Galore over competition. Pretzels Galore being anticipated by its loyal customers during annual state fairs validates the customer’s taste preference for Pretzels Galore. And if this following can be served by making the pretzels available to its customer whole year round, this will exponentially increase the bottom line of Pretzels Galore. V. Organization and Management Description John Smith, Proprietor and President John Smith, being the new Proprietor shall be the President also. He had worked with his parents, John and Marsha Smith who was the pioneer of Pretzels Galore and intimate with the intricacies of the business. He shall oversee the over-all operation of the business. Jill Samuelson, Head of Operations Jill Samuelson had previous working experience at a similar industry, Corey Pretzels and is familiar with the automated production of Pretzels. She shall take charge that all production requirement are met in accordance with the specified quality standard. Daisy Washington, Head of Marketing Daisy has been a Marketing Professional in a consumer industry. She had long history of successfully launching consumer goods. She will be in-charge of promoting the product and increasing the sales of Pretzels Galore. VI. Marketing Strategy Customers has to be made aware that Pretzels Galore will be made available whole year round and not just during annual state fairs. Such awareness from loyal customers should translate into additional sales and perpetual patronage of Pretzels Galore and ensure the viability of the business. Such, a marketing strategy should be employed to reach the customer base of Pretzels Galore who has been anticipating its participation during annual state fairs. That similar marketing strategy should also create a demand from unserved markets to add to its customer base to ensure the profitability and perpetuity of the business. There will be two-tier targeting of potential customers. The first tier will be its loyal customers during annual state fairs. These type of customers are basically a captured market already only that they have to be reached and informed that the product is already available whole year round and not only during annual state fairs. The second-tier customers are the untapped and unserved market. Customer base should be enhanced not only to optimize profitability and increase market share but also for business necessity and viability. As Pretzels Galore went mainstream, its overheads also dramatically increased as it now operates whole year round unlike before where it only operates occasionally. Additional customers should cover the increment in cost and add profitability. Marketing Approach Flyers - Flyers is one of the most effective and cost efficient method of reaching Pretzels Galore loyal customers. As the customers only needs to know that Pretzels Galore now operates in permanent store location whole year round, flyer as a marketing medium will suffice. Flyers are to be used for the first tiered customers. Local Radio – Broadcast advertisements are to be used to reached the untapped and unserved market; the second tired customers. This is to increase Pretzels Galore customer base and market share not just to cover the additional overheads for its expansion but also to increase its sales and profits. This approach is to done in the second quarter of operation. Local Newpaper Advertisement – is marketing approach to be done on the last quarter of the year as a follow through of the previous marketing implements that was executed (flyers and radio advertisement). This approach is also aimed at untapped and unserved market to enhance and increase customer base. Print advertisement shall serve as the culmination of its marketing promotion as the information about Pretzels Galore are kept in printed record where the customers can go back and reference for the availability and distinctiveness of Pretzels Galore. VII. Financial Plan Financial Assumptions Sales price per dozen is 120% markup on variable costs. Direct Labor Cost is not maintained Raw Direct Material Inventory is at 10 % of the next month production. Payment for raw direct materials is 25% in the month of purchase and 75% in the following months. Cash sales collected in the current month is at 40% and credit sales are collected in the following month at 60%. Initial investment at $ 50,000. Minimum cash end-of-month balance of $10,000. Increment is at $1,000 for additional borrowings and loan repayment. Interest rate is at 12 % per annum% which is paid monthly on the total outstanding borrowings at the end of the prior month. Income tax to be paid at the end of each quarter at 25 %. Projected Sales Based on Contracts Secured Contracts were already secured for the first quarter of the year with a projected sale of 3,750 units per month. Based on this sale projection with a 120 % mark-up on variable cost, the following is the projected income schedule of Pretzels Galore for the first quarter of the year. Sales Budget       Jan Feb Mar Apr Projected Sales       $3,750.00 3,750.00 3,750.00 3,750.00 Cost of goods sold     4.65         Mark-up (120% on variable costs)           Utilities       0.50         Other Indirect Materials and Labor 0.75         Sales Commission     0.50         Shipping Cost     1.00         Total Variable Cost     2.75         Mark up rate     120%         Mark up       3.30         Total Selling price     7.95 7.95 7.95 7.95 7.95 Projected Sales       29,812.50 29,812.50 29,812.50 29,812.50                   Percentage of sales collected in the current month 40% 40% 40% 40% Percentage of sales collected in the succeding month 60% 60% 60% 60%                   Schedule of Expected Cash Collections         Accounts Receivable     - 17,887.50 17,887.50 17,887.50 Jan Sales         11,925.00       Feb Sales           11,925.00   Mar Sales             11,925.00 Apr Sales               11,925.00 Total Cash Sales       11,925.00 29,812.50 29,812.50 29,812.50 Projected Income Statement Given with the projected sales of 3,750 dozens per month for the first quarter of the year, the following is the projected income of Pretzels Galore after deductions of costs; Expected Sales Revenue Jan Feb Mar Apr Sales in Quantity   3,750.00 3,750.00 3,750.00 3,750.00 Selling Price     7.95 7.95 7.95 7.95 Projected Sales   29,812.50 29,812.50 29,812.50 29,812.50               Manufacturing Costs:           Variable cost of goods sold 5,156.25 4,687.50 4,687.50 4,687.50 Fixed overhead   5,000.00 5,000.00 5,000.00 5,000.00 Total Manufacturing costs 10,156.25 9,687.50 9,687.50 9,687.50               Operating expenses:           Variable expenses   6,187.50 5,625.00 5,625.00 5,625.00 Fixed expenses   7,000.00 7,000.00 7,000.00 7,000.00 Total Operating Expense 13,187.50 12,625.00 12,625.00 12,625.00 Net Income Before Loan Repayment 6,468.75 7,500.00 7,500.00 7,500.00 Interest expense           Jan     -       Feb       650.00 650.00 650.00 Mar     -   70.00 70.00 Apr           60.00 Total Interest expense   - 650.00 720.00 780.00 Projected Profit(Loss)   6,468.75 6,850.00 6,780.00 6,720.00 Cash Budget To realize the sales projection of 3,750 units per month for the first quarter of the year, additional capital infusion through loan is needed in addition of the $50,000 capital counterpart of the proponent. The Cash Budget below illustrates the necessity of securing additional capital infusion;     January February March April Cash balance, beginning   50,000.00 10,985.94 10,290.63 10,843.13 Add Receipts           Collections from customers 11,925.00 29,812.50 29,812.50 29,812.50             Total Cash Available   61,925.00 40,798.44 40,103.13 40,655.63             Less Disbursements           Direct Materials   4,795.31 18,745.31 17,437.50 17,437.50 Manufacturing Overhead   8,156.25 5,687.50 5,687.50 5,687.50 Operating Expense   12,987.50 12,425.00 12,425.00 12,425.00 Equipment Purchases   90,000.00 - -   Total Disbursements   115,939.06 36,857.81 35,550.00 35,550.00 Excess/deficiency of cash available over disbursements (54,014.06) 3,940.63 4,553.13 5,105.63 Financing:           Borrowings (at beginning)   50,000.00       Additional borrowings   15,000.00 7,000.00     Payments (at beginning)   -   7,000.00 9,000.00 Interest 1 (65,000 loan)     (650.00) (640.00) (640.00) Interest 2 (7,000 loan)       (70.00) (70.00) Interest 3 (7,000 loan)         (60.00) Intrest 4 (6,000 loan)           Total Financing           Cash Balance,before tax   10,985.94 10,290.63 10,843.13 13,335.63 Tax expense (25 %)         3,333.91 Cash Balance, After Tax   10,985.94 10,290.63 10,843.13 10,001.72 Interest Payment           Jan (65000) 65000 x 1/12 x 12%     Feb (7000) 7000 x 1/12 x 12%   650 650 650 Mar (7000) 7000 x 1/12 x 12%     70 70 Apr (6000) 6000 x 1/12 x 12%       90 Total Interest Payment     650 720 810 Comments: The projected sales of 3,750 dozen per month for the first quarter of the year is based on the contract already secured from several local businesses. Given these sales figures, Pretzels Galore will have a cash sale of $11,925 for the month of January, and 29,812.50 for each month of February, March and April. Projected income for these sales for the first quarter of the year will be at $6,468.75 for January, $6,850 for February, $6,780 for March and $6,720 for April. VIII. Appendices: Appendix I Break-even point Appendix II Direct Materials Budget Appendix III Manufacturing and Operating Overhead Budget Appendix IV Materials Budgeting Appendix I : Break-even Point Cost of Goods     Item Subtotal Total Flour (any kind)       0.15     Sugar (any kind)     0.15     Dry Yeast       0.5     1 Stick of Butter, Shortening, Oil   1     Egg       0.1     Salt       0.75     Specialty Ingredients   2     Cost of Goods       4.65   Mark-up (120% on variable costs)         Utilities       0.5     Other Indirect Materials and Labor   0.75     Sales Commission     0.5     Shipping Cost     1     Total Variable Cost     2.75     Mark up rate     1.2     Mark up         3.3   Total Selling price         7.95 Variable Manufacturing Cost         Utilities       0.5     Other Indiret Materials and Labor   0.75     Total Manufacturing Variable Cost     1.25   Operating Expense           Sales Commission(.50/dozen)   0.5     Shipping Cost ($1/dozen)   1     Total Variable Operating Expense     1.50   Total Variable Operating Expense       2.75 Fixed Expenses           Manufacturing expense         Maintenance     500     Depreciation     2000     Supervision       2500     Total         5000   Operating expense           Salaries       5000     Depreciation     200     Others       1800 7000   Total           12000 Computation of Breakeven: Fixed Cost – (Selling Price – Variable Cost) 12,000 = 7.95 – 2.75 12,000 = 5.20 Breakeven point in quantity = 2,308 Projected Sales = 3,750 Appendix II Direct Materials Budget Items           Jan Feb Mar Apr Required production in dozens       3,750.00 3,750.00 3,750.00 3,750.00 Add: Desired ending inventory of raw materials     375.00 375.00 375.00 375.00 Total Needs         4,125.00 4,125.00 4,125.00 4,125.00 Less: Beginning inventory of raw materials     - 1,650.00 1,650.00 1,650.00 Raw Materials to be Purchased       4,125.00 2,475.00 2,475.00 2,475.00                     Cost of Raw Materials per Dozen       4.40 4.40 4.40 4.40 Cost of Raw Materials to be Purchased     18,150.00 10,890.00 10,890.00 10,890.00 Percentage of purchases paid for in the month of the purchase   0.25 0.25 0.25 0.25 Percentage of purchases paid for in the succeding month of the purchase   0.75 0.75 0.75 Total           0.25 1.00 1.00 1.00 Schedule of Expected Cash Disbursement             Accounts Payable                 January Purchase         4,537.50 13,612.50     February Purchase           2,722.50 8,167.50   March Purchase             2,722.50 8,167.50 April Purchase               2,722.50 Total Cash Disbursement       4,537.50 16,335.00 10,890.00 10,890.00 Appendix III Manufacturing and Operating Overhead Budget Manufacturing Overhead Budget   Jan Feb Mar Apr Required Production     4,125.00 3,750.00 3,750.00 3,750.00 Variable overhead rate     1.25 1.25 1.25 1.25 Total Manufacturing Variable Cost   5,156.25 4,687.50 4,687.50 4,687.50 Fixed Manufacturing cost           Maintenance     500.00       Depreciation     2,000.00       Supervision       2,500.00       Fixed Manufacturing cost     5,000.00 3,000.00 3,000.00 3,000.00 Manufacturing overhead before depreciation 10,156.25 7,687.50 7,687.50 7,687.50 Less: Depreciation     2,000.00 2,000.00 2,000.00 2,000.00 Cash Disbursement for Manufacturing         Total Manufacturing Overhead   8,156.25 5,687.50 5,687.50 5,687.50 Operating Expense Overhead Budget Jan Feb Mar Apr Quantity in Sales     4,125.00 3,750.00 3,750.00 3,750.00 Variable operating expense rate   1.50 1.50 1.50 1.50 Total Variable Cost     6,187.50 5,625.00 5,625.00 5,625.00 Fixed Operating Expense           Salaries       5,000.00 5,000.00 5,000.00 5,000.00 Depreciation     200.00 200.00 200.00 200.00 Others       1,800.00 1,800.00 1,800.00 1,800.00 Total fixed operating expense   7,000.00 7,000.00 7,000.00 7,000.00 Total Budgeted Fixed Operating Expense 13,187.50 12,625.00 12,625.00 12,625.00 Less Depreciation     200.00 200.00 200.00 200.00 Cash disbursement for operating expense 12,987.50 12,425.00 12,425.00 12,425.00 Read More