Is Feed and Seed Store Profitable
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Latheethen Feeds
Financial Plan
The financial plan is to borrow $15,000 now as a short-term loan from Citizens Bank, at an interest rate of 7%, to buy a delivery truck suitable to our needs. We will repay this loan within two years from the cash flow of the business. This truck will allow us to expand our services to include delivery, giving us a further edge over the local competition and enabling us to further expand into our target market, while increasing recognition of our name and services.
The second phase of the plan is to borrow $135,000 in long-term loans from the bank in early 2006, to fund the renovation of the existing property's barn and outbuilding into a structurally-sound, attractive, and livable horse boarding stable, and to install fencing and landscaping suitable to that purpose. This renovation will be completed within 7 months, although final landscaping and fencing is not expected to be finished until early 2007. We will repay this loan over 10 years. We will secure this loan with our equity in the value of the existing property. The boarding stable will open up a new revenue stream for the business, and attract new steady customers.
With aggressive target marketing and the sales strategies outlined above, we will increase sales over 3% in the first year. We expect a bigger increase in year two, with the extensive renovation generating some free publicity and with existing customers making referrals, but the largest expansion is planned for 2008, when we can first realize a full year's revenue from the boarding stable.
From the very start, the new owners of Latheethen's will start building the business and taking it to the highest level. The new owners have bright futures ahead of themselves, as does Latheethen Feeds, Inc. The once small, unknown feed store will be transformed into the area's premier livestock feed store and equine boarding facility. The new Latheethen Feeds will be capable of hosting large scale rodeos and other livestock shows by the end of 2009.
8.1 Important Assumptions
This business plan was developed for Latheethen Feeds, Inc. assuming the following:
- Steady growth from good management, barring any unforseen local or national disasters such as the economic slowdown seen by most of the country following the September 11th, 2001 tragedies.
- An adequate loan amount to allow for initial implementation of plans.
- Competition and buying patterns remain similar to those used for forecasting.
- Existing customer base maintained.
- Market research is on target and current (received from different state organizations).
- New customers will be gained through direct sales and advertising.
- Long-term interest rate will be no more than 7%.
- Income tax rate is 30%.
- Sales tax rate is 6%.
| General Assumptions | |||||
| FY 2005 | FY 2006 | FY 2007 | FY 2008 | FY 2009 | |
| Plan Month | 1 | 2 | 3 | 4 | 5 |
| Current Interest Rate | 7.00% | 7.00% | 7.00% | 7.00% | 7.00% |
| Long-term Interest Rate | 7.00% | 7.00% | 7.00% | 7.00% | 7.00% |
| Tax Rate | 30.00% | 30.00% | 30.00% | 30.00% | 30.00% |
| Other | 0 | 0 | 0 | 0 | 0 |
8.2 Break-even Analysis
Break-even is based on fixed costs of approximately $5,900 including loan repayment, insurance, maintenance and labor. Additionally, controllables such as service labor, payroll taxes, property taxes, advertising and legal/professional fees are included.
The following chart shows that we need to produce approximately $8,500 from sales per month to break-even (according to the assumptions). That is less than what the previous owners have accomplished in previous years. We strongly believe we will succeed and provide handsome returns for our company and its owners.
Margins are harder to assume. Our FY 2005 gross margin is forecasted at 69.98%. In the following years our gross margin will continue to grow beyond our starting point because of the continued growth in total product sales and the release of our new equine boarding stable. The products manufactured in the mill cost about $3.50 for 50 pounds of feed on average. The lowest sale (market) price on those products is $5.50 with the highest coming in at $10.75. The majority of our gross profit on feed products is made directly as a result of having the luxury of our own custom mill.
Not only will we serve a much higher number of customers monthly than required by this break-even chart, we believe that we are going to possibly double the amount projected in our cash flow charts in this business plan, because we are going to be the only facility of its kind within a 150 mile radius. As advertising and direct sales follow suit from outside areas, our delivery service will prove to be valuable to our company and our customers.
| Break-even Analysis | |
| Monthly Revenue Break-even | $7,929 |
| Assumptions: | |
| Average Percent Variable Cost | 30% |
| Estimated Monthly Fixed Cost | $5,549 |
8.3 Projected Profit and Loss
Outlined below and in the following table and chart, are some of the intrinsic facets of the projected profit and loss for Latheethen Feeds, Inc.
Cost of sales reflects our cost to manufacture the feed and purchase all other non-manufactured products. Gross margin will continue to rise at a steady pace throughout the years forecasted.
Payroll expenses currently includes income for the two owners. As forecasted, additional employees will be brought aboard as required to keep up with the growing pace of Latheethen Feeds, Inc. Further details are available in our Personnel table (above).
Advertising and marketing expenses (news ads, magazine ads, etc.) are projected to increase as net profits increase and positive results are accomplished as a direct result of the same marketing and advertising. All direct sales and marketing is performed by Dennis. Commissions are not paid to him as a result of a gained customer as he is one of the two major owners of the corporation.
Depreciation forecasted includes normal wear and mechanical tune-ups on trucks, tractors and all equipment in the mill.
Fuel costs are projected to grow as the amount of sales made that require delivery increase. This projected expense includes fuel for the trucks, tractors, etc.
Utilities are projected to increase year to year. The current market prices for utilities will change as the years past. We have prepared for an annual $100 increase.
Insurance: Latheethen's was quoted an insurance premium of $1,200/monthly, which includes liability, property, theft, fire, and personal insurance. The equipment (Mill machines, vehicles, and tractors) is also included in the monthly premium amount.
Payroll taxes include social security, unemployment and workers compensation, etc. Feed dealers permit and state sales tax license is projected to be paid in one annual installment in the month of January. Latheethen's anticipates paying sales taxes monthly, and income tax quarterly, as required by law.
All website expenses are listed below, from initial development, to hosting, to account management for our e-commerce transactions.
Boarding Stable: The expensed portion of the barn renovations in year two is shown as an operating expense. The remainder ($125,000) is shown as purchase of new long-term assets in the Cash Flow table, representing the increased value of the property after renovation.
| Pro Forma Profit and Loss | |||||
| FY 2005 | FY 2006 | FY 2007 | FY 2008 | FY 2009 | |
| Sales | $149,386 | $162,582 | $218,884 | $255,396 | $293,232 |
| Direct Cost of Sales | $44,840 | $47,264 | $58,177 | $64,984 | $71,886 |
| Other Costs of Goods | $0 | $0 | $0 | $0 | $0 |
| Total Cost of Sales | $44,840 | $47,264 | $58,177 | $64,984 | $71,886 |
| Gross Margin | $104,546 | $115,318 | $160,707 | $190,412 | $221,346 |
| Gross Margin % | 69.98% | 70.93% | 73.42% | 74.56% | 75.48% |
| Expenses | |||||
| Payroll | $31,000 | $45,000 | $63,000 | $73,000 | $82,000 |
| Advertising & Marketing | $1,110 | $1,500 | $1,800 | $2,100 | $2,400 |
| Depreciation | $3,000 | $3,000 | $3,000 | $3,000 | $3,000 |
| Fuel | $7,185 | $7,490 | $7,822 | $9,000 | $9,600 |
| Maintenance of Delivery Truck | $3,000 | $3,500 | $3,500 | $3,500 | $3,600 |
| Utilities | $3,072 | $3,400 | $3,600 | $3,600 | $3,600 |
| Insurance | $14,400 | $14,400 | $15,400 | $15,400 | $15,400 |
| Payroll Taxes | $0 | $0 | $0 | $0 | $0 |
| Postage | $180 | $180 | $190 | $190 | $210 |
| Bank Charges | $240 | $240 | $240 | $240 | $240 |
| Stable Renovation Expenses | $0 | $10,000 | $0 | $0 | $0 |
| Accounting & Legal | $1,200 | $1,200 | $1,200 | $1,200 | $1,200 |
| Feed Dealers Permit | $15 | $15 | $15 | $15 | $15 |
| Website Development | $1,500 | $0 | $300 | $0 | $200 |
| Website hosting | $300 | $300 | $300 | $300 | $300 |
| Online Payment Account Mgmt | $360 | $360 | $380 | $380 | $400 |
| Sales Tax License | $25 | $25 | $25 | $25 | $25 |
| Total Operating Expenses | $66,587 | $90,610 | $100,772 | $111,950 | $122,190 |
| Profit Before Interest and Taxes | $37,959 | $24,708 | $59,935 | $78,462 | $99,156 |
| EBITDA | $40,959 | $27,708 | $62,935 | $81,462 | $102,156 |
| Interest Expense | $729 | $4,457 | $8,033 | $7,088 | $6,143 |
| Taxes Incurred | $11,169 | $6,076 | $15,571 | $21,412 | $27,904 |
| Net Profit | $26,061 | $14,176 | $36,332 | $49,962 | $65,109 |
| Net Profit/Sales | 17.45% | 8.72% | 16.60% | 19.56% | 22.20% |
8.4 Projected Cash Flow
The cash flow projection for Latheethen Feeds, Inc. shows that provisions for ongoing expenses are adequate to meet the needs of the company, as the business generates sufficient cash flow to support operations and future expansions.
Cash flow projections are critical to our success. The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month and the other representing the monthly balance. The annual cash flow figures are included here and in our Cash Flow table. Detailed monthly numbers are included in the Appendix.
Cash Flow shows the purchase of long-term assets as follows:
- $15,000 for a delivery truck
- $125,000 for renovations of the barn to a horse boarding stable, which will improve the value of the property owned by the business
The table also shows the new loans required, and the projected repayment schedules.
| Pro Forma Cash Flow | |||||
| FY 2005 | FY 2006 | FY 2007 | FY 2008 | FY 2009 | |
| Cash Received | |||||
| Cash from Operations | |||||
| Cash Sales | $149,386 | $162,582 | $218,884 | $255,396 | $293,232 |
| Subtotal Cash from Operations | $149,386 | $162,582 | $218,884 | $255,396 | $293,232 |
| Additional Cash Received | |||||
| Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 | $0 | $0 |
| New Current Borrowing | $15,000 | $0 | $0 | $0 | $0 |
| New Other Liabilities (interest-free) | $0 | $0 | $0 | $0 | $0 |
| New Long-term Liabilities | $0 | $135,000 | $0 | $0 | $0 |
| Sales of Other Current Assets | $0 | $0 | $0 | $0 | $0 |
| Sales of Long-term Assets | $0 | $0 | $0 | $0 | $0 |
| New Investment Received | $0 | $0 | $0 | $0 | $0 |
| Subtotal Cash Received | $164,386 | $297,582 | $218,884 | $255,396 | $293,232 |
| Expenditures | FY 2005 | FY 2006 | FY 2007 | FY 2008 | FY 2009 |
| Expenditures from Operations | |||||
| Cash Spending | $31,000 | $45,000 | $63,000 | $73,000 | $82,000 |
| Bill Payments | $75,770 | $103,070 | $116,585 | $129,680 | $143,333 |
| Subtotal Spent on Operations | $106,770 | $148,070 | $179,585 | $202,680 | $225,333 |
| Additional Cash Spent | |||||
| Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 | $0 | $0 |
| Principal Repayment of Current Borrowing | $9,167 | $5,833 | $0 | $0 | $0 |
| Other Liabilities Principal Repayment | $0 | $0 | $0 | $0 | $0 |
| Long-term Liabilities Principal Repayment | $0 | $13,500 | $13,500 | $13,500 | $13,500 |
| Purchase Other Current Assets | $0 | $0 | $0 | $0 | $0 |
| Purchase Long-term Assets | $15,000 | $125,000 | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 | $20,000 | $20,000 |
| Subtotal Cash Spent | $130,937 | $292,403 | $193,085 | $236,180 | $258,833 |
| Net Cash Flow | $33,449 | $5,179 | $25,799 | $19,216 | $34,399 |
| Cash Balance | $33,976 | $39,155 | $64,953 | $84,169 | $118,569 |
8.5 Projected Balance Sheet
The Balance Sheet shows healthy growth of net worth, and strong financial position. The monthly estimates are included in the Appendix. The balance sheet for Latheethen Feeds, Inc. is quite solid. We do not project any trouble meeting our debt obligations. Our management is strong enough and more than capable of keeping the business on track for total repayment of any obligations (loans).
Our major capital asset (the property and affixed buildings) is valued at about $170,000. Our current assets include all the mill equipment ($71,463) and the tractor ($4,000). These items will be purchased upon funding of the requested loan, for the amount of $100,000.
We (the new owners) will also be paying off some old personal debt that will allow us to lower our monthly personal expenses. This will enable us to work hard at growing the business and not have to worry about taking money out of the company for personal reasons. The payroll amounts forecasted will be more than sufficient to cover our personal income needs.
We will have a solid starting balance in the company account. This will allow us to start the business takeover with a security nest and will allow us to grow our cash balance at a more steady pace.
Our projected balance sheet is presented in the table below.
| Pro Forma Balance Sheet | |||||
| FY 2005 | FY 2006 | FY 2007 | FY 2008 | FY 2009 | |
| Assets | |||||
| Current Assets | |||||
| Cash | $33,976 | $39,155 | $64,953 | $84,169 | $118,569 |
| Inventory | $5,970 | $6,293 | $7,746 | $9,038 | $10,377 |
| Other Current Assets | $75,463 | $75,463 | $75,463 | $75,463 | $75,463 |
| Total Current Assets | $115,409 | $120,910 | $148,162 | $168,670 | $204,408 |
| Long-term Assets | |||||
| Long-term Assets | $185,000 | $310,000 | $310,000 | $310,000 | $310,000 |
| Accumulated Depreciation | $42,089 | $45,089 | $48,089 | $51,089 | $54,089 |
| Total Long-term Assets | $142,911 | $264,911 | $261,911 | $258,911 | $255,911 |
| Total Assets | $258,320 | $385,821 | $410,073 | $427,581 | $460,319 |
| Liabilities and Capital | FY 2005 | FY 2006 | FY 2007 | FY 2008 | FY 2009 |
| Current Liabilities | |||||
| Accounts Payable | $10,620 | $8,279 | $9,699 | $10,745 | $11,874 |
| Current Borrowing | $5,833 | $0 | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 | $0 | $0 |
| Subtotal Current Liabilities | $16,453 | $8,279 | $9,699 | $10,745 | $11,874 |
| Long-term Liabilities | $0 | $121,500 | $108,000 | $94,500 | $81,000 |
| Total Liabilities | $16,453 | $129,779 | $117,699 | $105,245 | $92,874 |
| Paid-in Capital | $1,000 | $1,000 | $1,000 | $1,000 | $1,000 |
| Retained Earnings | $214,805 | $240,866 | $255,042 | $271,374 | $301,336 |
| Earnings | $26,061 | $14,176 | $36,332 | $49,962 | $65,109 |
| Total Capital | $241,866 | $256,042 | $292,374 | $322,336 | $367,446 |
| Total Liabilities and Capital | $258,320 | $385,821 | $410,073 | $427,581 | $460,319 |
| Net Worth | $241,866 | $256,042 | $292,374 | $322,336 | $367,446 |
8.6 Business Ratios
Latheethen Feeds, Inc.'s projected business ratios are provided in the table below. The final column, Industry Profile, shows significant ratios for the Feed Store Industry, as determined by the Standard Industry Classification (SIC) Index code 5999-0803.
| Ratio Analysis | ||||||
| FY 2005 | FY 2006 | FY 2007 | FY 2008 | FY 2009 | Industry Profile | |
| Sales Growth | 3.37% | 8.83% | 34.63% | 16.68% | 14.81% | 3.97% |
| Percent of Total Assets | ||||||
| Inventory | 2.31% | 1.63% | 1.89% | 2.11% | 2.25% | 38.92% |
| Other Current Assets | 29.21% | 19.56% | 18.40% | 17.65% | 16.39% | 24.26% |
| Total Current Assets | 44.68% | 31.34% | 36.13% | 39.45% | 44.41% | 79.54% |
| Long-term Assets | 55.32% | 68.66% | 63.87% | 60.55% | 55.59% | 20.46% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 6.37% | 2.15% | 2.37% | 2.51% | 2.58% | 43.26% |
| Long-term Liabilities | 0.00% | 31.49% | 26.34% | 22.10% | 17.60% | 14.36% |
| Total Liabilities | 6.37% | 33.64% | 28.70% | 24.61% | 20.18% | 57.62% |
| Net Worth | 93.63% | 66.36% | 71.30% | 75.39% | 79.82% | 42.38% |
| Percent of Sales | ||||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 69.98% | 70.93% | 73.42% | 74.56% | 75.48% | 33.23% |
| Selling, General & Administrative Expenses | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 20.52% |
| Advertising Expenses | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 2.10% |
| Profit Before Interest and Taxes | 25.41% | 15.20% | 27.38% | 30.72% | 33.81% | 1.04% |
| Main Ratios | ||||||
| Current | 7.01 | 14.60 | 15.28 | 15.70 | 17.22 | 1.67 |
| Quick | 6.65 | 13.84 | 14.48 | 14.86 | 16.34 | 0.65 |
| Total Debt to Total Assets | 6.37% | 33.64% | 28.70% | 24.61% | 20.18% | 2.45% |
| Pre-tax Return on Net Worth | 15.39% | 7.91% | 17.75% | 22.14% | 25.31% | 62.21% |
| Pre-tax Return on Assets | 14.41% | 5.25% | 12.66% | 16.69% | 20.21% | 6.49% |
| Additional Ratios | FY 2005 | FY 2006 | FY 2007 | FY 2008 | FY 2009 | |
| Net Profit Margin | 17.45% | 8.72% | 16.60% | 19.56% | 22.20% | n.a |
| Return on Equity | 10.78% | 5.54% | 12.43% | 15.50% | 17.72% | n.a |
| Activity Ratios | ||||||
| Inventory Turnover | 11.97 | 7.71 | 8.29 | 7.74 | 7.41 | n.a |
| Accounts Payable Turnover | 8.13 | 12.17 | 12.17 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 34 | 28 | 29 | 29 | n.a |
| Total Asset Turnover | 0.58 | 0.42 | 0.53 | 0.60 | 0.64 | n.a |
| Debt Ratios | ||||||
| Debt to Net Worth | 0.07 | 0.51 | 0.40 | 0.33 | 0.25 | n.a |
| Current Liab. to Liab. | 1.00 | 0.06 | 0.08 | 0.10 | 0.13 | n.a |
| Liquidity Ratios | ||||||
| Net Working Capital | $98,955 | $112,631 | $138,463 | $157,925 | $192,535 | n.a |
| Interest Coverage | 52.05 | 5.54 | 7.46 | 11.07 | 16.14 | n.a |
| Additional Ratios | ||||||
| Assets to Sales | 1.73 | 2.37 | 1.87 | 1.67 | 1.57 | n.a |
| Current Debt/Total Assets | 6% | 2% | 2% | 3% | 3% | n.a |
| Acid Test | 6.65 | 13.84 | 14.48 | 14.86 | 16.34 | n.a |
| Sales/Net Worth | 0.62 | 0.63 | 0.75 | 0.79 | 0.80 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | 0.40 | 0.31 | n.a |
8.7 Long-term Plan
Latheethen Feeds, Inc. is expected to grow at a steady pace. In conversations with other feed owners, this topic is already a common theme. Many feed stores are beginning to experience record breaking growth rates. This is an exciting time to purchase an already established and successful store in this market. As we expand our customer base, offer more products and bring the dreamed of equine boarding stable to life, we will be positioning Latheethen Feeds, Inc. amongst the elite dealers in the state of Michigan.
We will continuously review our business plan as we implement changes. By doing so we will ensure accuracy and stability. Our goal is to take over this great business, protect it, nurture it, and provide for it. Doing these things will enable us to grow and expand the business in a professional atmosphere.
| Long-term | ||||||||||
| FY 2005 | FY 2006 | FY 2007 | FY 2008 | FY 2009 | FY 2010 | FY 2011 | FY 2012 | FY 2013 | FY 2014 | |
| Sales | $149,386 | $162,582 | $218,884 | $255,396 | $293,232 | $0 | $0 | $0 | $0 | $0 |
| Cost of Sales | $44,840 | $47,264 | $58,177 | $64,984 | $71,886 | $0 | $0 | $0 | $0 | $0 |
| Gross Margin | $104,546 | $115,318 | $160,707 | $190,412 | $221,346 | $0 | $0 | $0 | $0 | $0 |
| Gross Margin % | 69.98% | 70.93% | 73.42% | 74.56% | 75.48% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Operating Expenses | $66,587 | $90,610 | $100,772 | $111,950 | $122,190 | $0 | $0 | $0 | $0 | $0 |
| Operating Income | $37,959 | $24,708 | $59,935 | $78,462 | $99,156 | $0 | $0 | $0 | $0 | $0 |
| Net Income | $26,061 | $14,176 | $36,332 | $49,962 | $65,109 | $0 | $0 | $0 | $0 | $0 |
| Current Assets | $115,409 | $120,910 | $148,162 | $168,670 | $204,408 | $0 | $0 | $0 | $0 | $0 |
| Long-term Assets | $142,911 | $264,911 | $261,911 | $258,911 | $255,911 | $0 | $0 | $0 | $0 | $0 |
| Current Liabilities | $16,453 | $8,279 | $9,699 | $10,745 | $11,874 | $0 | $0 | $0 | $0 | $0 |
| Long-term Liabilities | $0 | $121,500 | $108,000 | $94,500 | $81,000 | $0 | $0 | $0 | $0 | $0 |
| Equity | $241,866 | $256,042 | $292,374 | $322,336 | $367,446 | $0 | $0 | $0 | $0 | $0 |
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