Business Plan – Final

Overview

Madrid courtesy Company offers two main line of products to the customers including still and sparkling beverages like waters and Enhanced waters – Juice drinks

Sales Projections

The sales projections are divided into two sections covering the two product lines: Product line 1- still and sparkling beverages 2- Enhanced waters. It is expected that the company will sell 250,000 units of still and sparkling beverages and 160,000 units of Enhanced waters in July 2019, a total of 410,000 units. The sales are expected to grow at 3% and 4% for dairy products and fresh juices respectively. The average price is set at $4 per unit of yoghurt and milkshake and $6 per unit of freshly blended juice.

For both products, 30% of the sales will be achieved through the use of agents. The agency commission is projected at 8% and 10% for dairy products and fresh juices respectively. After sales, the company expects 4% of dairy products and 5% of fresh juices to be returned by the customers. The cost of sales is estimated at 40% and 46% for product line 1 and 2 respectively and remains so month to month across the projection period. The cost of sales and gross profit is expected to grow in proportion to the growth in gross sales.

Capital Expenditure

Madrid Courtesy Company plans to acquire various capital expenditure items. Firstly, the company plans to acquire a processing and packaging plant as well as storage facilities at a cost of $210,000. The factory plant’s useful life is estimated at 10 years after which the plant will have a scrap value of $40,000. Secondly, the company plans to install processing and packaging machinery at a cost of $450,000. The machinery has a useful life of 10 years with no salvage value.

Thirdly, the company plans to acquire 10 delivery vehicles at a cost of $800 each. The useful life of all vehicles is 7 years. Fourthly, the company plans to acquire land at a cost of $300,000.

Staff Budget

The Staff budget is based on the company’s staffing needs in terms of management personnel, administrative support, sales and marketing, operations and production and part-time employees. The company requires 3 management personnel at an average salary of $8,000 each per month and 6 administrative support staff at a cost of $1,800 each per month. Being a start-up, the company requires 30 operations staff at a cost of $700 each per month and a sales team of 60 employees hired at a cost of $600 per month. Depending on the production, administration, and sales functions needs, the company plans to hire 20 employees on a part-time basis at a cost of $2.50 each per hour.

The total number of required employees adds up to 119 full-time employees and 20 part-time employees. The expected monthly payroll expense amounts to $179,397 salaries and wages, employee benefits and payroll taxes inclusive.

Professional Fees

Professional fees budget consists of four items: $25,000 legal/attorney’s fees, $45,000 accountants’ fees, $50,000management consultants, $30,000 industry specialists and $33,000 technology consultants’ fees. The costs are estimated as one-off annual costs and are expected to remain uniform during the projection period.

Sources of Financing

The company’s major source of financing is a long-term loan from Bank of America and capital invested by the shareholders. The value of the long-term loan is $5 million at an interest rate of 2% per annum. The repayment period negotiated is a maximum of 60 months with an option for early redemption. The total capital contributed by the shareholders amounts to $1.52 million as at July 2019.

Break-even Analysis

Break-even point refers to the revenue level sufficient to cover all company expenses. In order to break even, the company needs to meet a monthly average revenue target of $477,209 and $507,431 for year 1 and year 2 respectively. The break-even points quarterly average amounts to $1.6 million and $1.7 million for year 3 and year 4. The annual average for year 5 amounts to $7.4 million.

Financial Ratios

The company records a current ratio of averages at 3.44 while the quick ratio average is 3.20. The cash turnover ratio averages above 1.10. Debt to equity ratio declines progressively from 1.71 to 0.41 as the company settles the long-term loan. Return on investment averages at 55% while return on assets and sales averages at 50% and 39% respectively.