Assignment 2: Business Plan Breakdown 4—The Operations Plan

Financial Statements

Name

Institution

Financial Statements

Capital requirement estimates

Item	Cost
Initial capital -	$4,250,000
Cost of 100 greenhouses and installation	$1,250,000
Associated running costs	$500,000
Equipment and trucks -	$ 100,000
Construction of branded stores -	$2,000,000

Sources of funding

The company is a family owned business. This means that the sources of funding for the company will be raised internally from the family members. As the sole and only shareholders of the business, the family will reserve all the rights in the running and management of the business. The family will liquidate some of the family assets such as luxurious beach homes to raise the initial capital needed to start the business. the properties are high value and the money raised will be able to cater for more than 70% of the budget of the business. This puts the family in a better position to approach other possible lenders because almost three-quarters of the budget is already accounted for. It is also important to mention that the family will consider that various available businesses funding options to acquire the necessary funds needed to implement the business plan into an actual company with goals and objective to be achieved. These sources of funding include bank loans from agricultural-based financial institutions and corporations as suggested by Bosshardt & Walstad (2017).

The pay back period

The layback period refers to the time it takes for the businesses to recover its initial investment in the form of savings or profits. Evaluating the payback period helps investors to determine whether an investment is worth taking based on the amount of time it will take for them to realize or recover the initial investment of the business. This means that a long payback period discourages potential investors because it means the business will take much longer for them to realize returns for their initial investment, (Oschlies & Loock, 2015). Fresh Foods is an agricultural company meaning that its products will be sold on a daily basis after they mature. There is always a ready market for quality fresh firm produce meaning that the company will be able to realize returns on the initial investment within a short time.

Cash Flow Projection

Item	Cash projection
Sales	$2,500,00
Other revenue	$500,000
All expenses	$1,500,00
Cash flow forecast	$1,500,000

Projected Balance sheet

Income Statement Projections

Gross Revenues

Gross profit

Projected net income

Break even-analysis

Break-even analysis is a process that compares the variable and fixed costs with the sale revenue of the company. The aim is to determine the sales volume as well as the level of production at which the business makes neither a profit or a loss. This is the point when the revenue of the company is equal to expenses. In the case of Fresh Foods, it is the point at which the sale of the fresh produce, as well as other variable costs, are equal to the amount of money that was invested in greenhouses and the cultivation of the crops.

Ration analysis

Average inventory

The average inventory gives the average number of goods sold by the company within two particular periods. This gives the value of the inventory within that particular time. In this case, the average inventory for the company is 20,000 goods by the end of the second year.

Receivable turnover

This is an activity ratio that measures the effectiveness of a company in regard to how it uses its assets to meet its goals and objectives. It is calculated using the following formula which shows the receivable turn over for Fresh Foods

Receivable turnover = Net Credit Sales/Average Account Receivable = $125,000/$540,000 = 0.23

Net sales to working capital

The ration is also referred to as the working capital turn over ratio. The ratio calculated by dividing the net annual sales with the working capital less the current assets and liabilities within a period of 12 months. The net sales to working capital for Fresh Foods is calculated as shown below

Net Sale to Working Capital = Sales/ Working Capital = $2,500,000/ $1,250,000 = 2

Net profit to equity

Also know an return on equity and it is calculated by dividing the net income with they equity of the shareholders. It is thought of as return on net asset because the shareholders equity is equal to the asset of the company less it debts. The net profit equity for Fresh Foods is calculated with the following formula

ROE = Net income/Average shareholder equity = $1,500,000/$900,000

Risks associated with future implementation

Even though the crops will be grown in the greenhouses, there are risks that the business is bound to face which affects the ability of the business to realize it set goals and objectives. To begin with, government regulations may prevent the company from delivering the products within certain agricultural markets that are considered special and need protection from competition as argued by Westerlund (2016). Another risk is that the greenhouses require to continue and constant supply of power to maintain the required temperatures as well as pump water to the crops. Experience power outages might affect the ability of the greenhouse system to function normally thus posing a threat to the growth and maturity of the crops. Finally, the company also faces tight completion from major players in the market such as Whole Food. The company has been in the market for a long time and as such it has a large customer base. The challenge for the business is to come up with an effective marketing strategy that communicates the benefits of its products to the targeted customers.

References

Bosshardt, W., & Walstad, W. B. (2017). Some lasting effects of undergraduate economics on retirement planning. American Economic Review, 107(5), 650-54.

Oschlies, M. K., & Loock, M. (2015). Performance Consequences of Fit between Financials and Strategy Descriptions in the Renewable Energy Industry: A contingent view on the business model consistency heuristic. Die Unternehmung, 69(3), 302-321.

Westerlund, A. (2016). Analysis of Volkswagen Group financials 2011-Q2/2016: Effects of the emissions scandal on key financial ratios.