BUSINESS PROPOSAL AND FEASIBILITY STUDY
BUSINESS PROPOSAL AND FEASIBILITY STUDY
(Your instructor’s name)
Table of contents
Executive summary 3
Business History 5
Description of business 6
Market and industry analysis 7
Description of the products 9
Objectives and goals of the company 10
Competition and competitive advantage 11
Operational plan 11
Marketing plan 13
SWOT Analysis 14
Ownership and Management structure 15
Benefits created by the company to the Canadian citizens 17
Financial plan 18
Revenue and cost estimation 18
Sales projections 18
Cost estimation 21
Implementation strategy 21
Internal control plan 22
Projected income statement 23
Cash flow forecast 25
Forecasted balance sheet 27
Ratio analysis 28
African food production companies are almost non-existent in the region of Quebec in Canada. On the other hand, the population of Africans living in Canada is increasing on a daily basis. One of the most treasured meal ingredients especially in West Africa is Gari which is a type of meal made from cassava, the other common ingredient is red palm oil which is used by Africans, South Americans as well Asians from the South East Asia as cooking oil and also for its medicinal qualities. Cassava and yams flour as well as Raw Cassava and yams are also among Africans’ favorite meals. Therefore the idea of manufacturing these products in Quebec and Canada as a whole provides a lucrative business opportunity as shown by this Business Proposal.
The proposed manufacturing company shall assume the name Divine Seal International and shall be setup at an initial cost of $400,000 in the Montreal metropolitan area of Canada. The company is expected to start its operations on January 1st 2012 and due to the large market for its products, it is expected to break even in the second year of operation. The company shall employ 30 members of staff at the initial stages and this number is expected to increase as the company’s operations expand and this and other operational areas of the company indicates that the benefits presented to the Canadian population are enormous.
Gari is a major staple food in West Africa and according to African foods 2011; it constitutes a daily meal to more than 150 million people across the world. Gari can be prepared in several ways and the end result can be a snack, a whole meal or a biting. For instance, Gari can be mixed with cold water and eaten as a snack on a very hot day, it can be cooked into dough like meal that is known as eba or gari foto and eaten with stew like fish stew, chicken stew or other African vegetable stews or soups. Gari is most popular in Ghana, Siera Leone, Nigeria, Ivory Coast, Liberia, Mali, Guinea as well as other West African states (African Foods, 2011)
Red Palm Oil is a traditional fat that is used as for its medicinal qualities and also as cooking oil. The red palm oil is commonly used in Egypt as a sacred food. The oil is also very common in West African countries especially Ghana, Nigeria, Guinea, Ivory Coast etc. The oil comes from a fruit that is referred to as oil palm whose scientific name is Elaesis Guineensis and it grows in West African Coast lines as well as other tropical areas in Africa. The oil palm also grows in South America and South East Asia where tropical climates are found (Bruce, 2010).The palm oil is used as cooking oil in preparation of foods and it is very common in West Africa where it is used as the main cooking oil and for its nutritional and healing properties, it is used to boost the immune system and health of the West African population as well as inhabitants of other areas where it is commonly used (Bruce, 2010).
Raw Cassava and Yam are also known for their nutritional value and are very common in the West African states. Cassava and Yam flour on the other hand is a very common staple food in West Africa and it is used to prepare dough like meal that is served with stew or African vegetable soup. It is also very common in East and Central African countries (Ciacco and Appolonia, 1978).
The region of Quebec had a total of over 7.5 million inhabitants as at the end of 2006, 25%of this population lives in Montreal due to its diverse cultural vitality, open society nature, economic strength and dynamism as well as low cost of living. Montreal city generates over 1.1 million jobs and as such it is home to a big proportion of immigrants into the Quebec region. According to the 2001 Census, over 70% of Quebec’s immigrants live in the Montreal area and they account for 28% of the total population of Quebec (Government of Quebec, 2006). Immigrants from Africa into Quebec account for 12.4% of the total immigrant population of Quebec according to the 2001 census. By January 2006, 28.7% of the total visas issued to immigrant individuals into Quebec were from Africa and the majority of those were from West Africa (Government of Quebec, 2006).
As a result of this huge immigrant population of West Africans and Africans in general into Quebec especially the Montreal region, this business proposal seeks to open a new business in Quebec’s Montreal region under the Entrepreneurial immigration program. The business shall be involved in the production of Gari which is a West African Tropicana corn flakes meal that is common among West Africans as mentioned above. The business shall also produce Red palm oil which is common cooking oil and is also used for its medicinal properties by West Africans; finally the business shall produce raw and processed Cassava and Yam flour which is a staple food of West Africans to be supplied to the growing population of West Africans and other Africans living in Quebec region of Canada. The business shall target the Africans living in Quebec and eventually shall spread to other regions of Canada and eventually to South America and the United States of America.
The business is already operational in Africa where it was incorporated in the year 2007 and a new branch was opened in Malaysia which was incorporated in the year 2011. The name of the business shall be ‘Divine Seal International’.
The proposed business of manufacturing Gari, red palm oil, raw and processed cassava and yam flour started in Africa when the company to manufacture the above mentioned products was incorporated in the year 2007. In 2011, the company expanded its network in 2011 by opening a branch in Malaysia a country that is located in the South East Asia where the tropical climate is also common and such, the population of Malaysia use the Palm Oil as cooking oil and also for its medicinal value. The Gari and cassava and yam flour is also a common meal in Malaysia and other South East Asia countries therefore the branch is expected to do very well in that region.
Gari is one of the most common meals or ingredients for meals in Africa, Gari and the food items it is used to prepare varies in names and ingredients among various African countries and its use goes back hundreds of years. In Eastern Africa, it is used to make a meal that is referred to as Ugali and it can be made from Gari, cassava and yams flour, sorghum flour, millet flour or corn flour, in West Africa it is commonly referred to as Eba or Gari foto and it is made from Gari or cassava and yams flour (African Foods, 2011).
Description of business
The proposed company shall take advantage of the business opportunity presented by the high number of West Africans in Quebec Canada and the rest of Canada as a whole. As a result of the Canadian Entrepreneurial Immigration program, the business is expected to have ready customers as a result of the West Africans’ love for their staple food and palm oil. The quality of products manufactured by Divine Seal International shall be unrivalled especially due to its attention to the African touch which Africans value more than anything in their food preparation processes. The business shall offer products that are known for their nutritional values and also medicinal values in the case of palm oil therefore boosting the health of the African Immigrants who’s main line of work in the Quebec region is labor intensive in nature thus requiring them to be strong enough physically and health wise (Government of Quebec, 2006). The business have been tried in Africa and Malaysia and proved to be a success especially due to the value placed on the products by their users.
The business shall have four major product lines namely; Gari Line that shall be involved in the production of Gari, Palm Oil product line that shall be involved in the production of palm oil, Raw Cassava and Yams product line and finally Cassava and Yams flour product which shall be involved in the production of cassava and yam flour.
Market and industry analysis
Quebec had a population of over 7.2 million based on the 2001 census and a population of over 7.5 million based on the 2006 population census. As mentioned above, more than 25% of this population lives in the Montreal area. Divine Seal International shall target the African community living in Quebec. The chart below shows the population of immigrants living in Quebec compared to the local population according to the 2001 population census, 2006 population census and the 2011 population estimates (Statistics Canada, 2011).
Based on chart above, the immigrant population of Quebec is equal to 28% of the total population based on the 2001 population census, this proportion increased to 31.4% based on the 2006 population census. Therefore the chart above indicates that among the over 7.2 million living in Quebec by the time the 2001 census was carried out, 2 million are immigrants (Government of Quebec, 2001). In the 2006 population census, the number of immigrants living in Quebec increased from 28% to 31.4% of total populations (Statistics Canada, 2006). This indicates that among the over 7.5 million people living in Quebec Canada by the time the 2006 census was carried out, over 2.35 million were immigrants (Statistics Canada, 2006). In April 2011, population estimates shows that the population of Quebec stood at over 7.9 million and around 35% of these are immigrants indicating that the total immigrant population in Quebec would be over 2.7 million (Statistics Canada 2011).
As shown in the table above, the proportion of Africans in the total immigrant population of Quebec was equal to 12.4% based on the population census of the year 2001. This indicates that since the total immigrants according to 2001 census were around 2 million in Quebec alone, the total Africans living in Quebec would be equal to 12.4% of 2 million which is equal to over 248,000. The 2006 population census indicated that the proportion of Africans in the Immigrants population increased to 28.7% meaning that among the over 2.35 million immigrants living in Quebec, over 670,000 are Africans (Statistics Canada, 2006). The 2011 population estimates indicates that the population of Africans among the Immigrants living in Quebec is over 32% indicating that among the over 2.9 million immigrants living in Quebec by April 2011, 32% were from Africa indicating that a total of over 900,000 Africans lived in Quebec and its environs (Statistics Canada, 2011).
The number of restaurants serving African cuisine in Quebec region most of which are located in the Montreal metropolitan area is around 10 with only two serving West African, Central and East African Cuisine. All the other restaurants focus on North African Cuisine which include Morocco, Algeria, Tunisia and Egypt etc most of whom are Arabic and as such do not closely match the African choice of meals (World web travel, 2011). This indicates that most Africans living in Quebec and most of Canada find it difficult to find a restaurant where they can enjoy their African meals which would not be complete without Gari or Gari foto and other African ingredients such as Red palm oil, cassava and yams flour as well as raw cassava and yams which are all treasured in Africa because of their nutritional value. Therefore manufacturing these products with a sole purpose of targeting this population will provide Divine seal international with ready market for her products.
Description of the products
The company shall produce a total of four lines of products which shall be as follows;
Gari; this is the principle line of business and the produced end product known as Gari shall be packaged in four different packets that shall be differentiated by weight. The smallest packet shall be a 0.5 kg packet, the next one shall be a 1 kg packet, the next packet shall be a 2 kg packet and the largest packet shall be a 5 kg packet of gari. The pricing of these products shall be as shown in the revenues and cost estimates section which has been done on a per kilogram basis.
Red Palm Oil; the red palm oil shall be the second line of production and shall be packaged in four distinct packaging differentiated by their volume. The smallest packaging shall be a 0.5 litres jar of palm oil, the next one shall be a 1 litre jar, the third one shall be a 2 litre jar and the largest one shall be a 5 litre jar of red palm oil
Processed cassava and yams flour; this shall be the third line of production and shall be packaged in four distinct packets differentiated by their weight. The smallest packet shall be a 0.5 kg packet, the next one shall be a 1 kg packet, the next one shall be a 2kg packet and the largest packet shall be a five kg packet.
Raw Cassava and Yams; this shall be the final product line which shall require very little resources in terms of production. The raw cassava and yams shall be bought from the foodstuffs market and packaged in 1kg packs that shall be sold at $1.5 per pack.
Objectives and goals of the company
The company’s main objective is providing the population of African descent living in the Quebec region of Canada with products that they envy in the preparation of their meals therefore helping them find their traditional delicacies even when they are far away from home.
The company’s growth objective is open other production plants in other cities of Canada within the first 7 years of operation in order to serve the African population living in Canada. The company intends to open production plants in the United States to serve the African population living in the United States and finally the company intends to open branches in South America. These objectives shall be achieved by focusing on the need to provide quality products to a population that already has a need to the company’s products but cannot readily find them in the market.
The company’s main goal is to gain a market share of at least 30 percent by the end of the fifth year of operation which shall help the company in its objective of becoming one of the leading African food production companies in North and South American region.
To achieve the above objectives, the company intends to take advantage of the low penetration of African foodstuff products into the Canadian market and also offer quality products that would not be easily rivaled by her potential competitors.
The company’s intent to expand into United States and South American represents its long term objective whose time frame is from year 10 which shall be achieved by ensuring that the products manufactured by the company are accessible by such markets in the short term.
Competition and competitive advantage
The Agricultural food industry is the second largest manufacturing industry in Canada employing over 291,000 Canadians According to (Invest in Canada 2011). The industry accounts for 14% of all Canadian Manufacturing shipments which are worth $83.3 billion or 2% of Canada’s gross domestic product (Invest in Canada, 2011). The country has over 6,700 food and beverage processing firms located in vast areas across the country. However, none of the 6,700 firms specializes in African food processing thus providing the company with a good competitive advantage to tap the unutilized market of African Food Products such as Gari, Red Palm Oil, Raw cassava and Yams as well as processed cassava and Yams flour. Canadian government encourages investment in the Agri-Food business by offering friendly and streamlined corporate taxes and regulations, high quality food inspection systems and excellent transportation networks that help to ensure that the products produced reach their intended market on time and at their best quality (Invest in Canada, 2011).
The company intends top setup its manufacturing plant in Montreal on a rented space that shall cost around $30,000 per month and shall be sourced from lucratively and strategically located facilities in eligible locations in the city of Montreal but the exact location of the manufacturing plant is yet to be determined. The manufacturing facility shall be comprised of a processing plant and a warehouse that shall be used in the storage of the finished products awaiting transportation to the market.
To help in making its operations a success, the company shall setup an office that shall be at the manufacturing plant at the initial stages of operation and shall employ a team of 5 management staff that shall be comprised of the general manager, the Finance and administration manager, the sales and marketing manager, the production manager and Information technology manager. The finance and administration, sales and marketing and information technology departments shall each have a total of five employees while the operations and production department shall have a total of 10 employees.
After the initial stages when the company will have stabilized, it shall eventually acquire an office complex close to the manufacturing plant that shall be used for office operations in order to help in effective distribution of the products to the market.
The company shall seek the services of an Attorney to help in the legal process of the setting up the manufacturing plant, setting up the personnel payment structures as well as helping in acquiring the required licenses to enable the company effectively and legally produce its products which are classified as food stuffs and as such require special licenses (Invest in Canada, 2011).
The services of the Attorney are estimated to cost a one off fee of $5,000. The company shall also seek the help of an external accountant who shall help in the process of setting up the company’s accounting framework to help the finance department staff in efficient record keeping and financial reporting. The external accountant’s services are estimated to cost $10,000 per year in the initial stages of operation but this figure is expected to increase as the company’s operations expand. The company will also seek the services of a management consultant to help in designing management best practices within the organization so that the company leadership can operate at optimal capacity. The management consultant is expected to cost approximately $10,000 per year. Finally the company shall seek the help of a technology consultant to help in designing the manufacturing plant and linking it with a computerized system that shall help in running the manufacturing equipment. The technology consultant will help with yearly periodical maintenance of the manufacturing equipment and is expected to cost the company approximately $15,000 per year (Invest in Canada, 2011).
The company’s main line of business shall be manufacture of Gari and Red Palm oil. Other products include processed cassava and yams flour and raw cassava and yams. These are popular African foodstuffs and as such the company shall start with the restaurants that serve African foods in Quebec to market its products. The African foods production market has a low penetration in Quebec and Canada as a whole especially due to the low number of Africans in those regions. However as shown by the population demographics in the market analysis section above, the number of Africans living in Quebec and Canada as a whole is increasing at a very high rate due to the skilled labor immigration program of that country. Therefore the potential that this market holds for production of African foods is quite enormous. As such, the company aims at targeting restaurants that specialize in African Cuisine. The most common of the restaurants that serve West African Cuisine including meals made from Gari and palm oil is Restaurant Chic Afric which is located on 1486 de I’Eglise in Montreal Quebec Canada. The restaurant is known for its wide range of dishes that feature Ivory Coast, Nigeria, Ghana and Burkina Faso delicacies that include Goat soup, Jollof rice, fufu which is dough like meal made from cassava and yam flour. Therefore this and other such restaurants will be the starting point in the marketing campaign of the company.
In addition to the restaurants mentioned above, the company shall vigorously employ other marketing methods using conservative cost estimates due to scarcity of funds. The company shall employ a marketing budget of $29,000 per month that shall comprise of marketing methods such as advertising through advertising agencies located in Quebec. The specific advertising agencies have not been identified but the cost of advertising using advertising agencies has been estimated at $5,000 per month for a conservative but visible advertising plan. The second advertising avenue that shall be used by the company is through its website where the cost of web design has been estimated at $5,000 per month, the third advertising avenue is through bill boards and merchandising displays in shops and supermarkets that has been estimated at $4,000 per month. The fourth advertising option is through media advertising where television, radio, online and print shall be used at an estimated cost of $5,500 per month. The company shall have a website that shall be designed and maintained at a monthly cost of $7,500 and finally the company shall use public relation avenues at a cost of $2,000 per month bringing the total marketing budget to $29,000 (Griffin, 2011)
The company’s strengths, weaknesses, Opportunities and threats are as shown in the table below;
- The company’s main strength is the concrete nature of its business proposition
- The company has a superior customer service strategy
- The organizational structure shall be function-based and each employee shall have a clearly defined strategy and goal plan
- The business is a startup and the future is always uncertain for most startup companies
- The initial stages of the business requires an enormous amount of investment
- There is limited amount of funds to start and run the company
- The Canadian African food production industry is still untapped
- The Canadian government has an Entrepreneurial immigration program that is of great assistance to business startups
- The population of Africans living in Quebec and Canada as a whole is increasing on a daily basis
- This being a new entity there is a threat from new business entrants
- There is a threat of other more established companies starting this line of business thus leading to stiff competition that the company might not be able to cope with.
The above strengths, weaknesses, opportunities and threats shall form part of the basis of evaluating the business performance of the company in future (Hartline & Ferrell, 2010).
Ownership and Management structure
The company shall assume the form of a corporation whose liability shall be limited by shares. This indicates that the company shall assume the name Divine Seal International Ltd. The Corporation shall therefore assume the following management and organizational structure.
Board of Directors
Finance and Administration Manager
Operations and Production Manager
Information Technology Manager
Sales and Marketing Manager
Production Engineer and 9 Operations and Production staff
Accountant and 4 administrative staff
4 marketers and sales staff
4 Computer specialists
Commission based external sales force
As shown in the organizational chart above, at the initial stages of operation, the company shall have a total of 30 members of staff who shall be distributed among four departments. The general manager shall be the overall head of the company and shall be in charge of the overall operations of the company. He shall report to the board of directors and shall sit in the board as the company’s principle officer.
The finance and administration manager shall be in charge of the overall financial operations of the company as well as administrative aspects of the business, he shall be assisted by the Accountant who shall be in charge of accounting aspects of the business and 4 other support staff who shall be apportioned among finance and administrative roles depending on the work load in each of the two sections of the department. The finance and administration manager shall report to the General Manager and shall be expected to possess high skills in financial and analytical matters as well as management skills.
The Operation and Production manager shall be in charge of overall technical aspects of manufacturing and production, the individual charged with this responsibility shall be expected to possess production engineering skills and expertise as well as managerial skills to assist him to effectively manage his team of 10 support staff who shall be charged with production and operational roles. The production and operational manager shall report directly to the General Manager.
The information technology manager shall be in charge of the information technology department and it shall be his responsibility to ensure that the integrity of the company’s information systems is protected at all times. The individual is expected to possess high skills in computer science and information technology necessary to understand computerized industrial processes so that he can liaise with the production team to ensure that the manufacturing process is as smooth and effective as possible and also to ensure that other computerized systems in the organization are optimal and effective. He shall be assisted by a team of five computer specialists and he shall report to the General Manager.
The sales and marketing manager shall be in charge of the sales and marketing department. It shall be his responsibility to ensure that the company’s visibility in the market is at its optimal best. The manager shall be assisted by five employees who shall be charged with sales and marketing roles in proportions that shall be determined by the workload in each of the two sections of the department. Since the company shall have an external sales team who shall be responsible for an estimated 20% of the company’s sales and shall be remunerated on commission basis, the sales and marketing manager shall be responsible for this team as well as the commission based sales avenue (Griddin, 2011).
Benefits created by the company to the Canadian citizens
As shown in the organizational structure above, the company shall offer a large pool of job opportunities to the Canadian citizens because it shall at least require 30 full time members of staff who shall be working at the company’s premises. The company shall also create indirect job opportunities from its distribution channels that shall include the external sales team. The company’s products are also not limited to the African population living in Canada but can also be used by Canadian citizens who might be interested in exploring other cuisines. The company’s advertising and marketing campaigns shall also create job opportunities for Canadian citizens working in the advertising and marketing agencies. Finally the company shall be involved in the corporate social responsibility activities that shall help in improving the lives of Canadian citizens among other members of the society in which the company shall be operating in (Griffin, 2011).
Revenue and cost estimation
The company is expected to cost an estimated start up cost of $400,000. However this amount is not enough to ensure that the company is running smoothly, therefore a short term loan of $300,000 has been suggested based on the strength of the company’s assets to take care of the company’s Working capital to avoid a situation of running out of cash to finance the company’s sales growth.
The company’s revenue estimates expected to be derived from the sale of the five products are $100,000 from the sale of Gari which is expected to increase at the rate of 2% per month. The expected revenues from the sale of Red Palm oil is $175,000 with an increase of 2% per month. The revenue from the sale of processed cassava and yam flour is estimated at $50,000 per month with a monthly increase of 2%. Finally the expected revenue from sale of raw cassava and yams is $15,000 per month with a monthly increase of 2%. These estimates are conservative in nature and are estimated at those levels in order to allow the market to acclimatize with the new product thus helping the company’s sales revenues grow at the estimated monthly rates as the product penetrates the market. The five products are packaged in different packaging sizes as shown in the product description segment above.
The revenue estimates are based on the assumption that the company shall sell a total of $10,000 kilograms of Gari in the first of operation at a price of $10 per kilogram. The sales volume is expected to increase at the rate of 2% per month while the price remains constant in the initial stages of operation. The sales volume of red palm oil shall be 5000 litres for the first month of operation at the price of $35 per litre. The sales volume is expected to increase at the rate of 2% per month while the price remains constant in the initial stages of operation. The sales of processed cassava and yams flour are expected to be 10,000 kilograms at a price of $5 per kilogram. The volume of sales is expected to increase at the rate of 2% per month while the price remains constant at the initial stages of operation. Finally the company expects to sell a total of 5,000 kilograms of raw cassava and yams at a price of $3 dollars per kilogram. The volume of the raw cassava and yams is expected to increase at a monthly rate of 2% while the price remains constant at the initial stages of the operation.
The above indicates that the total sales for the first month of operation shall be equivalent to $340,000. The cost of sales for the Gari product is expected to be 50% of total sales of Gari, the cost of sales of red palm oil are expected to be 50% of red palm oil’s total sales. On the other hand, the cost of sales for processed cassava and yams flour and raw cassava and yams is expected to be 40% of the total sales of processed cassava and yams flour and raw cassava and yams respectively.
The gross sales forecast, the gross profit and the net profit for the first year of operation are as shown in the year 1 financials at a glance chart below.
The sales forecast, the gross profit and the net profit for the first five years are as shown in the 5 year financials at a glance chart below.
The charts shown above indicate that the company will break even in the second year of operation.
The capital expenditure is estimated at $400,000 which shall comprise of Facilities that comprise of building upgrades in order to accommodate the production equipment, fixtures, and plant, Equipment which shall comprise of machinery, furniture and motor vehicles, Computer hardware and software and telecommunications equipment.
The facilities are estimated to cost $178,000, the equipment is estimated at $205,000, and computer hardware and software and telecommunication systems are estimated at $17,000.
The personnel budget is estimated at $93,750 per month for the 30 members of staff who shall comprise of the management whose total costs shall be $20,833 per month, finance and administration staff whose total costs shall be $14,583 per month, the sales and marketing staff whose total cost shall be $14,583 per month, the operation and production staff whose costs shall be $29,167 per month and the information technology staff whose cost shall be $14,583 per month. The estimated staff costs shall be comprised of salary, benefits and payroll taxes. The external sales force shall be remunerated on commission basis at the rate of 15% of the sales made (Griffin, 2011).
The total marketing budget as indicated in the marketing plan section shall be $29,000 per month in the initial stages of operation and is expected to increase as the company grows. The machinery rentals shall include any machines that can not be acquired due to high cost or due to scarcity of funds in the short run.
The company shall acquire the premises and set up the manufacturing plant as well as the offices during the three month period to January 2012. By January 2012 the premises are estimated to be ready to accommodate the staff and the production equipment. The company shall be launched on 1st January 2012 and start the production on the same day. The promotional and advertising campaign shall run concurrently with the production in order to ensure that the products being produced are visible and available in the market (Hartline and Ferrell, 2010).
The company shall have dedicated telephone lines and a website that shall ensure that orders are placed in real time and the customers are fed with information that they require about the products on a timely basis.
Once the company is operational, an interim audit shall be carried out after the first 6 months to determine if the company’s operations are going on as expected. Results of this audit shall be used to make necessary adjustments where they are required. After the first one year of operation, another audit shall be carried out to determine if the results of the first audit were sufficient and also adjustments shall be made using the results of this audit.
Internal control plan
The company shall employ a system of internal controls that shall ensure that the business is run smoothly and efficiently. The system of internal controls shall be designed to ensure that the responsibilities and duties assigned to each employee are carried out with optimal efficiency. A clear line of responsibility and departmental clearance requirements shall be drawn right from the General Manager down the organizational chart to the employees on the lowest levels of the chart.
The general manager in consultation with the respective manager and with the approval of the board shall be in charge of all capital acquisitions and changes in capital assets of the company. The general manager shall also be the custodian of company information meaning that the other employees are not authorized to speak on behalf of the company without direct authorization of the General Manager.
All payments exceeding $2,000 shall be authorized by the respective manager who is the head of the respective department. The amount that can be authorized by the head of department shall be reviewed from time to time by the board of directors depending on the level of transactions carried out by each department on a regular basis (Griffin, 2011).
The finance and administration department shall be responsible for the maintenance of proper books of account and with the assistance of the information technology manager shall design or acquire suitable accounting software that shall help in record keeping and ensure accounting errors are kept at the bare minimum or eliminated completely.
All the company’s computer systems and computer facilities shall be assigned to each employee by the information technology manager and he and the general manager shall be the custodians of all codes and passwords of the company’s systems (Griffin, 2011).
Projected income statement
The company’s projected income statement for the first year of operation on a month to month basis will be as shown in the table below.
As shown in the income statement above, the company’s sales shall increase at a rate of 2% per month indicating that the total sales for the first year of operation will be equal to $4,560,111; the total cost of sales will be equal to $2,192,877 indicating that the gross profit shall be equal to $2,230,431. The total expenses shall amount to $2,398,750 indicating that the company’s forecasted net loss shall be equal to $168,319 (Alvarez & Fridson, 2011).
The company’s five year forecasted income statements are as shown in the table below;
As shown in the income statements above, The Company will break even in the second year of operation and its sales and profits forecasts as well as expenses shall be as shown in the statements above. This indicates that the company will be making profits from the second year of operation onwards.
Cash flow forecast
The cash flow forecast for the first year of operation on a month to month basis is as shown in the cash flow statement below.
The forecasted cash flow statements for the first five years of operation shall be as shown in the table below.
Forecasted balance sheet
The company’s financial position as at the end of each quarter in the first year of operation shall be as shown in the balance sheet above.
The company’s forecast balance sheet as at the end of each of the first five years between year 2012 and year 2016 shall be as follows;
As shown in the ratio analysis table above, the company’s return on investment is expected to increase from -14.41% in first quarter of operation to 62.44% by the end of the fifth year of operation. The company’s return on sales is expected to increase from -8.9% in the first quarter of operation to 28.09% by the end of the fifth year of operation. The company’s return on assets is expected to increase from -14.41% in the first quarter of operation to 42.64% by the end of the fifth year of operation.
The company’s debt to equity ratio is expected to increase from 0.19 in year 2 to 0.46 by year 5. This is expected to increase the company’s leverage so as to take advantage of funds offered by lenders to expand its business as well as take advantage of the tax benefits associated with interest on debt to fund its capital structure.
The company’s current ratio is expected to decrease from 4.44 in year 2 to 2.99 in year 5 due to increased sales especially credit sales therefore reducing the company’s liquidity.
The cash turnover is expected to be high at the initial stages of operation but will reduce with time as shown in the table above and on the other hand the company’s working capital is expected to increase with the increase in sales (Alvarez and Fridson, 2011)
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