Business Entrepreneurship

Executive Summary

The following business plan is for a start-up bakery known as Johnson & Peter Bakery. The bakery will be based in Melbourne, Australia and it will specialize in baking and distributing breads, biscuits, and cakes within Melbourne city. The business is a partnership between Johnson and Peter. The two partners have saved money to open the business. Johnson has saved $300,000 and he is willing to sell his shares in a family business to hit his capital target of $500,000. Peter, on the other hand, has saved $200,000 and he is willing to sell his piece of land worth $300,000 to hit his capital target of $500,000. Alternatively, Peter will apply for a bank loan of $300,000 if he does not sell his piece of land. Johnson who is experienced in business will manage the business. Peter on his part will be a part-time assistant manager because he currently teaches at a local university. On a monthly basis, the market research has indicated that the business can generate sales revenue of $1,692,000. This translates to a gross margin of 26.12 percent, a net profit margin of 13.59 percent and a return on investment of 15.01 percent. The success of the proposed business is based on these figures.  

Market Feasibility

The bakery industry in Melbourne is not a new industry. It has been there for over fifty years now. Despite this fact, the industry is not at full capacity because for a long period, bread has remained a universal fast moving consumer good in many parts of Australia (Cleanthous, Mackintosh & Anderson 2010, p. 134). With respect to the current population of the city that is over 4.5 million and the critical role that bread plays in Australian families, the size of the market for bakery products is big. Based on these facts and the fact that demand for bread has been consistent in Melbourne, Johnson and Peter wish to join the industry. The two have conducted a market research study on the same and established that they can invest in the industry and make profit. Currently, customers get breads, cakes and biscuits from bakeries that operate within the city and its environs. In terms of outlets, customers get these products from supermarkets, bakery chains and stores as well as shops within their estates (Cleanthous, Mackintosh & Anderson 2010, p. 134). Most of the customers live within the city and its environs. The market research has established that over 40,000 of these people can buy products from the bakery on daily basis. This is a good number for the proposed business.            

Over the last five years, the industry has performed relatively well. Its annual growth has stood at 1.8 percent and it is expected to continue growing at this rate even in the near future (IBIS World 2016, Para. 2). This notwithstanding, there has been stiff competition among the various players in this industry. This has prompted the players in the industry to identify their target markets and develop specific products for those markets. In addition, the practice has prompted players to stick to their unique areas of operation. With such a background, the proposed business has identified its market in Melbourne and it will focus its attention to meeting the needs for that market. In terms of external factors, only the government and dynamics in the industry might affect the performance of the business. The government on its part might introduce new standards in the food industry whereas dynamics in the industry might hurt the industry (Davis 2011, p. 33). Aware of this fact, the owners of the business have established mechanisms to deal with these challenges. With regard to barriers, only two barriers namely high start-up capital and intense competition from existing businesses have the potential of barring new investors from entering this market (Queensland Government n.d, p. 1). Johnson and Peter have addressed these barriers and they are ready to succeed.  

Technical Feasibility

Production

In terms of production, the proposed business has the option of either baking its products or contracting services from existing businesses. Given that contracting services from existing businesses might result to unnecessary competition and increased cost of production, the two business owners have decided to bake their products. This means that they have to build their bakery. This will be a bit costly, but once constructed, the bakery will be cost effective.

Sales and Distribution

With regard to sales and distribution, the business has three options. First, it can opt to distribute its products to retailers directly. Second, it can opt to recruit vendors to distribute products on its behalf. Third, it can opt to distribute its products through wholesale or distribute products to supermarkets that serve as major selling points in Australia (Cleanthous, Mackintosh & Anderson 2010, p. 134). For efficiency purposes, the two business owners have decided to hire regional sales representatives that will be paid on commission basis. The sales representatives will be issued with motorcycles to help in distributing products once they receive them from truck drivers.  

Resources

To start operating, the business requires the following resources.

1. Raw materials: these include baking flour; milk (for baking milk breads); salt; sugar; fat; and yeast. These will be used to bake the products (Kulaga, Patinkin & Barton-Ballentin 2014, p. 22).   
2. Facilities and equipments: 3 Ovens; 2 proof boxes; 5 baking sheets; 2 racks; 1 mixer; 3 sinks; 3 Furniture; baking equipments; storage area; freezer; refrigerator; 5 motorcycles and 2 trucks (IBIS World 2016, Para. 4). Some of these equipments will be used to bake products whereas others will be used to distribute products.  
3. Suppliers: to supply milk, sugar, fat, salt, yeast and wheat on daily basis (BizPlanDB 2014, p. 1).  
4. Human resource skills   

The above resources are readily available, but they need to be sourced before the business starts to operate.  

Regulations in the Industry

The following laws and regulations will be applicable to the business.

• Regulation: before the business starts to operate, business owners will have to ensure that measuring instruments meet the standards set by the government. In addition, they will have to ensure that they do not violate labor laws by employing under-aged employees. More importantly, the owners of the business will have to ensure that the bakery is fitted with safety equipments (Australian Government n.d, p. 1).  
• License: before the business starts to operate it will require business permit from the municipality. In addition, it will have to be licensed by respective authorities in the national government (Queensland Government n.d, p. 1).
• Law: the business has to abide by tax law, labor law, food act 2006 and motor accident insurance act as well as environmental liability laws.     

The market research that has been conducted has not discovered any moral or ethical issue that might affect the business. However, there will be the need to conduct the business in an ethical manner to ensure that it does not violate food standards in the industry. With regard to technological changes, there are no major emerging changes in the industry that might affect the business in the near future (Fullen & Brown 2004, p, 76). Consequently, once equipments have been bought and fitted, they will not be replaced any time soon unless they breakdown.     

Human Resource Feasibility

Ownership and roles

The business is a partnership between Johnson and Peter. Based on their contributions, both have equal rights to the business. Accordingly, they are supposed to share profit equally. This notwithstanding, Johnson who is an experienced businessman will manage the business whereas Peter who is a tutor at a local university will be a part-time assistant manager. Based on these roles, Johnson will earn a monthly salary of $7,000 whereas Peter will earn a monthly salary of $3,500.

Manpower requirements

In terms of skills, the business will require the following people with qualifications and experience outlined below.  

Head Baker

The head baker will be responsible for developing recipes and ensuring that bakers produce high quality products. To become a head baker, one should meet the following qualifications.

• Hold a diploma in professional bakery
• Be a professional baker with at least five years of experience in the same position

Baker

The business will require three bakers who will be responsible for baking products and ensuring that they are packaged in the right way. To become a baker, one should meet the following qualifications.

• Hold a diploma or certificate in professional bakery
• Have at least three years of experience in the same position  

Technician

The technician will be responsible for handling all technical issues in the bakery including the way cooking equipments operate together with maintaining them. To become a technician, one should meet the following qualifications

• Hold a diploma in engineering
• Have at least three years of experience in the same position

Driver

The business will require two drivers who will be responsible for distributing products to various outlets in the city. To become a driver, one should meet the following qualifications.

• Hold a clean driving license
• Be a high school graduate
• Three years experience in the same position 

Distributor Personnel

The business will also require two distributor personnel responsible for loading and unloading products into trucks during the distribution process. To become distributor personnel, one should meet the following qualifications.

• Hold a certificate in sales and marketing
• Be a high school graduate

Factory Assistant

The factory assistant will be responsible for packaging products and loading products into the trucks at the bakery. To become a factory assistant, one should meet the following qualifications.

• Be a high school graduate

Sales Representatives

The sales representatives will be responsible for distributing products to various outlets and receiving payments for those products from vendors. To become a sales representative, one should meet the following qualifications.

• Hold a certificate in sales and marketing
• Be a high school graduate

Security Guard

Lastly, the business will require three security guards to man the bakery during the day and at night. The right candidates for this job should be high school graduates with five years experience in the same position.

Recruitment and Compensation

The candidates for these positions will be recruited from Melbourne residents through advertisement. All of these people except security guards will be compensated based on their production. Security guards, on the other hand, will be compensated on the basis of the time they spend at the bakery.

Financial Analysis

Projected Revenues

The market research has indicated that the business has the capacity to produce and sell 15,000 loaves of breads, 26,000 cakes and 3,500 packets of biscuits on daily basis. The price of each loaf of bread will be $2.6. Based on the projected number of breads the business will produce, this will translate to $39,000 on daily basis and $1,170,000 on monthly basis. The price of each cake will be $0.4. Once again, based on the number of the cakes the business will be able to produce, this translates to $10,400 on daily basis and $312,000 on monthly basis. Lastly, the price of a packet of biscuits will be $2. At a capacity of 3,500 packets daily, the daily sales will be $7,000, which translates to $210,000 on monthly basis. Based on these figures, the total expected revenue will be $56,400 on daily basis and $1,692,000 on monthly basis.   

Financial Dynamics and Opportunities

The cost of producing a loaf of bread weighing 500 milligrams will be $1.5. This means that the cost of producing 15,000 loaves of bread on daily basis will be $22,500. On the other hand, the cost of producing each cake will be $0.2. As a result, the cost of producing 26,000 cakes on daily basis will be $5,200. Lastly, the cost of producing each packet of biscuits weighing 100 milligrams will be $1. Accordingly, the cost of producing 3,500 packets of biscuits will be $3,500 on daily basis. Based on these figures, the daily total cost of the raw materials for the products will be $31,200. Although this is the projected cost of producing the products on daily basis, it might vary depending on the changes of price for various resources.

Once the products have been sold based on their projected costs, it is expected that the business will generate $[(15,000*2.6)-22,500] = $16,500 from breads. It is also expected that the business will generate $[(26,000*0.4)-5,200 = $5,200 from cakes and $[(3,500*2)-3,500] = $3,500 from biscuits. This will translate to a daily gross profit of $(16,500 + 5,200 + 3,500) = $25,200. On a monthly basis, the gross profit without considering others costs of production will be $(25,200*30) = $756,000.

Investment

In order for the bakery to start to operate, the two business owners will buy an acre piece of land worth $40,000, two trucks worth $75,000 and five motorcycles worth $7,000. In addition, they will build premises at a cost of $200,000. These items will be one-time assets meaning that once invested, they will not be a bother to the owners except maintaining them (Everett, Johnson & Madden 2012, p. 27). Other assets in form of equipment that will be required for the business to start operating are the resources highlighted earlier on. These include three ovens at a cost of $2,600; a refrigerator at a cost of $2,100; a mixer at a cost of $3,300; proof boxes at a cost of $1,500; furniture at a cost of $700. Alongside these equipments, the owners will also buy three laptops at a cost of $500 each. These laptops will be used for keeping records and running business (Pratt 2011, p. 34). Given that the business will be set up on a land that the owners will buy, there will be no leasehold improvements in the business. However, there will be installation of various equipments.  

Financial Risks

Based on the market research, the two business owners believe that they will get their money back within a period of two and half years. Consequently, they believe that the reward exceeds risks. In terms of opportunity costs, the business owners can invest their money in other businesses other than in bakery. First, they can invest their money in financial market and earn dividends and commissions. Second, they can put their money in a fixed bank account and earn interest at between 5 and 7.5 percent per annum. Third, they can as well start logistic business or even open restaurants in the city. By investing in these businesses, the owners can get better returns, but because of the risks involved in some of these businesses, they have opted to stick to bakery business. In terms of personal financial risk, the two business owners will have to give up one or two things for the sake of the new business. Mr. Johnson who will manage the business will sell his shares in a family business to his brother to acquire capital. By so doing, he will cease to be a partner in a family business. On the other hand, Mr. Peter who currently serves as a tutor at a local university will sell his piece of land in the rural areas to acquire capital.

Possible Sources of Financing

The two business owners have saved money for the business. Johnson on his part has saved $300, 000 while Peter on his part has saved $200,000. Each person is expected to contribute $500,000 to the business. In order to hit this target, Johnson is willing to sell his shares worth $200,000 in a family business to his brother. On the other hand, Peter is willing to sell a piece of land worth $300,000.

Financial Numbers

As indicated earlier on, the monthly sales revenue for the business will be $1,692,000. If this trend is to continue for three years, then the annual revenue from sales will be $(1,692,000*12) = $ 20,304,000. On the other hand, the cost of goods sold will be $(1,250,000*12) = $15,000,000. The annual operating expenses, which will include salaries and cost of maintaining the two trucks, will be $(300,000*12) = $3,600,000 whereas the total assets will be $18,300,000. The annual profit after tax will be $(230,000*12) = $2,760,000. Based on the above figures, the gross margin for the business will be 26.12 percent as shown below.

 The net profit margin, on the other hand, will be 13.59 percent as shown below

Lastly, the return on investment for the business will be 15.01 percent as shown below

References

Australian Government., n.d. Guide to the sale of brad and bakery products. National measurement institute: trade measurement.

BizPlanDB. 2014. Bakery business plan. BizPlanDB.

Cleanthous, X., Mackintosh, A. & Anderson, S. 2010. Breads in the current Australian market: sodium and fiber content report. Food Australia, 62(4), pp. 134-136.

Davis, D., 2011. How to start a home-based bakery business. Guilford, Conn, Globe Pequot Press.

Everett, R., Johnson, D. & Madden, B., 2012. Financial accounting for school administrators: tools for schools. Lanham, MD, Rowman & Littlefield Education.

Fullen, S. & Brown, D., 2004. How to open a financially successful specialty retail & gourmet foods shop: with companion CD-ROM. Ocala, Fla, Atlantic Pub. Co.

IBIS World., 2016. Bread and cake retailing in Australia: market research report. [Online](Updated February, 2016) Available at: <http://www.ibisworld.com.au/industry/default.aspx?indid=399> [Accessed 20^th Sep. 2016]. 

Kulaga, A., Patinkin, E. & Barton-Ballentin, W., 2014. Ovenly: sweet & salty recipes from New York’s most creative bakery. Don Mills, Ontario : Harlequin.

Pratt, J., 2011. Financial accounting in an economic context. [Hoboken, NJ], Wiley.

Queensland Government., n.d. Bakery: business start-up guide. [Online]  Available at: <https://ablis.business.gov.au/QLD/resource/Bakery%20business%20start-up%20guide.pdf> [Accessed 20^th Sep. 2016].

Appendix A

Start-up expenditures and expenses worksheet

Item total cost cash required

Land $40,000

Capital equipment $450,000

Computer 1,500

Beginning inventory $35,000

Start up supplies $31,200

Licenses and permits $4,000

Utility hook-ups & Installations $6,000

Advertising (pre-opening) $7,000

Insurance $12,000

Others $56,000

Total estimated one-time cash requirement $642,700

Start-up operating expenses

Estimate No. of months total cash

Item monthly expense X before break even = required

Owners’ salary $10,500

Employees’ salaries, wages, benefits $22,000

Promotion expenses $8,000

Supplies and postage $4,500

Vehicle expenses $5,000

Telephone $500

Travel $3,500

Maintenance $3,000

Other $22,000

Total cash required to cover operating expenses $79,000

Plus: total one-time cash requirements (previous table) $721,700

Add 10% safety factor $72,170

Total cash required for start-up $793,870