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Executive Summary
Introduction Farmers Group is being formed from the acquisition of two successful vegetable farms, Green Acres Vegetable Farm and Mobile Farmers Vegetable Farm. The latter has long-researched horticultural and agronomic techniques, as well as compost and soil blending technology now being promoted by the DEO, the USDA, the EPA, and other government agencies. The company is a combination of cutting edge, highest quality, and efficient food technology and production. It is committed to the improvement of food taste and nutritional quality. It is being founded to build upon an extensive array of biological and horticultural education, experience, and the research of its founders. This is further coupled with the experience of James Jackson, the current manager of Mobile Farmers Vegetable Farm, and consultation with the present owner of Green Acres Vegetable Farm, Errol Grynthum. The Company Farmers Group is an Alabama-based company, located in Calhoun county, whose mission is to provide high quality, nutritional, and flavorful vegetables and strawberries for consumption in both near and remote regions of the United States. Additionally the company will provide high quality planting materials for use nationwide. Farmers Group is the buyout and merger of two successful vegetable farms. The idea behind the business is to provide healthy and delicious vegetables and fruit to the public. In addition to vegetables and fruits, the company plans to produce and market manure compost garden amendment products. Farmers Group's management team is led by Mr. James Jackson as Business Manager, who has extensive knowledge of the industry. The company expects to employ five temporary employees during the equipment relocation phase, four employees on a permanent basis, and three part-time employees. Products Farmers Group's plans to concentrate on vegetables as its primary product. This includes growing carrots, romaine lettuce, leeks, red onions, summer squash, spinach, pumpkins, winter squash, globe beets, and winter greens. The company's farm, will have a capacity sufficient to produce in excess of 200,000 lbs. of vegetables per year. The company plans to utilize traditional and more advanced plant technologies to produce new cultivars of strawberries and lima beans with locally-adapted superior characteristics for the Gulf-South growing area. This strategy will allow Farmers Group to produce crops during most of the year and will allow double cultivation of the greenhouses with almost no additional heating necessary in the winter months. The Market Over the past decade the market for organic food has grown by 15% to 20% and every year 40% of U.S. consumers occasionally reach for something labeled organic. Sales for organic foods are expected to top $11 billion this year. Sales by farmers' markets have increased by 79% since 1994, to 3,137 markets in all 50 states, and the number of farmers who sell at them has more than tripled to 67,000. About three million Americans a week now get their fresh food directly from the farmers who grew it. This makes for an excellent environment for a industry participant such as Farmers Group that is willing to compete in a niche market and be first to the market with new products. Financial Considerations The company is seeking $830,000 in both short-term and long-term loans to finance the purchase of Farmers Group's new farm, upgrade the facilities, and cover start-up expenses and first year losses. It is estimated that the company will begin to make a profit in Year 2 of operations. The company does not expect to have any cash flow problems during the first four years of operations.
1.1 Mission
Farmers Group is an Alabama-based company, whose mission is to provide high quality, nutritional, and flavorful vegetables and strawberries for consumption in both near and remote regions of the United States. Additionally the company will provide high quality planting materials for use nationwide.
Company Summary
Farmers Group is the buyout and merger of two successful vegetable farms. The idea behind the business is to provide healthy and delicious vegetables and fruit to the public. In addition to vegetables and fruits, the company plans to produce and market manure compost garden amendment products.
Start-up
Requirements Start-up Expenses Legal Facilities modification Seed Organic Herbicides/Pesticides Consultants Insurance Research and development Expensed equipment Other Total Start-up Expenses Start-up Assets Cash Required Start-up Inventory Other Current Assets $19,000 $300,000 $600 $5,000 $25,000 $10,000 $25,000 $250,000 $50,000 $684,600 $245,400 $150,000 $250,000
y y y y y y
One large greenhouse, enclosing the vegetable area. Horticultural greenhouse. Filters, water treatment devices. Backwash facilities. Outdoor vegetable facilities. Business office building.
An additional portion of the operation will be the manure composting facility. Local and regional dairy operations have trouble with manure accumulations, and the company hopes to enter into contracts in removing the manure. Farmers Group will then turn this into a saleable product. The company plans to supply the region's nursery outlets with a topquality, premium garden and soil amendment product for area horticulture.
Products
While at Mobile Farmers Vegetable Farm James Jackson, steadily used and experimented with compost and fertilized with manure of different kinds. The most important things with manure usage is to eliminate the viable weed seed drawback by thoroughly composting the manure, to add enough cellulose on product to bring it to the proper ratio and to bring its water content to proper levels. A properly composted manure product has no seeds that will germinate and proliferate in it. Additionally, a properly composted manure product has something a chemically formulated synthetic fertilizer does not have: enzymes. Enzymes are critical for producing a truly nutritious and superior flavored product. Research has shown that the superior flavor of a fruit or vegetable is closely related to vitamin content and folic acid content in green vegetables. The state-of-the-art vegetable equipment starting up in the new location utilizes revolutionary harvest designs that:
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Allow faster, longer growth Cut the harvest labor by over 80% Cut the harvest time and by so doing:
o Decrease loss in weight gain, and o Eliminate weight loss from shock. 3.1 Product Description
Vegetables Farmers Group's first line of production will be the green vegetable and red vegetable. During the summer months Farmers Group will be growing carrots, romaine lettuce, leeks, red onions, summer squash, and spinach. In the fall, production will center on pumpkins, winter squash, globe beets and winter greens. With the growth of the popular organic food niche, and the federal government's new organic labeling policy, Farmers Group will focus its produce on the intermediate organic label. This means that approximately 70% of the food production process will be organic and all foods produced by Farmers Group will be eligible for the "contains organic ingredients" label. The company's farm will have a capacity sufficient to produce in excess of 200,000 lbs. of vegetables per year. Strawberries The company's more technical horticultural aspects include efforts to utilize traditional and more advanced plant technologies to produce new cultivars of crops such as strawberries and lima beans with locally-adapted superior characteristics for the Gulf-South growing area. Flavor, disease resistance, adaptability to green-house culture, fall
and winter season production are factors being combined in greens cultivation to tap into the $2.99 pint berry market of the fall and winter. Farmers Group's strategy is a combination of the two technologies during the cool winter months which will allow the utilization of normally wasted space in the greenhouses for the high price winter greens production. This will allow double cultivation of the greenhouses with almost no additional heating necessary in this climate.
3.2 Technology
The company is currently seeking contact with Alabama universities in order to learn about and acquire new hybrids of strawberries and vegetables that are hardier and grow faster in our local microclimates. These and other available species and systems will be constantly tracked. In addition to the above, the company is seeking contacts at Universities in Italy and Germany that are involved in greens, and will continue the quest for the best flavored, large, and firm fall and winter strawberries. Currently, Farmers Group is conducting research to test certain clay-sand-manure mixture levels to obtain better, cheaper bedding and agronomic soil mixtures that are more effective than the standard used in the industry in Alabama (Pine bark mulch-composted).
But in an era of big-box food stores, when 10 major grocery chains control the purchase of 50% of fresh food, the proliferation of open-air markets has come out of nowhere, giving more consumers an option and allowing many small farmers to stay in business.** With these trends in mind, Farmers Groups will concentrate on:
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Wholesale live vegetable markets nationwide that sell organic produce. Fresh farmers' markets. Fall and winter greens market. Nursery outlets selling composted manure.
*Source: Certified Organic Geoffrey Cowley NEWSWEEK September 30, 2000. **Source: Farmers Markets Booming Across US Timothy Egan New York Times, September 29, 2000.
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The company will also take over customers from the previous owner of the vegetable facility. Farmers Group has an established list of present customers of Errol Grynthum's vegetable farm, which is a major asset to the sales of the company.
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Imported vegetables of lower quality.> Mississippi pound raised vegetables. Alabama vegetable producers.
Direct competition in the individual buyers market segment comes from three farms in the immediate area including the Anniston farm, Organics-To-You farm, and the Terrance Livingston vegetable farm. Each of these competitors has produce stands as well as selling to local farmers' markets. However, with the exception of Organics-To-You Farm, none of the others focus on a niche market and depend heavily on federal subsidies.
The Market Analysis Pie shown below reflects the total number of potential customers for Farmers Group. The number of Oriental markets and vegetable processors represent national estimates of industry participants, whereas the number of individual buyers represents the estimated annual number of individuals that will be driving by the farm.
Market Analysis
Year 1 Potential Customers Vegetable processors Oriental vegetable markets Individual buyers Total Growth 3% 1% 5% 4.68% 5,000 25,000 300,000 330,000 Year 2 5,150 25,250 315,000 345,400 Year 3 5,305 25,503 330,750 361,558 Year 4 5,464 25,758 347,288 378,510 Year 5 5,628 26,016 364,652 396,296 CAGR 3.00% 1.00% 5.00% 4.68%
y y y y
Prepare the future site. Relocate and expand Green Acres vegetable system and get it operational. Integrate greens culture into the system. Have the composting system in full production by early spring of the second year.
The company's long-term plan is to phase out whichever products are least lucrative and replace them with products that are practical and cost efficient.
y Reduced overhead by fully realizing crop output potential and economies of scale through joint costs. y Knowledge due to research since 1988. 5.2 Marketing Strategy
Farmers Group will initially market and supply its products to target customers. The company is further exploring marketing opportunities on the Internet. To this extent, the company would like to set up a website to market its products. The company will utilize aggressive advertising strategies to further market its products. These strategies include the promotion of products through the sponsoring of spots on cooking shows and exhibitions, and also engaging prominent chefs to help promote this fledgling industry.
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Taste sampling at outlets will be encouraged. Unparalleled flavor superiority will addict greens tasters. Promotion of pesticide-free, fumigant-free cultural techniques of soil, environment, ozone, and health-friendly production techniques.
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Alabama State University Horticulture Department Southeastern Alabama State University Biology Department Dr. Michael Smith - Vegetable Specialist James Edwards - Horticultural Inspection Charles Newton - Wildlife Alabama Wildlife Mobile Nursery Center
Sales Forecast
The following table and charts show our projected sales.
Sales Forecast
Year 1 Sales Sales Other Total Sales Direct Cost of Sales Sales Other Subtotal Direct Cost of Sales $575,000 $0 $575,000 Year 1 $391,000 $0 $391,000 Year 2 $700,000 $0 $700,000 Year 2 $478,100 $0 $478,100 Year 3 $850,000 $0 $850,000 Year 3 $578,850 $0 $578,850 Year 4 $889,100 $0 $889,100 Year 4 $601,032 $0 $601,032 Year 5 $927,331 $0 $927,331 Year 5 $627,803 $0 $627,803
Management Summary
Farmers Group's management team is led by Mr. James Jackson, Business Manager, and the current manager of Mobile Farmers Vegetable Farm, who has extensive knowledge of the industry and has been tracking vegetable trends for 30 years.
The company's management philosophy is based on responsibility and mutual respect. Farmers Group has an environment and structure that encourages productivity and respect for customers and fellow employees.
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Michael Owen, Welder, 1/2 Time Contract Personnel They will be utilized initially for the moving and setting up of the vegetable farm, greenhouses, and the building of the manure composting facility. Personnel Plan
Business Manager Executive Director Manager Trainee Manager Trainee Logistic engineer Heavy equipment Welder Contract workers Total People Total Payroll Year 1 $25,000 $25,000 $9,000 $4,000 $18,000 $18,000 $3,500 $15,000 7 $117,500 Year 2 $30,000 $30,000 $6,000 $6,000 $18,000 $18,000 $3,000 $0 7 $111,000 Year 3 $30,000 $30,000 $6,000 $6,000 $18,000 $18,000 $3,000 $0 7 $111,000 Year 4 $30,000 $30,000 $6,000 $6,000 $18,000 $18,000 $3,000 $0 7 $111,000 Year 5 $30,000 $30,000 $6,000 $6,000 $18,000 $18,000 $3,000 $0 7 $111,000
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Henry Jones, Logistical Engineer, Full Time Colin Henry, Heavy Equipment, Full Time
Breakdown of Use of Funds Acquisition: Property Equipment System Sub-total Operating Expenses: Salaries Marketing and promotion Other operating expenses Sub-total
Total Start-up Funding
Start-up Expenses to Fund Start-up Assets to Fund Total Funding Required Assets Non-cash Assets from Start-up Cash Requirements from Start-up Additional Cash Raised Cash Balance on Starting Date Total Assets Liabilities and Capital Liabilities Current Borrowing Long-term Liabilities Accounts Payable (Outstanding Bills) Other Current Liabilities (interest-free) Total Liabilities Capital Planned Investment Investor 1 Investor 2 Investor 3 Investor 4 Other Additional Investment Requirement Total Planned Investment Loss at Start-up (Start-up Expenses) Total Capital Total Capital and Liabilities Total Funding $250,000 $250,000 $250,000 $250,000 $0 $0 $1,000,000 ($684,600) $315,400 $1,145,400 $1,830,000 $400,000 $400,000 $30,000 $0 $830,000 $684,600 $1,145,400 $1,830,000 $900,000 $245,400 $0 $245,400 $1,145,400
This financial projection is based on sales volume at the levels described in the sales forecast section and presents, to the best of management's knowledge, the company's expected assets, liabilities, capital, and revenues and expenses. The projections reflect management's judgement of the expected conditions and its expected course of action given the hypothetical assumptions. Nature of Operations The company is in the business of vegetable farming, greens cultivation, and composting. The company expects to be operating in 2000. Revenues The company's revenue is derived primarily from the sale of vegetables, strawberries, and bagged composted manure products. Expenses The company's expenses are primarily those of salaries, utilities, and insurance costs. Other expenses are based on management's estimates and industry averages. General Assumptions
Plan Month Current Interest Rate Long-term Interest Rate Tax Rate Other Year 1 1 7.00% 7.00% 20.83% 0 Year 2 2 7.00% 7.00% 20.00% 0 Year 3 3 7.00% 7.00% 20.83% 0 Year 4 4 7.00% 7.00% 20.00% 0 Year 5 5 7.00% 7.00% 20.83% 0
Break-even Analysis
Monthly Revenue Break-even Assumptions: Average Percent Variable Cost Estimated Monthly Fixed Cost $36,974 68% $11,832
Taxes EBITDA Interest Expense Taxes Incurred Net Profit Net Profit/Sales
$0 $54,000
$0 $100,000
$0 $100,000
$0 $25,000
$0 $35,000
Borrowing Other Liabilities Principal Repayment Long-term Liabilities Principal Repayment Purchase Other Current Assets Purchase Long-term Assets Dividends Subtotal Cash Spent Net Cash Flow Cash Balance
$1,000,000 $1,000,000 $1,097,000 $1,097,000 $1,097,000 ($684,600) ($732,244) ($730,280) ($676,943) ($602,804) ($22,644) $21,964 $63,337 $84,139 $94,987 $292,756 $289,720 $430,057 $504,196 $589,182 $1,045,740 $954,763 $982,017 $982,346 $984,581 $292,756 $289,720 $430,057 $504,196 $589,182
Ratio Analysis
Year 1 Sales Growth Percent of Total Assets Accounts Receivable Inventory Other Current Assets Total Current Assets Long-term Assets Total Assets Current Liabilities Long-term Liabilities Total Liabilities Net Worth Percent of Sales Sales Gross Margin Selling, General & Administrative Expenses Advertising Expenses Profit Before Interest and Taxes Main Ratios Current Quick Total Debt to Total Assets Pre-tax Return on Net Worth Pre-tax Return on Assets Additional Ratios Net Profit Margin Return on Equity Activity Ratios Accounts Receivable Turnover Collection Days Inventory Turnover Accounts Payable Turnover Payment Days Total Asset Turnover Debt Ratios Debt to Net Worth Current Liab. to Liab. Liquidity Ratios Net Working Capital Interest Coverage Additional Ratios Assets to Sales Current Debt/Total Assets Acid Test Sales/Net Worth Dividend Payout 0.00% Year 2 21.74% Year 3 21.43% Year 4 4.60% Year 5 4.30% Industry Profile -4.60% 12.90% 14.40% 28.90% 56.20% 43.80% 100.00% 31.10% 20.50% 51.60% 48.40% 100.00% 32.00% 20.70% 0.20% 1.70% 1.65 0.88 51.60% 2.20% 4.50% n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a
0.00% 0.00% 0.00% 0.00% 0.00% 5.33% 2.58% 3.03% 3.17% 3.30% 23.91% 26.18% 25.46% 25.45% 27.42% 52.19% 47.63% 49.08% 49.10% 49.22% 47.81% 52.37% 50.92% 50.90% 50.78% 100.00% 100.00% 100.00% 100.00% 100.00% 33.75% 38.25% 72.00% 28.00% 30.38% 39.28% 69.66% 30.34% 20.57% 35.64% 56.21% 43.79% 18.14% 30.54% 48.67% 51.33% 14.77% 25.39% 40.16% 59.84%
100.00% 100.00% 100.00% 100.00% 100.00% 30.26% 30.27% 30.72% 31.28% 31.22% 37.26% 0.83% 5.57% 1.55 1.39 72.00% -7.73% -2.17% Year 1 -3.94% -7.73% 0.00 60 3.93 55.25 29 0.55 2.57 0.47 29.04% 0.71% 10.76% 1.57 1.48 69.66% 9.48% 2.88% Year 2 3.14% 7.58% 0.00 0 11.90 12.17 17 0.73 2.30 0.44 24.76% 1.23% 14.01% 2.39 2.24 56.21% 18.60% 8.15% Year 3 7.45% 14.73% 0.00 0 21.30 12.17 27 0.87 1.28 0.37 23.31% 1.20% 15.44% 2.71 2.53 48.67% 20.86% 10.71% Year 4 9.46% 16.69% 0.00 0 19.74 12.17 30 0.91 0.95 0.37 22.31% 1.23% 15.80% 3.33 3.11 40.16% 20.36% 12.19% Year 5 10.24% 16.12% 0.00 0 19.74 12.17 29 0.94 0.67 0.37
$192,756 $164,720 $280,057 $304,196 $339,182 0.59 1.57 3.05 4.28 5.53 1.82 34% 1.39 1.96 0.00 1.36 30% 1.48 2.42 1.14 1.16 21% 2.24 1.98 0.32 1.10 18% 2.53 1.76 0.12 1.06 15% 3.11 1.57 0.11
Appendix
Sales Forecast
Month Month Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 1 2 Sales Sales Other Total Sales Direct Cost of Sales Sales Other Subtotal Direct Cost of Sales 0% 0% $0 $0 $0 Month 9 Month 10 Month 11 $0 $0 $0 Month 11 $0 $0 $0 Month 12 $0 $0 $0 Month 12 $0 $0 $0
$0 $10,000 $25,000 $40,000 $55,000 $100,000 $175,000 $120,000 $50,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $10,000 $25,000 $40,000 $55,000 $100,000 $175,000 $120,000 $50,000 Month 9 Month 10 $81,600 $34,000 $0 $0 $81,600 $34,000
Month Month Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 1 2 $0 $0 $6,800 $17,000 $27,200 $37,400 $68,000 $119,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $6,800 $17,000 $27,200 $37,400 $68,000 $119,000
General Assumptions
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Plan Month Current Interest Rate Long-term Interest Rate Tax Rate Other 1 7.00% 7.00% 2 7.00% 7.00% 3 7.00% 7.00% 4 7.00% 7.00% 5 7.00% 7.00% 6 7.00% 7.00% 7 7.00% 7.00% 8 7.00% 7.00% 9 7.00% 7.00% Month 10 10 7.00% 7.00% Month Month 11 12 11 12 7.00% 7.00% 7.00% 7.00%
30.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 0 0 0 0 0 0 0 0 0 0 0 0
$500,000 $500,000 $500,000 $500,000 $500,000 $500,000 $500,000 $500,000 $500,000 $500,000 $500,000 $500,000 $500,000 $1,145,400 $1,103,650 $1,084,643 $1,069,334 $1,062,261 $1,055,490 $1,041,082 $1,131,153 $1,261,023 $1,151,871 $1,110,859 $1,063,465 $1,045,740 Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
$1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000
Retained Earnings Earnings Total Capital Total Liabilities and Capital Net Worth
($684,600) ($684,600) ($684,600) ($684,600) ($684,600) ($684,600) ($684,600) ($684,600) ($684,600) ($684,600) ($684,600) ($684,600) ($684,600) $0 ($19,007) ($38,013) ($53,387) ($60,460) ($62,171) ($61,494) ($45,894) ($6,794) $14,206 $12,306 ($4,919) ($22,644) $315,400 $296,393 $277,387 $262,013 $254,940 $253,229 $253,906 $269,506 $308,606 $329,606 $327,706 $310,481 $292,756 $1,145,400 $1,103,650 $1,084,643 $1,069,334 $1,062,261 $1,055,490 $1,041,082 $1,131,153 $1,261,023 $1,151,871 $1,110,859 $1,063,465 $1,045,740 $315,400 $296,393 $277,387 $262,013 $254,940 $253,229 $253,906 $269,506 $308,606 $329,606 $327,706 $310,481 $292,756
$7,667 $17,867 $28,033 $38,233 $2,333 23.33% $7,133 $11,967 $16,767 28.53% 29.92% 30.48%
$9,000 $950 $0 $170 $500 $420 $0 $0 $11,040 $20,127 $20,127 $4,527 $0 $15,600 15.60%
$9,500 $950 $0 $170 $500 $420 $0 $0 $11,540 $43,627 $43,627 $4,527 $0 $39,100 22.34%
$10,000 $10,500 $950 $0 $170 $500 $420 $0 $0 $950 $0 $170 $500 $420 $0 $0
15%
$9,040 $11,540 $2,927 $2,927 $4,638 $0 $5,227 $5,227 $4,550 $0 $677 1.23%
($14,340) ($14,340) ($10,707) ($2,407) ($14,340) ($14,340) ($10,707) ($2,407) $4,667 $0 $4,667 $0 $4,667 $0 $4,667 $0
($19,007) ($19,007) ($15,373) ($7,073) ($1,711) 0.00% 0.00% -153.73% -28.29% -4.28%
Personnel Plan
Month 1 Month 2 Month 3 Business Manager Executive Director Manager Trainee Manager Trainee Logistic engineer Heavy equipment Welder Contract workers Total People Total Payroll 0% 0% 0% 0% 0% 0% 0% 0% $1,500 $1,500 $0 $0 $1,500 $1,500 $500 $5,000 12 $1,500 $1,500 $0 $0 $1,500 $1,500 $500 $5,000 12 $1,500 $1,500 $0 $0 $1,500 $1,500 $0 $5,000 12 Month Month 5 Month 6 Month 7 Month 8 Month 9 4 $1,500 $1,500 $2,500 $2,500 $2,500 $2,500 $1,500 $1,500 $2,500 $2,500 $2,500 $2,500 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $0 $0 $0 $0 $0 $1,000 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $500 $0 $500 $0 $500 $0 $0 $0 $0 $0 $0 $0 7 7 7 7 7 7 $7,000 $9,500 $9,000 Month 10 $2,500 $2,500 $1,000 $1,000 $1,500 $1,500 $500 $0 7 Month 11 $2,500 $2,500 $1,000 $1,000 $1,500 $1,500 $0 $0 7 Month 12 $2,500 $2,500 $1,000 $1,000 $1,500 $1,500 $500 $0 7