Executive Summary
Introduction
This is a business plan outlining the feasibility of processing locally grown pumpkins into a value added product; pumpkin puree. The company’s mission is to produce a high quality product profitably in an environmentally responsible manner. The company’s founder, Kelvin Meadows, currently grows pumpkins and would like to process excess production into a marketable product. Pumpkin Meadows Processing Ltd. would set up a processing plant if the project was shown to be feasible. Pumpkin consumption is seasonal, limiting its appeal for processing and most puree is now American produced. Initial production would begin at 399,000 pounds of puree.
Operations Plan
Pumpkin Meadows Processing will begin operations on the Meadow’s family farm, which is located on Highway #2, near Buffalo Pound Lake. The farm has a water reservoir that captures runoff that would otherwise end up in the lake. The water is used for irrigation of a pumpkin patch, which is currently five acres. However, this has potential to expand to 20 acres, providing adequate water is available.
A 2400 square foot building would be erected that would contain the processing equipment. The farm has natural gas, enabling an efficient boiler to produce the cooking energy and heat the building.
The process includes washing and inspection of raw pumpkins, de-stemming, cutting for cooking, cooking for softening, separation of rind and seeds from pulp, pouring into containers and freezing the product. The product is then loaded onto a truck and shipped to customers and made into baked products.
Pumpkin Production Process:
Figure 1. Flow of production
Human Resources Plan
The organizational structure consists of a board of directors, general manager, accounts manager, a plant foreman and plant workers. Kelvin Meadows will be the general manager, primarily responsible for marketing the product. Shelley Meadows will be the account manager. Initially, the general manager will fulfill the plant foreman’s duties. A plant foreman will be a future addition. Plant workers will be either full-time or part-time.
The pumpkin harvest begins in late August and processing would begin at that time. The plant will operate five days a week, eight hours a day until all the required processing is completed.
Figure 2: Organizational structure
Marketing Plan
Pumpkin Meadows Processing Ltd. will sell puree to wholesale distributors such as Dawn Foods in Saskatoon and private bakeries and grocery bakeries. Dawn Foods presently purchases puree for $0.03 per ounce, or $0.48 per pound. Marketing is a challenge because of the seasonality of pumpkin consumption. Halloween, Thanksgiving and Christmas are the traditional times when peak consumption occurs.
The general manager will be responsible for the marketing aspects of the business. He will travel to trade shows and communicate with potential buyers. The existing market is presently meeting the demand for puree but the supply is predominantly from outside of Canada. Currently, the competitor’s product is canned. However, Pumpkin Meadows Processing Ltd. will produce a 100% pure pumpkin puree, sold in the frozen form, which will be of higher quality.
The SWOT analysis shows the various strengths, weaknesses, opportunities and threats that Pumpkin Meadows Processing Ltd. will experience as it commences production.
Table 1. SWOT Analysis
Strengths / Weaknesses· Cheap freight / · Seasonal consumption
· Cheap land and growing costs / · High cost of capital
· Facitlity can be cross-utilized / · Location
· Easy access to highway / · Low volume of production
· Seasonal labour
Opportunities / Threats
· Market increasing for ready-to-eat baked products / · Market is saturated
· Crop failure due to hail, disease or drought
· Gov't grants available for new processing equipment in SK / · Competitors have lower cost of production
· Organic consumption is on the rise
Financial Plan
Pumpkin Meadow will finance itself through debt and equity sources. Kelvin and Shelley will be the primary investors. It is expected that they will put up approximately $102,000 or 56% of the equity required. Table 2 shows the financing plan the company chose to use. The dividend policy is to pay 50% of positive net income to the shareholders.
Table 2. Pumpkin Meadows Processing Ltd. financing plan
Equity Financing (56%) / $112,000Long Term Bank Loan (44%) / $88,000
Total Financing / $200,000
Table 3. Summary of Financial Results
Year
/ 2003 / 2005 / 2008 / 2011 / 2012Revenues / $191,520.00 / $223,886.00 / $282,973.00 / $300,293.00 / $306,299.00
COGS / $72,968.00 / $98,850.00 / $108,992.00 / $108,950.00 / $109,245.00
Gross Margin / $118,552.00 / $125,036.00 / $174,051.00 / $191,343.00 / $197,053.00
Expenses / $98,568.00 / $105,103.00 / $116,418.00 / $120,970.00 / $122,452.00
Net Income Before Taxes / $19,983.00 / $19,932.00 / $57,632.00 / $70,373.00 / $74,601.00
Income Taxes / $3,821.00 / $3,811.00 / $11,019.00 / $13,455.00 / $14,264.00
Net Income / $16,163.00 / $16,121.00 / $46,613.00 / $56,918.00 / $60,338.00
Dividends / 0.00 / $8,047.00 / $17,904.00 / $26,754.00 / $28,459.00
NPV / $42,612
IRR / 27.8%
The required rate of return for the company was 20% and was exceeded with an internal rate of return or IRR of 27.8%. Net income was positive for all ten years of operation, accumulating positive growth on an annual basis.
Pumpkin Meadows Processing Ltd. has three critical variables to contend with, as shown in Table 4. They are selling price of the puree, volume of the puree produced, and price paid for the raw materials. The most critical variable was selling price, as only a 6.25% change was allowed in order to break even.
Table 4. Critical Variables
Critical Variable
/ Base Case / IRR = 20% / Allowable Change (%)Selling price of puree (per lb) / $0.48 / $0.45 / 6.25
Volume of puree produced (lbs) / 399,000 / 365,645 / 8.35
Price paid for raw pumpkin (per lb) / $0.10 / $0.25 / 150
Conclusion
The results of the feasibility study indicate that Pumpkin Meadows Processing Ltd. is a feasible operation, providing a buyer for our product can be guaranteed. Due to the stability of the pumpkin puree market, it is essential that the company’s product is marketed before production begins, to ensure revenues. All other aspects of the business will be feasible but all are dependent on the sale of the product. Under the base case, the internal rate of return is 27.8%, which is above the required 20%. If alternate operational plans are implemented in the future, the opportunity exists for increased profitability and success. Pumpkin Meadows Processing Ltd. will also benefit the rural community by creating new jobs. There are exciting opportunities for fruit and vegetable processing in the province of Saskatchewan and hopefully Pumpkin Meadows Processing Ltd. will lead the way in brand new and innovative enterprises.