A SAMPLE BUSINESS PLAN FOR
SMALL FOOD BUSINESSES
Rodney B. Holcomb
Associate Professor,
Dept. of Agricultural Economics
Browning Endowed
Professor of Food Science, Food & Agricultural Products Center
Philip Kenkel
Professor, Dept. of
Agricultural Economics
Bill Fitzwater
Endowed Chair for Cooperative Studies
Linda Blan-Byford
(Former) Business
Planning and Marketing Associate
Food &
Agricultural Products Center
Oklahoma State
University
January 2006
Why Develop a
Business Plan?
In the book
The
Entrepreneur’s Manual, Richard M. White, Jr. states that business plans
are “road maps” for business creation:
“You identify your origin, select a destination, and plot the shortest
distance between the two points.”
True, a business plan is
essentially a blueprint for a business.
However, it also serves many other purposes:
·
A business plan is a detailed blueprint for the
activities needed to establish a business (i.e. the details of a product or
service, the market for that product or service, and the management of the
business providing that product or service).
·
A business plan is also the ‘yardstick’ by which
a business owner measures success in meeting stated goals and objectives.
·
Also, a business plan is a tool for obtaining a
loan from a lending agency, or for attracting venture capital.
What Does a Business
Plan Look Like?
There is no standard
format for a business plan, but there are many common components of a business
plan:
·
Executive Summary (providing a general overview
of the plan’s main points)
·
Table of Contents
·
(Brief) Background and History
·
Business Goals and Objectives
·
Description of Products/Services
·
Market Description/Assessment
·
Competition Assessment
·
Marketing Strategies
·
Manufacturing Plans
·
Pro Forma Financial Analysis
·
Contingency Plans
Many business plans will also include appendixes
with additional information related to the business, its operations, its
owners/managers, marketing/promotional plans, etc.
Of course, the best way to illustrate a business plan is
to provide one. The following plan for a
completely fictional business is used for a monthly entrepreneur workshop at
Oklahoma State University’s Food & Agricultural Products Center, entitled “Food Business Basics: A Guide to Starting Your Own Food
Business.” This mock business plan
focuses on a whipped topping business, but the format is appropriate for any
small food business.
Business Plan
Fancy’s Foods, LLC.
2409 Oak Hollow Drive
Antlers, OK 74523
(580) 298-2234
Keith Bean
Marianne Bean
December 1, 1998
Executive
Summary
Marianne and Keith Bean have been
involved with the food industry for several years. They opened their first restaurant in
Antlers, Oklahoma in 1981, and their second in Hugo in 1988. Although praised for the quality of many of
the items on their menu, they have attained a special notoriety for their
desserts. After years of requests for
their flavored whipped cream toppings, they have decided to pursue marketing
these products separately from the restaurants.
Marianne and Keith Bean have
developed several recipes for flavored whipped cream topping. They include chocolate, raspberry, cinnamon
almond, and strawberry. These flavored
dessert toppings have been used in the setting of their two restaurants over
the past 18 years, and have been produced in large quantities. The estimated shelf life of the product is 21
days at refrigeration temperatures and up to six months when frozen.
The Beans intend to market this product in its frozen
state in 8 and 12-ounce plastic tubs. They
also intend to have the products available in six ounce pressurized cans.
Special attention has been given to developing an attractive label that will
stress the gourmet/specialty nature of the products.
Distribution of Fancy’s Foods
Whipped Dream product will begin in the local southeastern Oklahoma area. The Beans have an established name and
reputation in this area, and product introduction should encounter little
resistance.
Financial analyses show that the
company will have both a positive cash flow and profit in the first year. The expected return on equity in the first
year is 10.88%
Table of
Contents
Executive Summary................................................................................ 2
Background and History........................................................................ 4
Description of Products.......................................................................... 4
Market Description................................................................................. 4
Competition............................................................................................. 5
Marketing Strategies............................................................................... 5
Manufacturing Plans............................................................................... 6
Financial Projections.............................................................................. 6
Income
Statement.......................................................................... 7
Cash
Flow Analysis....................................................................... 11
Balance
Sheet................................................................................. 12
Financial
Ratios............................................................................. 13
Contingency Plans.................................................................................. 14
Appendices.............................................................................................. 15
Letters
of Endorsement................................................................. 15
Resumes
of Management.............................................................. 15
Product
Labels............................................................................... 15
Background
and History
Marianne and Keith Bean have been
involved with the food industry for several years. They opened their first restaurant in
Antlers, Oklahoma in 1981, and their second in Hugo in 1988. Although praised for the quality of many of
the items on their menu, they have attained a special notoriety for their
desserts. After years of requests for
their flavored whipped cream toppings, they have decided to pursue marketing
these products separately from the restaurants.
Description
of Products
Marianne and Keith Bean have
developed several recipes for flavored whipped cream topping. They include chocolate, raspberry, cinnamon
almond, and strawberry. These flavored
dessert toppings have been used in the setting of their two restaurants over
the past 18 years, and have been produced in large quantities. The estimated shelf life of the product is 21
days at refrigeration temperatures and up to six months when frozen.
The Beans intend to market this
product in its frozen state in 8 and 12-ounce plastic tubs. They also intend to have the products
available in six ounce pressurized cans.
Market
Description
The flavored whipped toppings
that Fancy’s Foods will market will fall into two distinct categories: Dairy
products and gourmet/specialty foods.
This business plan will look at these two markets separately.
Dairy Products: While the
overall consumption of dairy products in the United States declined from 1972
to 1994, the market has seen a slight increase in the past four years (Census
of Agricultural Products, 1998, USDA). Dr. John Moore of the University of
Florida expects the consumption of dairy product in the United States to
continue a modest increase of 1.5-2% per year, which is significant in this
$268 billion annual market. This is
attributed in part to more sophisticated processing techniques which have
increased the variety of dairy products available, as well as the increased
awareness of the benefits of a calcium rich diet (Moore et al, 1998).
Gourmet/Specialty Products:
Kalorama Information LLC, a market research firm based in New York,
indicates that the gourmet/specialty foods market will continue a fast paced
growth well into the next decade. This
$39-billion domestic industry has doubled since 1992, and is expected to
continue double-digit growth through 2002.
While demographic information indicates that this sector of the industry
is strongest in metropolitan areas, there are also growth opportunities in
smaller communities. Packaging and point
of purchase marketing efforts are especially important in this market, and
special attention will be given to these aspects of Whipped Dream.
Competition
There are several brands of
whipped topping available in mainstream retail outlets. In the grocery stores
in the Antlers and Hugo area, all of the ready-to-eat varieties are produced by
large players, specifically Kraft and Sara Lee.
There are also dry mixes available, but these are not direct competition
for Whipped Dream. According to sales
figures at grocery outlets in Antlers and Hugo, approximately 65% of the
national brand prepared whipped topping is sold in frozen tub form, while the
remaining 35% is in pressurized can form.
The strengths of these products
are their market shares and distribution channels. They are available in virtually any retail
grocery outlet, and have gained strong market acceptance. They are also distributed with other
refrigerated and frozen dairy products.
Finally, they are priced at $1.29-1.89 per 8-ounce tub or 6-ounce
pressurized can, an advantage when compared to the suggested retail price of
Whipped Dream.
The weakness of these products is
in the lack of variety. None of these
companies produce or market a flavored topping.
Several of the products are also classified as ‘whipped topping’, but
are actually not dairy based.
Marketing
Strategies
Distribution of Fancy’s Foods
Whipped Dream product will begin in the local southeastern Oklahoma area. The Beans have an established name and
reputation in this area, and product introduction should encounter little
resistance. The managers of Pruett’s IGA
and Gardiner’s Grocery in Antlers, as well as Pruett’s in Hugo, have indicated
that they are willing to carry the products.
Their letters of intent and endorsement are included in the Appendix
section. It is also important to note
that Gardiner’s Grocery puts an emphasis on specialty food products in addition
to standard grocery items.
After Whipped Dream’s debut in
Antlers, Hugo, and surrounding towns, Fancy’s Foods intends to participate in
the “Made in Oklahoma” Demonstration Program administered by the Oklahoma
Department of Agriculture and Pratt’s Foods in Oklahoma City. This program will enable the Beans to
introduce Whipped Dream into the Oklahoma City metropolitan area under more
favorable market conditions. Fancy’s
Foods also intends to enter the grocery and specialty markets in the Tulsa area
in 2000. The Beans will rely heavily on
in-store displays and demonstrations in southeastern Oklahoma stores, as well
as those in Tulsa and Oklahoma City.
They will demonstrate the flavored topping in conjunction with fresh
fruit during warmer months, and as a topping on gourmet coffee and hot
chocolate in the cooler months.
Special attention has been given to
developing an attractive label that will stress the gourmet/specialty nature of
the products. A copy of the label is
attached in the appendices. Linda
Byford, a business planning and marketing specialist at the Oklahoma Food and
Agricultural Products Research and Technology Center at Oklahoma State
University assisted with developing the label, and conducted a focus group
study to evaluate the image projected by the label as well as the packaging.
Manufacturing
Plans
Because Fancy’s Foods owns and
operates two restaurants, they have facilities available to them for a certain
amount of the production. Robert
Battles, the Pushmataha County inspector for the Oklahoma Health Department,
indicates that The Beans can use these facilities to manufacture food available
for retail sale provided that the production occurs while the restaurant is not
open to the public.
Fancy’s Foods has a 50-gallon
high speed mixer, a pressurized tank in which the product can be gassed with
nitrous oxide, and a 10-foot by 10-foot walk-in freezer, enabling them to both
produce and store frozen tubs of Whipped Dream.
This process is already established on a commercial scale. They are in fact already making Whipped Dream
for use in their restaurant, and storing it in the freezer.
Keith and Marianne feel that the
specialty nature of the product will lend itself well to the pressurized can,
and this was confirmed by the focus group conducted at Oklahoma State
University. To pursue that opportunity,
Fancy’s Foods has contracted production of the pressurized 6-ounce cans with
Farm Fresh, an Oklahoma dairy processing firm.
A non-competition/non-disclosure agreement is in place, and a copy of
this document is included in the appendices.
Financial
Projections
The following pages include multi
year projections for income, cash flow, balance statement, as well as estimated
financial ratios. These projections are
for the Whipped Dream division of Fancy’s Foods LLC only. Historical financial information on Fancy’s
Foods restaurants is available upon request.
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Fancy's
Foods LLC
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Pro
Forma Income Statement
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January
1999 - December 1999
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|
|
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|
|
|
|
|
|
|
|
|
|
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Net Sales
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|
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$240,450.00
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|
|
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Less:
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Cost of Goods Sold
|
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$182,000.00
|
|
|
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Gross Income
|
|
|
|
|
$58,450.00
|
|
|
|
|
|
|
|
|
|
|
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Operating Expenses
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|
|
|
|
|
|
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Labor
|
|
|
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$12,000.00
|
|
|
|
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Utilities
|
|
|
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$3,000.00
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|
|
|
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Insurance
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|
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$2,400.00
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|
|
|
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Sales Promotion
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$12,000.00
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|
|
|
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Delivery and
Transportation
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$6,000.00
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|
|
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Miscellaneous
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$1,500.00
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Total Expenses
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$36,900.00
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|
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|
|
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Net Income Before Taxes
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$21,550.00
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Less:
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Income Taxes
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|
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$6,465.00
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Net Income After Taxes
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$15,085.00
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|
|
|
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|
|
|
|
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Assumptions:
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1
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Net sales based on price
of $2.29 per unit,
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24,000 units sold in
Antlers
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2,000 units per month
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36,000 units sold in
Hugo
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3,000 units per month
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45,000 units sold in Oklahoma
City
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9,000 units per month
for 5 months
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Sales estimates based on
5% market share for prepared whipped topping in each market.
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2
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Cost of goods sold
includes ingredients, packaging materials, labels, and co-packing expenses
for canned product.
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3
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No salary will be drawn
by the owners/managers in the first year.
All profits will be re-invested for new market entry and increased
production.
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Fancy's
Foods LLC
|
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Pro
Forma Income Statement
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January
2000 - December 2000
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|
|
|
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|
|
|
|
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Net Sales
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$425,940.00
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Less:
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Cost of Goods Sold
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$318,060.00
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|
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Gross Income
|
|
|
|
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$107,880.00
|
|
|
|
|
|
|
|
|
|
|
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Operating Expenses
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|
|
|
|
|
|
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Labor
|
|
|
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$18,000.00
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|
|
|
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Utilities
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$5,000.00
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Insurance
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$2,400.00
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|
|
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Sales Promotion
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$18,000.00
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|
|
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Delivery and
Transportation
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$12,000.00
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|
|
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Miscellaneous
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$1,500.00
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Total Expenses
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$56,900.00
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Net Income Before Taxes
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$50,980.00
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Less:
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Income Taxes
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$15,294.00
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Net Income After Taxes
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$35,686.00
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|
|
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Assumptions:
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1
|
Net sales based on price
of $2.29 per unit,
|
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26,400 units sold in
Antlers
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2,200 units per month
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39,600 units sold in
Hugo
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3,300 units per month
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120,000 units sold in
Oklahoma City
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10,000 units per month
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Sales estimates based on
10%sales increase from previous year.
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2
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Cost of goods sold
includes ingredients, packaging materials, labels, and co-packing expenses
for canned product.
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|
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3
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No salary will be drawn
by the owners/managers in the second year.
All profits will be re-invested for new market entry and increased
production.
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Fancy's
Foods LLC
|
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Pro
Forma Income Statement
|
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January
2001 - December 2001
|
|
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|
|
|
|
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Net Sales
|
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$592,194.00
|
|
|
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Less:
|
Cost of Goods Sold
|
|
$442,206.00
|
|
|
|
Gross Income
|
|
|
|
|
$149,988.00
|
|
|
|
|
|
|
|
|
|
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Operating Expenses
|
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|
|
|
|
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Salary
|
|
|
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$20,000.00
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Labor
|
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$30,000.00
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|
|
|
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Utilities
|
|
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$6,500.00
|
|
|
|
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Insurance
|
|
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$3,600.00
|
|
|
|
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Sales Promotion
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$25,000.00
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|
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Delivery and
Transportation
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$16,500.00
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|
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Miscellaneous
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$1,500.00
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|
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Total Expenses
|
|
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$83,100.00
|
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|
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|
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|
|
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Net Income Before Taxes
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|
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$66,888.00
|
|
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Less:
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Income Taxes
|
|
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$20,066.40
|
|
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Net Income After Taxes
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|
|
|
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$46,821.60
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Assumptions:
|
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|
|
|
|
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1
|
Net sales based on price
of $2.29 per unit,
|
|
|
|
|
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29,040 units sold in
Antlers
|
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2,420 units per month
|
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43,560 units sold in
Hugo
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3,630 units per month
|
|
|
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132,000 units sold in
Oklahoma City
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11,000 units per month
|
|
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54,000 units sold in
Tulsa
|
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9,000 units per month
for 6 months
|
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Sales estimates based on
10%sales increase from previous year.
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2
|
Cost of goods sold
includes ingredients, packaging materials, labels, and co-packing expenses
for canned product.
|
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|
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3
|
Salary will be drawn by
the owners/managers in the third year.
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[Note: A typical
business plan would have 3-5 years of pro forma balance sheets, not just one
year as shown here. The pro forma
balance sheets for following years will be impacted by how profits are handled
(retained in the business or paid out to the owner(s)), how assets are
depreciated over time, the reinvestment of cash, the pay-down of debts, etc.
The first year pro forma balance sheet shown here is used to calculate
financial ratios.]
While
careful planning was involved in setting the strategic goals for Whipped Dream,
it may be that these goals are not met.
The Beans have decided to set a zone of acceptability for meeting sales
and financial objectives. For both sales
and financial objectives, a 10% negative deviation from expected sales and
projected returns on assets will be accepted.
However, if sales objectives and returns on investment are less than 90%
of projections, certain actions will be taken.
These actions include:
1. For unacceptable sales levels during the
first year: Fancy’s Foods will
combat this problem by doubling in-store promotions of Whipped Dream in Antlers
and Hugo. The Beans will personally
arrange and carry out these promotions on weekends at peak shopping times. If sales do not increase within one month of
the in-store promotions, Fancy’s Foods will advertise in the weekly shopping
circulars of the stores for one month.
2. For unacceptable sales levels in Oklahoma
City and Tulsa: After 6 months of
marketing products in these two metropolitan areas, sales will be
evaluated. If not meeting acceptable sales
levels, Fancy’s Foods will consider contracting with local marketing
specialists in Oklahoma City and Tulsa to carry out the in-store promotions and
push the products to the stores. This
contractual relationship will be based upon sales commissions (to be determined
by the specialists and Fancy’s Foods), thereby providing incentive for the
specialists to generate sales of Whipped Dream.
3. For unacceptable business liquidity: In the event that the business lacks
liquidity, Fancy’s Foods will examine their accounts receivable procedures to
ensure that payment periods are just and that payments are being received in a
timely manner. Also, cash flow
projections will be reviewed to determine if unforeseen cash layouts/expenses
are undermining the financial health of the enterprise.
4. For unacceptable returns on equity: If returns on assets and owners’ equity fall
below acceptable levels, Fancy’s Foods will first examine and compare the
per-unit costs of production and marketing with sales prices. If the margins are too thin, a price increase
for products sold in specialty/gourmet shops will be considered. However, because established non-flavored
substitutes already exist at lower prices, the lost sales resulting from a
price increase may make this option unsuitable for products sold in general
food stores. Fancy’s Foods will
therefore assess opportunities for minimizing production costs and examine
different marketing/distribution alternatives.
[This is where the appendix would start if there was
one. Appropriate material for appendixes
include owner(s) resume, a processing flowchart, a management hierarchy diagram
(if the business has multiple employees, sales staff, etc.), letters of intent
to purchase from buyers, advertisement materials, copies of training completion
certificates, etc.]
