FynbosFarm

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Hydroponics Farm Business Plan

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Financial Plan

The financial plan is outlined in the following tables and charts. With initial loans, we can construct the hydroponics facilities and begin crop development. Based on the high demand for these products, we expect solid sales in the first year, with improving margins.

7.1 Start-up Funding

FynbosFarm needs to fund its start-up requirements. The owner will provide personal investment, and is seeking long-term borrowing, using as collateral two other successful agricultural ventures he owns.

Start-up Funding
Start-up Expenses to Fund R793,753
Start-up Assets to Fund R20,005,000
Total Funding Required R20,798,753
Assets
Non-cash Assets from Start-up R20,000,000
Cash Requirements from Start-up R5,000
Additional Cash Raised R0
Cash Balance on Starting Date R5,000
Total Assets R20,005,000
Liabilities and Capital
Liabilities
Current Borrowing R0
Long-term Liabilities R18,000,000
Accounts Payable (Outstanding Bills) R0
Other Current Liabilities (interest-free) R0
Total Liabilities R18,000,000
Capital
Planned Investment
Owners R2,798,753
Investor R0
Additional Investment Requirement R0
Total Planned Investment R2,798,753
Loss at Start-up (Start-up Expenses) (R793,753)
Total Capital R2,005,000
Total Capital and Liabilities R20,005,000
Total Funding R20,798,753

7.2 Important Assumptions

We assume:

  • Steady demand for these products
  • No major climate change that would make these products easier to grow without hydroponics in this area

7.3 Break-even Analysis

Based upon our monthly fixed costs we need to sell the number units, shown below, each month to break-even. Given the high demand for these products and our expertise in this industry, we should exceed this amount even in the first month of the plan, after our initial start-up period for construction and first crop growth.

Break-even Analysis
Monthly Units Break-even 57,047
Monthly Revenue Break-even R261,511
Assumptions:
Average Per-Unit Revenue R4.58
Average Per-Unit Variable Cost R2.28
Estimated Monthly Fixed Cost R131,388

7.4 Projected Profit and Loss

The following table and charts show our projected Profit and Loss statement. Monthly details for the first year can be found in the appendix.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3 Year 4 Year 5
Sales R12,400,000 R11,255,000 R14,630,000 R12,690,000 R16,335,000
Direct Cost of Sales R6,170,000 R5,583,500 R7,267,000 R6,293,000 R8,111,500
Other Costs of Sales R0 R0 R0 R0 R0
Total Cost of Sales R6,170,000 R5,583,500 R7,267,000 R6,293,000 R8,111,500
Gross Margin R6,230,000 R5,671,500 R7,363,000 R6,397,000 R8,223,500
Gross Margin % 50.24% 50.39% 50.33% 50.41% 50.34%
Expenses
Payroll R480,000 R483,000 R519,750 R559,345 R602,009
Marketing/Promotion R10,000 R10,500 R11,025 R11,907 R12,860
Depreciation R666,660 R666,700 R666,700 R666,700 R666,700
H.P.s R120,000 R120,600 R121,203 R121,203 R120,600
Fuel R100,000 R105,000 R110,250 R115,726 R121,550
maintenance R20,000 R21,000 R22,050 R23,153 R24,310
Payroll Taxes R0 R0 R0 R0 R0
Other R180,000 R189,000 R198,450 R208,373 R218,719
Total Operating Expenses R1,576,660 R1,595,800 R1,649,428 R1,706,407 R1,766,748
Profit Before Interest and Taxes R4,653,340 R4,075,700 R5,713,572 R4,690,593 R6,456,752
EBITDA R5,320,000 R4,742,400 R6,380,272 R5,357,293 R7,123,452
Interest Expense R1,759,750 R1,663,000 R1,550,500 R1,413,000 R1,138,000
Taxes Incurred R868,077 R723,810 R1,248,922 R983,278 R1,595,626
Net Profit R2,025,513 R1,688,890 R2,914,150 R2,294,315 R3,723,126
Net Profit/Sales 16.33% 15.01% 19.92% 18.08% 22.79%

7.5 Projected Cash Flow

The following table and chart show our projected cash flow, including estimate repayments of the principal borrowing amount.

Pro Forma Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5
Cash Received
Cash from Operations
Cash Sales R1,860,000 R1,688,250 R2,194,500 R1,903,500 R2,450,250
Cash from Receivables R9,471,833 R9,665,383 R12,144,769 R10,953,616 R13,570,761
Subtotal Cash from Operations R11,331,833 R11,353,633 R14,339,269 R12,857,116 R16,021,011
Additional Cash Received
Sales Tax, VAT, HST/GST Received R0 R0 R0 R0 R0
New Current Borrowing R0 R0 R0 R0 R0
New Other Liabilities (interest-free) R0 R0 R0 R0 R0
New Long-term Liabilities R0 R0 R0 R0 R0
Sales of Other Current Assets R0 R0 R0 R0 R0
Sales of Long-term Assets R0 R0 R0 R0 R0
New Investment Received R0 R0 R0 R0 R0
Subtotal Cash Received R11,331,833 R11,353,633 R14,339,269 R12,857,116 R16,021,011
Expenditures Year 1 Year 2 Year 3 Year 4 Year 5
Expenditures from Operations
Cash Spending R480,000 R483,000 R519,750 R559,345 R602,009
Bill Payments R8,317,863 R8,899,410 R10,090,933 R9,728,985 R10,716,935
Subtotal Spent on Operations R8,797,863 R9,382,410 R10,610,683 R10,288,330 R11,318,944
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out R0 R0 R0 R0 R0
Principal Repayment of Current Borrowing R0 R0 R0 R0 R0
Other Liabilities Principal Repayment R0 R0 R0 R0 R0
Long-term Liabilities Principal Repayment R870,000 R1,000,000 R1,250,000 R1,500,000 R4,000,000
Purchase Other Current Assets R0 R0 R0 R0 R0
Purchase Long-term Assets R0 R0 R0 R0 R0
Dividends R0 R0 R0 R0 R0
Subtotal Cash Spent R9,667,863 R10,382,410 R11,860,683 R11,788,330 R15,318,944
Net Cash Flow R1,663,970 R971,223 R2,478,586 R1,068,786 R702,067
Cash Balance R1,668,970 R2,640,193 R5,118,779 R6,187,566 R6,889,633

7.6 Projected Balance Sheet

The Balance Sheet shows a steady increase in Net Worth over the next five years.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
Assets
Current Assets
Cash R1,668,970 R2,640,193 R5,118,779 R6,187,566 R6,889,633
Accounts Receivable R1,068,167 R969,534 R1,260,264 R1,093,148 R1,407,137
Other Current Assets R0 R0 R0 R0 R0
Total Current Assets R2,737,137 R3,609,727 R6,379,044 R7,280,714 R8,296,770
Long-term Assets
Long-term Assets R20,000,000 R20,000,000 R20,000,000 R20,000,000 R20,000,000
Accumulated Depreciation R666,660 R1,333,360 R2,000,060 R2,666,760 R3,333,460
Total Long-term Assets R19,333,340 R18,666,640 R17,999,940 R17,333,240 R16,666,540
Total Assets R22,070,477 R22,276,367 R24,378,984 R24,613,954 R24,963,310
Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5
Current Liabilities
Accounts Payable R909,964 R426,964 R865,430 R306,085 R932,315
Current Borrowing R0 R0 R0 R0 R0
Other Current Liabilities R0 R0 R0 R0 R0
Subtotal Current Liabilities R909,964 R426,964 R865,430 R306,085 R932,315
Long-term Liabilities R17,130,000 R16,130,000 R14,880,000 R13,380,000 R9,380,000
Total Liabilities R18,039,964 R16,556,964 R15,745,430 R13,686,085 R10,312,315
Paid-in Capital R2,798,753 R2,798,753 R2,798,753 R2,798,753 R2,798,753
Retained Earnings (R793,753) R1,231,760 R2,920,650 R5,834,800 R8,129,116
Earnings R2,025,513 R1,688,890 R2,914,150 R2,294,315 R3,723,126
Total Capital R4,030,513 R5,719,403 R8,633,553 R10,927,869 R14,650,995
Total Liabilities and Capital R22,070,477 R22,276,367 R24,378,984 R24,613,954 R24,963,310
Net Worth R4,030,513 R5,719,403 R8,633,553 R10,927,868 R14,650,995

7.7 Business Ratios

The following table outlines some of the more important ratios from the Hydroponic Crops Grown Under Cover industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 0182.9902.

Ratio Analysis
Year 1 Year 2 Year 3 Year 4 Year 5 Industry Profile
Sales Growth 0.00% -9.23% 29.99% -13.26% 28.72% -1.70%
Percent of Total Assets
Accounts Receivable 4.84% 4.35% 5.17% 4.44% 5.64% 2.94%
Other Current Assets 0.00% 0.00% 0.00% 0.00% 0.00% 24.83%
Total Current Assets 12.40% 16.20% 26.17% 29.58% 33.24% 39.79%
Long-term Assets 87.60% 83.80% 73.83% 70.42% 66.76% 60.21%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 4.12% 1.92% 3.55% 1.24% 3.73% 22.33%
Long-term Liabilities 77.61% 72.41% 61.04% 54.36% 37.58% 22.42%
Total Liabilities 81.74% 74.33% 64.59% 55.60% 41.31% 44.75%
Net Worth 18.26% 25.67% 35.41% 44.40% 58.69% 55.25%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 50.24% 50.39% 50.33% 50.41% 50.34% 46.28%
Selling, General & Administrative Expenses 33.91% 35.39% 30.41% 32.33% 27.55% 29.76%
Advertising Expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.36%
Profit Before Interest and Taxes 37.53% 36.21% 39.05% 36.96% 39.53% 0.30%
Main Ratios
Current 3.01 8.45 7.37 23.79 8.90 1.08
Quick 3.01 8.45 7.37 23.79 8.90 0.38
Total Debt to Total Assets 81.74% 74.33% 64.59% 55.60% 41.31% 54.22%
Pre-tax Return on Net Worth 71.79% 42.18% 48.22% 29.99% 36.30% 0.29%
Pre-tax Return on Assets 13.11% 10.83% 17.08% 13.32% 21.31% 0.63%
Additional Ratios Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit Margin 16.33% 15.01% 19.92% 18.08% 22.79% n.a
Return on Equity 50.25% 29.53% 33.75% 21.00% 25.41% n.a
Activity Ratios
Accounts Receivable Turnover 9.87 9.87 9.87 9.87 9.87 n.a
Collection Days 29 39 33 40 33 n.a
Accounts Payable Turnover 10.14 19.71 12.17 29.96 12.17 n.a
Payment Days 27 29 22 23 20 n.a
Total Asset Turnover 0.56 0.51 0.60 0.52 0.65 n.a
Debt Ratios
Debt to Net Worth 4.48 2.89 1.82 1.25 0.70 n.a
Current Liab. to Liab. 0.05 0.03 0.05 0.02 0.09 n.a
Liquidity Ratios
Net Working Capital R1,827,173 R3,182,763 R5,513,613 R6,974,628 R7,364,455 n.a
Interest Coverage 2.64 2.45 3.68 3.32 5.67 n.a
Additional Ratios
Assets to Sales 1.78 1.98 1.67 1.94 1.53 n.a
Current Debt/Total Assets 4% 2% 4% 1% 4% n.a
Acid Test 1.83 6.18 5.91 20.22 7.39 n.a
Sales/Net Worth 3.08 1.97 1.69 1.16 1.11 n.a
Dividend Payout 0.00 0.00 0.00 0.00 0.00 n.a