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CruffsThe House of Cream Puffs

Cruffs CreampuffsBusiness Plan 2012

Cruffs Creampuffs 1

Prepared by: Kody OrrTable of ContentsExecutive Summary.....................................................................................................................................3

1.0 Introduction.....................................................................................................................................4

1.1 Mission Statement.......................................................................................................................4

1.2 Goals and Objectives...................................................................................................................4

1.3 Industry Overview........................................................................................................................4

2.0 Operations Plan...............................................................................................................................5

2.1 Organizational Structure..............................................................................................................5

2.2 Site and Floor Plan.......................................................................................................................6

2.2 Daily Operations..........................................................................................................................9

Average Business Day..........................................................................................................................9

Average Business Week.....................................................................................................................10

Average Business Month...................................................................................................................10

Average Business Year.......................................................................................................................10

2.3 Supply Analysis..........................................................................................................................11

2.4 Capacity.....................................................................................................................................11

2.5 Cost of Sales...............................................................................................................................11

2.6 Capital Budget...........................................................................................................................12

2.7 Operational Budget....................................................................................................................13

3.0 Human Resource Plan....................................................................................................................14

3.1 Job Descriptions.........................................................................................................................14

Manager............................................................................................................................................14

Full Time Employee...........................................................................................................................14

Part Time Employee...........................................................................................................................14

3.2 Training......................................................................................................................................15

4.0 Marketing Plan..............................................................................................................................16

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4.1 The Marketing Mix.....................................................................................................................16

Product..............................................................................................................................................16

Price...................................................................................................................................................17

Promotion..........................................................................................................................................17

Place..................................................................................................................................................18

4.2 STP.............................................................................................................................................19

Segmentation....................................................................................................................................19

Target Market....................................................................................................................................19

Positioning.........................................................................................................................................19

4.3 Competition...............................................................................................................................20

4.4 Target Markets..........................................................................................................................21

5.0 Financial Plan.................................................................................................................................22

5.1 Financial Description..................................................................................................................22

5.2 Require Rate of Return..............................................................................................................22

5.3 Critical Success Variables...........................................................................................................22

5.4 Best and Worst Case Scenarios..................................................................................................23

Best....................................................................................................................................................23

Worst.................................................................................................................................................23

5.5 Sensitivity Analysis.....................................................................................................................23

5.6 Break Even Analysis...................................................................................................................24

5.7 NPV and IRR...............................................................................................................................24

5.8 Feasibility...................................................................................................................................24

5.9 Contingency Plan.......................................................................................................................25

6.0 Conclusion.....................................................................................................................................26

7.0 References.....................................................................................................................................27

8.0 Appendices....................................................................................................................................28

1. Capital Budget...........................................................................................................................28

2. Revenue Estimates.....................................................................................................................29

3. Marketing Expenses...................................................................................................................30

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4. Retained Earnings and Dividend Schedule.................................................................................31

5. Break Even Analysis...................................................................................................................32

6. Cost of Goods Sold.....................................................................................................................33

Executive Summary

Downtown business cores in cities throughout North America have become large hubs for retail

businesses as a whole but specifically small coffee shops and bakeries. Small geographic areas

polluted with working professionals and shoppers have made a recipe for success to businesses

offering food and drinks. Cruffs would like to try and take advantage of this by offering high

quality, freshly made coffee and pastries.

Currently Saskatoon does not house a specialty creampuff store. Creampuffs can be purchased

from small local bakeries as well as large grocery stores but only as a common product or

recipe. Cruffs plans to expose the market and achieve success by offering specialty individual

creampuffs as well as cakes for its customers in a friendly and efficient manner. Cruffs plans to

target local business professionals, events of all sizes, and common foot traffic in the downtown

core.

This business plan has been created to gather financing for the creation of a Cruffs store in

downtown Saskatoon. The financing will go towards capital costs, leasehold renovations, and

operating costs as well as designing and implementing a marketing campaign.

Critical success factors of Cruffs will include quantity of customers per day, growth of sales

immediately after startup, branding in the City of Saskatoon and competitive pricing.

Cruffs Creampuffs will be known as The House of Creampuffs and a local hub to purchase a high

quality, specialized product in a timely and cost effective manner.

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1.0 Introduction

1.1 Mission StatementTo offer fresh, specialty creampuffs at a competitive yet affordable price to satisfy the needs of the greater Saskatoon area

1.2 Goals and Objectives To gain a significant amount of awareness throughout Saskatoon of Cruffs brand and

product To consistently offer customers a fresh and unique product Generate a targeted (20%) return on investment Stay environmentally friendly and offer “green” products to our customers Continually grow our customer base until we hold a firm share of the market

1.3 Industry OverviewI have identified many opportunities within Saskatoon for a business such as Cruffs. In the most recent census from Statistics Canada, Saskatoon’s population is estimated to be 220,035. This is up 9.7% from the previous census. Also according to Statistics Canada, average household income has been on the rise for many consecutive years and is currently pegged at $80,570 in the most recent census. These positive statistics go to show that Saskatoon is growing in size as well as income.

In recent years downtown Saskatoon has underwent many revitalization projects to attract more people; however there is still no other business in the city that offers a product such as specialty creampuffs. Cruffs will position itself not only in the right area of this but also in the right market as factors such as population and income rise.

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2.0 Operations Plan

2.1 Organizational StructureCruffs will be solely owned by 1 person who will also manage the store. They will be in charge of the inventory, basic accounting, and HR duties of the business. The manager will be heavily involved with the daily operation of the store and although they are scheduled to certain working hours they will more than likely be putting in many more unscheduled hours to ensure a smoothly run operation. Assisting the manager will be 1 full time employee and 1 part time employee. The full time employee will work Monday-Friday and will be in charge of all duties in the store front and when working on duty with the manager will be given the task of cake decorating in the kitchen. The part time employee will manage the duties involved in the store front on an evenings and weekend basis.

Figure 1: Organizational Chart

Owner/Manager

Part Time Employee

Full Time Employee (Cake

Decorator)

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2.2 Site and Floor PlanThis plan ensures that an adequate space is available to rent which will be located in the heart of downtown Saskatoon at 133 21st Street East. This location is surrounded by the downtown business core which is home to thousands of business professionals as well as the heart of retail shopping in Saskatoon. The store is also located half a block from Saskatoon’s largest shopping center the Midtown Plaza. These factors will ensure that there is an adequate amount of foot traffic travelling past our store every single day of the week. The store itself is quite small but provides customers with a cozy environment and the open floor plan will ensure that customers will have a fast and easy transaction which will provide minimal disturbance in their day.

Cruffs board of directors will include 3 key components. First being an experienced accountant to ensure that our business is efficient and on track to maximizing profits. Second being a local food industry professional and local business owner to provide the manager with valuable insight in managing and operating a small business. Third being a lawyer experienced in business law who will be able to lend their services if any legal situations shall arise.

Figure 2: Site Plan

Figure 3: Building Specifications

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Figure 4: Floor Plan

Store Front: Public Side

Back of Store: Kitchen

Location:

133-21st Street East

Saskatoon, SK

Size: 548 SF

Surrounding Amenities:

o Downtown Business Core

o Midtown Plaza

o Heart of Retail District

o Galaxy Movie Theaters

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2.3 Daily Operations

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Average Business DayEvery day, with the exception of Sunday, will begin with an employee (full time employee during the week and manager on Saturday) arriving at the store at 7AM to begin baking and preparing the creampuffs for the day. The baker will prepare an adequate amount of creampuffs for the day based on common trends seen throughout each day. During the time that the creampuffs are being baked the employee will prepare mix for the next batch of creampuffs, prepare the freshly baked creampuffs in their proper coating and toppings, stock the front display case with fresh creampuffs as well as prepare the filling for the creampuffs and place it in the proper canister at the front of the store.

At 10AM the manager of the store will arrive to open up the store. This will include preparing the till, brewing coffee, and opening the store to customers. Once the manager arrives the baking should be done for the creampuffs which are being sold that day. At this time the full time employee will perform cleaning duties in the kitchen from the baking activities in the morning.

After cleanup is finished in the kitchen the full time employee will then work on any special orders that are needed for the day. This includes Cruffs boxes and cakes. The manager will continue to run the storefront as well as take business calls and continue to brew fresh coffee.

At 12PM the full time employee will receive an hour lunch break. During this time the manager will continue to run the store front and take care of the lunch hour traffic.

At 1PM when the full time employee returns from lunch they will take over the operation of the store front. At this time the manager will take care of other business duties such as stocking inventory, taking care of HR and marketing duties, handle any problems that may have risen throughout the business, and other miscellaneous duties that go along with the store.

When the full time employee has put in their 8 hours for the day which should be at 4PM, they will head home for the day and the manager will once again take over the store front duties. After around 5PM when the foot traffic starts to slow down the Manager will begin to prepare the store for the next day’s duties. This will include basic cleanup of the storefront and kitchen.

When the end of the day arrives at 6PM the manager will close the store to its customers and finish off preparation for the next day’s duties. This will include cleaning out the display case, cleaning the filling canisters and coffee machines, as well as balancing the cash in the till.

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Average Business WeekEach week the manager will need to create a chart for special orders for the week. This will mostly include of cakes for events as well as Cruffs boxes for corporate affairs. The manager will also need to create an employee schedule 3 weeks in advance. This will give the employee and employer a fair amount of time to account for situations which may arise that conflict the working schedule. The manager should also view the inventory budget as well as the sales budget each week to make sure that the business is running as efficient as possible.

Average Business MonthEach month the financial records will be sent to the accountant in order for the books to be prepared. Monthly statements will be made in order to keep track of the company’s sales, profits and expenses. It would be ideal to have a meeting each month as well between all employees of the business just to discuss basic daily operations with the business and any suggestions for improvements will be recorded and further investigated.

Average Business YearEach year the manager will have to print the company’s fiscal year end reports. These will be used for filing income tax. Goals and objectives will also be reviewed each year to assess the progress as well as feasibility of each. Also it would be ideal to perform a store wide review of any upgrades that are needed for all aspects of the business. Also a couple times a year the manager will assess its inventory suppliers to make sure that they are receiving the most cost efficient product available.

2.4 Supply AnalysisCruffs will receive its product from local grocery stores in Saskatoon multiple times weekly. They will not enter any binding agreements or contracts with stores due to the fact that prices can fluctuate and they do not want to get stuck paying more with one provider when they could go elsewhere to receive their product. The manager will perform quarterly competitor checks with grocery stores around Saskatoon in order to maintain low costs of ingredients. Cruffs will try to buy all their equipment locally however if the cost outweighs the benefit they will then purchase their equipment from retailers outside of Saskatoon. Cruffs will buy extended warranty on all of their equipment to ensure that if mishaps do occur they will not have the burden of paying for repair fees.


2.5 CapacityCruffs owns 2 industrial sized ovens with 3 racks in each oven. Each rack will be able to cook 15 creampuffs which take half an hour to cook. With an employee in the store for 3 hours before opening Cruffs would be able to produce 540 individual creampuffs for daily sales. Since this would be much more than estimated sales, a better indicator of capacity would be how many customers Cruffs could handle. Cruffs is open an average of 8 hours per day and an average transaction is predicted to take 2 minutes. According to that the capacity would be 240 customers per day. If Cruffs was beginning to approach this capacity they would need to open a second cash register to accommodate the higher customer inflow during certain times of the day.

2.6 Cost of SalesCreampuffs are relatively inexpensive to produce. The average creampuff sells for $1.75 but only costs $.23 to produce. This gives us a profit margin of 87%. Wedding cakes vary in profit margin depending on the specifics of the cake but they still stay between 80%-90%. Our coffee we sell costs about $.033 per ounce to make but we sell it for an average of $.1065. This gives us a profit margin of around 69% on coffee.

A detailed review of the Cost of goods sold as well as the Gross Profit Margin can be seen in Appendix 4

2.7 Capital BudgetThe capital budget consists of two major aspects which are equipment and leasehold improvements.

The equipment budget includes all of the equipment which Cruffs needs to run their business. This includes the baking equipment such as the ovens, refrigerators, dishwasher, cream canisters, and display case. Cruffs will incur the initial cost of these in the first year and will also purchase extended warranty on all possible equipment so that breakdown costs will not need to be worried about.

The leasehold improvements will need to be done before the equipment is purchased and the store is opened. These are vital costs that are needed as they provide the initial impression and the environment that Cruffs offers to their customers. This will include the initial renovations to


the building such as plumbing, floors, paint and electrical. The leasehold improvements also include furniture. The building will need to be supplied with a table and chairs for the few customers who choose to sit in store as well as the counter which the orders will be placed at. The IT systems and signs are another important improvement needed as a proper IT system will ensure a smooth and efficient transaction for customers and the business. The new sign which will be placed on the front of the store facing the street is essential for the success of the business as it will create brand awareness to potential new customers.

On a side note we stated that working capital will be stated at $0. The reason for this is we will not be accepting credit from our customers so we will have no accounts receivables. Also we believe that since our inventory turnover will be so quick our accounts payables and inventory will cancel each other out as we will be paying off our current debt at the same time that we are accruing new debt. Cruffs plans to have very little cash on hand. Any cash that builds up we plan to do 1 of 2 things with. First off if cash is building up we plan to reinvest it within the business. Reinvesting is a great way to grow your business and provide the ultimate experience for the customer. The second option we have is to pay out shareholders in dividends. This is also a great option as the sole owner invests a lot of time and money into this business and dividends is payoff when the business starts seeing success.

The total amount of the capital budget in year 1 is estimated to be $92,250

A detailed view of the capital costs can be seen in Appendix 1

2.8 Operational BudgetThe operations budget accounts for all of the daily expenses the business should accrue. This includes things such as accounting fees, rent, occupancy costs, inventory, insurance, utilities, wages and benefits as well as phone and internet.

One of the expenses worth noting is the wages. The wages consists of a base $45,000 for the manager. This is paid as a salary due to the inconsistent hours which the manager will work. Following that is the wage paid to the full time employee which is $15/hour as well as the wage paid to a single part time employee which is $10/hour.

Another expense is inventory. This may have to be adjusted up or down due to multiple revised views of the budget and usage. If Cruffs is experiencing a lot of waste at the end of each day then we will produce less and cut inventory costs however if it is noticed that we are selling out


of product before the end of the day consistently then we will have to produce more product which will raise the inventory costs.

Maintenance costs may rise as years go by due to the fact that our extended warranty on our equipment may be running out as different equipment will have different lengths of warranty.

The total amount for the operation budget in year 1 is estimated to be $131,66

3.0 Human Resource Plan

3.1 Job DescriptionsCruffs will have 3 employees hired at the store who consist of a manager, full time employee as well as a part time employee. Their job duties will consist of the following:

Manager Oversee scheduling of employees Record daily financials, cash drops, and everyday accounting of the business Open and close store on a daily basis Bake and prepare creampuffs as well as fillings Stock display case with fresh stock Brew fresh coffee throughout the day Clean and maintain cleanliness through the store Operate front counter and take in store inquiries about cakes and Cruffs boxes Restock inventory


Take care of all aspects of the marketing front for Cruffs Prepare product and store at the end of each day to be primed for following day Balance the cash till at the end of the day

Full Time Employee Bake and prepare creampuffs as well as fillings Stock the display case with fresh stock Brew fresh coffee throughout the day Clean and maintain cleanliness through the store Create cakes and Cruffs boxes specified as ordered Operate front counter and take in store inquiries about cakes and Cruffs boxes

Part Time Employee Ability to open and close store if needed Stock display case with fresh stock Brew fresh coffee throughout the day Clean and maintain cleanliness of the store Operate front counter and take in inquiries about cakes and Cruffs boxes Prepare product and store at the end of each day to be primed for following day Ability to balance the cash till at the end of the day if needed

All Cruffs staff will need to hold valid food safety certification. If an employee does not hold this certificate, Cruffs would pay for the course for the employee.

If over time the manager deems necessary, the part time employee will be trained on proper preparation and baking of creampuffs.

3.2 TrainingAll training of new employees will be done during store hours during the employee’s first shifts. The manager will train and supervise the employees during this time to ensure that proper methods and visions are taught correctly. For full time employees they will need a minimum 24 hours of direct training. It will then be the manager’s discretion whether the employee shall receive further training or not. For part time employees they will need a minimum 15 hours training. Once again it will be the manager’s discretion whether the employee shall receive further training.


4.0 Marketing PlanCruffs is going to have to use their marketing resources extremely effective. As a small startup business there is not a lot of capital to be used for marketing but at the same time marketing is going to be the most important factor of success for our business. Cruffs need to find the perfect mix of cost minimizing marketing that will maximize our exposure.

To review Cruffs 5 year estimates of revenue, Please view Appendix 2

4.1 The Marketing Mix

ProductCruffs main product is creampuffs. All creampuffs will be made with the same ingredients, fresh every morning however creampuffs will differ in coatings as well as fillings. Cruffs will offer 2 different sizes of creampuffs at mini and regular as well as 4 different coatings which consist of plain, sugar coated, chocolate and white chocolate. After the coating is chosencustomers can choose their filling. Cruffs offers many different fillingsincluding Chantilly cream, hazelnut chocolate, strawberry, coconut,banana, mocha, green tea, mango and lemon. Cruffs is also open to


any suggestions from customers on new coatings and fillings and will update them as they see fit.

Aside from the individual pastries Cruffs also offers Cruffs boxes. These consist of 12 specially prepared creampuffs made upon special order forsmall gatherings. Cruffs boxes are perfect for small events and are cost effective compared to small cakes and other similar treats.

Cakes are also a main product in which Cruffs offers. Cakes could potentiallymake or break the business as they offer huge potential of profit if we can gain a share of the market. Cruffs cakes are completely customizable as they can be made in any different sizes, shapes, and flavors. All orders must be placed one week in advance to ensure proper ingredients and preparation time is aloud.

Coffee is going to be Cruffs hidden attraction. We will brew coffee fresh throughout the day and offer this in a small and large size. Being that weare located in the downtown business core of Saskatoon there are a lot of business professionals who seek coffee throughout the day. By offering this we will attract business professionals in with our coffee and turn them into loyal customers with our creampuffs.

PriceCruffs will offer a mix between competitive and differentiated pricing. Since we are located downtown where there are other bakeries Cruffs will have to stay competitive in order to gain market share over other bakeries.

Cruffs creampuffs have 4 different scales on which they can be sold for. A mini regular creampuff will cost $1.50, a mini coated creampuff will cost $1.75, a regular creampuff will cost $2.00 and a regular coated creampuff will cost $2.25. With prices like these we feel that customers will be attracted in to purchase a high quality product at a low price.

Cruffs boxes will be sold for a flat rate of $31.50. This is a specialized price as we feel that it is such a different product than a cake and appeals to a different crowd.

Cruffs cakes are priced competitively at an average of $350 a cake. This is far less money than a traditional custom cake. We feel that this low price will gain momentum and see increased popularity as word gets out about not only the cost effective price but also the quality and


variety that is available. Each cake will vary in price as they will consist of different sizes, coatings, and other customizable features as specified.

PromotionCruffs is looking to reach out in as many ways as possible to maximize awareness about the business. The promotional plan consists of 3 aspects which are creating brand awareness, trade shows, and building the image of Cruffs

To create brand awareness Cruffs plans to create a modern, and easy to view website. This will appeal to not only customers inquiring about our Cruffs boxes and cakes but will also create awareness to prospective customers who have never heard about the business before. Cruffs also plans on purchasing a modern sign for the front of the building. This could be the single most important aspect of this phase as a properly designed and placed sign could spark the interest of many prospective customers who pass by on the street. Due to the high traffic that the store front receives it is vital to portray the proper image to each person passing by and this all starts with a well designed sign. Cruffs will also offer a grand opening promotion one month after the store opens. This will consists of one free regular mini creampuff to everyone who walks in the store. This should draw a large crowd into the store with the goal of winning them over with our supreme product. To advertise this Cruffs will also place a newspaper ad in the star phoenix for 2 weeks prior to the grand opening. We feel this will reach our target audience for this being business professionals.

We plan to also take part in many tradeshows throughout each year promoting our cakes to customers of all kinds. 3 main tradeshows which we plan to attend are bridal spectacular, women’s world, and the Saskatoon exhibition. Attending these trade shows will maximize our exposure to customers seeking our services as well as create awareness to others who may not have heard about or business yet.

Building the image of Cruffs is something that will keep us successful in the long run. This will harness and keep our loyal customers to returning to our store on a regular basis. We plan to do this by offering 3 promotions. First off is a stamp card. Customers may take a stamp card and will get it stamped every time they purchase a creampuff. If a customer purchases 20 creampuffs they will be eligible for 1 free one where they can then begin a new stamp card again. Second is a business card draw. Since we are located in the downtown business core we plan to have a draw box where customers can insert their business card every time they visit. At the end of each month one card will be drawn and the winner will receive one complementary Cruffs box. Finally Cruffs hopes to build partnerships with downtown businesses. We


understand that many businesses hold meetings and conferences on a daily basis and we hope that Cruffs can offer our services to them and provide them with coffee and pastries. This will not only become a solid stream of income to the business but will also create even more awareness of our services.

To view estimates of the marketing expenses, please view Appendix 3

PlaceCruffs will be located at 133 21st street east, Saskatoon SK. As discussed earlier in the operations plan this is located in the downtown business core of Saskatoon.

4.2 STP

Segmentation The market will be segmented into three segments that include:

Business Professionals

Events of all styles and sizes

Foot traffic of the downtown core

These segments are based on the Saskatoon market.

Target Market The market Cruffs will target will consist of business professionals, events in and around

Saskatoon, as well as everyday foot traffic in the downtown core. The business professionals

will be middle to high income males and females who are looking to grab a coffee for work or to

satisfy their sweet tooth on their break. Cruffs will also try to attract the hosts of events in and

around Saskatoon. This market will be crucial to the success of the business in that their

purchases usually consist of high volumes and large profit. Lastly, Cruffs will hope to attract a


large volume of foot traffic in the downtown core of Saskatoon. This will be a market that may

start of slow but as awareness builds of the business, more and more people will be stopping in

to try our products and become regular customers in the store.

Positioning Cruffs will be positioned as an affordable, medium to high end luxury product. Cruffs will offer

specialty creampuffs and cakes at a fair price to their loyal customers. Cruffs will rely on their

variety of products as well, as they understand that every consumer has different preferences

and Cruffs would like to offer them choice when they enter our store.

4.3 CompetitionCruffs has many indirect competitors throughout the city of Saskatoon however there are not many direct competitors in the sense that nobody else makes specialty creampuffs in the city or surrounding area. Cruffs closest competitor is cupcake conspiracy as they are located just a few blocks from the planned location of Cruffs and they also offer specialty products available directly to the consumer in the store front.

The following is a chart designed to display and compare Cruffs competitors in and around Saskatoon:

Competitor Image Location PriceAlmost Heaven Specializes in wedding

cakes but also prepare cupcakes upon request. Only available for events

Home based, Saskatoon

Cakes are very expensive however cupcakes are reasonably priced. Overall Competitive pricing

Bridge City Specializes in cakes. Available upon order only. Cupcakes only available in bulk

Unavailable Competitively priced Cakes followed by expensive cupcakes

Cupcake Conspiracy Our closest competitor. Wide variety of cupcakes

#4-157 2nd Ave NJust a few blocks

Competitive Pricing on all products


and cakes all of which are specialized. Available anytime and upon request

from Cruffs

Crave Cupcakes Similar in business model to Cruffs. Offer a wide variety of high quality products in store. Also do special events. Also offer cookies

802 Broadway Ave Expensive prices however quality is very high

Mini-Bites Offers high quality cupcakes only. Not available to for individual sales but can only be ordered upon request.

Unavailable Expensive cupcakes however they do reduce rates on large orders.

Safeway Offers basic plain creampuffs sold for retail

Multiple locations in Saskatoon

Cheap prices

4.4 Target MarketsCruffs plans to target 3 different markets to achieve maximum exposure.

The first market consists of business professionals. Downtown Saskatoon is the heart of the business core and employs thousands of workers a day. These potential customers are on periodic breaks throughout the day and are looking for somewhere close where they can go to get their fix of coffee and satisfy their sweet tooth. This market is receives above average income and also has above average disposable income making them a prime target for Cruffs

The second market Cruffs plans to exploit consists of events of all sizes and nature. During all times of the year there are events happening such as weddings, anniversaries, birthdays, corporate meetings, or even just friends gathering. During these events people are looking for cost effective ways to impress their guests with food. Cruffs can satisfy their needs by offering Cruffs boxes and cakes of all sizes and forms. This is one market in which success will depend completely on brand image and exposure.

The third target market for Cruffs is general foot traffic in front of the store. Being located on 21st street Cruffs is in the heart of the retail district downtown as well as only a block away from Saskatoon’s largest mall the Midtown Plaza. This combined with the employees in the business district will ensure that there will be a large amount of traffic passing by our store each day. If Cruffs can attract even a small fraction of that traffic into the store we are confident that a large percentage of them will be sold on our product and become repeat customers.


5.0 Financial Plan

5.1 Financial DescriptionCruffs will finance its capital assets with 100% equity through the owner. The capital budget requires funds equal to $92,250 however Cruffs plans to raise slightly more than that to cover any unforeseen needs within the first couple years. Overall Cruffs plans to raise $125,000 for startup. This will be contributed by the owner as well as some outside investors. Since the company is small and will not raise a lot of capital in its beginning it is preferred that the investors stay within the owner’s family and friends as too much equity cannot be given out.

Dividends will not be paid out initially as the company will not be able to afford it. Once Cruffs achieves retained earnings over $15,000 dividends will then begin to be paid out.

The following is a detailed chart of the retained earnings account:

Retained Earnings Account Beg RE

- (26,696)

(44,481)

(33,397)

(17,932)

Net Income 6,601 (26,696)

(17,785)

11,083

29,848

36,556

Dividends 15,000

-

-

-

14,383

37,923

End RE (26,696)

(44,481)

(33,397)

(17,932)

(19,299)


5.2 Require Rate of ReturnThe owners of Cruffs require a 20% return on the business. Since the business is small with medium to high risk due to the competition, it is essential that Cruffs returns 20%. In saying this, their location brings down their risk as there is a high volume of consumers who surround the business.

5.3 Critical Success VariablesIdentified below are 2 critical success variables which could define the success or failure of the company. These consist of customers and price of product.

The first variable is customers. This consists of a few different scenarios in being a) the number of customers and b) the type of customers. The number of customers is the single most important variable for Cruffs. If Cruffs can receive continuous customer growth upon opening they will undoubtedly become successful and turn a profit. However if Cruffs cannot grow in popularity and continually sees no growth in customers, than it is inevitable that they will fail. There is one exception to this however and that lies in the type of customers which Cruffs sees growth in. If they can become successful in their cake sales then individual creampuffs sales can stay constant and the business will still turn a profit. This is due to the fact that Cakes offer much more return then individual creampuffs do.

The second critical variable is the price of their products. Since Cruffs will experience fierce competition in their early years it is important that they price their products appropriately. Too high of a price will drive customers away without them ever knowing what the product is even like. On the other end too low of a price will make it hard for the company to turn a profit. In small startup businesses price is often overlooked and turns into a large factor of the success or failure of the company.

5.4 Best and Worst Case Scenarios

BestThe best case scenario for Cruffs would be to reach their projected base case of 60 customers per day and experience the projected growth. If this were too happen Cruffs would see a profit after year 3 and then experience continual growth beyond that. By year 5, Cruffs would be up


to 104 customers and would bring in a net income of $36,556. At this point in time Cruffs would not yet have enough profit to pay dividends.

WorstThe worst case scenario for Cruffs would be that they get 0 customers per day in their base year. If this happened Cruffs would bring in no revenue and accrue losses of $129,131 in net income for year 1. This would be due to the fixed costs accrued throughout the year. If this happened it would undoubtedly force the business to close and lose everything that was put into it. The only salvage available at this time would be 60% of the equipment invested in which would amount to roughly $34,500

5.5 Sensitivity AnalysisThe average 5 year owner’s compensation is extremely sensitive to number of customers per day. When we deviate by 5 customers from our base case of 60 customers per day, we see our average net income fluctuate from -5,296 to -18,180 in year one when customers per day drop to 55. In the other direction we see our average net income fluctuate up to 6,601 if we raise the customers per day to 65. In seeing this it is extremely important that we maintain our projections as any loses larger than what we projected in the first 2 years would be too much for the company to handle.

5.6 Break Even AnalysisThe break even analysis looks at our net income and compares it to the amount of purchasing customers that we have in the store each day. It is assumed that each customer will spend an average of $5.87 per visit. This is a combination of customers making purchases of cakes as well as individual creampuffs and coffee. In order to break even, Cruffs has to meet the following number of customers in the 5 years:

Customers/day 76 85 84 83 82The chart below is Cruffs base case estimate for customers per day:

Customers/day 60 75 90 99 104As shown above we can see that Cruffs does not break even until the 3rd year due to the initial business startup costs combined with the low customers per day. After this point, Cruffs exceeds the break even each year and achieves a profit.

The following is a flow chart to show how many customers Cruffs will need to breakeven


1 2 3 4 50

20

40

60

80

100

120

Years

# of Customers

5.7 NPV and IRRWhen looking at the NPV and IRR for Cruffs it is important to note that these particular attributes are not accurate measures of the business due to the nature of the business activities and the low amount of capital required for startup. The NPV after year 5 for Cruffs in the base projection is stated at $39. The IRR in the same case after year 5 is projected at 20%. These are positive numbers as the NPV is above 0 and the IRR is what was required. After saying that these numbers are not large by any means and other aspects such as average owner compensation are a better measure to go by.

5.8 FeasibilityWhen deciding whether the business is feasible or not we need to take a look at many of the numbers in the financial model and combine them with the risk taken to pursue this. Overall I believe that the business is feasible however there is a large amount of risk taken if this was pursued. There is not a lot of breathing room for the business and everything would have to run as outlined in order for it to eventually turn a profit.

5.9 Contingency PlanIf the owners of Cruffs decide at the end of year one that Cruffs is not where they want it to be, they may then ramp up their advertising budget. Gaining awareness is going to be the key critical factor as to whether the business succeeds or fails. Cruffs will consider seeking a guerrilla marketing campaign as well as a radio ad.


If at the end of year two the owners decide Cruffs is still not where they believe it should be, they may then close the business and take their losses. The only salvage value will be the equipment. They should be able to sell the equipment for about 50% of what it was worth new. Other than this everything else will be considered a loss. The business itself may also owe remaining payables to their suppliers. These will be paid before the business is shut down.

6.0 Conclusion

In the end I believe that Cruffs has a strong business model in place. The operations provides a lot of potential as it is a small business with little capital needed. It does not require highly skilled workers or a lot of training. The site plan which is established provides unlimited opportunity for the business to grow.

The marketing plan is the single most important factor for the business. Cruffs needs to utilize the perfect marketing model which will allow them to achieve maximum exposure at a minimum cost. As far as the competition goes there is little to no direct competition however there is a large amount of indirect competition within the city of Saskatoon. The market itself provides a huge opportunity for the business to succeed as Saskatoon in particular the downtown business core is growing rapidly and is full of opportunity.

The financials for Cruffs are going to be key as they need to find a way to keep costs to a minimum in order to turn a profit in the first few years. If Cruffs can financially survive the first 2 years than it shows that the business will achieve success and profit.

Overall the business model does have potential to turn a profit however a lot of factors must go the right way in order for that to happen. After reviewing the financials and discussing the capital needed and risk involved, I believe that Cruffs business plan should be further reviewed and not moved forward with at this time. The potential returned is too low for the risk involved


however if redone and costs can be cut it would be worth reviewing again for potential of success.

7.0 Works Cited(2011). Retrieved from Statistics Canada: http://www12.statcan.gc.ca/census-recensement/2011/dp-

pd/prof/details/page.cfm?Lang=E&Geo1=POPC&Code1=0738&Geo2=PR&Code2=47&Data=Count&SearchText=Saskatoon&SearchType=Begins&SearchPR=01&B1=All&Custom=&TABID=1

Government Services for Entrepreneurs. (2012, 11 14). Retrieved from Canada Business Network: http://canadabusiness.ca/eng/page/2749

Saskatoon, C. o. (2012). Obtaining a Business License. Retrieved from http://www.saskatoon.ca/DEPARTMENTS/COMMUNITY%20SERVICES/PLANNINGDEVELOPMENT/BUSINESSLICENSEMAPPINGANDRESEARCH/BUSINESSLICENSE/Pages/default.aspx


8.0 Appendices

1. Capital BudgetCost Source

EquipmentIndustrial Ovens $ 14,000.00 Russell FoodCommercial Fridge $ 5,000.00 Russell FoodRefrigerator (x3) $ 5,000.00 SearsDishwasher $ 3,000.00 SearsCream Servers (x15) $ 3,750.00 Server InternationalFurniture $ 7,000.00 PavarSign $ 5,000.00 Saskatoon Awning and

CanvasIT Systems $ 9,500.00 Jay TechnologiesBakery Display Case $ 5,000.00 Food Service WarehouseTotal $ 57,250.00

Leasehold ImprovementsRenovations $ 35,000.00 Multiple Saskatoon

CompaniesTotal $ 35,000.00


Operations BudgetAccounting and Legal $ 6,000.00 Norris Accounting ServicesRent/Lease $ 16,440.00 RemaxOccupancy Costs $ 6,100.00 RemaxInventory $ 28,288.00 Business PlanInsurance $ 800.00 Butler BuyersLicense and Fees $ 350.00 City of SaskatoonUtilities $ 7,200.00 Sask Power, Sask EnergyRepair and Maintenance $ 2,000.00 Telephone and Internet $ 1,200.00 SasktelUniforms $ 300.00 Retail, Stitched LocallyWages $ 84,200.00 Business PlanBenefits $ 12,866.00 Business PlanTotal $ 165,744.00

2. Revenue Estimates

Income StatementFor the year ended 2013 2014 2015 2016 2017

Sales 126,792

162,452

199,816

225,293

242,471

COGS 21,821

27,958

34,388

38,773

41,729

Gross Profit 104,971

134,494

165,428

186,520

200,742

Profit Margin 83% 83% 83% 83% 83% Operating Expenses Lease Expense

16,440 16,851

17,272

17,704

18,147

Utilities 7,200

7,380

7,565

7,754

7,947

Wages 84,200

96,350

98,759

101,228

103,758

Employee Benefits 12,866

14,722

15,090

15,468

15,854

Repair and Maintenance 2,000

2,050

2,101

2,154

2,208

Other Variable Costs % Sales 2,536

3,249

3,996

4,506

4,849


Capital Cost Allowance 6,425

11,677

9,561

7,860

6,490

Debt Interest -

-

-

-

-

Total operating Expenses 131,667

152,279

154,345

156,672

159,254

Taxable Income 7,588

(26,696)

(17,785)

11,083

29,848

41,488

Income Taxes -

-

-

-

4,932

Net Income 6,601

(26,696)

(17,785)

11,083

29,848

36,556

3. Marketing Expenses

Year 1 Year 2 Year 3 Year 4 Year 5Grand Opening $648 $0 $0 $0 $0Newspaper Ad $4,000 $0 $0 $0 $0Sign $5,000 $0 $0 $0 $0Website $3,000 $0 $1,000 $0 $0Stamp Card $2,534 $3,142 $3,750 $4,562 $4,684Business Draw $380 $386 $392 $399 $406Partnerships $0 $0 $0 $0 $0Bridal Spectacular $750 $750 $750 $750 $750Women’s World $1,250 $1,280 $1,311 $1,343 $1,378Saskatoon Ex $675 $675 $0 $0 $0Total $18,237 $6,233 $7,203 $7,054 $7,118


4. Cost of Goods Sold

Gross Profit Margin Year 1 Year 2 Year 3 Year 4 Year 5 Confectionary 87% 87% 87% 87% 87% Groceries 86% 86% 86% 86% 86% Tobacco 69% 69% 69% 69% 69%

Cost of goods Sold Year 1 Year 2 Year 3 Year 4 Year 5 Confectionary

8,736 11,193

13,767

15,523

16,706

Groceries 4,438

5,686

6,994

7,885

8,486

Tobacco 8,647

11,079

13,627

15,365

16,537

Total Cost of Goods Sold 21,821

27,958

34,388

38,773

41,729


1 2 3 4 5 -

5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000

Total Cost of Goods Sold

Total Cost of Goods Sold

Year

5. Financial Budget

Financial ProjectionsSee Excel Spreadsheet

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