Living Foods Company’s Business Plan

Executive Summary

The proposed business is ‘Living Foods,’ which will produce and sell microwaveable healthy grilled-food items in the UK. The business owner is Mr. XYZ who has worked for more than seven years in different food companies. He has mastered the art of cooking and has developed amazing recipes which have been tried and tested by many consumers at various food festivals and conferences. The proposed company will be a sole proprietorship, and it will be set up in Newbury, Berkshire. The business will operate a complete cooking and production unit and sell its products via online and retail channels. The competition in the market is intense and mainly based on the pricing of products. The company will bring innovation to the food sector by introducing new products. It is anticipated that the business will generate growing sales in the months after its inception. It will generate a small profit in the first year of operations, which is expected to increase significantly in the second and third year.

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The Concept

The proposed business will be a ready-made healthy food company that will sell microwaveable ready meals including healthy grilled meats and vegetables. The suggested business name is “Living Foods,’ and it will be located in Newbury, UK. A light industrial unit that has almost 3,700 sq. ft. of space will be rented out to carry out the business operations. The reasons for selecting Newbury for this business are its proximity to London which is the largest sub-market in the UK and easy access to distribution channels. The management has identified the following keys to the success of the proposed business.

  • Highly nutritious, delicious, and healthy food products.
  • Giving priority to customers’ healthy eating and lifestyle.
  • Generating strong financials and growth.

The mission of Living Foods is to become a leading microwaveable healthy food brand in the UK.

Methodology

The business will be a sole proprietorship to be owned and managed by a single individual. The benefit of this form of business is that it is easy to set up and the owner has full control and can withdraw all profits without sharing. However, it has drawbacks as the entire responsibility of the business is on the owner, and it could be difficult to obtain additional financing if required (Miller 2016). This form of business is selected as the owner wants to maintain full control of decisions and outcomes. The owner has a clear plan to launch this business and achieve the best results. He will use personal equity to raise finance for the proposed business. Furthermore, a bank loan will be sought from a local bank in the UK.

Objectives

The objectives of the proposed business are given in the following.

  • To become a reputable healthy food brand in the UK market.
  • To produce, package, and deliver healthy food by adopting environmentally sustainable practices.
  • To secure a retail space in different stores including Tesco, ASDA, and Sainsbury’s.

Market

The primary target market is the United Kingdom (UK) which is a major economy in Europe, and it produces 60% of its food requirements. The country held a referendum to exit the European Union in 2016. It has adversely affected the value of the British Pound and has increased the cost of business operations. Moreover, consumer prices have also risen (Central Intelligence Agency 2018). The company will target young individuals who are in the age group of 18-34 years. These customers are health cautious and have a high disposable income. Moreover, they are educated and understand the importance of a healthy lifestyle (Dunne and Naden 2015). Although the production facility will be set up in Newbury, the company will distribute its healthy frozen products throughout the UK.

Target Location of Production Facilityю
Figure 1. Target Location of Production Facility (Google Maps 2018).

Competition

There are eight significant competitors including Tesco, Sainsbury’s, Morrison’s, and Ocado, etc. All of these companies have a separate product line of prepared healthy foods in their stores. These companies compete on prices and provide a wide range of healthy food items. However, it is noted that these companies lack a focus on innovation in the food sector. The new business will target a particular segment in the market by focusing on grilled low-carb healthy products that are expected to generate high demand from consumers.

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It is indicated that the competition in the UK market is intense and the key to success is selling high-quality food as per the expectations of health cautious customers. The new business will produce and sell healthy and delicious recipes that the owner has developed over the years and tried while working in different food companies in Manchester and Berlin. The owner is confident that the new business will be successful as consumers want to try out new flavors and healthy options.

Products

The objective of the proposed business is to bring flavors from different parts of the world and produce delicious and healthy food for health cautious consumers. The new business will produce healthy grilled meats and vegetables which will be packaged in microwaveable boxes. The owner personally developed all recipes. The packaging will provide details of all ingredients along with the total calories per item.

Marketing Strategy and Activities

The marketing strategy will encompass decisions related to the 4Ps of the marketing mix, which is described in the following.

Price: The new business will follow the competitive pricing strategy which implies that a low-profit margin will be earned.

Product: The company will produce microwaveable grilled healthy-food items for health cautious customers.

Promotion: The company will offer various promotional deals such as a discount on multipack purchases or new products. The business will be promoted through social media including Facebook and Pinterest. Furthermore, the company will carry out marketing through printed media such as various food magazines including New Food Magazine and Food and Drink News Magazine. The company will also use SMS and e-mail marketing tools. Moreover, the owner will also participate in different food-related events to promote the new business.

Place: The business will operate in Newbury and sell its products throughout the UK.

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Sales and Operations

The company will sell its products to different small and large retail stores. The owner will manage the new business. However, its operations will be managed by the Production Manager and Quality Controller who will be hired after the approval of a bank loan. The inventory manager will be responsible for managing and controlling inventory. The quality controller will manage kitchen operations and ensure food quality and consistency. The owner will perform managerial responsibilities including compliance with UK Food Safety Regulations, accounting, and tax management. The production manager will implement safety standards and provide training to machine operators. The company will also hire loaders and a cleaner to support production and other operations. It will also develop an e-commerce website and deliver its products directly to consumers. The owner will contract with a food delivery company – NFT (nft.co.uk) to provide logistics services.

Sales Forecast

The owner has used the following assumptions for preparing a sales forecast.

  • The company will use a competitive pricing strategy.
  • The company’s sales will significantly increase after it secures a purchase order from the first major retailer. However, they are expected to increase in the first 12 months gradually.
  • The owner expects to sign a contract with a major retailer by the end of the first year of operations.
  • The company will achieve a 30% increase in sales in 2020 and 2021.
  • There are two sales channels identified for the first year of operations including online websites (40%) and small retailers (60%).
  • The expected inflation rate in 2020 and 2021 will be 1.95% (Statista 2018), which will increase the cost of sales.

Table 2 provides the sales forecast including sales and direct cost of sales.

<2019> Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total
£ £ £ £ £ £ £ £ £ £ £ £ £
Sales
Online Website 40% 12,000 11,400 11,100 10,500 10,200 10,800 11,400 11,550 11,100 10,800 10,500 11,100 132,450
Small Retailers 60% 28,000 26,600 25,900 24,500 23,800 25,200 26,600 26,950 25,900 25,200 24,500 25,900 309,050
Total Sales 30,000 30,900 31,827 32,782 33,765 34,778 36,517 38,343 40,260 42,273 44,387 45,667 441,500
Direct Cost of Sales
Online Website 40% 4,800 4,560 4,440 4,200 4,080 4,320 4,560 4,620 4,440 4,320 4,200 4,440 52,980
Small Retailers 40% 11,200 10,640 10,360 9,800 9,520 10,080 10,640 10,780 10,360 10,080 9,800 10,360 123,620
Subtotal Direct Cost of Sales 16,000 15,200 14,800 14,000 13,600 14,400 15,200 15,400 14,800 14,400 14,000 14,800 176,600

Table 1. Sales Forecast.

Financial Projections

Start-Up Summary

The new business will be located in Newbury, Berkshire, and the yearly rent of the selected commercial property is estimated to be £42,000 per annum. The property is suitable for the production unit. However, it requires a significant investment in leasehold improvements. The start-up will require business registration, licensing, and approvals from the food regulatory authority. The premise will be rented on an annual basis.

Moreover, the Production Manager and Quality Controller will be hired In January 2019 to start working on the project with the owner. The company’s production and sales will start on July 1, 2019. Table 3 provides details of the initial funding requirements.

Start-up Summary Amount
£
Start-up Expenses
Production Manager Salary (6 Months) 9,000
Quality Controller Salary (6 Months) 9,250
Business Registration and Licensing 6,500
Trial and Testing 10,000
Rent 21,000
Start-up Assets to Fund
Signage 1,500
Equipment 65,000
Furniture 1,500
Inventory Management System 1,200
Customer Management System 850
Computers 1,500
Funding Requirement 127,300
Additional Cash Reserve 25,000
One-Year Payroll Expense 161,100
Total Funding Requirement 313,400
Equity (60%) 188,040
Debt (40%) 125,360

Table 2. Start-Up Costs and Expenses.

A bank loan will be sought for a 5-year term, and the interest rate is estimated to be 3.94% per annum. The company will pay off the principal amount after five years.

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Personnel Plan

The owner will not withdraw funds from the business but instead receive a salary of £22,000 per annum in the first year. The company will also hire ten individuals for different roles including Quality Controller, Production Manager, Machine Operator, Marketing Manager, Inventory Manager, and Cleaner. The personnel plan including details of salaries is given in Table 4. All salaries are expected to increase by 4% in the next two years.

2019 2020 2021
£ £ £
The owner (Salary) 22,000 22,880 23,795
Production Manager 18,000 18,720 19,469
Marketing Manager 17,500 18,200 18,928
Quality Controller 18,500 19,240 20,010
Inventory Manager 15,500 16,120 16,765
Machine Operators (3) 48,000 49,920 51,917
Loaders (2) 16,800 17,472 18,171
Cleaner 4,800 4,992 5,192
Total People 11 11 11
Total Payroll 161,100 167,544 174,246

Table 3. Personnel Plan.

Income Statement

The income statement for the first three years of operations is provided in Table 6. The equipment to be purchased has a useful economic life of 20 years, and its value will be depreciated by using the straight-line method. Other assets will be depreciated over their estimated useful life of 10 years.

Year 1 Year 2 Year 3
£ £ £
Sales 441,500 573,950 746,135
Cost of Sales 176,600 234,034 304,244
Gross Margin 264,900 339,916 441,891
Expenses
Depreciation 3,250 3,250 3,250
Rent 42,000 43,680 45,427
Payroll Expense 161,100 167,544 174,246
Marketing 15,000 15,750 16,538
Earnings Before Interest 43,550 109,692 202,430
Interest 4,939 4,939 4,939
Earnings After Interest 38,611 104,753 197,491
Tax 5,422 31,601 68,696
Net Profit 33,189 73,152 128,795

Table 4. Income Statement.

Cash Flow Statement

The cash flow statement for the first three years of operations is provided in Table 6.

Year 1 Year 2 Year 3
£ £ £
Beginning Cash 186,100 222,539 304,806
Cash Inflows
Collection from Sales 441,500 573,950 746,135
Spending
Cash Received 627,600 796,489 1,050,941
Cash Outflows
Cost of Sales 176,600 234,034 304,244
Rent 42,000 43,680 45,427
Payroll Expense 161,100 167,544 174,246
Marketing 15,000 15,750 16,538
Interest 4,939 4,939 4,939
Tax 5,422 31,601 68,696
Cash Spent 405,061 497,548 614,090
Net Cash Flow 36,439 76,402 132,045
Ending Cash Balance 222,539 304,806 467,907

Table 5. Cash Flow Statement.

Balance Sheet

Balance Sheet Year 1 Year 2 Year 3
Assets
Cash 222,539 304,806 467,907
Equipment 61,750 58,500 55,250
Other Assets 5,895 5,240 4,585
Inventory 54,465 49,254 18,853
Total Assets 344,649 417,800 546,595
Liabilities and Equity
Liabilities
Long-term Debt 125,360 125,360 125,360
Total Liabilities 125,360 125,360 125,360
Capital 186,100 186,100 186,100
Retained Earnings 33,189 106,340 235,135
Total Equity 219,289 292,440 421,235
Total Equity and Liabilities 344,649 417,800 546,595

Table 6. Balance Sheet.

Strengths and Risks

The major strengths of the proposed business are listed in the following.

  • The owner has worked in the food industry for more than seven years.
  • The owner has developed unique food recipes from different parts of the world.
  • The demand for healthy food is increasing (Wells 2017).

The proposed business also faces certain risks which are highlighted in the following.

  • The competition is intense in the food market.
  • It is crucial to maintain the quality of food served and mismanagement of other factors such as customer service, food storage, fire safety, and hygiene can also affect the sustainability of operations.
  • Poor customer feedback can destroy the brand image.

Closing Summary

Living Foods is a healthy food manufacturing company which will be located in Newbury, UK. The company will produce delicious and healthy microwaveable grilled food items. The business will start its operations in July 2019. The company will operate as a sole proprietorship and target young consumers through its online and retail network. Based on the market analysis and demand for healthy food, it is projected that the new business will generate a small profit in the first year. The business will have sufficient cash flows to invest in the expansion of its operations in the UK after three years. There are few risks related to the business that are identified in this plan, which requires careful planning and controls.

List of References

Central Intelligence Agency. Europe: United Kingdom. Virginia: Central Intelligence Agency. Web.

Dunne, D. and Naden, T. Marketing to health-conscious ‘millennials’. Surrey: PMGroup Worldwide Ltd. Web.

Google Maps, 2018. Newbury Google Maps. California: Google LLC. Web.

Miller, R. L., 2016. The legal environment today – summarized case edition: business in its. 8th edition. Stamford: Cengage Learning.

Statista. United Kingdom: Inflation rate from 2012 to 2022 (compared to the previous year). Hamburg: Statista. Web.

Wells, L. UK shoppers increasingly buying healthy food, finds the report. Croydon: Talking Retail. Web.

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