What Makes a Good Plan?

by Tim Berry

April 06, 2004

Is it the length of the plan? The information it covers? How well it's written, or the brilliance of its strategy. No.

The following illustration shows a business plan as part of a process. You can think about the good or bad of a plan as the plan itself, measuring its value by its contents. There are some qualities in a plan that make it more likely to create results, and these are important. However, it is even better to see the plan as part of the whole process of results, because even a great plan is wasted if nobody follows it.

Planning is a Process, Not Just a Plan

A business plan will be hard to implement unless it is simple, specific, realistic and complete. Even if it is all these things, a good plan will need someone to follow up and check on it. The plan depends on the human elements around it, particularly the process of commitment and involvement, and the tracking and follow-up that comes afterward.

Successful implementation starts with a good plan. There are elements that will make a plan more likely to be successfully implemented. Some of the clues to implementation include:

1. Is the plan simple? Is it easy to understand and to act on? Does it communicate its contents easily and practically? 2. Is the plan specific? Are its objectives concrete and measurable? Does it include specific actions and activities, each with

specific dates of completion, specific persons responsible and specific budgets? 3. Is the plan realistic? Are the sales goals, expense budgets, and milestone dates realistic? Nothing stifles implementation like

unrealistic goals. 4. Is the plan complete? Does it include all the necessary elements? Requirements of a business plan vary, depending on the

context. There is no guarantee, however, that the plan will work if it doesn't cover the main bases.

Use of Business PlansToo many people think of business plans as something you do to start a company, apply for a loan, or find investors. Yes, they are vital for those purposes, but there's a lot more to it.

Preparing a business plan is an organized, logical way to look at all of the important aspects of a business. First, decide what you will use the plan for, such as to:

Define and fix objectives, and programs to achieve those objectives. Create regular business review and course correction. Define a new business. Support a loan application. Define agreements between partners.

Set a value on a business for sale or legal purposes. Evaluate a new product line, promotion, or expansion.

No Time to Plan? A Common Misconception"Not enough time for a plan," business people say. "I can't plan. I'm too busy getting things done." A business plan now can save time and stress later.

Too many businesses make business plans only when they have to. Unless a bank or investors want to look at a business plan, there isn't likely to be a plan written. The busier you are, the more you need to plan. If you are always putting out fires, you should build fire breaks or a sprinkler system. You can lose the whole forest for too much attention to the individual trees.

Keys to Better Business Plans Use a business plan to set concrete goals, responsibilities, and deadlines to guide your business. A good business plan assigns tasks to people or departments and sets milestones and deadlines for tracking

implementation. A practical business plan includes 10 parts implementation for every one part strategy. As part of the implementation of a business plan, it should provide a forum for regular review and course corrections. Good business plans are practical.

Business Plan "Don'ts" Don't use a business plan to show how much you know about your business. Nobody reads a long-winded business plan: not bankers, bosses, nor venture capitalists. Years ago, people were favorably

impressed by long plans. Today, nobody is interested in a business plan more than 50 pages long.

Export - CoffeeBusiness PlanSilvera and Sons1.0 Executive Summary [back to top]

Silvera & Sons prepares green Arabica coffee beans grown in Brazil for exportation to American specialty roasters and sells to wholesalers on the Brazilian market. We will expand production capacity from 72,000/60kg bags per year to 120-160,000/60kg per year. Our coffee stands out from that of the competition. We prepare the top five percent, in terms of quality standards, of all Arabica beans on the market. Our customers seek this product as it provides them with a point of differentiation to specialty roasters. In the past six years, demand for our coffee has exceeded the amount we are able to supply and we have been forced to refuse requests for larger shipments.

We predict growth of thirty percent in the first year with sales exceeding ($BRL) 26,208,000. In year three the plant will run at maximum capacity and based on the current price of coffee we expect profits of ($BRL) 1.5 million. We have positive indicators from current importers that the additional amount of beans will be sold.

Our keys to success are:

1. Establishing and maintaining working relationships and contractual agreements with American importers and Brazilian coffee brokers and wholesalers.

2. Bringing the new facility to maximum production within three years of operation. 3. Increasing our profit margin to seventeen and one-half percent (17.5%) with the use of improved technology in

the new facility. 4. Effectively communicating to current and potential customers, through targeted efforts, our position as a

differentiated provider of the highest quality Arabica beans in the world.

Highlights

Click to Enlarge1.1 Objectives [back to top]

The objectives of Silvera & Sons:

Increase production and sale from 78,000/60kg bags per year to approximately 100,000/60kg bags per year in the first year of operation at the proposed facility and reach maximum capacity of 120,000/60kg bags per year by year three.

Increase sales from ($BRL) 17.9 million to ($BRL) 26.2 million in the first full year of operation. Establish strategic relationships with 10-15 American importers in Los Angeles, San Francisco, & Seattle. Increase gross margins from fifteen percent (15%) to seventeen percent (17%) in the next three years.

1.2 Mission [back to top]

Silvera & Sons Ltda seeks to serve coffee importers and enthusiasts by exceeding minimum acceptable quality standards and by providing the highest quality product at the lowest possible price. We value our relationships with current and future customers and hope to communicate our appreciation to them through our outstanding, guaranteed product quality, personal service, and efficient delivery. Our commitment to our customers and the country of Brazil will be reflected through honest and responsible business.

1.3 Keys to Success [back to top]

The keys to success for Silvera & Sons are:

Establishing and maintaining working relationships and contractual agreements with American importers and Brazilian coffee brokers and wholesalers.

Bringing the new facility to maximum production within three years of operation. Increasing our profit margin with the use of improved technology in the new facility. Effectively communicating, to current and potential customers, our position as a differentiated provider of the highest quality

Arabica beans in the world.

.0 Company Summary [back to top]

Silvera & Sons buys and prepares raw coffee in parchment (pergamino), or coffee in its post-harvest stage. The finished product, green Arabica coffee beans are packaged in 60kg sacks and sold on the U.S. and Brazilian market. Our customers are primarily American importers and Brazilian wholesalers who provide high-quality beans to the specialty roasting market.

2.1 Company Ownership [back to top]

Silvera & Sons Ltda. is a private, family owned preparer and exporter of Brazilian-grown, green Arabica coffee beans. It is owned and operated by Marco Silvera Sr. and his sons, Marco Silvera Jr. and Antonio Silvera.

2.2 Company History [back to top]

Silvera & Sons is in its sixth year of operation. The current plant has been in operation for 15 years and for 12 of those years was managed by Marco Silvera Sr. who was then an employee of the former owner, Cafe Fina. Since the plant was purchased, Silvera & Sons has maintained maximum production and sales. It is currently operating at maximum capacity.

Past Performance

  1996 1997 1998

Sales $16,262,532 $17,304,066 $18,345,600

Gross Margin $2,439,380 $2,630,218 $2,814,215

Gross Margin % 15.00% 15.20% 15.34%

Operating Expenses $12,196,899 $12,631,968 $13,346,424

Collection Period (days) 0 0 4

Inventory Turnover 12.00 12.00 12.00

       

Balance Sheet      

Current Assets 1996 1997 1998

Cash $0 $0 $994,260

Accounts Receivable $0 $0 $137,250

Inventory $0 $0 $355,200

Other Current Assets $0 $0 $243,936

Total Current Assets $0 $0 $1,730,646

Long-term Assets      

Capital Assets $0 $0 $521,650

Accumulated Depreciation $0 $0 $100,000

Total Long-term Assets $0 $0 $421,650

Total Assets $0 $0 $2,152,296

       

Capital and Liabilities      

  1996 1997 1998

Accounts Payable $0 $0 $8,435

Current Borrowing $0 $0 $58,000

Other Current Liabilities $0 $0 $0

Subtotal Current Liabilities $0 $0 $66,435

       

Long-term Liabilities $0 $0 $402,000

Total Liabilities $0 $0 $468,435

Paid-in Capital $0 $0 $525,000

Retained Earnings $0 $0 $223,235

Earnings $0 $0 $935,626

Total Capital $0 $0 $1,683,861

Total Capital and Liabilities $0 $0 $2,152,296

       

Other Inputs 1996 1997 1998

Payment Days 0 0 60

Sales on Credit $0 $0 $6,054,048

Receivables Turnover 0.00 0.00 44.11

Past Performance

Click to Enlarge2.3 Company Locations and Facilities [back to top]

The Silvera & Son's main warehouse and office is located in Ouro Fino. The warehouse has the capacity to prepare approximately 6,000 60kg bags of exportable coffee beans. The proposed new warehouse and preparation facility site is also located in Ouro Fino. The new facility will be 3.500m2 and will have 30 selecting machines with capacity to prepare 40,000 bags for exportation and 80,000 bags for storage. The proposed facility will also handle shipping.

3.0 Products [back to top]

Silvera & Sons deal exclusively in green coffee, grown in the southern states of Brazil and one-hundred percent Arabica. Beans in parchment are purchased directly from growers and are de-husked and packaged into 60kg sacks in the Silvera & Sons' plant. The final product is suitable for sale and exportation.

3.1 Competitive Comparison [back to top]

In order to differentiate our product, coffee, which is a commodity, from the product offering of competitors, all beans are guaranteed fresh and are shipped within seven days of preparation. In addition all beans are sorted at ninety-five percent screen 18 and above compared to the industry standard ninety percent screen of 17 and above. The beans shipped by Silvera & Sons are therefore larger than most and are guaranteed fresh. In addition, all of the farms from

which Silvera & Sons purchases coffee adhere to environmentally sound farming practices and avoid the use of pesticides and chemicals in crop production.

There are approximately ten competitors who offer a product similar to ours. Our research indicates that with the additional capacity we would become one of the top four, in terms of quantity, providers. We have the advantage of established distribution channels and reputation. In addition, improvements to our marketing efforts will further separate us from the larger market and from our close competitors.

3.2 Sales Literature [back to top]

Silvera & Sons currently works with two importers in the United States who handle all of our shipments. Likewise, we have dealt with the same Brazilian wholesalers, for internal sales, each year. Sales to this point have been handled through personal selling. Additional sales literature will include a website, direct mail to specialty roasters and importers, and print advertising in several trade publications including Coffee Times, a monthly publication which targets American business dealing with issues relevant to the coffee industry.

3.3 Sourcing [back to top]

Both the existing and the proposed facilities are ideally located in Ouro Fino, in the state of Minas Gerais. Minas Gerais is the largest coffee producing state in Brazil and beans produced in the region are of the highest quality. With additional financing, we would be able to buy larger volumes at lower prices. We now buy from one or more of six private growers or grower cooperatives. Contracts are secured six months in advance of harvest.

3.4 Technology [back to top]

Improvements in technology will include the use of partially automated selecting machines which will allow for increased production capacity with a lower machine-to-operator ratio than we currently employ. Additional storage capabilities will decrease shipping charges and will reduce the need for permanent shipping employees by thirty-five percent. High-technology information system upgrades will improve all aspects of business, especially inventory control, tracking of shipments, and communication with clients in import countries.

3.5 Future Products [back to top]

Alternative to the Arabica bean, Coffea Robusta, though it shares some similarities with the Arabica bean, is very different. Coffea Robusta is grown at lower elevations and has a higher yield per plant as well as being more resistant to disease. It also has up to twice the caffeine level as it's cousin the Arabica Bean. Due to the lower cost and larger market amount of Robusta coffee, it is found primarily on supermarket shelves. The Arabica species grows at much higher elevations, better soil rich areas, and is the source of the worlds finest coffees.

By providing the finest species of coffee, Silvera & Sons has taken the first step towards a differentiated product. To further distinguish our coffee, we adhere to higher quality standards than approximately ninety-five percent of the market. In addition, all of our beans are of the Bourbon Santos variety. The "Bourbon" strain is considered one of the finest Brazil has to offer. It is grown in the mountains surrounding Sao Paulo and is highly sought after by specialty roasters from around the world. We have assumed the position of a specialized provider of this exceptional coffee. Our customers, American and Brazilian specialty roasters, recognize Silvera & Sons for our ability to provide the type of beans they require to produce award winning coffee.

4.0 Market Analysis Summary [back to top]

Coffee is the second largest commodity market next to oil and Brazil has remained the largest producer of coffee in the world for two centuries. Imports of Arabica coffee in the United States have increased ninety-four percent in the past five years and consumption of coffee within Brazil has seen similar increases. In addition, demand for green coffee is above the market clearing level, and market price and crop yield estimates are at an all time high.

The increase in the number of independent specialty roasters in the United States and Brazil has contributed to and is an indicator of the increased demand for coffee. Within the larger coffee market is our target market is the specialty roaster. These discerning customers want the highest quality coffee beans. They serve the growing "gourmet" coffee market and are represented by large

American companies like Starbucks and thousands of smaller specialty roasters. The Arabica bean is considered to be the best in the world and as such, the demand for Arabica beans is high on the specialty roaster market. Specialty roasters are willing to pay more for Arabica beans and attempt to distinguish themselves via the characteristics of the bean they use i.e. the location in which it was grown, farming methods, bean size, etc. The final consumer is relatively price insensitive if the coffee is good, has won awards, or is compatible with a popular trend. We estimate that specialty roasting in the U.S. alone is a ($USD) one-billion market.

4.1 Market Segmentation [back to top]

The potential customer groups for Silvera & Sons are:

American importers of green Arabica beans: Market research suggests that there are approximately 200 importers of green Arabica coffee on the West and East Coasts of the United States that would be able to handle the quantities of our shipments and are in our target market . Combined, they import a total of four to five million/60kg bags of Brazilian coffee per year.

Brazilian green coffee wholesalers: This market serves as a safety valve for our export business. By maintaining relationships with Brazilian wholesalers we have an alternative market with established distribution channels.

Brazilian specialty roasters: As we move towards maximum capacity we will plan to more aggressively target this audience. We hope to eventually reduce transactions with wholesalers and capture their value-added costs as profit. We anticipate that this effort will begin approximately four years into operation of the new facility.

Market Analysis (Pie)

Click to Enlarge

Market Analysis

Potential Customers

Growth 1999 2000 2001 2002 2003 CAGR

U.S. Importers (60kg bags)

26% 70,140 88,376 111,354 140,306 176,786 26.00%

Brazilian Wholesalers (60kg bags)

26% 30,060 37,876 47,724 60,132 75,766 26.00%

Total 26.00% 100,200 126,252 159,078 200,438 252,552 26.00%

4.2 Industry Analysis [back to top]

Coffee has been a growing industry for the past five years. The most notable growth has been in the American market where imports have increased almost one-hundred percent and the market price has nearly doubled. The number of specialty roasters has increased from a handful of well known companies to thousands of independent entities. There is a constant struggle within this market to produce the best coffee and serve one or more niches within the larger market. Brazilian coffee producers and exporters have made great efforts to improve agricultural techniques, processing methods, and distribution in order to better serve this growing market. Demand for Brazilian coffee is currently greater than supply.

4.2.1 Industry Participants [back to top]

Silvera & Sons deals exclusively in the exportation and sale of green Arabica beans. There are approximately 150 Brazilian businesses in this market. However, approximately 30 companies account for approximately eighty percent of the total amount of green Arabica exports. In addition many of these companies prepare, export and sell, to the Brazilian market, other coffee products. Additional products include:

Green Robusta (Conillon) beans: The Robusta bean is produced in far less quantity, in Brazil, than the Arabica and is considered an inferior species. The Robusta market represents less than ten percent of all coffee produced in Brazil.

Soluble coffee products: These are instant (water soluble) coffees and are either decaffeinated or not. Sales of soluble coffee products account for approximately twelve percent of the total market.

Roasted & Ground coffee: Approximately eighty-five percent of all roasted and ground coffee (decaffeinated and non-decaffeinated) goes to internal consumption and represents approximately twenty-seven percent of the total coffee market.

Primary competitors include: Golden Brazil, Bramazonia, Comexim, and Nicchio Cafe.

4.2.2 Distribution Patterns [back to top]

All of the coffee produced for exportation by Silvera & Sons and approximately eighty-five percent of all coffee produced for exportation in Brazil is shipped from Porto de Santos. Prepared coffee is shipped via rail and/or truck from the Silvera & Sons plant in Ouro Fino to Porto de Santos. From the port it is then shipped, in 40 foot containers to the port of Miami via cargo ship. Distribution charges are assumed by Silvera & Sons up to the arrival of the shipments in Miami whereupon importers assume responsibility, as detailed in contract, of the shipment and additional distribution charges.

4.2.3 Competition and Buying Patterns [back to top]

The purchase decision for our customer is based on trust in our process and bean selection. We have established relationships with our customers which extend beyond that of the buyer/seller. The Silvera & Sons label means that the product has been chosen and prepared with the highest quality standards in mind. Our beans are priced up to nine percent higher than similar products. Our customers are willing to pay more for our product because they are familiar with us and trust in the quality of our beans. This is the result of their success in the marketplace with our product.

4.2.4 Main Competitors [back to top]

There are approximately 150 exporters of green Arabica beans in Brazil. According to the Brazilian Coffee Exporters Association, ABECAFE, fifty percent (50%) of all green coffee exports come from their 45 members. Approximately eighty percent (80%) of these exports come from 20 ABECAFE members. Market contributions of individual exporters are held in strict confidence and are not available to the public. However, based on this information and given the large number of remaining exporters not affiliated with ABECAFE who account for the remaining sixty percent (60%) of all exports, we assume that many of the largest competitors are amongst the ABECAFE members. They are:

Agro Food Cooxupe Mitsui Alimentos

Allcoffee Cotia Trading Nicchio Cafe

Bramazonia Custudio Forzza Nova America

Cafe do Ponto Esteve N.S. da Guia

Cafeeira Carolina Eurobrasil Ottoni & Filhos

Cargill Agricola Fazenda da Serra  Porto de Santos

Casas Sendas Guaxupe Ref. Oleos Brasil

Cocam Inter-Continental R & G 

Comexim JR Exportadora Rio Doce

Comercial Ben. MC Coffee Tres Coracoes

Compel Melitta Volcafe

5.0 Strategy and Implementation Summary [back to top]

Silvera & Sons strategy is to expand production capabilities in order to fulfill the requests of importers with whom we currently deal for larger orders which we are unable to currently fulfill. In addition Silvera & Sons seeks to establish additional contracts with importers on the West Coast of the United States and increase the volume of green coffee sold on the Brazilian market. We intend to first maximize quantity of coffee sold within existing channels and second, establish additional accounts through targeted marketing efforts.

5.1 Strategy Pyramids [back to top]

Our main strategy is to communicate the unique and desired attributes of our coffee to larger segments of the American and Brazilian markets. We sell a superior product, yet one that can be considered a commodity. It is therefore important that we effectively communicate the unique aspects which make it ideally suited for a niche market.

The unique aspects of our products include superior product selection and preparation, quality assurance, and efficient distribution. These are things we have done since we started doing business. The tactics we will use to communicate these strengths include, personal selling, targeted print advertising, and improved communication capabilities via information system improvements and a sophisticated website.

As tactics below the pyramid, we have identified three specialty publication in the United States and two in Brazil in which we will run print ads. We also plan to increase personal selling efforts to additional American importers. Part of the personal selling will include invitations to importers to visit our facilities, at our expense.

5.2 Competitive Edge [back to top]

Silvera & Sons competitive edge comes from the advantage of having established relationships with American importers, and Brazilian coffee growers, green coffee brokers and wholesalers. Silvera & Sons has received affirmation of the demand for their product in the form of requests from importers for larger product shipments. Ours is a superior product offering because of the larger average size of the bean and because we purchase from growers who rely on the use of chemicals and pesticides less than two percent of the time. In addition, prompt preparation and shipment provides importers with a product that is up to one month fresher than beans sold by many exporters.

5.3 Marketing Strategy [back to top]

Silvera & Sons marketing strategy will include the use of targeted print media advertising and direct selling to importers in the United States who provide green coffee to specialty roasters. We will capitalize on existing relationships with importers who have stated their willingness to contact West Coast affiliates and recommend Silvera & Sons coffee. We have positioned ourselves as a differentiated provider of the highest quality Arabica beans. The primary goal of all marketing efforts will be to communicate this to existing and potential customers.

5.3.1 Positioning Statements [back to top]

For American importers of Brazilian coffee who use our coffee to supply specialty roasters, Silvera & Sons coffee beans are the highest quality and largest beans available. Unlike many exporters, our beans exceed the minimum acceptable quality standards and are shipped within one week of preparation to ensure the largest and freshest beans on the market. Our products are perfectly suited for the specialty roasting market which constantly strives to offer award winning coffee.

5.3.2 Pricing Strategy [back to top]

Because Silvera & Sons adheres to higher quality standards, the price of our coffee is slightly higher (four to nine percent) than the market average. The import market largely determines the price of imported coffee in the United States. Beans that do not meet

Silvera & Sons quality standards are resold on the Brazilian market at the current market price. Green coffee, on the import market, now sells for US$ 213.56/60kg bag. According to Silvera & Sons pricing strategy, Silvera & Sons coffee would sell for approximately US$ 224/60kg bag. Importers have to this point been willing to pay the additional cost.

5.3.3 Promotion Strategy [back to top]

Relationships are key to success in the export business. Importers in Florida have on several occasions visited the Silvera & Sons facility, family home, and farms from which coffee is purchased. Additional accounts and contacts with West Coast importers have all been established and maintained through personal contact. Personal selling will remain our most important means of promotion. Marco Silvera Jr. will continue to lead this effort. In addition to personal selling Silvera & Sons has identified several specialty publications within which print advertisements will run. Direct mail, in the form of personal letters will also be used to communicate with existing and potential clients. Our budget for promotion activities is as follows:

Personal Selling which includes phone expenses, travel for Silvera & Sons employees and for importers who we invite to Brazil: ($BRL) 35,000 annually.

Print Advertising in three specialty publications and direct mail: ($BRL) 12,000 monthly. World Wide Web presence: ($BRL) 125,000 to produce a new site and $2,500 annually to maintain the site.

5.3.4 Distribution Strategy [back to top]

Distribution is one of the greatest challenges faced by Silvera & Sons. The distribution system of Brazil is largely outdated and inefficient. Moreover, taxes, specifically excise taxes are high. Distribution costs for internal sales are absorbed by the customer but distribution costs for exports are absorbed by us. Increasing the volume of our exports makes us eligible to receive reduced fees and helps ensure that trucks and rail cars are running at maximum capacity.

5.3.5 Marketing Programs [back to top]

Our most important marketing program is an increase in personal selling combined with targeted direct mail and print advertising. Marco Silvera Jr. will be responsible, with a budget of ($BRL) 35,000 and a milestone date of May 30, 1999. The program is intended to establish contractual agreements with 10 additional importers, increase brand awareness of our product in the United States, and communicate our position as a provider of the highest quality green Arabica beans on the market.

Another key marketing program is the development of a sophisticated Website. The goal of this program is to increase our presence on the world wide web and provide additional means of communication and customer data collection. The website will cost ($BRL) 125,000.

5.4 Sales Strategy [back to top]

Silvera & Sons strategy focuses first on meeting the increased demand from importers with whom we have established relationships for larger orders. These importers are critical to our ability to acquire additional accounts on both the East and West coasts of the United States without having to spend a great deal on sales efforts. Secondly we will focus on increasing the volume, while maintaining the percentage of sales, of beans sold to the internal Brazilian market. When we have reached maximum sales to existing channels we can then shift the majority of our focus to securing additional import accounts.

5.4.1 Sales Forecast [back to top]

The following chart and table show our present sales forecast. We project sales to grow approximately forty percent in 1999, increase again by twenty percent in 2000, and reach maximum for production capacity in 2001 representing a thirty-three percent growth over the previous year.

Sales Monthly

Click to Enlarge

Sales Forecast

Unit Sales 1999 2000 2001

Import and Export 100,200 120,000 160,000

Other 0 0 0

Total Unit Sales 100,200 120,000 160,000

       

Unit Prices 1999 2000 2001

Import and Export $262.08 $275.18 $288.29

Other $0.00 $0.00 $0.00

       

Sales      

Import and Export $26,260,416 $33,021,600 $46,126,400

Other $0 $0 $0

Total Sales $26,260,416 $33,021,600 $46,126,400

       

Direct Unit Costs 1999 2000 2001

Import and Export $212.00 $222.60 $233.20

Other $0.00 $0.00 $0.00

       

Direct Cost of Sales 1999 2000 2001

Import and Export $21,242,400 $26,712,000 $37,312,000

Other $0 $0 $0

Subtotal Direct Cost of Sales $21,242,400 $26,712,000 $37,312,000

5.4.2 Sales Programs [back to top]

Personal selling: Through personal contact we need to confirm in writing orders for larger quantities of our product from American importers and Brazilian wholesalers. In addition we need to establish sales agreements with at least six, possibly ten, additional American importers. Marco Silvera Jr. is responsible and the due date is May 30, with a budget of ($BRL) 24,000.

5.5 Strategic Alliances [back to top]

Our most valued alliances are those we have developed with American importers. They have the ability and willingness to purchase larger quantities of our products and recommend us to other importers. Additional alliances with trucking contractors and the Porto de Santos Cafe Commission are currently established.

5.6 Milestones [back to top]

The accompanying table shows specific milestones, with responsibilities assigned, dates, and budgets. The milestones represented in this plan are those which we have determined to be the most important.

Milestones

Milestone Start Date End Date Budget Manager Department

Secure Financing 1/1/1999 2/1/1999 $12,000 M. Silvera Sr. Finance

Establish Import Accounts

1/1/1999 5/1/1999 $18,000 M. Silvera Jr. Sale & Marketing

Increase Production 1/1/1999 9/1/1999 $18,000 Antonio SilveraProduction &

Shipping

Hire Intl. Legal & Finance Spec.

1/1/2000 1/1/2000 $35,000 Unknown Administration

Totals     $83,000  

.0 Management Summary [back to top]

Silvera & Sons management consists of four full-time employees. Additional assistance is acquired on a part-time basis and/or through the use of consultants, specifically in legal matters. Detailed descriptions are found in the following section.

6.1 Management Team [back to top]

Silvera & Sons is organized into three functional areas: product sourcing, sales, and marketing; production and shipping; and finance and administration.

Marco Silvera Sr: CEO/President in charge of finance and administration. Marco Silvera Sr., 57 has worked in the coffee export business for 30 years. Before starting Silvera & Sons he was the Chief Financial Officer and general manager of the Cafe Fino coffee company. He began working for Cafe Fino after he finished an accounting degree at the University of Southern California. The current Silvera & Sons plant was formerly owned by Cafe Fino and was sold to Mr. Silvera who had decided to "retire" and wanted to run a small business. Cafe Fino had purchased larger facilities and no longer needed the plant.

Marco Silvera Jr: Vice president in charge of product sourcing, sales, and marketing. Marco Silvera Jr., 32 completed his MBA at Syracuse University and worked for several years on the Brazilian stock and commodities market as a broker. He later took a position as an International Sales and Marketing Representative for a major agricultural brokerage and supply firm in Sao Paulo. He is expected to succeed his father as CEO of Silvera & Sons Ltda.

Antonio Silvera: Vice president in charge of production and shipping. Antonio Silvera, 29 worked as a civil engineer for two years for the Brazilian government after completing an engineering degree at the University of Brazil, Sao Paulo. He is responsible for the supervision of all plant employees.

Additional Management:Ralph Henzo, CFO:Gracie, Renoldo, & Fertado Attorneys at Law, Sao Paulo.

6.2 Management Team Gaps [back to top]

We currently lack a full-time professional who can deal with the changing legal and financial aspects of international business. We have relied on legal consultants but are now analyzing the possibility of adding an additional position to deal exclusively with international issues. In addition, as we continue to grow and hire more personnel, we may hire a controller.

6.3 Personnel Plan [back to top]

The personnel plan requires an increase in plant employees from 11 to 17-20 within the next three years. Additional employees will also be added to increase administrative and accounting support. One additional employee will be added to the sales and marketing division. We will retain all current employees as they will not have to relocate.

Personnel Plan

Production Personnel 1999 2000 2001

Antonio Silvera, VP Prodution $38,400 $41,088 $43,964

Plant employees $219,996 $228,796 $237,948

Other $42,000 $47,000 $50,000

Subtotal $300,396 $316,884 $331,912

       

Sales and Marketing Personnel      

Marco Silvera Jr, VP Sales/Mktg.

$45,000 $48,150 $51,521

Other $180,492 $80,000 $85,000

Subtotal $225,492 $128,150 $136,521

       

General and Administrative Personnel

     

Marco Silvera Sr, CEO $50,400 $53,928 $57,703

Ralph Henzo, CFO $42,000 $44,940 $44,940

Admin/Acctg. Staff $9,000 $9,360 $44,734

Other $18,000 $22,000 $26,000

Subtotal $119,400 $130,228 $173,377

       

Other Personnel      

Name or title $0 $0 $0

Other $0 $0 $0

Subtotal $0 $0 $0

       

Total People 15 16 17

Total Payroll $645,288 $575,262 $641,810

7.0 Financial Plan [back to top]

We want to finance growth through a combination of long-term debt and cash flow. Purchase of the larger facility and equipment will require approximately eighty percent debt financing. Additional technology will be primarily financed with cash-flow. Inventory turnover must remain at or above four or we run the risk of backing up orders and jeopardizing our freshness guarantees. We have had no problems with accounts receivable and we expect to maintain our collection days at 30 with thirty percent of sales on credit.

In addition, we must achieve gross margins of thirty-five percent and hold operating costs no more than sixty-five percent of sales.

7.1 Important Assumptions [back to top]

Important assumptions for this plan are found in the following table. These assumptions largely determine the financial plan and require that we secure additional financing.

General Assumptions

  1999 2000 2001

Plan Month 1 2 3

Current Interest Rate 14.00% 14.00% 14.00%

Long-term Interest Rate 9.00% 9.00% 9.00%

Tax Rate 45.58% 47.00% 45.58%

Other 0 0 0

7.2 Key Financial Indicators [back to top]

The most important factor to Silvera & Sons anticipated growth is the procurement of necessary financing. The size of the orders currently requested by importers are larger than what can be produced given our present plant capacity.

The following chart shows changes in key financial indicators: sales, gross margin, operating expenses, collection days, and inventory turnover. The growth in sales goes above thirty percent in the first year, twenty percent in second, and back to thirty percent in year three after which it will settle. We expect to increase gross margin but our projections show a decline in the first two years following the purchase of the new facility. This is due to the facilities not being run at maximum capacity. The projections for collection days and inventory turnover show that we expect a decline in these indicators.

Benchmarks

Click to Enlarge7.3 Break-even Analysis [back to top]

The break-even analysis shows that Silvera & Sons has sufficient sales strength to remain viable. Our break-even point is close to 7,300 units per month and our sales forecast for the next year calls for almost 8500 units per month on average. Projections are detailed in the following table.

Break-even Analysis

Click to Enlarge

Break-even Analysis:

Monthly Units Break-even 7,333

Monthly Revenue Break-even $1,774,667

   

Assumptions:  

Average Per-Unit Revenue $242.00

Average Per-Unit Variable Cost $212.00

Estimated Monthly Fixed Cost $220,000

7.4 Projected Profit and Loss [back to top]

We expect to close the first year of production in the new facility with ($BRL) 26,260,416 in sales and increase our sales to more than ($BRL) 33 million in the second year and ($BRL) 46 million in year three. Net earnings will average ($BRL) 2.4 million.

Pro Forma Profit and Loss

  1999 2000 2001

Sales $26,260,416 $33,021,600 $46,126,400

Direct Costs of Goods $21,242,400 $26,712,000 $37,312,000

Production Payroll $300,396 $316,884 $331,912

Other $300,000 $345,000 $410,000

  ------------ ------------ ------------

Cost of Goods Sold $21,842,796 $27,373,884 $38,053,912

Gross Margin $4,417,620 $5,647,716 $8,072,488

Gross Margin % 16.82% 17.10% 17.50%

Operating Expenses:      

Sales and Marketing Expenses:      

Sales and Marketing Payroll $225,492 $128,150 $136,521

Advertising/Promotion $144,000 $165,000 $165,000

Travel $21,000 $22,500 $24,000

Miscellaneous $24,000 $26,500 $28,500

Other $0 $0 $0

  ------------ ------------ ------------

Total Sales and Marketing Expenses

$414,492 $342,150 $354,021

Sales and Marketing % 1.58% 1.04% 0.77%

General and Administrative Expenses:

     

General and Administrative Payroll

$119,400 $130,228 $173,377

Sales and Marketing and Other Expenses

$0 $0 $0

Depreciation $216,000 $216,000 $216,000

Leased Equipment $50,400 $50,400 $50,400

Utilities $36,000 $36,000 $36,000

Insurance $72,000 $75,000 $78,000

Rent $305,250 $300,000 $300,000

Other $0 $0 $0

Payroll Taxes $58,076 $51,774 $57,763

Other General and Administrative Expenses

$0 $0 $0

  ------------ ------------ ------------

Total General and Administrative Expenses

$857,126 $859,402 $911,540

General and Administrative % 3.26% 2.60% 1.98%

Other Expenses:      

Other Payroll $0 $0 $0

Contract/Consultants $18,000 $24,000 $30,000

Other $0 $0 $0

  ------------ ------------ ------------

Total Other Expenses $18,000 $24,000 $30,000

Other % 0.07% 0.07% 0.07%

  ------------ ------------ ------------

Total Operating Expenses $1,289,618 $1,225,552 $1,295,561

Profit Before Interest and Taxes $3,128,002 $4,422,164 $6,776,927

Interest Expense $262,644 $214,159 $161,392

Taxes Incurred $1,299,147 $1,977,763 $3,015,582

Net Profit $1,566,211 $2,230,243 $3,599,954

Net Profit/Sales 5.96% 6.75% 7.80%

7.5 Projected Cash Flow [back to top]

Silvera & Sons expects to manage cash flow over the next three years with the assistance of a loan supported by the Central Bank of Brazil of ($BRL) 2,700.000. This financing assistance is required to provide the working capital to meet the current needs for the construction of the new production facility and additional personnel, distribution costs, and other related expenses.

Cash

Click to Enlarge

Pro Forma Cash Flow

  1999 2000 2001

       

Cash Received      

Cash from Operations:      

Cash Sales $26,260,416 $33,021,600 $46,126,400

Cash from Receivables $137,250 $0 $0

Subtotal Cash from Operations $26,397,666 $33,021,600 $46,126,400

       

Additional Cash Received      

Sales Tax, VAT, HST/GST Received

$0 $0 $0

New Current Borrowing $0 $0 $0

New Other Liabilities (interest-free)

$0 $0 $0

New Long-term Liabilities $2,700,000 $0 $0

Sales of Other Current Assets $0 $0 $0

Sales of Long-term Assets $0 $0 $0

New Investment Received $0 $650,000 $650,000

Subtotal Cash Received $29,097,666 $33,671,600 $46,776,400

       

Expenditures 1999 2000 2001

Expenditures from Operations:      

Cash Spending $1,400,401 $1,524,093 $2,133,911

Payment of Accounts Payable $20,136,432 $29,123,331 $39,159,844

Subtotal Spent on Operations $21,536,832 $30,647,424 $41,293,754

       

Additional Cash Spent      

Sales Tax, VAT, HST/GST Paid Out

$0 $0 $0

Principal Repayment of Current Borrowing

$144,000 $175,000 $200,000

Other Liabilities Principal Repayment

$27,600 $25,300 $25,300

Long-term Liabilities Principal Repayment

$305,250 $294,636 $294,636

Purchase Other Current Assets $60,000 $75,000 $85,000

Purchase Long-term Assets $2,700,000 $0 $0

Dividends $0 $0 $0

Subtotal Cash Spent $24,773,682 $31,217,360 $41,898,690

       

Net Cash Flow $4,323,984 $2,454,240 $4,877,710

Cash Balance $5,318,244 $7,772,484 $12,650,194

7.6 Projected Balance Sheet [back to top]

As shown in the balance sheet in the following table, our net will grow from approximately ($BRL) 935,626 to more than ($BRL) 1.48 million by the end of 1999 and to ($BRL) 3.46 million by the end of the plan period. The monthly projections are in the appendices.

Pro Forma Balance Sheet

       

Assets      

Current Assets 1999 2000 2001

Cash $5,318,244 $7,772,484 $12,650,194

Inventory $1,780,800 $2,239,329 $3,127,952

Other Current Assets $303,936 $378,936 $463,936

Total Current Assets $7,402,980 $10,390,750 $16,242,082

Long-term Assets      

Long-term Assets $3,221,650 $3,221,650 $3,221,650

Accumulated Depreciation $316,000 $532,000 $748,000

Total Long-term Assets $2,905,650 $2,689,650 $2,473,650

Total Assets $10,308,630 $13,080,400 $18,715,732

       

Liabilities and Capital      

Current Liabilities 1999 2000 2001

Accounts Payable $4,375,408 $4,761,870 $6,667,185

Current Borrowing ($86,000) ($261,000) ($461,000)

Other Current Liabilities ($27,600) ($52,900) ($78,200)

Subtotal Current Liabilities $4,261,808 $4,447,970 $6,127,985

       

Long-term Liabilities $2,796,750 $2,502,114 $2,207,478

Total Liabilities $7,058,558 $6,950,084 $8,335,463

       

Paid-in Capital $525,000 $1,175,000 $1,825,000

Retained Earnings $1,021,611 $2,587,822 $4,818,065

Earnings $1,566,211 $2,230,243 $3,599,954

Total Capital $3,112,822 $5,993,065 $10,243,019

Total Liabilities and Capital $10,171,380 $12,943,150 $18,578,482

Net Worth $3,250,072 $6,130,315 $10,380,269

7.7 Business Ratios [back to top]

Standard business ratios are included in the following table. The ratios show an aggressive plan for growth in order to reach maximum production within three years. Return on investment increases each year as we bring the new facility to maximum capacity and production. Return on sales and assets remain strong and cost of goods decreases based upon efficiency projections. Projections are based on the 1997/98 selling price.

Ratio Analysis

  1999 2000 2001 Industry Profile

Sales Growth 43.14% 25.75% 39.69% -4.40%

         

Percent of Total Assets        

Accounts Receivable 0.00% 0.00% 0.00% 22.10%

Inventory 17.27% 17.12% 16.71% 15.60%

Other Current Assets 2.95% 2.90% 2.48% 26.00%

Total Current Assets 71.81% 79.44% 86.78% 63.70%

Long-term Assets 28.19% 20.56% 13.22% 36.30%

Total Assets 100.00% 100.00% 100.00% 100.00%

         

Current Liabilities 41.34% 34.00% 32.74% 26.20%

Long-term Liabilities 27.13% 19.13% 11.79% 18.00%

Total Liabilities 68.47% 53.13% 44.54% 44.20%

Net Worth 31.53% 46.87% 55.46% 55.80%

         

Percent of Sales        

Sales 100.00% 100.00% 100.00% 100.00%

Gross Margin 16.82% 17.10% 17.50% 33.10%

Selling, General & Administrative Expenses

11.04% 10.35% 9.90% 20.70%

Advertising Expenses 0.55% 0.50% 0.36% 1.90%

Profit Before Interest and Taxes

11.91% 13.39% 14.69% 2.80%

         

Main Ratios        

Current 1.74 2.34 2.65 2.23

Quick 1.32 1.83 2.14 1.40

Total Debt to Total Assets

68.47% 53.13% 44.54% 44.20%

Pre-tax Return on Net Worth

88.16% 68.64% 63.73% 6.50%

Pre-tax Return on Assets 27.80% 32.17% 35.35% 11.60%

         

Additional Ratios 1999 2000 2001  

Net Profit Margin 5.96% 6.75% 7.80% n.a

Return on Equity 48.19% 36.38% 34.68% n.a

         

Activity Ratios        

Accounts Receivable Turnover

0.00 0.00 0.00 n.a

Collection Days 0 0 0 n.a

Inventory Turnover 12.00 13.29 13.90 n.a

Accounts Payable Turnover

5.60 6.20 6.16 n.a

Payment Days 58 57 51 n.a

Total Asset Turnover 2.55 2.52 2.46 n.a

         

Debt Ratios        

Debt to Net Worth 2.17 1.13 0.80 n.a

Current Liab. to Liab. 0.60 0.64 0.74 n.a

         

Liquidity Ratios        

Net Working Capital $3,141,172 $5,942,779 $10,114,097 n.a

Interest Coverage 11.91 20.65 41.99 n.a

         

Additional Ratios        

Assets to Sales 0.39 0.40 0.41 n.a

Current Debt/Total Assets

41% 34% 33% n.a

Acid Test 1.32 1.83 2.14 n.a

Sales/Net Worth 8.08 5.39 4.44 n.a

Dividend Payout 0.00 0.00 0.00 n.a