Transcript Slide 1

Spraying
Ag Ec 495
Michael Bender
Nathan Allen
Steven Myers
December 4, 2007
Overview
 Introduction
 Operations Analysis
 Human Resources
 Marketing Analysis
 Financial Analysis
Introduction
 What is Vegetation Control?
 Custom spraying service provided to oil and
gas industry
 Goals and objectives are to focus on
customer service, environmental stewardship,
and quality workmanship
 Headquarters in Alberta
Operations Plan
 Organizational Structure
 will be a private corporation
Five people on board of advisors
Manager (president) will be in charge of both
duties
Service staff will consist of two spray truck drivers
as well as a secretary
Company will employ four people to start with
Site plan located in Alberta
Breakdown of Spray Unit
 Options and features
 Capacities
 Cost of Purchase
 Importance of GPS and Mapping
Capital Budget
Description
Cost ($)
Building Costs
$
4,449
Equipment Costs
$
42,034
Total Working Capital
$
6,359
Total Land and Equipment Costs
$
46,483
Total Capital Required
$
52,842
Cost of Goods Sold
Description
Beginning Inventory
Costs of Goods Manufactured
Costs of Goods Available
Ending Inventory
Cost of Goods Sold
+
+
-
Cost ($)
$208,276
$208,276
$208,276
Overhead Costs
Variable Overhead Costs
Cost ($)
Truck Maintenance
7,000
Total Variable Costs
7,000
Fixed Overhead Costs
Lease on Building
2,000
Vehicle Insurance
1,600
Cell Phones
1,600
Capital Cost Allowance
5,926
Total Fixed Costs
11,126
Total Overhead Costs
18,126
Direct Materials
Direct Materials
Cost ($)
Fuel
43,148
Chemical
66,120
Water
350
Meals and Accommodations
13,632
Personal Protective Gear
1,950
Total
125,200
Direct Labour
Labour Costs
Rate
Total Direct Labour
$20/hr*
Cost ($)
56,321
Benefits
Employment Insurance
1.87%
1,053
Canada Pension Plan
4.53%
2,551
Holiday Pay
5.80%
3,267
Workers Compenasation
3.12%
1,757
Total Direct Labour and Benefits
$64,949
*Assuming 60 hour weeks with 20 hours per week of 1.5 time wage
Cash Management
 Little cash on hand due to accounts payable
coming due before accounts receivable
 Have to plan in the case of receivables not
getting paid
 Line of credit may be essential to cover cash
shortfall during startup phase
Inventory Management
 Inventory on hand will be chemicals that are
needed for the week along with extra safety
supplies that will be needed
 How we determined a week’s inventory
 .5 acres per site
 .4 L Glyphosate + 1L of Dicamba
 150 sites sprayed per week
 Resulting in an inventory of 30L glyphosate, and 75L
of dicamba
Inventory Management
 Easy access to herbicides that are being used will
help to keep inventory to a minimal
 Keep herbicide on truck that will be used for the
week
 Inventory turnover will be within a week as product
will be used up at this rate
Accounts Payable
 Managed to avoid paying interest
 Credit Card used to purchase herbicides
and safety supplies, meals and hotel
accommodations
 Fleet Card for purchase of fuel
 These payables will be due within 30 days
 Challenge to obtain enough credit during
start up
Human Resources
Job Descriptions
 Manager (president)
 Will oversee the business
 Hire seasonal staff
 Daily tasks include, organizing inventory,
planning daily activities of the spray trucks, as
well as keeping in contact with clients as well
as suppliers
 Salary will be $4500 per month
Human Resources
Job Descriptions
 Spray truck drivers
 Duties include traveling to oil and gas sites that will
be sprayed
 Carrying out the task of spraying, as well as mixing
chemicals
 Record keeping that will be required
 Wage will be $20 per hour and time and a half for
overtime
Human Resources
Job Descriptions
 Secretary
 Will work part time approx. 20 hours per week
 Duties will be taking calls, organizing
meetings, book keeping, invoicing and billing
 Wages will be paid hourly at a rate of $12 per
hour
Marketing Plan
The 4 P’s
Products and Services
 Custom Spraying Service
 Vegetation control in industrial situations such
as oil and gas wells
 Site evaluation to access the product that
needs to be applied
 Safety orientated
 specializes in spraying and focuses on quality
The 4 P’s
Price
 Competitive Pricing
 Many established competitors in business
 All vegetation control has relatively similar
strategy (no differentiation)
 Price that will be charged is $80 per site
 Chemical price will be $68.88 per acre
The 4 P’s
Promotion
 Trade shows
 Make initial contact with potential clients
 Show case services
 Emphasize high quality service, attention to detail and focus
 Signage on trucks
 Mode to “get name out”
 Visual images often stick with people
 Trucks cover large area during spraying season
 Pamphlets with literature on services provided
 Breakdown of services provided
 Position o as a higher quality service provider in comparison to
competitors
The 4 P’s
Place
 will target oil and gas sites in Alberta
 Geographic factors will limit the area that
can service
 Strive to keep resources efficient and effective
SWOT Analysis
Human Resources-Strengths
 Strong Management Skills
 Hired employee's don’t need extensive training
 Work is relatively basic
 Day to day actions repetitive
 Management has key contacts in Agricultural and Oil
and Gas Industry
 Useful resources
 Opens doors to new possibilities
 Few employees
SWOT Analysis
Human Resources-Weaknesses
 Few employee’s
 Short staffed
 Services may be restricted
 Management has little knowledge in accounting
 Outsource accounting
 Working long hours
 Worker fatigue and stress
 Possible liability
 Possible lack of safety personnel
SWOT Analysis
Physical Resources-Strengths
Majority of equipment brand new
 Little down time for maintenance
 Increase efficiency
Precise and user-friendly spraying equipment
 Increase efficacy
GPS and mapping technology
 Can be used in disputes
SWOT Analysis
Physical Resources-Weaknesses
Using previously owned trucks
 Higher repair costs
 May lead to increased downtime
 May need to upgrade in near future
External Threats and Opportunities
Opportunities
 Oil and Gas sector growing (market trends)
 Alberta- growing and established
 Saskatchewan- low establishment of oil sites
 Huge potential for market boom
 New products/Services
 implement mowing service as well
 Customers are looking for ways to reduce costs and hassle
 ATV mounted sprayers
 Customers
 Commercial buildings and other industrial sites
 Government policy change
 Any changes made to oil industry will impact markets
External Threats and Opportunities
External Threats
 Customers
 Larger base customers may desire services out of our region
 Becoming selective of who is hired
 Government policy change and competition
 Alberta government raised royalties/this may slow down oil production
 Saskatchewan- Sask. Party winning election
 Party platfom/ different ideas
 Competition
 Many well established companies
 Largest threat 12 large companies
 Approx. 20 provincial competitors
 Environmental Threats
 Temperature, wind speed, precipitation affects agrochemicals
Competition

Major Competitors









West Country Oilfield Services
Ace Vegetation
Precision Oilfield Services
Spray-Rite Vegetation Control Inc.
DDK Oilsite Services
Weed Wackers
All Pro Vegetation Management
Precision Vegetation Control
Altec Vegetation Management
Corp.
 TMT Vegetation Management Ltd.
 Cunningham Vegetation
Management
 Site Rite Vegetation Management

Minor Competitors







Clarke Vegetation Control
Vanguard Vegetation Control
Excel Vegetation Services
Ace Vegetation Control Service
Blueweed Services
SPS Well Service
Target Vegetation Control Ltd.
Taber
Major Competitors
Minor Competitors
Marketing Plan Budget
Advertising
Brochures/Business Cards/Flyers
$
1,250
Truck Decals
$
900
Total Advertising
$
2,150
Web Page
$
3,000
Travel Expenses
$
5,250
Cell Phones
$
1,600
Trade Shows
$
5,000
Total Promotion
$
14,850
Insurances (Spray and App. License)
$
6,000
Insurances (Certificate of
Recognition)
$
600
Insurances (Corporate Start Up Fee)
$
5,000
Insurances (Business License)
$
500
Human Resources Training Costs
$
1,000
Utilities Expense
$
6,000
Total Development
$
19,100
Total Marketing Expenses
$
36,100
Promotion
Development
Financial Plan
Critical Variables
Critical Variables
Base Case
Allowable Change %
Wages
24.45
27.00%
Number of Sales
2,400.00
-8.74%
Fuel
43,184.00
15.86%
Selling Price
80.00
-4.45%
Chemical Sold
1,200.00
-22.95%
Chemical Price
68.88
-10.95%
Financial Feasibility
Year
2008
2009
2010
2011
2012
Sales
$ 274,650.00
$ 280,143.00
$ 285,745.86
$ 291,460.78
$ 297,289.99
Cost of Sales
208,275.72
216,635.64
217,993.09
220,212.46
223,071.12
Gross Margin
66,374.28
63,507.36
67,752.77
71,248.31
74,218.87
Expenses
60,241.89
61,446.73
62,675.66
63,929.17
65,207.76
Net Income (Loss) Before Tax
$6,132.40
$2,060.64
$5,077.11
$7,319.14
$9,011.12
613.24
206.06
507.71
731.91
901.11
Net Income (Loss) After Tax
$5,519.16
$1,854.57
$4,569.40
$6,587.23
$8,110.00
Net Cash Flow to Equity
$ 5,519.16
$2,415.22
$(4,851.81)
$(10,040.22)
$(13,727.31)
Income Tax
Year
2013
2014
2015
2016
2017
Sales
$ 303,235.79
$ 309,300.51
$ 315,486.52
$ 321,796.25
$ 328,232.17
Cost of Sales
226,411.91
230,123.92
234,128.86
238,371.55
242,813.18
Gross Margin
76,823.88
79,176.59
81,357.66
83,424.70
85,418.99
Expenses
66,511.91
67,842.15
69,198.99
70,582.97
71,994.63
Net Income (Loss) Before Tax
$10,311.97
$11,334.44
$12,158.67
$12,841.72
$13,424.36
Income Tax
1,031.20
1,133.44
1,215.87
1,284.17
1,342.44
Net Income (Loss) After Tax
$9,280.77
$10,201.00
$10,942.80
$11,557.55
$12,081.92
Net Cash Flow to Equity
$
(16,325.02)
$
(18,128.01)
$
(19,347.65)
$
(20,136.04)
$
(20,602.99)
Breakeven Analysis
100.00
Selling Price ($)
95.00
90.00
Cash Flow
Net Income
85.00
Economic
Base
80.00
75.00
70.00
1
2
3
4
5
6
Years
7
8
9
10
Scenario Analysis
Risk Analysis
Worst Case
(-10%)
Base
Case
Best
Case
(10%)
2160
2400
2640
72
80
88
IRR
-41.83
19.60%
75.40%
NPV
-128,479
-673
117,463
Variable
Number of Sales
Average Price
Two critical variables used (10%) change
IRR and NPV are extremely sensitive to change
Conclusion
 Over the next ten years NewCo is
projected to have a Internal Rate of Return
(IRR) of 19.6%
 NewCo will prove to be a feasible
business if sales objectives can be met
 Focusing on new customer relationships
will be important to the success of the
company
Questions