Thomson Greenhouse
Business Plan
Prepared for:
The Thomson Family
&
Marv Painter / Associates
Prepared by:
Allison Gerhardt
Tim McMillan
Reid McBride
Daisy Yan
Iain Smith
Table of Contents
1.0 Executive Summary
1.1 The Opportunity………………………………………………………... 3
1.2
1.3
1.4
1.5
1.6
Description of Products and Services……………………………………… 3
Differentiation…………………………………………………………….... 3
Key Market Drivers………………………………………………………... 3
Management……………………………………………………………….. 3
Key Financials……………………………………………………………… 4
2.0 Industry Overview………………………………………………. .………….
5
3.0 The Company
3.1
3.2
3.3
3.4
Company Overview………………………………………………………..
Market Characteristics……………………………………………………..
Mission Statement………………………………………………………….
Vision Statement…………………………………………………………...
6
6
7
7
4.0 Operations Plan
4.1
4.2
4.3
4.4
4.5
Site Development Plan……………………………………………… 8
Organizational Structure……………………………………………. 8
Hours of Operations………………………………………………… 9
Service Providers/Suppliers…………………………………………. 9
Operating Expenses, Cost of Goods Sold, Capital Assets…………... 10
5.0 Human Resources Plan
5.1 Proposed HR Strategy……………………………………………….. 11
5.2 Expected Cost of Compensation…………………………………….. 12
5.3 Training Programs…………………………………………………… 13
6.0 Marketing Plan and Competition Analysis
6.1
6.2
6.3
6.4
SWOT Analysis……………………………………………………… 14
The Marketing Mix…………………………………………………... 17
Segmentation of Greenhouse Industry………………………………..19
Competition Analysis………………………………………………… 22
7.0 Financial Statements Analysis
7.1
7.2
7.3
7.4
Financial Overview………………………………………………………….. 24
Critical Success Factors………………………………………………………28
Sensitivity Analysis…………………………………………………………..28
Income Taxes………………………………………………………………....29
8.0 Recommendations……………………………………………….......................30
2
1.0 Executive Summary
1.1 The Opportunity
The Canadian Horticulture and Greenhouse Industry recorded revenues of $2.2 billion in 2007,
encompassing more than seven major revenue streams. Thomson Greenhouse, further referred to
as “the Company”, participates in only two revenue streams, resulting in an opportunity to expand
current operations and diversify into other markets. This expansion will require an operational
change from a part-time to a full-time business and a large capital investment in additional
greenhouses to increase both the capacity and variety of the products offered.
1.2 Description of Products and Services
Thomson’s Greenhouse is a small 800 square meter family run business. The Company focus is
on the sale of annuals, perennials, house plants and vegetables to mass market chain stores and
direct public. To stay competitive, sales to the chain stores result in modest margins on products
sold. Sales to the general public show increased margins as the Company has differentiated itself
on quality of goods and service. This has allowed it to obtain, and maintain, a solid market share
in the Regina area.
1.3 Key Market Drivers
Overall, the demand for nursery and greenhouse products is shaped by a broad array of market
forces. A combination of factors such as wellness, fashion/design, home ownership, convenience,
value, ethnicity, indulgence and demographic structures, acting interdependently or independently
influence consumption patterns and demand for nursery and greenhouse products.
1.4 Management
Thomson is being run as a side business to generate secondary income. It is currently comanaged by Earl and Lisa Thomson, who purchased the business from Lisa’s parents and
relocated it to Regina. The small family run greenhouse plays right into the current market trend
of small owner operated facilities. The family’s goal is to pass the greenhouse business over to
the youngest son, Ryan, so that he can pursue a full time career with the company.
3
1.5 Key Financials
A financial analysis is performed on three options in order to assess which alternative bests suits
the qualitative and quantitative needs of our client. One option consists of expanding the
Company to a total of five greenhouses; three commercial and two retail. Under this option, the
Company is projected to operate with significant losses and negative cash flows for the next five
years.
Option two consists of keeping the old greenhouse and building an additional new greenhouse.
One greenhouse will sell to the commercial market, and the other will sell to the retail market
(individual public). The Company is also projected to operate with losses and negative cash flow
for the next five years, with the net losses and cash flow deficiencies becoming worse from year
to year.
The final option consists of replacing the current greenhouse that is becoming outdated, with a
brand new greenhouse. Under this option, the Company is forecasted to operate with losses and
negative cash flow for the next five years, with losses and cash flow improving marginally from
year to year.
In conclusion, only the full expansion option meets our client’s objective to carry the business on
to the youngest son, Ryan, however does not provide enough cash flow and net income to be
considered a viable option.
Recommendation
Our recommendation is for the Thompson family to slowly wind-up the greenhouse operation.
This will be a five year process which inevitably leaves the greenhouse as a hobby greenhouse
rather than income producing company. It is suggested that the family either continues to rent out
the farm land, to earn income that can be used to help pay for the son(s) education or provide
additional income. As land is appreciating in value substantially in Saskatchewan another option
is to sell the land in year 5 and recognize the capital gain on the investment.
4
2.0 Industry Overview
The Horticulture and Greenhouse industry is a $2.2 billion dollar industry in Canada (see
Appendix E) encompassing more than seven major revenue streams and 21,000,000 square
meters of space (5,200 acres). Revenue streams include sales to retail florists, domestic
wholesalers, mass market chain stores, other greenhouses, and the general public. Revenues even
extend to a large export market, with the growth and sale of greenhouse vegetables being
surprisingly the largest revenue generator. The industry is expansive consuming Canada with a
total number of 3,475 greenhouses that employ just over 41,000 full and part-time staff. The
industry experiences an average growth rate of 4% to 7% annually, which exceeds the average
growth rate of 3% experience by mature industries.
The industry is currently going through an interesting phase as the number of greenhouses
continues to rise year to year, while the square meters of greenhouse space steadily decreases. All
the while revenue grows. One would then have to assume that the trend of the industry is towards
more efficient, smaller, owner managed greenhouses, as opposed to the larger corporate run
structures. This trend is very important when considering the business plan for Thomson’s
Greenhouse.
5
3.0 The Company
3.1 Company Overview
As Earl and Lisa Thomson approach retirement and begin planning for the future, it is clear that
they desire to keep Thomson Greenhouse, further referred to as “the Company”, within their
family. The family members of the household have taken an active role in the operations and they
continue to be the salient reason for the success of the business. Lisa’s parents work part-time
which allows the Company to meet the demand of its customers in the busy season. The three
Thomson boys (Derek, Russel, and Ryan) have an attachment to the greenhouse, but as they
mature and graduate they will likely not continue to work for a minimal wage (less than
$3,500/year between the three of them). There is a large capital investment required in order to
maintain the Company in the current year, Earl and Lisa need to choose a course of action for
their family business.
The Thomson’s three options:
1. Replace the existing greenhouse and maintain the business;
2. Repair the current greenhouse, construct a new greenhouse, and slowly increase operations;
or
3. Repair the current greenhouse, begin a slow expansion by constructing four new greenhouses
over the next five years, and continue to diversify operations in the future.
3.1.1 Option 1
The Thomson’s would encounter significant financial difficulties as a result of the large capital
cost of a new greenhouse. With current operations currently turning a meager profit before taxes
of nine-thousand dollars, simply maintaining operations would not produce an adequate amount
of money in order to cover the fifty-thousand dollar cost of a new greenhouse. As a result, the
business would fail to sustain operations for five years and the Thomson’s would be unable to
provide their son(s) employment during the summers.
3.1.2 Option 2
The second option would not give rise to a viable business. Revenues would increase in
correlation with greenhouse capacity however, not quickly enough to cover the rising costs.
6
Currently, the Company is able to survive due to minimal labor costs; the wages reported on the
income statement are much lower than labor market standards. Unfortunately, revenues will
simply not increase enough to cover the repairs to the existing greenhouse, the large capital cost
of the new greenhouse, and the increased labor costs to replace the boys. Therefore, the goals of
the Thomson’s would not be achieved under Option Two.
3.1.3 Option 3
The remaining option is to expand the Company at a pace which is quick enough to offset the
increasing capital and operational costs through an increase in growing capacity and revenue.
It is proposed that the Company first repair the existing greenhouse and subsequently construct an
additional four greenhouses over the next five years. Our business plan below will expand on
assessing this Option.
3.2 Mission Statement:
Thomson Greenhouse endures to enrich the lives of its customers by providing friendly gardening
expertise and high quality flowers, plants, and vegetation. We strive to improve your day, by
improving the world, one flower at a time.
3.3 Vision:
To become the largest provider of Greenhouse products in Saskatchewan.
7
4.0 Operations Plan
4.1 Site Development Plan
The Company currently owns a twenty acre plot of land and is using less than half of an acre for
their greenhouse. Over a five year period, the business will expand operations to a level that is
more than five times the current capacity by constructing four additional 800m2 greenhouses. In
year one, the old greenhouse will be repaired to extend its useful life an additional five years and
construction of a new greenhouse that will be used solely for commercial operations will
commence. In year two, The Company will be using the existing greenhouse (636.47 m2 of shelf
space and an additional 41.34 m2 of storage room) solely for retail sales. The first new
greenhouse will be complete, which will add 873.75 m2 of shelf space dedicated to commercial
contracts. The shelf space is much larger than the original greenhouse as the new commercial
greenhouses will not contain a separate storage room or customer service counter. Each year a
new greenhouse will be built, thus expanding the total capacity to 3,894.19m2 by year five, which
includes two retail and three commercial greenhouses.
See Appendix A for Site Plans for the Retail Greenhouse and Commercial Greenhouses
4.2 Organizational Structure
Currently, The Company is a partnership with Earl and Lisa at the top splitting up the
management decisions by expertise . Between the two of them, they complete the vital tasks of
the organization (accounting, orders, etc.) and oversee the daily operations of the business. The
only other individuals within the organization include their three sons and Lisa’s parents, Morris
and Anna Slemko, who all work part-time. This structure has been effective in the past, however,
as the company expands and changes, so too must the structure. (See Appendix B for current and
proposed Organizational Structure)
The organizational structure will undergo a change over a five-year period in which the end result
will be The Company as a corporation owned by Earl and Lisa, but being overseen by their
second-oldest son Ryan.
As Ryan desires a more active hand in the business, he will become more involved as he matures.
He is currently going into university and will work part time during the year as well as working
full-time over the summers as he works towards a business degree. With some formal education
8
and business experience with the greenhouse, Ryan will be completing university in year 5 and
ready to move into a full time role. This will occur as all five new greenhouses become
operational and moves into smoothing the seasonality of their revenues by selling vegetables
during the winter months.
Earl and Lisa as common shareholders will also act as advisors to the business. The other two
boys, Derek and Russel, will continue to be involved in the direction of the family business by
means of consulting. This role will be completed in addition to the individual career paths chosen
by the boys, as they will have a vested interest in the family business as preferred shareholders.
New roles within the organizational chart will include University of Saskatchewan and University
of Regina horticulture and agriculture co-op students, and staff members, see HR section for
details.
The move to incorporate The Company should occur once it begins to turn a profit, as these
amounts will be subject to tax at the small business rate and can be reinvested in the company as
opposed to being distributed amongst the partners and taxed at their individual rates. In addition,
it will facilitate the gradual transfer of the family business to the three boys as desired by Earl and
Lisa with numerous options regarding the transfer of common vs. preferred, or voting vs. nonvoting shares depending on their wishes.
4.3 Hours of Operations
During the busy season (May to August), the retail store will be open to the public from 10 am to
6 pm Monday, Tuesday, Saturday and Sunday. On Wednesday, Thursday and Friday, the store
will be open from 10am to 9pm to provide more flexibility for the busy consumers.
During slow season, retail operations hours will be 10am to 6pm Tuesday to Sunday. The store
will have extended hours on Thursday evenings by opening until 9pm. Mondays will be
designated as an off day, in addition, stores will be closed on all provincial and federal holidays.
4.4 Service Providers/ suppliers
The company will continue to employ previous service providers and suppliers in maintaining its
new greenhouses. Earl and Lisa will continue with their current process of inventory ordering
system and supplier quality monitoring as it has proved to be successful in the past.
9
4.5 Operating Expenses, Cost of goods Sold, Capital Assets
See Financial Statement Analysis Section
10
5.0 Human Resources Plan
The Company has traditionally been a family-run operation, during the busy season, Thompsons’
three sons work in the business and their earnings are used to help finance their schooling.
During the busy season, Lisa’s parents, Morris and Anna also help out. Current wage expenses
are $6,150, these are paid to the three sons and Anna and Morris for their work during the
summer. Our business plan calls for a slow expansion with the addition of one greenhouse a year
for the next five years. These include three new commercial greenhouses in year two, three and
four; one new vegetable greenhouse in year five along with renovation of the existing greenhouse
to take place in year five. Since most of the addition involves moving towards the commercial
market, retail sale to individual customers is expected to remain consistent with prior years.
The addition of wholesale greenhouses will result in the need for additional staff to meet
increased demand and workload. The greenhouse industry attracts horticultural enthusiasts, who
enjoy working in a horticultural environment. Starting salaries will be slightly avove minimum
wage, while raises and small bonuses will be offered with annual performance reviews. Our
proposed HR strategy is outlined below:
5.1 Proposed HR Strategy:
Year 1
No
additional
Staff
Year 2
2
Additional
co- op
Student
Additional
full-time
Staff
member
Year 3
2
Additional
co- op
Student
Year 4
Additional
full-time
Staff
member
Year 5
2
Additional
co- op
Student
Ryan to
work full
Time
Note: Co-op students explained below
Proposed Staffing Plan:
Title
Owner Manager (Lisa & Earl,
Ryan)
Staff member (family help)
Co-op Students
Staff member (Full-time)
Total Number of employees
Year 1
Year 2
Year 3
Year 4
Year 5
2
4
0
0
2
4
2
1
2
4
4
1
2
4
4
2
3
1
6
2
7
9
11
12
12
11
There will be no need for additional staff in year one as the first of the greenhouse additions will
be operational in year two. It is assumed Derek will no longer work in the greenhouse as it is
likely he will pursue a career after graduation from University and he has not shown interest in
managing the Company. We have kept Derek in the organizational chart as he will be a valuable
member of the business as he could be called upon to offer consulting advice. The Company will
continue employing Ryan, Russell, Anna and Morris to continue to work part-time to help out
with the business, however as the grandparents are approaching old age, we will assume that they
will be less involved in the business starting year 4 and stop by year 5.
The primary
responsibilities of Lisa will be overseeing the daily operational functions; these will include overseeing the horticultural harvesting, nutrition and greenhouse environment. Earl will continue to
look after financial matters of the business. Both will share the responsibilities of supervision.
5.1.1 Horticulture/Agriculture Co-op Program
We propose the Company hire co-op students currently/interested in enrolling in the college of
agriculture within the University of Regina and University of Saskatchewan; these students will
be knowledgeable about horticulture and will be eager to work in an environment that can offer
them a valuable experience. Co-op terms will be 4 months long: from April to August. Co-op
students combined with full-time staff members will be employed in Years two to five to fill the
work demands. They will be expected to perform a variety of jobs from harvesting, planting,
servicing customers, clean-up etc. Discussions with both Universities have already begun to take
place and there has been great interest in pursuing this business arrangement by all parties.
In year five, Ryan will graduate from the University and begin working full-time at the
Greenhouse, through his experiences in prior years, he will be able to take on a managing role in
the daily operations of the Greenhouse, thereby leaving more free time to Lisa and Earl, who will
continue to oversee the business, especially the financial aspect. The financial position will
continue be run by Earl until the time he is ready to pass the business onto his sons.
5.2 Expected Compensation Plan:
Co-op Students
Staff members
$6,400
$20,000
/summer
/year
Ryan - Operations Manager
$50,000
/year
12
Projected Costs
Year 1
Owner Manager (Lisa & Earl)
Finance/accounting personnel
Staff member (family help)
Co-op Students
Staff member (Full-time)
Total
-
Year 2
-
-
-
Year 5
50,000
6,150
-
9,344
12,800
20,000
9,420
26,240
20,500
11,641
26,896
43,076
8,623
41,353
44,153
6,150
Year 3
42,144
Year 4
56,160
81,613
144,128
- Wages were adjusted for inflation @ 2.5% per year
Wages will be determined as above, we did not take into consideration CPP, EI and workers
compensation as the amount would not materially affect the business plan. Lisa & Earl will not
be given annual wages as they will be able to draw dividends from the after tax income earned in
the year. Families working during the summer has been traditionally been paid minimum wage,
given the labour shortage, we need to allocate a more reasonable wage to the sons helping during
the summer, therefore, we have raised wages to bring it closer to the industry average by the end
of year four, this is desirable in retaining the sons help as the grandparents will begin to phase out
their help in year four.
5.3 Training Program
New employees will receive basic training from Lisa and Earl; these will include basic work
place safety, daily operations and expected duties/responsibilities. Since Thompsons Greenhouse
is a small operation, employees will be encouraged to seek help if they have any questions or
concerns, and they will be able to get timely feedbacks from Lisa and Earl. Performance
evaluations will be reviewed on an annual basis; at which time raises will be considered.
Employees will also be able to work in both wholesale division and retail division, which will
provide job rotation and add variety to their job experience.
13
6.0 Marketing Plan
6.1 SWOT Analysis
An analysis of strengths, weaknesses, opportunities and threats (SWOT) must first be assessed in
order to determine the marketing plan to be implemented.
6.1.1 Strengths
The Company is a family owned and operated business, founded 17 years ago by Earl and Lisa
Thompson. The Company has been successful in establishing a name for quality products and
good customer service. The Company has therefore projected a strong sense of brand recognition
and loyalty to its customers. This leads to consistently strong sales, due to the returning customer
base. The Company is therefore able to charge a premium price as compared to industry averages
on sales per square meter, at $55 per square meter for individual sales, and $21 per square meter
per commercial as noted in Appendix L. Industry averages were $44 and $18 respectively
(Government of Ontario, 2008).
Even though the business was founded as a second source of income for the family, it has been
successful in operating with a profit, and is viable as demonstrated by a favorable current ratio of
3.6:1 (current assets divided by current liabilities) and debt to equity ratio of 0.01:1 (liabilities
divided by equity) (Balderson & Clark). This indicates that the company is in a favorable
liquidity position, and is able to repay its current obligations without difficulty.
A final strength is that The Company has been able to diversify into numerous product areas,
such as bedding plants, vegetables, annuals, perennials, and specialty plants and arrangements.
This enables customers to choose from a wider array of product, therefore increasing their
chances of making a purchase. It also attracts customers with various preferences; such as those
who wish to plant shrubs and trees as opposed to purchasing indoor flower arrangements.
6.1.2 Weaknesses
One weakness that currently exists at the Company is that Ryan, who is interested in taking over
the family run business, is currently in Grade 12 and will therefore not be able to manage the
business until the fifth year. This is a concern for The Company, given that Ryan may change his
mind about his future career aspirations as he continues his education in University, thus making
it difficult to keep the business within the family. This is also a concern for the Company, since
14
Lisa will need to take a leading role in the business until Ryan is ready to take over, and Lisa has
never before the Company as a full time business – especially through an expansion.
A final weakness is that The Company is a small, family owned business that earns income on the
side. Salaries paid to the family are very low, and profits are also rather low. Therefore, in order
to make a sustainable living solely from this business, significant organizational changes will be
required.
6.1.3 Opportunities
Research has shown that individuals between the ages of 55 to 65 spend more on horticulture than
any other age group (Francese, 2002). With the baby boomers aging (individuals born in the
post-World War II period between 1945 and 1965), spending on plants and flowers will surge in
the next few years (Wikipedia, 2008). This is an opportunity for The Company, since it will be
able to capitalize on this opportunity by increasing profitability and allowing for larger salaries to
be paid.
Another opportunity for The Company is the strength of the Saskatchewan economy. In 2007,
Saskatchewan was one of the leading provinces in Canadian GDP (Gilbert, 2008). This strength
in the Saskatchewan economy has led to the fastest growing real estate market in Canada for the
2007 year (Calder, 2008). Combined, this resulted in an increase in residential homes, and an
elevated level of income. Both are opportunities for The Company given that additional funds
can be spent on new homes purchased by Saskatchewan residents.
Currently, The Company is selling its product to mass market chain stores such as Wal-Mart and
Canadian Tire, and directly to the public. As shown below, a vast market exists in Canada for
greenhouse sales, comprised of seven streams of revenue, totaling $1.5 billion dollars, not
including vegetable sales (Government of Ontario, 2008). The Company is only selling to two of
those seven areas, thus only tapping into 42% of the market. An opportunity therefore exists with
respect to all the other un-targeted revenue streams. The Company could capitalize on this
opportunity by targeting additional segments of the market that are currently being neglected.
15
6.1.4 Threats
One threat that is present for the Company is the threat of competition. As shown in Appendix D,
there are numerous competitors in the industry, consisting of other greenhouses, cross-national
chain stores, and retail florists. The numerous competitors make it difficult for the company to
secure sales to the general public, and to obtain contracts with commercial consumers. The threat
of competition is therefore assessed at a high level, thus decreasing potential sales.
Another threat for The Company is unfavorable weather patterns. Regina, Saskatchewan is a city
that experiences rather extreme weather patterns, ranging from negative 30 to positive 30 degrees
Celsius. There are few plants that can succumb to such temperatures. This is a threat for The
Company, given that some product will be grown outside the greenhouse itself, therefore being
directly exposed to the climate. Unfavorable or unpredictable weather patterns can damage the
product, thus resulting in high spoilage and decreased sales. Note that a spoilage factor was
considered in our financial analysis to account for this threat.
An increase in direct costs, such as soil, fertilizer, and pesticide costs are also a threat to The
Company, especially in a very strong economy such as that of Saskatchewan. If suppliers raise
their prices as a result of the favorable economic situation, profit margins will suffer.
A final threat is that of disease or pests. Plants and vegetables are prone to being destroyed by
numerous indoor and outdoor diseases, and by rodents and insects. This risk can be mitigated by
pesticides and therefore is not considered a serious threat unless pesticide prices increase and The
Company reduces their usage. In addition, plants and vegetables will be inspected daily in order
to prevent infestation.
16
6.2 The Marketing Mix
In response to the SWOT analysis above, we have formulated a marketing mix that capitalizes on
The Company’s strengths and opportunities, while mitigating its risks and threats.
6.2.1 Products
Over the course of the next five years, The Company is going to build an additional four
greenhouses, and repair the old existing greenhouse. There will be two greenhouses that sell
directly to the general public, and three greenhouses that sell to mass market chain stores,
domestic wholesalers, and florists in order to capitalize on the un-tapped revenue streams
identified in the SWOT analysis. Out of the two greenhouses that sell to the general public, one
will be a vegetable greenhouse open all year round in order to generate some sales throughout the
winter months. The greenhouse will sell tomatoes, cucumber, peppers, broccoli, lettuce and other
leafy vegetables, basil, oregano, dill, coriander, mint, chives, and other spices. The other
greenhouse will consist of full service garden centers selling annuals, perennials, small trees and
shrubs, pots, and other gardening accessories.
The three greenhouses that will sell to mass market chain stores, domestic wholesalers, and
florists will sell the same product as the greenhouses that sell to the individual public (annuals,
perennials, small trees and shrubs, pots, and other gardening accessories).
All products sold will be of premium and high quality. Organic soils, high quality fertilizers,
automated watering systems and fertilizing systems, brand new greenhouse facilities, and
educated, friendly, up-beat and fun staff members all will enable The Company to charge a
premium price. Customers will pay a premium price for high quality product with exceptional
service.
6.2.2 Pricing
The prices charged by the Company will be approximately 25% higher than those in the industry.
As noted in Appendix E, the sales price per square meter is $55, as compared to $44 for the
industry. Higher prices will be charged given that The Company will be positioning itself as a
premium product provider with high quality sales service. Refer to Appendix D for a competitive
analysis including pricing for The Company’s competitors. Customers will also be willing to pay
a higher price, given that currently there is an absence of premium-positioned greenhouses in
Regina, Saskatchewan. A newly premium-positioned greenhouse, in combination with a strong
17
economy, increased disposable income, and an aging baby boomer population will appeal to
consumers, and therefore they will be willing to pay a higher price than that of competitors.
6.2.3 Promotion
Our promotion strategy will be focused on our high quality product and sales service approach.
The Company will develop a website outlining company information, product offered, and
current events to be attended by the Company. This website will help promote The Company’s
new image, given that previously, word of mouth was the main source of promotion. In addition,
flyers and advertisements in the local newspapers will also be featured.
This method of
advertising will properly target the aging baby boomers, who prefer traditional forms of
advertising as opposed to website or virtual advertising. See Appendix F for our proposed
Website.
With regards to current events, The Company will increase its image and presence in the
community by attending events such as the Lilac Festival, and other charity functions. The
Company will also participate in gardening workshops at The Company’s premises, in order to
promote, encourage, and teach individuals gardening and gardening tips. Again, this will help
endorse The Company’s new image.
In order to have a high energy, fun, but yet educated staff base, The Company, together with the
University of Regina and the University of Saskatchewan will partake in a Horticultural cooperative educational program (co-op program). The co-op program will enable Horticulture
students from both Universities to work full time with The Company during the busy summer
months. This way, The Company will be employing young, energetic, enthusiastic individuals
who are also knowledgeable in the horticulture field.
6.2.4 Place
The Company’s location in Regina is favorable, given that there are numerous small town and
municipalities that surround it. It is also a government city with a high percentage of individuals
close to retirement age, therefore hitting the prime age group for horticultural spending as
identified in the SWOT analysis.
As noted above in the “products” section, there will be a total of five greenhouses selling to
numerous market segments in order to capitalize on the un-tapped revenue streams. Products will
18
be sold either directly to the general public, or to mass market chain stores, domestic wholesalers,
and florists. The website will be for advertising purposes only; no sales will be generated online.
The target market will be segregated into the primary, secondary, and tertiary segments as further
noted in this business plan.
6.3 Segmentation of Greenhouse Industry
The Greenhouse industry can be segmented into providing services to the market through the
following channels: Sales to retail florists, sales to domestic wholesalers, sales to mass market
chain stores, sales to other greenhouses, exports, direct sales to public and other channels. The
Company, in the past, has earned revenue primarily through direct sales to public and secondarily
through sales to mass market chain stores. This market diversification was suitable to the volume
produced.
Three options have been presented as to how the Company could continue running its business.
Options 1 and 2 would continue to focus on the two revenue streams addressed above. Option 3
aims to diversify the revenue streams further to take advantage of additional opportunities
available; such as increasing the contracts with mass market chain stores, begin selling to local
florists and selling to domestic wholesalers.
6.3.1 Demographics of Regina, Saskatchewan
Location of Thompson Greenhouse: Regina, Saskatchewan (Wikipedia, 2008).
Population of Regina: 179,246
Age Structure:
0-14 years:
20%
15-64 years:
67.5%
65 and over:
12.5%
Mean Household Income: $46,487
Median Age:
35.8 years
An analysis of the age structure (above) shows that the majority of individuals are between the
ages of 15-64, with a median age of 36 years old. This shows potential for the Company due to
the following:

Target market exists of individuals from the age of 40 – 65
19

When the full expansion of the Company is complete (5 years) the median age will have
increased to 41 years old, resulting in an increased number of potential customers

Saskatchewan is going through an economic “boom” period which the end result will be
increased population base
Beyond Regina there are numerous farm towns surrounding the city. Appendix D shows a map
of Regina and the surrounding area to visually present the additional segments Thompson
Greenhouse can market to including: Deer Valley, Zehner, White City, Richardson, Kronau,
Drinkwater and Belle Plaine; all of which are within 50km’s of Regina.
6.3.2 Positioning
The Company has been a provider of high quality bedding plants. Vegetables, annuals,
perennials, and specialty plants and arrangements, the business also offers a two acre tree nursery
and garden offering a wide range of trees from pines to fruit trees. The potential to increase all of
these products exists as Thompson Greenhouse is positioned with the resource of an additional 15
acres of land. The Thompson family has the ability, knowledge and customer base to increase
marketing efforts and capture greater market share in the greenhouse industry surrounding
Regina, Saskatchewan. The concerns addressing the family are the eventual transition of the
business to son(s), financing difficulties and obtaining additional commercial contracts. The
transition to the son(s) is a simple tax matter that can be discussed at a later date, the financing
issues have been addressed in the Financial Plan presented in this business plan and obtaining
additional commercial and individual customers can be done through a re-branding exercise to
help distinguish what the Company is to their customers, a positioning statement and website to
open up Thompson’s to the worldwide internet. Please see website extracts in Appendix F.
It is important for the Company to increase sales to commercial/wholesaler distributers. The
Thomson family will continue to market to their existing commercial customers and add
additional contracts through continuing market efforts in and around Regina. There will be a
special login on the Company’s website for commercial customers which will show the different
price points of products and contact information.
6.3.3 Re-Branding Thompson Greenhouse
A positioning statement will allow your customers to know what the company is, what it offers
and the integrity of its owners. Thompson will likely be perceived differently by its different
20
target market, i.e. individual vs. commercial customers. To this extent two different positioning
statements have been created:
(1) Thompson Greenhouse: To individual consumers, Thompson Greenhouse is a destination that
will provide a beautiful variety of gardening products and supplies, accompanied with the
knowledge to help even the “greenest” individual create their ideal garden.
(2) Thompson Greenhouse: To commercial customers, Thompson Greenhouse is a supplier of
premium quality gardening products and supplies, whose management has a commitment to
service, timely delivery and possess a passion for horticulture.
The Brand Promise of the Company will enable cliental to know the general positioning
statement in a single sentence. It should communicate the commitment Thompson’s has to
providing excellent product, service and knowledge.
Brand Promise: “Your Growth. Your Success. It’s all we think about!”
6.3.4 Projections of Revenues and Marketing Expenses
Development of Website: A graphic designer and web developer have been contacted and the
estimated cost for the website is $2,000. The company performing this branding work for
Thompson Greenhouse is RFX brand and communications. An example of our webpage can be
seen in Appendix F. The annual website maintenance has been estimated to be an additional $500
a year.
Brochures: Brochures will be distributed to Big Box stores of which we have contracts and
various florists around the city. RFX Brand Communications will be creating the advertising
brochures for us as well as the website. Additional costs for the brochures have been quoted at
$1,000. This will provide Thompson Greenhouse with 2,500 brochures.
21
Flower and Garden Shows: There are annual Flower and Garden shows in Saskatoon and
Regina. The cost to set up a booth at these shows is $1,000. It is assumed that the Company will
only attend the Regina shows as the Saskatoon greenhouse and nursery market is not our target
market; and the competition in Saskatoon is greater than that of Regina.
Gift Certificates (Prizes): To get the marketing program off the ground we have allocated $500
to gift certificate prizes that can be given out to customers for purchasing items and bring a
friend. Gift Certificates will result in a promotional boost to the company to kick off the
expansion and generate growing interest in the Company.
The financial cost of the marketing initiatives should not exceed our projected budget of $5,000.
6.4 Competition Analysis
6.4.1 Primary Competition
Wascana Greenhouse & Nursery
The competitive environment facing the Company in the area surrounding Regina is a moderate
risk. There is one primary competitor, Wascana Greenhouses; the business provides nearly all
services offered by Thompson plus a landscaping service. This does not present itself as a
weakness as landscaping is not a core competency of Thompson and as such there would be little
value in trying to copy Wascana’s business model. Some critical identifying factors of Wascana
have been presented below.
Market Share: Wascana has the largest market share in the Regina region as it is the largest
greenhouse company. With 30,000 square feet of area (2,787 sq meters) Wascana is substantially
bigger than Thompson Greenhouse at its present operational capacity. Upon consultation with
Regina citizens the most commonly visited greenhouse/nursery is Wascana; the reason provided
was the diversity of their selection of products.
Strengths/Weaknesses: Products and services of Wascana are of high quality and well
diversified. The management team is a husband/wife combination who has been running the
Greenhouse since 1975. This signifies the durability, credibility and viability of this business.
22
Sherwood Greenhouses – this greenhouse is of small proportions no greater than 15,000 square
feet of growing area (1,400 square meters). The operation focuses primarily on Perennials,
Geraniums, and Petunia’s. The management team is new as the previous owners retired and sold
the greenhouse in 2000. Management had no prior experience in the greenhouse industry prior to
the purchase.
6.4.2 Secondary Competition
Big Box Stores & Wholesalers:
Big Box Stores and Wholesalers are considered secondary competition. Although they will
supply plants at a discount, the employees will not have the knowledge nor premium products.
The following secondary competitors in Regina are:

Canadian Tire

Real Canadian Superstar

Wal-Mart

Home Depot
6.4.3 Tertiary Competition
Surrounding Farms – there are a number of farms surround the Regina area that offer various
arrangements of plants and offer different services, however their core competencies are around
farming and the sale of greenhouse products is of secondary nature. These farms hold a low
proportion of the greenhouse consumer market share.
6.4.4 Differentiation
The Company has operated for many years in the Regina area, over these years they have
generated a significant following and hold a small share of the Regina greenhouse industry. The
Company seeks to differentiate its product offerings through the following unique attributes:

High quality, award winning products

Unparalleled commitment to service

Creative branding techniques – website, brochures, charity events, festivals etc.

Consistent and timely distribution to commercial customers

Experienced and consultative sales force
Management believes that the Company compares favorably to the competition in key service
areas such as product quality, accessibility and customer support and floral knowledge.
23
7.0 Financial Statement Analysis
7.1 Financial Overview
We have adjusted the financial statements for items that were not reflective of current market
conditions. With current revenue at $37,000, and assuming a new greenhouse provides $30,000,
we assumed that the land rental revenue per year is $7,000. With respect to cost of goods sold,
fertilizer, water, soil and truck costs have been increased to reflect current market pricing. Other
costs remain the same, with the exception of building repairs due to the high costs of labour in
today’s economy.
Based on our preliminary research, the costs of building a new greenhouse are approximately
$50,000 for the square footage that you require, as opposed to $12,000 as initially estimated.
We projected revenues to grow at a rate of 3% per year. This figure includes real growth rate of
2.5%, plus inflation of 2.5%, which gives us a nominal rate of 5%. This is between industry
standards of 4 to 7%. In order to adjust for spoilage, we have decreased our growth rate by 2%,
for a total nominal rate of 3%.
With regards to working capital analysis, please refer to the monthly projected cash flow
statement (Appendix S) that shows changes in working capital on a month to month basis. Please
note that higher levels of inventory are required for the busy months. Working capital is also kept
at a minimum due to our capital purchases required in order to run the business.
Option Three
This option involves an expansion totaling five greenhouses over the next five years, as shown in
table below:
1
2
3
Commercial
Retail
24
4
5
In year one, total long term debt of $75,000 will be needed to finance the new greenhouse, as well
as the repairs and maintenance for the old greenhouse. In years two, three, and four, additional
debt of $55,000, $60,000 and $65,000 respectively will be required to build the additional
greenhouses. It is assumed that the original greenhouse will be scrapped in year five, and
therefore a new greenhouse will need to be constructed to replace it during year five. This will
result in additional debt required of $70,000. Total debt over the five years will therefore total
$325,000.
With respect to our marketing plan as described previously, total advertising costs will be $5,000
per year. To reflect today’s market cost of labor, we have replaced the selling and direct labor
costs provided, based on our human resources plan described previously. Total labor costs over
the five year period are approximately $330,000.
There is large capital costs totaling approximately $103,000 associated with this option including:
o
A new truck in year four for $30,000; we are assuming the current truck will need to be
replaced within the next few years.
o
A new computer system in year one for $3,000, and a new computer every two years
costing $2,000. In addition, software upgrading costs of $500 every second year will be
incurred.
o
Three additional garden tractors costing a total of $9,000 ($3,000 each) in order to keep
up with the additional greenhouse operations.
o
Four additional cash registers costing a total of $4,000 ($1,000 each) given that we have
one additional retail outlet that requires cash registers.
o
There are also additional miscellaneous capital costs of $10,000 per greenhouse including
garden tools and other devices.
As shown in the income statement (Appendix Q), the net loss increases from $3,000 in year one,
to $270,000 in year five. This is mainly due to the increased interest and labor costs associated
with the expansion.
Given that this is a cyclical business, we have provided a monthly cash flow projection in order to
ensure that The Company has enough cash to continue its operations throughout its busy and slow
months. As shown on the monthly cash flow statement, the cash position continues to deteriorate
on a monthly basis. At the end of the year one, The Company is at a cash deficit position of
25
approximately $10,000. Unfortunately, this continues to worsen as the years go by. At the end of
year five, the projected cash deficit amounts to approximately $437,000.
Even if the capital costs are not required, this option is not viable because The Company would
still operate with significant losses, as well as significant cash deficits. In conclusion, although
this option achieves the objectives of providing Ryan with a full time career opportunity, it is not
financially viable and should therefore not be pursued.
Option Two
This option involves keeping the old greenhouse, and building a new greenhouse in year two. In
year one, the percentage ratio between individual and commercial contracts will remain the same,
at 75% and 25% respectively. In years two through five, following the completion of building the
new greenhouse, there will be one greenhouse selling directly to individuals, and one selling to
commercial consumers.
There is an increase in long term debt of $25,000 going from $50,000 to $75,000 as required for
the repairs and maintenance for the old greenhouse. In addition, building repairs have increased
substantially, due to the existence of the old greenhouse which needs to be frequently maintained
and upgraded.
The capital costs for this option are similar to option three, except for the following:
o
One less garden tractor is required
o
No cash register costs are to be incurred as there is no additional retail greenhouse
o
Miscellaneous garden tools and devices are only being incurred for two greenhouses
rather than for five
o
Total capital costs under this option are projected to be $69,000
In year one, The Company will operate with a net loss of approximately $4,400. This net loss
position will continue until year five, with a net loss of approximately $8,000.
With respect to the cash flow statement (Appendix N), cash flow from operations is positive.
However, due to the high cost of capital items, the cash deficit at the end of year one is
approximately negative $11,500. The Company’s cash deficit will continue to decrease
throughout the years, resulting in a total deficit of approximately $25,000 at the end of year five.
26
In conclusion, the capital costs are creating losses and negative cash flow for this option. In
addition, this option does not address the objectives of our client of providing Ryan with an
adequate return on investment, and a full time career opportunity.
Option One
Option one involves replacing the current greenhouse with a new greenhouse, at a cost of
$50,000, financed entirely through long term debt. This greenhouse will be sold 75% to
individual sales, and 25% to commercial contracts, which is the same sales mix as currently being
undertaken by The Company.
It should be noted that direct selling and labor costs remained at a nominal amount in this option
and were not adjusted for market prices.
The capital costs for this option are similar to option two, except for the following:
o
One garden tractor
o
Miscellaneous garden tools and devices are only needed for one greenhouse
o
Total capital costs under this option are $57,000.
In year one, the company will operate at a loss of approximately $55,000; mainly attributable to
writing off the old greenhouse. By year five, assuming a net growth factor of 3% of revenue, the
net loss will decrease to $5,000.
With respect to cash flow statement, the cash flow from operations is not providing sufficient
cash for the business to operate on a day to day basis. In year one, there is a cash deficit of
approximately $6,400 which fluctuates for the next couple years, resulting in a deficit in year five
of approximately $24,000.
In conclusion, the capital costs are creating losses and negative cash flow for this option. In
addition, this option does not address the objectives of our client of providing Ryan with an
adequate return on investment, and a full time career opportunity.
27
7.2 Critical Success Factors
One critical success factor (CSF) that The Company needs to understand is the ability to secure
contracts with commercial consumers. Given that three out of five greenhouses will sell to
commercial consumers, the ability of The Company to achieve the projected level of sales is
dependent on this factor.
A second CSF pertains to The Company’s ability to obtaining financing. Given that an additional
five greenhouses are being built, extensive capital is required to finance this expansion. This
financing cannot be obtained through equity issuances, therefore debt is essential.
A third CSF relates to The Company’s ability to charge a premium price. This factor is
dependent on the consumer’s perception of The Company’s product as “premium”, and service as
high quality. If consumers believe that the product is not worth the premium price, sales will
suffer and The Company will no longer be a going concern.
Due to the threat of unpredictable weather patterns, and extreme weather conditions present in
Saskatchewan, maintaining a consistent climate within the greenhouses is essential to grow high
quality product. These weather patterns will have a high impact on costs of operations, and can
drastically affect the bottom line.
A final CSF involves Ryan remaining actively involved in the business, so that it can be carried
down to future generations and therefore remains in the family. If Ryan decides to change his
future career aspirations, the objectives of our client will no longer be met, as there are no other
family members who could run this business full time.
7.3 Sensitivity Analysis
Given that all three options are not viable, we have computed a sensitivity analysis based on how
many square meters (or number of greenhouses) is required to break even. As shown in
Appendix V, we presented worst case, base case, and best case scenarios by selling prices and
direct costs per square meter. The results of this analysis are as follows:
28
In conclusion, with the current project financials, the company will require to build 16
greenhouses over the next five years. This is not possible for The Company, given that the bank
will not extend additional credit since the debt to equity ratio will be far too unfavorable. In
addition, building an additional four greenhouses per year is an overly aggressive expansion plan
as it will put a large strain on daily operations. The best case scenario is overly optimistic and
therefore highly unlikely to occur for this business. We therefore recommend that you do not
base your decisions on this best case scenario. Finally, The Company is unable to break even in
the worst case scenario, given that the contribution margin per unit is negative, therefore
increasing quantities of sales will not produce any excess profits.
7.4 Income Taxes
The current partnership structure at Thomson Greenhouse means that income taxes will be
allocated to each of the partners – Lisa and Earl. Income or losses from the partnership would be
taxed at the personal rates of the owners; losses can be used to reduce their personal tax liabilities
from other sources of income. By incorporating Thomson Greenhouse, it can benefit from the
lower tax rates as a result of the small business deduction. This could mean a tax savings of 10%
on the first $400,000 income as the lowest personal tax rate in Canada is 26% (15% federal and
11% provincial) while the small business rate is $15.5% (11% federal and 4% provincial). Any
income over $400,000 is subject to the normal rate, which is calculated to be 31.5% for 2008
(19.5% federal and 13% provincial), however this liability can be reduced through deducting
bonus payments.
Incorporation of the company would provide many tax advantages due to the favorable tax
treatment of small private businesses, however, these benefits are only advantageous when there
is positive income; any losses within the corporation are limited to be used within the corporation,
and cannot be used to reduce personal income as in the case of the partnership.
Therefore, we
recommend the Company to remain as a partnership structure until the company is able to bring
in positive net income.
29
8.0 Recommendations
8.1
Recommendation / Contingency Plans
We see an opportunity for the Company to diversify into tree farming. At the current time there
are fifteen acres of land that you are renting out each season to your neighbor. The ability to turn
a profit with this venture is quite high. The initial capital costs for a five acre parcel would be
about $100,000, which would cover irrigation equipment, fencing, grading of the land, and
independent water well. An acre of land can accommodate 800 trees; therefore, total trees on five
acres would amount to 4,000. The purchase price of a tree with a maturity time frame of 3-5 years
would vary from $20 to $30. The selling price upon maturity would vary from $135 to $155. The
input costs per year equal $2 per tree per year for labor, and then costs of water. As you can see
the margins are quite strong, as long as you can overcome the initial financial strain due to the
start-up costs.
A second viable plan would be to cease the current business, or slowly discontinue operations
over the next few years until the current greenhouse is no longer useable for retail or commercial
sales. It is important to note that just because a business is no longer a viable option to operate, it
can still have value. In the case of the Company, there is 20 acres of land. Land in Saskatchewan
is constantly rising, and either selling the 15 acres not in use, or subdividing the land is an option.
Through subdividing the land and giving a 5 acre parcel to each of your sons it will provide them
with future income either immediately if sold or incrementally if rented.
Both options are strong alternatives, or contingency plans, if it is determined that continuing with
the greenhouse business are not a viable option.
30
Appendix A – Site Plan
Current Thomson Greenhouse (Retail Greenhouse)
Loading Dock
8m
Storage
Facility
5m
32m
16.5m
P
l
a
n
t
s
2m
2m
Desk
2m
20m
Main Greenhouse = 636.47 m2 of Shelf Space
Storage Facility = 41.34 m2 of Shelf Space
31
New Thomson Greenhouses (Commercial Greenhouse)
Loading Dock
40m
17.75m
P
l
a
n
t
s
2.5m
20m
Capacity = 873.75 m2 of Shelf Space
32
Appendix B – Organization Structure
Thomson Greenhouse Year 2008
33
Thomson Greenhouse Year 2013
34
Appendix C – Map of Regina & Surrounding Area
35
Appendix D – Competition Analysis
Thomson Greenhouse: Competitors
Below is a list of the main competitors for Thomson Greenhouse. Please note that there
are other greenhouses in Regina, along with other commercial stores. However, we feel
that the competitors below are of most significant importance for The Company
Location
Wascana Greenhouse &
Nurseries
Sherwood Greenhouses
Sweet Pea’s Greenhouse
Canadian Tire
The Real Canadian
Superstore
Rona Home and Garden
Wal-Mart
Home Depot
Various Retail Florists
Attraction
Full service garden centre,
tree nursery, and
landscaping company.
Family owned and operated
run business selling fruits,
vegetables, trees, annuals,
and perennials.
Family owned and operated
garden center.
Home and garden chain
store selling annuals, trees,
shrubs, garden supplies.
Home and garden chain
store selling annuals, trees,
shrubs, garden supplies.
Home and garden chain
store selling annuals, trees,
shrubs, garden supplies.
Home and garden chain
store selling annuals, trees,
shrubs, garden supplies.
Home and garden chain
store selling annuals, trees,
shrubs, garden supplies.
Annuals, indoor plants and
flowers
36
Price
Marginally lower prices
Marginally lower prices
Marginally lower prices
Significantly lower prices –
chain store with numerous
locations nation-wide
Significantly lower prices –
chain store with numerous
locations nation-wide
Significantly lower prices –
chain store with numerous
locations nation-wide
Significantly lower prices –
chain store with numerous
locations nation-wide
Significantly lower prices –
chain store with numerous
locations nation-wide
Higher prices
Appendix E – Industry Information
(Government of Ontario, 2008)
37
Appendix F – Proposed Website
38
References
Alberta Agriculture and Rural Development. (2008). Starting a Commercial Greenhouse
Business in Alberta. Retrieved on July 5, 2008 from
http://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/opp11207
Balderson, D. W., Clark, J.D. (2008). Canadian Entrepreneurship and Small Business
Management (7th ed.). Canada: McGraw-Hill Ryerson.
Calder, Kari. (2008). 2007 Saskatoon Real Estate Market in Review. Active Rain Real Estate
Network. Retrieved July 8, 2008 from http://activerain.com/blogsview/371481/2-7Saskatoon-Real
Francese, Peter. (2002). Horticulture is Hot. Business Library. Retrieved July 8, 2008 from
http://findarticles.com/p/articles/mi_m4021/is_2002_May_1/ai_88679442
Gilbert, Richard. (2008). As Saskatchewan economy booms, labour and infrastructure challenges
abound. Journal of Commerce. Retrieved July 8, 2008 from http://www.joconl.com/
article/id28207
Government of British Columbia Ministry of Agriculture and Lands. (2008). Business Planning
Guide: Greenhouse Vegetable Example. Retrieved on July 5, 2008 from
http://www.agf.gov.bc.ca/busmgmt/bus_guides/green_guide.htm
Government of Ontario, Ministry of Agriculture Food and Rural Affairs. (2008). Greenhouse
Industry Statistics, Ontario and Canada, 2005 to 2007. Retrieved July 8, 2008 from
http://www.omafra.gov.on.ca/english/stats/hort/greenhouse1.htm
Wikipedia. (2008). Baby Boomer. Retrieved July 8, 2008 from http://en.wikipedia.org/wiki/
Baby_ boomer
Wikipedia.
(2008).
Regina,
Saskatchewan.
Retrieved
http://en.wikipedia.org/wiki/Regina%2C_Saskatchewan
39
July
8,
2008
from