Business Plan
Indulge In Your Sweet Tooth
Prepared For:
Comm 447
Marv Painter
December 02, 2011
Prepared By:
Kally Schlemko
Jennifer Schmidt
b
Business Plan for Indulge
Comm 447
Table of Contents
1.0 Executive Summary ……………………………………….……………………………Page 4
2.0 Business Overview ……………………………………………………………………...Page 7
2.1 Mission Statement ………………………………...…………………………….Page 7
2.2 Goals/Objectives ………………………………………………………………..Page 7
2.3 Industry Overview ……………………………………………………………....Page 8
2.4 Saskatoon Economy ………………………………………………………….…Page 8
3.0 The Operations Plan …………………………………………………………………….Page 9
3.1 Organizational Structure ………………………………………………………..Page 9
3.2 Site Plan ……………………………………………………………………….Page 11
3.3 Floor Plan ………………………………………………………….…………..Page 11
3.4 Average Business Day ……………………………………………………...…Page 13
3.5 Average Business Week …………………………………………………….…Page 14
3.6 Average Business Month …………………………………………………...…Page 15
3.7 Average Business Year ………………………………………………………..Page 15
3.8 Typical Custom Order …………………………………………………………Page 15
3.9 Quality control Plan ………………………………………………………...…Page 16
3.10 Supply Analysis ………………………………………………………...…Page 16
3.11 Capacity Limits ……………………….…………………………………...Page 16
3.12 Cost of Sales ……………………………………………………………….Page 17
3.13 Operations Expense …………………………………………………….….Page 17
3.14 Working Capital Planning …………………………………………………Page 18
3.15 Capital Expenses …………………………………………………………..Page 19
3.16 Summary of Operations Plan ……………………………………………...Page 20
4.0 The Human Resources Plan ………………………………………………………...…Page 21
4.1 Hiring/Firing of Employees …………………………………………………...Page 22
4.2 Training ………………………………………………………………………..Page 23
5.0 The Marketing Plan …………………………………………………………………....Page 24
5.1 The Marketing Mix ……………………………………………………………Page 24
5.1.1 Product …………………………………………………………….Page 24
5.1.2 Pricing …………………………………………………………..…Page 25
5.1.3 Promotion ……………………………………………………….…Page 26
5.1.4 Place ……………………………………………………………….Page 26
5.2 STP Segmentation, Targeting, Positioning ……………………………………Page 26
5.3 Competitors ……………………………………………………………………Page 27
5.4 SWOT Analysis ……………………………………………………………….Page 27
5.4.1 Strengths …………………………………………………………...Page 28
5.4.2 Weaknesses ………………………………………………………..Page 28
5.4.3 Opportunities ……………………………………………………....Page 28
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Jennifer Schmidt
Business Plan for Indulge
Comm 447
5.4.4 Threats ……………………………………………………………..Page 28
5.5 Projections of Revenues and Marketing Mix ………………………………….Page 29
5.6 Marketing Plan (Advertising Mix) …………………………………………….Page 29
6.0 The Financial Plan ……………………………………………………………………..Page 33
6.1 Financial Description ……………………………………………………….....Page 33
6.2 Required Rate of Return ……………………………………………………….Page 33
6.3 Critical Success Variables ……………………………………………………..Page 34
6.4 Best and Worst Case Scenarios and Sensitivity Analysis ……………………..Page 35
6.5 Critical Variables …………………………………………………………...…Page 35
6.6 Break Even Analysis ………………………………………………………......Page 36
6.7 Ratios …………………………………………………………………………..Page 37
6.8 NPV and IRR ………………………………………………………………….Page 37
6.9 Overall Feasibility of Indulge …………………………………………………Page 38
7.0 References ……………………………………………………………………………..Page 39
8.0 Appendix ………………………………………………………………………………Page 40
8.1 Appendix A – Customer Order Form ………………………………………….Page 41
8.2 Appendix B – Operating Expenses …………………………………………....Page 42
8.3 Appendix C – Capital Costs …………………………………………………...Page 43
8.4 Appendix D – HR Pay Rates and Needed Hours ……………………………...Page 44
8.5 Appendix E – Sample Product ……………………………………………...…Page 45
8.6 Appendix F – Pricing Comparisons ………………………………………...…Page 46
8.7 Appendix G – Marketing Projections ………………………………………....Page 47
8.8 Appendix H – Marketing Cost Break-Down ………………………………….Page 48
8.9 Appendix I – Financial Projections …………………………………………....Page 49
8.10 Appendix J – Break-even Analysis ………………………………………..Page 50
8.11 Appendix K – Ratio Analysis ……………………………………………..Page 51
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Jennifer Schmidt
Business Plan for Indulge
Comm 447
1.0 – Executive Summary
Indulge is a locally owned and operated bakery which makes and sells cupcakes and wedding
cakes. Since these products are high quality they will be sold at a premium price. Cupcakes can
be bought directly from the store with no previous order necessary or specialty orders can be
placed for both cupcakes and wedding cakes. Due to the high cost to produce, wedding cakes
will only be offered by special order/request.
Operations Plan
Indulge will be open daily which will accommodate all products being baked fresh day by day
with the exception of Sunday. In order to guarantee freshness inventory management will be
extremely important. The baker and management staff will manage inventory. On average,
inventory will be purchased on a bi-weekly basis. It will also be essential to closely monitor
cupcakes produced on a daily basis in order to maximize the quality. Since cupcakes will not be
carried to the next day, management will want to only produce what is necessary for that given
day. These inventory levels will be tracked and adjusted on a day by day basis.
Indulge will operate with an extremely high profit margin on both wedding cakes and cupcakes
since the cost of producing these items is not high. The selling price of one cupcake is not very
high therefore it will be essential to make sales which in return will be an important variable to
make the business a success. In order for the business to cover its high cost of rent and salaries it
will be essential to obtain an operating line of credit during the first year of operation.
Indulge will be located in the University Heights Square at 138 – 1820 McOrmond Drive. This
will be considered an asset to Indulge since this area is surrounded by seven neighborhoods and
has a higher than average household income. This area is also located by two high traffic streets
which include Attridge Drive and McOrmond Drive.
Human Resources Plan
The Indulge team will consist of four staff members who include a manager, assistant manager,
and two part time staff in the first year. All staff members will be required to have Food Safety
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Jennifer Schmidt
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Comm 447
certification and CPR courses. In the third year, if necessary, Indulge will hire additional staff
members to help balance the work load with an increased clientele base.
The two owners, Kally Schlemko and Jennifer Schmidt will hold the manager and assistant
manager positions which will include all necessary hiring and firing practices, accounting and
bookkeeping tasks, inventory control, and the baking process. Two part time staff members will
be recruited and hours increased when necessary to keep up with demand. In addition these staff
will be trained on the baking duties if need be.
Marketing Plan
Indulge will target three groups of consumers which consist of single and married females with
middle to high income and wedding clientele. These groups will be looking to fulfill a need and
indulge in their sweet tooth. They will have at least a middle income level in order to spend
disposable income on a premium priced product or luxury good. The atmosphere Indulge will
promote will be consistent with these target market groups in that it will be upbeat, fun, and a
girly atmosphere.
Indulge has two direct competitors which consist of The Cupcake Corner located on 8th Street
and the Cupcake Conspiracy located downtown. Both of these bakeries produce similar products
with a relatively close pricing range. Since Indulge will located on the east side of the city, it will
be quite far from both of these locations and will take advantage of those consumers driving to
the other end of the city to purchase cupcakes. In addition Safeway has recently became a close
competitor with the introduction of high-end cupcakes. Since Safeway’s cupcakes are slightly
cheaper but are not as high quality Indulge will not be competing on the same direct level with
Safeway.
The marketing strategy consists of several phases. Firstly, Indulge will concentrate on its grand
opening and ensuring consumers are aware that a new cupcake location has opened up. In order
to bring consumers in on this initial day, a buy one get one free offer will be available on this day
only. Indulge will also take part in the Bridal Spectacular event that is help at TCU place in
Saskatoon. This will give Indulge the opportunity to connect with brides in the Saskatoon area
and advertise to the wedding clientele target market. The company will also take part in expos in
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Jennifer Schmidt
Business Plan for Indulge
Comm 447
the Saskatoon area where they can set up a booth and offer samples to consumers and reach the
intended target markets. Lastly, Indulge will take place in tradition marketing methods which
will include: newspaper, radio, webpage, yellow pages, flyers, posters, pamphlets and signage. In
addition, non-traditional methods will include: word of mouth and facebook.
Financial Plan
The financial statements are based upon the above information which includes the operations
plan (operating costs, capital costs, and cost of sales), the human resources plan (wages and
benefits costs), and the marketing plan (marketing expenses). During the first year of operations
Indulge will incur a loss due to rent expense, salaries, and a large marketing plan with minimal
sales since the company is still building awareness. Indulge will generate profits in years two,
three, four and five with dividends being paid out in year five. In the initial year an operating line
of credit will be necessary to pay rent and salaries while sales are being made and awareness
increased.
Indulge has used a 50% equity and 50% debt approach. The equity portion will be contributed
half and half by the owners while the remainder will be obtained from a bank loan. This loan will
be paid back in the initial five years of operations. With this an internal rate of return of 103%
can be achieved which meets and exceeds the 25% required return. This IRR is extremely high
due to the low initial capital costs. In addition the net present value of the company is calculated
to be $82,891.
Indulge feels the business will be successful and has a promising future in the booming
Saskatoon economy.
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Kally Schlemko
Jennifer Schmidt
Business Plan for Indulge
Comm 447
2.0 – Business Overview
Indulge was established in 2011 by two Edwards School of Business students, Kally and
Jennifer, with each student having equal equity in the company. With an interest in baking, the
team came together to join a business idea.
Indulge sells cupcakes and wedding cakes. Cupcakes are made fresh daily, while wedding cakes
are made only by special order/request. Cupcakes can also be specially ordered for events and
will be made fresh the day of the event. The products will be priced at a premium price in order
to accommodate the specialty design and high quality. The products are differentiated through
specialty designs on a customer-to-customer basis or the availability of cupcakes when walking
through the front door.
2.1 Mission Statement
Indulge will provide delicious cupcakes and wedding cakes made to customer specifications at
an affordable price, a friendly atmosphere, and a convenient time and location.
2.2 Goals/Objectives
The short-term goal for Indulge consists of establishing a brand and market in the Saskatoon
community. First, Indulge will need to create a name for themselves and build positive word of
mouth. Indulge will then also promote the girly and friendly atmosphere that will be created
within the store. Thus making a visit a memorable one.
The medium term goals will consist of continually increasing brand awareness and spreading
positive word of mouth throughout the Saskatoon community and surrounding areas. This will in
turn create positive cash flow for the company. This will be sustained through the marketing plan
and setting targeted sales objectives.
The long-term goals consist of increasing sales and profits the company is making. It will be
important to maintain the Indulge brand image. Another long-term goal is to open more Indulge
locations in other large centers, firstly in Saskatchewan and move throughout Canada eventually.
It will be important to continually change the business plan and adjust sales targets as needed.
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Jennifer Schmidt
Business Plan for Indulge
Comm 447
Indulge will achieve this objects by ensuring to continually update the business plan as needed.
Goals and objectives will be set that are achievable and consistent with the companies values and
environment. In order to promote our environment it will be necessary to ensure that proper staff
are on the Indulge team and are in agreement with the business plan. In order to keep costs low,
only necessary inventory levels will be kept. Not only will this prevent products from going bad,
but also decrease the cost of having unnecessary products on hand.
2.3 Industry Overview
Currently cupcakes are a popular trend among weddings. They are less expensive than the
traditional wedding cakes. This trend seems to be influenced by the many reality TV shows
showcasing different bakeries. Cupcakes are the current trend but it is unknown if that trend will
remain strong or diminish over time.
2.4 Saskatoon Economy
Saskatoon is a much smaller city then the cities featured in the various cupcake reality TV
shows.
According to Saskatoon Regional Economic Development Authority, Saskatoon is
currently the fastest growing city in Canada with the on of most diversified economies in the
country (Fastest Growing City, 2011). As of June 30, 2011, Saskatoon’s population is 231,900
people (City of Saskatoon, 2011). The average household income in Saskatoon is $85,407 with
an estimated 4% of disposable income (Fastest Growing City, 2011).
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Jennifer Schmidt
Business Plan for Indulge
Comm 447
3.0 – The Operations Plan
Indulge specializes in the backing and decorating of cupcakes. Indulge will also offer wedding
cakes upon request. Cupcakes will be baked daily at 4:00am and iced and on display before the
doors open at 10:00am. The assistant manager will be responsible for the baking and decorating
of the cupcakes five days a week and the manager will fill in on the other two days in the week.
The storefront will have a cooled display case to display the cupcakes throughout the day. Two
part-time employees will be responsible for the storefront. Only one part-time is needed per day.
At the end of each day the cupcakes will be given away to the local Saskatoon food bank.
3.1 - Organizational Structure
Manager
Assistant
Manager
Staff
Staff
Figure 3.1 – Organizational Chart
The organizational structure will be relatively flat. It will consist of a manager, assistant
manager, and two part-time staff members. The manager will be responsible for the accounting
and book keeping work, hiring and firing of staff, training staff, ordering of products, ensuring
the store is kept up, and baking as needed. It will be necessary that the manager implements
FIFO inventory system. This means, the first products in the door are the first products out the
door. This system will help to ensure no proud is going bad before it is sold.
While the assistant manager will be responsible for majority of the baking, up keep of the
kitchen (including ensuring of adequate product and cleaning), assisting the manager and other
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Jennifer Schmidt
Business Plan for Indulge
Comm 447
staff members. Ensuring enough cupcakes are made, but not too many will be crucial since
leftover cupcakes will be waste. On Saturday mornings extra cupcakes will be made and stored
in cooler to sell on Sundays. This will cut down on wages expense while still having adequate
product to sell on Sunday.
The two hired staff members will be responsible for the front end of the store. The manager will
train them and their duties will include: selling goods, taking orders, answering phones, and
ensuring the cleanliness of the front. The front-end staff will also be responsible for ensuring
customer satisfaction. It will be essential for these employees to be responsible individuals since
on Sundays one will be left alone to run the store for four hours. If necessary one of the frontend staff will be trained to bake and will help bake half of the time and help with the front of the
store the other half. More staff will be hired, as needed in years three, four, and five once Indulge
gains more clientele.
The business structure will be set up as a corporation. There will be two main shareholders with
equal share held in the company. The shareholders will consist of the two owners, Jenn and
Kally, who are the founders of the business. There are three main advantages and reasons why
Indulge will be incorporated. Initially, by incorporating Indulge will be able to take advantage of
the small business tax credit. This will be necessary since Indulge is a start-up business and cash
flows will be stretched at the beginning and any extra savings will be essential to the company’s
success. Next, a corporation is treated as its own person and therefore the profits of the company
are taxed in the company rather than divided among the owners. This way the owners will not
incur additional tax expenses once the business begins making profits, but rather can take
dividends out of the company to supplement their salaries. Lastly, the owners of the company are
not personally liable if the company goes under. If not incorporated the owners could lose all
their personal belongings. On the other hand, with incorporation they can only lose what they
have invested in the business. Overall, incorporation is the less risky method for starting up the
Indulge business.
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Jennifer Schmidt
Business Plan for Indulge
Comm 447
3.2 – Site Plan
Due to the fact that cupcakes are not exactly a necessity, Indulge must be located in an area
where residents have high levels of disposable income. We have decided to lease a space in
University Heights Square located at 138 – 1820 McOrmond Drive. University Heights Square
is surrounded by seven neighborhoods with a combined population of over 45,000 people (City
of Saskatoon, 2011). These surrounding neighborhoods have an average household income of
$85,704 (City of Saskatoon, 2011). University Heights is also located next to two high traffic
streets, Attridge Drive and McOrmond Drive. In 2009 McOrmond Drive saw an average of 183
vehicles in an hour while Attridge Drive saw 738 vehicles in an hour. It is projected that in the
year 2014 McOrmond Drive will see 1117 vehicles in an hour while Attridge Drive will see 1073
vehicles in an hour (City of Saskatoon, 2011). This projected increase in traffic illustrates the
potential of this developing area. Due to the increased traffic and the surrounding neighborhoods
considerably large average income, this would be a promising location for Indulge.
The building we would be leasing is a brand new building that would be built to suit our needs
prior to our possession. The lease has a very high monthly rent but that is because all utilities
and taxes will be included in that expense.
3.3 – Floor Plan
The storefront has been set up fairly simple. It consists of a display case, which will be used to
hold the cupcakes. It will refrigerated and have a sliding door to easily remove cupcakes when
ordered by the client. Signage will also be used to display the price of an individual, half dozen,
full dozen, and two dozen cupcakes. Signage will also be used to display the flavors and icing
flavors available for clients to choose from. Sings will be posted informing clients that wedding
cakes are also available when on an order first basis. The process will begin by taking the
customer order at the counter, the employee will then fill the order and place it at the far end of
the counter where the till will be positioned. The employee will then price up the order and take
the money from the customer. No credit will be given. No seating area will be present in the
front of the store. The store will be a walk-in and out service.
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Jennifer Schmidt
Business Plan for Indulge
Comm 447
The back of the store is also set up in a simple manner. It consists of a washroom and office for
employees to use. The office will be used for management tasks such as accounting and payroll,
but can also be used for employee breaks and lunches. The office is also where all notices for
employees will be posted in addition to schedules.
The back corner of the store will consist of a walk-in cooler where perishable products such as
butter, icing, milk, etc will be stored. There will also be an area for dry storage for things such as
flour and sugar. In addition the dry storage can also be used for cooling of cupcakes and cakes
after baking. Counter space will be provided along the side of the back room.
The baker would enter in the morning through the front door and proceed to the back and put
belongings in the staff room. The baker would then combine ingredients in mixer located beside
the counter, in the meantime arrange pans on the counter. Once the batter is mixed the baker will
place the batter in the pans and put in the oven. While the cupcakes are baking the baker can use
the dishwasher or the three industrial sink system to wash the mixer. The first sink will be for
washing, the second for rinsing, and the third for sanitizing. The dishes will then be placed
beside the sink on a rack to dry.
Once the cupcakes are baked they can be placed on the cooling racks until they are cool enough
to decorate. The baker will then decorate the cupcakes and fill the front case with the necessary
amount while placing the remaining cupcakes in the walk-in cooler in the back to fill the front
case when necessary.
1400 Square Feet
Figure 3.2 – Floor Plan
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Jennifer Schmidt
Business Plan for Indulge
Comm 447
3.4 – Average Business Day
Indulge’s business hours will be Monday to Saturday from 10am to 6pm and on Sunday from
12pm to 4pm with the exception of holidays. It will necessary to have the store open for four
hours on Sundays since many birthday and family events take place on Sunday. In addition, no
other specialty bakers in Saskatoon are open on Sunday so this will allow for extra income.
Opening at 10 am will allow the baker enough time to prepare cupcakes for that morning and
begin working on specialty orders. On Sunday no baker will come in unless there is a high
demand for specialty orders. In this case, extra cupcakes will be prepared on Saturday and placed
in the cooler to sell the following day. In addition morning coffee breaks often occur around 10
am, so this will allow clients to purchase a treat for their morning coffee break. Being open until
6pm will allow for clients to pick up dessert on their way home from work. Indulge will
outsource website creation to Saskatoon Web Design where a service will be set up for clients to
go online and order their cupcakes so the order will be ready for them to pick up on their way
home.
The day would begin with a baker coming in at 4am, checking the board to see if there are any
special request orders, checking for online orders, and starting the baking process. The baking
and cleaning should take approximately 5 hours. The baker will measure and mix the first recipe
and begin baking. While these are baking the second recipe will then be mixed so when the first
comes out of the oven, the second will be ready to go in. In years one and two until a clientele is
built the baker will do two – three rounds of baking. The amount of baking will be logged and
kept track of on a daily basis so it easy to assess which days have the highest sales, which
cupcakes are most popular, and what doesn’t sell well. With this baking will easily be adjusted
and better able to judge the proper amount to bake. If there are any special request orders (special
cupcake flavors or wedding cakes) the baker will also have to make and decorate these orders.
Once the cupcakes are ready the baker will place them in the front displace case for sale and the
remainder in the cooler to fill the displace case later on in the day.
The next staff member (manager or assistant manager) will enter the store at 9am. They will
ensure the front of the store has enough cupcakes and looks full and ready for business. They
will then count the float of the till and put it in to being business. The next step will be to ensure
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Jennifer Schmidt
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that the front is clean and ready for clients to enter the store. The store will then be opened and
clients will begin to be served. Throughout the morning the manager will take care of the front of
the store with duties such as: taking phone calls, working the till, serving customers, taking
specialty orders, and restocking the cupcakes in the displace case. The manager will also need to
check the internet order frequently for any income orders to be prepared throughout the day.
Specialty orders will be posted in the back office and the baker will be informed of them.
In the afternoon once the part-time staff member comes in the manager will need to do office
work in addition to helping serve customers during busy times. The manager will need to prepare
daily cash sheets, keep accounting records, schedule employees, and keep track of payroll. Also
once a month (or as needed) the manager will need to make a trip to the grocery store to pick up
orders and products for baking.
The part-time staff member will be responsible for taking phone calls, working on the till,
serving clients, taking specialty orders, checking for incoming online orders, and restocking the
cupcakes. Near the end of the day the employee will be responsible for ensuring the front of the
store is cleaned and tidied and ready for business the following day. The staff member will also
be responsible for disposing of any leftover cupcakes and cleaning out the front display case. The
manager on duty will reconcile the till, count the money, and if necessary make a cash deposit at
the bank depending on the amount of cash received.
3.5 – Average Business Week
On a bi-weekly basis the management team will be responsible for making a supply order and
going and picking up these items. Items will be ordered from the Wholesale Club. Management
will first take a count of what is left over in the back and decide how much more will need to be
ordered. The Wholesale Club will be called first thing in the morning to give them plenty of time
to get the order together. Management will then go pick up the order in the early afternoon.
Ordering will only be done every other week to ensure quality of the cupcakes and that old
product is used before new product is ordered.
Every week the manager will create a schedule for two weeks in advance. This will allow
employee members to know two weeks in advance when they will be working.
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Jennifer Schmidt
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Comm 447
3.6 – Average Business Month
On a monthly basis the manager will be responsible for updating the company books and doing
any necessary accounting entries. Monthly statements will be made in order to track company
sales, profits, and expenses. This will also make it easier to file a tax return at the end of the year.
A staff meeting will also be held. This meeting will allow all staff members to be informed of the
monthly sales, where improvements could be made, and things that were done very well.
3.7 – Average Business Year
On a yearly basis the manager will create and print fiscal year-end reports to file in the
company‘s records. These records will be used to file income tax returns in addition to tracking
company progress. In addition, the manager and assistant manager will create goals for the
upcoming fiscal year that they would like the business to achieve and ways to achieve these
goals. The management team will also do evaluations of the employees. Once evaluations are
completed they will sit down one on one and discuss the evaluation.
3.8 – Typical Custom Order
A typical custom order will begin with a client expressing a need for a special order. For
cupcakes the client will simply fill out an order form, which will state name, phone number, date
and time needed, quantity needed, and flavors. An example of a typical form can be found in
Appendix A. In addition, clients can go on the Indulge website and fill out the order form for a
custom cupcake order. The form will be similar to the in-store form and the client must provide
their phone number in order for Indulge staff to contact them with any necessary questions
and/or concerns about the order.
A wedding cake custom order will begin with an initial meeting with the client and/or the
manager or assistant manager. It will be established what the client is looking for and their
expectations. The client will also have the opportunity to taste the flavor options available (taste
cupcakes in those flavors) and decide on their flavor of choice. When size and flavor are
established the Indulge team will work out a cost for the cake and take payment from the client.
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Jennifer Schmidt
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Comm 447
Payment will be required in advance due to the large time commitment of a baking a wedding
cake.
3.9 – Quality Control Plan
Indulge will be registered with HACCP (Hazardous Analysis and Critical Control Points). This
will be necessary to ensure Saskatoon residents that all the products they are purchasing are
quality products and up to standards. In order to meet the requirements of HACCP raw eggs and
cupcake batter will be stored in a separate area in the cooler from prepared food products. It will
be ensured that staff members are taking properly cleaning procedures and all baking equipment
is properly sanitized.
Indulge staff will be required to attend a food safety course which will teach proper food safe
handling practices. In addition, all staff members will be taught proper hand washing procedures.
Staff will be expected to practice good hygiene. The bakers will be expected to have their hair
tied back during the baking process.
Indulge products will only be handled by the Indulge staff team to prevent any transfers of germs
from unclean customer practices. If an Indulge product has left the store it will not be able to be
returned and put back on display for sale, the product will need to be disposed of.
3.10 – Supply Analysis
Indulge is a very small business that will not require contracts with large suppliers. All baking
ingredients will be purchased at The Wholesale Club. These will be purchased only when
inventory is low so there are never large amounts of inventory at one time. The couple of
specialty ingredients, such as icing flavors, will be purchased at Michael’s only when needed.
The manager or assistant manager will purchase all these products.
3.11 – Capacity Limits
Indulge has two ovens that can each holds three pans of twelve cupcakes. Seventy-two cupcakes
can be cooked at one time, meaning two bakes will have to be done every morning to attain our
ideal daily cupcake projections. There is only one employee mixing the different icing flavors
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Jennifer Schmidt
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and icing the cupcakes. Therefore Indulge will only be able to produce seventy-two cupcakes
every three hours. If the demand increases drastically requiring more then the current capacity,
more bakers would be hired.
3.12 – Cost of Sales
A cupcake requires very inexpensive ingredients. Each cupcake is sold for $3.00 but only
contains $0.27 worth of ingredients. Therefore each cupcake has a Gross Profit Margin of 91%.
Wedding cakes will only be produced once an order is placed. Each cake will sell for roughly
$700.00 depending on the detail required. The average wedding cake requires $105.00 worth of
ingredients therefore creating a Gross Profit Margin of 85%.
3.13 – Operations Expenses
Operating expenses will consist of a monthly lease payment, phone and internet, manager wages,
staff wages, baking supplies, insurance expense, and utilities expense. A five year lease will be
signed for the current building and the cost of the lease will not increase throughout these five
years. An option to renew the lease will be presented half way through the fourth year to be
renewed before the expiration of the old lease.
The manager wages will consist of the manager and assistant manager. The manager will be paid
$20 an hour, while the assistant manager will be paid $15 an hour. Manager wages expense is
estimated with a 40 hour work week. If managers are required to work additional hours, overtime
will be rewarded at time and a half. Managers will also receive bonuses in accordance to how
well the store does. The bonuses will be based on revenue generated and therefore are not
possible to estimate at this time.
Part-time staff will initially consist of two staff members. One employee will work 22 hours a
week and the other 18 hours per week. Both part-time staff members will be paid $10.50 per
hour. This wage expense will increase in year three since it will be necessary to increase the
hours of part time staff or hire on more staff members with the expected increase in demand. It
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will also be necessary to give original staff members a raise. These raises will be based on the
quality of work they do, and how long they have been with the company.
Baking supplies will be the necessary ingredients to make the cupcakes. This will include things
such as flour, butter, sugar, icing, etc. These costs will continually increase from years two to
five since the Indulge name will become more known to consumers and demand will increase.
An additional operating expenses that are included will be insurance. Insurance expense will be
approximately $500 per month.
Please refer to Appendix B for a full detailed chart of operating expenses.
3.14 – Working Capital Planning
Cash flows are important since they help manage the working capital. Indulge will aim to have a
liquidity ratio around 1.5, but no less than 1. If excess cash accumulates Indulge will have two
options. Firstly, Indulge will invest in both short-term and long-term investments, which will be
agreed upon by the two owners. Secondly, Indulge can pay out excess salaries to the to the
owners in the form of dividends. Since both the manager and assistant manager aren’t taking
home high salaries, dividends will be the initial way of dealing with an excess cash issue.
Indulge will not have accounts receivable since all payments must received at the time of sale.
The baker and the manager will manage the inventory closely. Both these people will best know
the business and be able to predict inventory levels needed. Large amounts of inventory will not
be carried, but rather enough to cover the baking on a bi-weekly basis. In this business it is
important to ensure the quality and freshness of the product and therefore it will be essential to
carry small amounts of inventory. Since Indulge will not be negotiating credit terms for
inventory purchases, it will be essential to ensure that adequate amounts of cash are on hand to
pay for inventory purchases.
In year one, Indulge may face cash issues at the beginning of the month when rent is due and
salaries need to be paid up. All salaries will be paid on the last day of the month while rent will
need to be paid on the first day of the month. Since an excess amount of cash will be leaving the
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company on these two days, Indulge’s cash balance may hit a negative number. For this reason it
will be essential to obtain an operating line of credit to cover these excess costs. The line of
credit will be worked back into a positive number each month once sales begin coming in. Also
the cash balance will get higher and higher each month as more and more sales are generated.
Initially the line of credit will be needed, but by year two Indulge hopes this will no longer be an
issue.
3.15 – Capital Expenses
Capital expenses that Indulge will incur include items such as:
 Ovens
 Mixers
 Cash Registers
 Signage
 Dishwasher
 Sinks
 Website outsourcing
 Display cases
 Microwave
 Walk-in cooler
These items will need to be purchased once and regular maintenance and up keep will be the
only necessary costs with these objects. Included in the purchasing contract is 5 year warranty
that the company will take care of.
These items will need to be amortized. This will be called Capital Cost Allowance from an
accounting perspective. Most of the items for the business will be included in Class 8 and will be
amortized at a capital cost of 20% per year; the half year rule also applies since these items are
being purchased new.
No leasehold improvements will be required since the building being leased is brand new.
Within the original contract the owners incur the costs of putting proper flooring, painting, and
walls in.
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It will also be necessary to purchase kitchen supplies such as cupcake tins, bowls, spoons, etc. It
is estimated that these will incur a cost of $500 and will be replaced as needed. A computer and
necessary software will also be purchased. The computer will need to be amortized in class 52
which has a 100% rate per year. The computer will be continually taken in for upkeep and to
ensure current programs are installed.
A detailed chart of capital expenses can be found in Appendix C.
3.16 – Summary of Operations Plan
Saskatoon is currently the fastest growing city in Canada. Indulge is located in a promising area
of Saskatoon which is surrounded by seven neighborhoods that have a higher than average
household income.
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4.0 – The Human Resources Plan
Indulge will have a store manager, assistant manager, and two additional part-time staff
members. The job duties and necessary skills for each are as follows:
Store manager

Over sees store operations

Approving all major store decisions

Accounting/bookkeeping duties

Hiring/firing of staff members

Training staff

Creating work schedules

Ordering products

Ensuring the store is kept clean and full of product

Assisting in baking as needed

Cash deposits

Helping in the front during busy times

Leadership skills

Accounting training

Baking skills

Creative
Assistant Manager

Baking

Up keep of kitchen

Supervising part-time staff members

Assisting manager with accounting/bookkeeping duties

Assisting with order process for kitchen supplies

Helping in the front during busy times

Cash deposits

Leadership skills

Baking skills
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Creative
Part-time Staff

Selling goods/taking money

Taking orders

Answering phone calls

Ensuring cleanliness of the front

Ensuring customer satisfaction

Must be outgoing, friendly, and energetic
All Indulge staff must have proper food safety certification, in addition management must hold
CPR certification. If part-time staff have not previously completed this course, Indulge will
provide the training.
If necessary Indulge will train the part-time staff to assist with baking duties.
In year three it will necessary to add additional part-time staff when business begins to pick up
and a clientele is established. At this time, part-time staff already employed will have the option
of increasing their hours and baking training if they are interested before the option is given to
new staff members.
Please refer to appendix D for hour and wage break-down.
4.1 – Hiring/Firing of Employees
To hire employees a process will be used which is as follows:

Review of resumes

Initial Interviews

Management Discussion

Offer
Initially, the Indulge team will place an ad in the Star Phoenix and on Saskatoon Job Shop about
the position being hired for. It will include a job description, duties, and necessary
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qualifications/experience. Once the application deadline has passed the Indulge manager and
assistant manager will review all applications and pick candidates for interviews. Management
will be looking for someone who fits well with the Indulge culture and has previous baking
background. It will also be essential that the candidate is available for the work hours needed.
This individual would preferably be a mom looking for part time work while the children are at
school.
Initial interviews will be held and then the Indulge management team will sit down and pick the
best candidate that will fit the business. The manager will then call this individual and place an
offer and if accept that individual will be hired.
The manager will do any firing. The decision to fire someone will be made by both the manager
and assistant manager. The manager will sit down with the individual and tell them the job is not
working out, tell them the reason they are being let go, and end the meeting.
4.2 – Training
Training will be both on the job and school setting learning. The school setting learning will be
for the Food Safety certification in addition to the CPR courses necessary for the job. This will
both take place off the premise and will be conducted by a third party. Indulge will give
preference when hiring to applicants with these course, but if they are not equipped Indulge will
provide the training to the right applicant.
On the job training will be provided at the Indulge location. Both the manager and assistant
manager will conduct the training. All training will be hands-on learning with the trainer
allowing the trainee to do things with guidance and eventually by themselves.
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5.0 – The Marketing Plan
Indulge will have to be very strategic about their marketing choices. In a small business such as
Indulge, a large amount of money isn’t available to be spending on a marketing campaign.
However, sales are considered their most critical factor. Without some type of marketing
Indulge may not be able to meet the sales requirements.
5.1 – The marketing mix
Product
Cupcakes are the main product Indulge will offer. Two flavors of cupcake will be offered, white
and chocolate. In addition ten icing flavors will be offered. These flavors include: lemon, banana,
peanut butter, mocha, strawberry, peppermint, coconut, vanilla, chocolate, and orange. Indulge
will also take special requests for flavors not offered with 24 hours necessary notice.
Please refer to appendix E for picture of sample product.
In addition to cupcakes, Indulge will offer wedding cakes upon request. A client must place an
order where they can specify the size, flavor, color of icing, and when they need the cake
prepared for. It will be necessary for the client to give Indulge at least a week’s notice, in order
to ensure necessary supplies are purchased and adequate time is given to prepare and decorate
the cake.
Indulge will also accept any special request orders a client may have. Indulge will do its best to
accommodate orders but will only accept orders that include cake ingredients. Due to the fact
that Indulge only has the necessary space to store cake and decorating supplies, no other baking
requests will be able to be taken.
Indulge will also be selling the upbeat, girly atmosphere of the store. Indulge will aim to make
the environment feel friendly and welcoming. It will appear girly, but at the same time be
welcoming to men and any consumers who may want to take part in a high class cupcake
experience. The cupcakes and wedding cakes will also be presented as high class and a specialty
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item. In addition to specialty items for parties and events, cupcakes will be sold as a snack or
treat for everyday occurrences.
Pricing
Indulge will want to stay aggressive in pricing in order to gain competitors clients. Since Indulge
is located in the University Heights Square, where no other bakeries are currently located,
consumers will be willing to spend a little extra as opposed to driving to the other side of the
city. Also, this area of the city has a slightly higher average income per house hold. Thus, these
consumers have more disposable income to spend on luxury goods.
Indulge cupcakes will be priced competitively against competitors. Indulge’s single cupcakes
will be priced at $3.00 while direct competitors Cupcake Corner and Cupcake Conspiracy are
priced at $3.00 and $2.50 respectively. In Appendix F a detailed chart and graph can be found
with a price comparison of a single, half dozen, full dozen and two dozen cupcakes.
Wedding cakes will also be competitively priced compared to the competitors. Indulge’s
wedding cakes will be sold for $700 or $3.50 per serving. The direct competitors, Cupcake
Corner and PicNic’s Catering, are priced at $3.00 and $3.50 respectively.
Indulge has no control over supplies needed to make its products. In order to cover costs and
ensure profit margins are maintained, Indulge will raise its prices with inflation. Inflation in the
financial model is assumed at 2% per year, but will be re-evaluated and adjusted on a yearly
basis.
Since Indulge is offering luxury goods, large amounts of discounts will not be offered. On grand
opening day, a 2 for 1 deal will be offered to encourage consumers to come into the store,
otherwise Indulge will not offer discounts. Indulge feels that discounts will potentially tarnish the
reputation of the luxury good. In addition, Indulge does not want to encourage consumers to only
buy its goods while discounts are being offered. Instead Indulge staff wants to encourage
consumers to buy these items on a daily basis.
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Promotion
Promotions will include a 2 for 1 discount on grand opening day. This will encourage consumers
to try the store for the first time and not incur a large cost for something they may not enjoy. By
offering this promotion, Indulge is putting their name in the consumers mind. Indulge hopes this
promotion will generate consumers acquired taste for the Indulge brand and will continue to
return to the store.
In addition, Indulge will offer a birthday special. When a client comes in to the store on their
birthday, and can provide proof it is their birthday they will receive a free cupcake. Proof of birth
date could include: ID, school ID’s and a valid birth certificate. With this promotion Indulge
hopes that consumers will not simply come in for just one cupcake, but for several for a birthday
celebration. Also, this promotion gets the Indulge name in consumers’ minds and potentially
spreads positive word of mouth.
Place
Indulge will be located at 138 – 1820 McOrmond Drive Saskatoon Saskatchewan. Which as
discussed above is a University Heights Square location with seven surrounding neighborhoods
with a combined population of 45,000 people.
5.2 – STP Segmentation, Targeting, Positioning
Segmentation
The market will be segmented into five segments that include:

Single middle to high income females

Married middle to high income females

Males

Seniors

Wedding clientele
These segments are based on the Saskatoon market and the Saskatoon residents.
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Target Market
The market Indulge will want to target consists of single and married females in addition to
wedding clientele. The single females will be middle aged and have middle to high income.
Indulge will strive to satisfy these woman’s sweet tooth. In addition, Indulge will target married
females with families. This will be essential for children’s parties and special occasions. These
women will also have middle to high income. Lastly, Indulge will want to reach the wedding
clientele to market wedding cakes and cupcakes for their special occasion. These three groups
will be beneficial since they will have the disposable income and will have unmet needs for these
types of luxury goods.
Positioning
Indulge will be positioned as a high-end luxury product. Indulge will offer premium cupcakes
and wedding cakes to consumers at a fair price. In addition, it will strive to adapt any necessary
aspects to suit the needs of individual consumers, as Indulge understands not all consumers are
looking for the same product or are fulfilling the same need.
5.3 – Competitors
The cupcake trend has only recently entered the Saskatoon market. There are only two other
direct competitors within the Saskatoon market. The Cupcake Corner is located on 8th Street and
the Cupcake Conspiracy is located downtown. Indulge will be located on the east end of the city
quite far from the others. Both bakeries would produce similar cupcakes to ours with a relatively
close price range. See the competitors’ price graph in Appendix F.
Safeway has recently begun selling high-end cupcakes. These cupcakes are slightly cheaper then
Indulge cupcakes but not the same quality. Therefore Safeway is an indirect competitor.
5.4 – SWOT Analysis
A SWOT analysis consists of internal strengths and weaknesses and external opportunities and
threats. In order to continue to improve the positive aspects of the business it is essential to
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understand what they consist of. Likewise, to improve weaknesses and mitigate risks it is
necessary to first establish the potential drawbacks. Below is an analysis of the strengths,
weaknesses, opportunities and threats Indulge will face.
1. Strengths

Fun, outgoing and energetic staff

Unique girly and upbeat atmosphere

A wide variety of flavors and flavor requests accepted

Fresh, high-quality ingredients will only be used in baking of cupcakes and
wedding cakes

Local suppliers will be used
2. Weaknesses

New to the Saskatoon market with no brand image or reputation yet built

A need to find external financing

Age of management may have a negative image since so young
3. Opportunities

Saskatoon currently has a booming economy

Mining sector attracts young couples who may potentially start families and have
disposable income to potentially buy cupcakes/luxury goods
4. Threats

Entering an industry with trends. For example currently the wedding trend is to
buy large amounts of cupcakes

Entering a niche market

Established competitors already exist in the Saskatoon market
In conclusion, Indulge has many strengths and areas where opportunities can grow and make
larger profits possible. It will also be necessary to be continually working on weaknesses and
finding ways to overcome flaws to generate strengths. In addition, it will necessary to continually
be aware of potential threats and find ways to mitigate risk where possible.
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5.5 – Projections of Revenues and Marketing Mix
Marketing projections will consist of 36,000 cupcakes and 14 wedding cakes per year for a profit
of $117,800 in the first year. These projections increase at a rate of 3% per. A full chart for the
five years can be found in Appendix G.
The marketing mix will consist of the following six methods: radio, newspaper, website, print
ads, signage, and yellow page ads. Radio ads are based on two ads per day. One will air in the
morning and the second will air in the evening, which will cost a total of $232.50 per week. In
2011, ads will air three days a week for the full fifty-two weeks. This will be a total of 3.5
minutes of radio advertising per week. Initially Indulge will air radio ads three days a week while
slowly decreasing as the name and product becomes more known.
A single day newspaper ad would cost a total of $175.67. Initially an ad would be placed in the
paper once every two weeks for the full year. Indulge will slowly decrease the frequency the ads
will be placed in the paper once the Indulge name and brand becomes better known.
The website will initially cost $950 to set up and then $200 per year for upkeep and to ensure all
the ordering functions are working properly. It may also be necessary to add new flavors and
additional options.
Print ads will initially cost $10,000 for pamphlets, posters, flyers, etc. After the grand opening it
will not be as necessary to do as many ads but still circulate some. Signage and yellow pages will
respectively cost $3000 and $240 per year. These costs will stay the same since we will continue
to use these same mechanisms year after year. After the five years is up, it will be necessary to
use an evaluation to see how effective these methods are at reaching new clientele.
For a full break down of costs see Appendix H.
5.6 – Marketing Plan (advertising mix)
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The main goal of the marketing plan is to generate awareness of the Indulge store; what it is,
what it provides, and where it is. A second goal the advertising would need to do is promote the
Indulge brand, and attract consumers that are looking for a brand like this. In order to achieve
these two goals Indulge will use a mix of different media methods. This will include:

Newspaper. Indulge will put an ad in the Star Phoenix since it circulates around
Saskatoon and it is a main media method that Saskatoon resides read. This is a good way
to get initial contact with a client and get them thinking about the Indulge name and
trying it out.

Radio. Ads will be played on the radio about the grand opening of Indulge to put the
Indulge name in consumers’ heads. After the grand opening, ads will continue to play to
generate more awareness and catch those consumers that may not have already heard
about Indulge.

Web page. Indulge will outsource a webpage with information on the business. It will
speak about what we do, who we are, hours of operation, the product we are offering, the
special atmosphere Indulge has created and the pricing. It will focus on the flavors and
types of cupcakes and wedding cakes Indulge makes. In addition the website will clearly
clarify that Indulge doesn’t not strictly stick to flavors listed, but is open to special
requests. Also on the website there will be an order form, where the client can fill out the
type and amount of cupcakes they would like in addition to the time they will pick them
up and submit this order online. This will create awareness and convenience for busy
working clients.

Yellow Pages. Indulge will get their name listed in the yellow pages under the bakery
listings. This way when consumers are looking for a bakery to fulfill their special needs
Indulge will automatically become an option. Also in this yellow page add, it will list the
store hours and a basic menu and pricing list.

Flyers, Poster, Pamphlets. These items will be strategically placed around Saskatoon to
reach possible clients. They will be made to catch the eye so consumers passing by will
be drawn to read them and see what it is about. They will initially start with advertising
the grand opening, but continue to promote the business. Pamphlets will be left at bridal
shops for potential brides to pick up and see the possibilities for wedding options.
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Pamphlets will also be available at the store, so clients can take them home for a future
partying planning reference.

Signage. Signage will be displayed on a risen sign by the strip mall where Indulge will be
located. By placing the sign here consumers will easily be able to see where the store is
located. If they have not already heard of the business it may gain attention and get
consumers coming it to see what it is about.
In addition to these advertising methods Indulge will offer promotions. In order to promote
consumers coming and trying our brand new products, Indulge will offer a buy one, get one free
on the grand opening day. This may provide extra costs to the company but will ensure the
consumers come out and get a taste for the product. It is essential Indulge creates a good name
for itself since word of mouth is also a very important advertising campaign. Since a cupcake
costs Indulge $.27 to make this campaign will still generate a profit for Indulge of $2.46 when a
client takes advantage of the buy one get one free.
As a promotional offer Indulge will also offer a free cupcake to clients on their birthdays. When
a client comes in and provides proof of their birthday, they will be given a cupcake.
In addition Indulge will take part in Bridal Spectacular. This will give the company a chance to
connect with Saskatoon and area brides and potentially increase sales. Most of all this will give
Indulge the opportunity to network with Saskatoon residents and get the Indulge name out there.
Taking part in this even may create interest for Indulge and if nothing else increase consumer
awareness. Indulge will also take opportunities as they present themselves to increase the brand
awareness. The company will take part in things such as expos where they can set up a booth and
offer samples to consumers and any networking events where potential clients can be gained.
Since the business was started by women, Indulge management will also take place in Woman in
Business events and courses.
Free advertising Indulge will take advantage of includes:

Word of Mouth. By creating a positive buzz about the company, consumers will pass
along information to their friends and create awareness of the Indulge company. It is said
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that a consumer is more likely to go to a business after hearing about it through a friend
or family.

Facebook. A Facebook account will be set up where consumers can ‘like’ the company.
Also pictures of previous made products will be posted for everyone to view. Store hours
and product information will be posted.
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6.0 – Financial Plan
6.1 – Financial Description
Indulge will finance its capital assets through 50% long-term bank loan in addition to 50% equity
through the owners. Since capital assets only consist of $38,300 the two owners will be able to
provide $19,150 in an equity investment for common shares. It will also be essential for Indulge
to acquire a line of credit. The operating line of credit will be obtained from a local bank in
Saskatoon. The line of credit will be revolving and will be allowed to dip as low as -$5000. The
line of credit will be financed at prime plus three percent and will be used for cash flow
shortages. The main needs of the line of credit will be for wages, inventories and advertising in
the first and second years.
The long-term bank loan will be financed at 7% for 5 years. Since Indulge only requires a bank
loan of $19,150, five years will be adequate time to pay the loan back. Since the business could
be seen as a little risky, Indulge may be required to pay a little bit higher interest rates.
Therefore, the plan has been proposed with 7%. In order to acquire the loan it may be necessary
to sign personal guarantees, in addition to getting the parents of the owners to sign guarantees
too. The debt amortization schedule can be found in Appendix I.
Equity investments will be obtained from the owners and/or their families up to a maximum of
50% of the business. Since Indulge is a small business it will be essential that only owners or
family members make equity investments. Since Indulge is a start up business it will be unable to
pay dividends in the first year. Once profits are being made they will begin going to retained
earnings. Once Indulge is more established and making a profit it can begin to pay dividends.
Once the retained earnings account has $100,000 or more, dividends will be paid. Refer to
Appendix I to see projections of the retained earnings account and dividend payout schedule.
6.2 – Required Rate of Return
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Indulge has assessed the rate of return at 25%. Since Indulge is assessed as a medium to high risk
for a business we feel that it is essential to obtain a 25% rate of return. This business may be a bit
riskier since the high volume of competition that already exists in the Saskatoon market.
Saskatoon has two competitors that would directly compete with Indulge which consist of The
Cupcake Corner and Cupcake Conspiracy. In addition, indirect competitors exist. These include
places such as Starbucks, Safeway and other bakeries/wedding shops. We feel that the risk is not
high due to the location Indulge will be placed. This area of the city does not have any other
bakeries near it and is placed to reach the target market. This are of the city is new and consists
of higher income consumers which is what Indulge wants since it is selling a more expensive
luxury good.
6.3 – Critical Success Variables
The main critical success variable Indulge will face is meeting and/or exceeding sales
projections. Sales projections are hard to predict since other competitors do exist and is based on
consumers’ disposable income. It is essential for Indulge to meet these projections in order to
keep the business running and being able to cover the fixed costs. Also, this success variable
includes making enough cash to prevent dipping into the operating line of credit. Since using the
line of credit would increase interest expense, Indulge would be successful if using the line was
not necessary.
The second success variable includes inventory management. Since consumers are looking for
fresh baking it will be essential to provide that or they will go elsewhere. In order to do this the
necessary amounts of product will need to be baked every morning, but not too much since the
excess will have to be disposed of, and additional costs will be incurred. It will be necessary to
make sure inventories are being rotated properly. We do not want to be using old inventory to
make cupcakes every morning. Since it is hard to predict sales, Indulge will want to keep track
daily how many sales are being made so by the second and third month approximately the
correct amounts are being made.
The last success variable includes paying out dividends to common shareholders. This is a
success factor since it is an indication of profits being made. In order to pay dividends it is
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necessary to have excess cash in the retained earnings account. The only way money gets placed
into the retained earnings account is through excess profits that are not needed to cover expenses
therefore, paying dividends is essential to the company’s success and growth.
6.4 – Best and Worst Case Scenarios and Sensitivity Analysis
Best
The best-case scenario would occur if Indulge reached 60 customers per day. This would allow
for all costs to be covered and incur a net income of $143,468 in the first year. At this rate, 85
customers would be reached by the fifth year and a net income of $311,608. Indulge would also
be sharing dividends under this scenario by the second year. The current dividend policy consists
of giving dividends when the retained earnings account is about $100,000. Dividends will then
be given in years two, three, four and five.
Worst
Worst-case scenario would consist of having no customers for the year. If this happened Indulge
would suffer a $170,758 loss. This would be due to high amounts of fixed costs that need to be
covered even in the event of no sales. This would insist of things such as rent, salaries, and
advertising. This loss would increase for 2013 and would slowly decrease over the remaining
three years.
Sensitivity Analysis
The average amount spent per customer is extremely sensitive. At the base case of 30 customers
per day and an average of $18 per customer spent, Indulge has a net loss of $2,926. If the
average spent per customer is adjusted downward by $2 to $16 the net loss decreases to $21,574.
On the other hand, if the average amount spent is adjusted upward to $20 per customer the loss
then turns into a gain of $13,678. Therefore, it is extremely important that Indulge reaches the
average number of estimated customers with an average spending of $18 per customer.
6.5 – Critical Variables
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Indulge has three main critical variables. The first and most critical variable is the number of
customers coming into the store on a daily basis. This is critical because if the break-even
number of customers is not reached Indulge will be operating at a loss. It is essential that Indulge
at least meets the break-even number if not exceeds. Since this variable is hard to control it
becomes even more critical. The only way of attempting to control it is through increased
marketing campaigns to encourage clients to enter the store.
The second critical variable is wages and benefits expense. Since it is essential to have
employees to run a business this expense is not something that we can eliminate. Wages and
benefits make up over half of the operating costs at 58%, Due to this, if break-even number of
customers is not met, Indulge will have to cut back on staff members to decrease costs.
The third and final critical variable is rent expense. This expense accounts for 24% of operating
expenses. This expense is also necessary since it is impossible to have a bakery without a place
to operate it. Also Indulge will need the utilities, which are included in the rental agreement. If
break-even number of customers are not reached, it may be essential to find a different location
where it is cheaper to run the business.
6.6 – Break Even Analysis
The break-even analysis is based on net income and the amount of customers entering the store
each day. It is assumed that each customer will spend an average of $18 per transaction. The $18
will accommodate for clients making larger purchases (such as wedding cakes or large numbers
of cupcakes) and clients purchasing smaller orders (such as a single cupcake or just a half
dozen). In order to break even Indulge has to meet the following number of customers in the
given year:
Year
2012
2013
2014
2015
2016
Number of customers
31
31
29
28
27
The base case Indulge is projecting is as follows:
Year
Number of customers
2012
2013
2014
2015
2016
30
36
40
42
42
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As you can see, in 2012 Indulge is not capable of reaching the breakeven point due to high initial
investment in capital items and operating costs. By the end of 2013 the breakeven point will be
reached and exceeded in order to make a profit. In the remaining three years, breakeven is
exceeded and profits are generated.
Please refer to Appendix J for a break-even line chart.
6.7 – Ratios
The debt to equity ratio decreases from .49 to 0 over the course of five years. This is due to the
low amount of debt Indulge is taking on, and its ability to pay it off over the course of a five year
loan. The debt to equity ratio begins at 1 in year one and decreases to 0 by year five. This is also
due to paying off the loan by year five.
In year one Indulge has the ability to cover its interest charges 1.67 times and by year five this
increases to 286.67 times. Indulge does not incur high amounts of interest since the loan is not
significantly high, and by year five the loan will be paid off.
The profit margin is 90% throughout the five years of the business plan. This means Indulge has
a cost of sales of 10% on a yearly basis. This is significantly lower than the industry average at
60% cost of sales (Canadian Industry Statistics). Indulge has relatively low cost of sales since the
main products needed can simply be picked up at the grocery store in bulk and be made into
several products and sold for an extremely higher price. The profit margins on cupcakes and
weddings cakes are high and can generate a large profit on just one sale.
Return on assets begins with a negative number in year one since Indulge is not making a profit
in this initial year. By year five indulge has .42 return on assets. This number significantly
increases over the course of the business plan. Likewise, the return on equity in year one is a
negative number, but by year five has adjusted to a positive .42.
For a breakdown of ratios please refer to appendix K.
6.8 – NPV and IRR
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With an expected return on investment of 25%, the net present value (NPV) after five years is
calculated at $82,891. The positive number indicates that Indulge will be earning back more than
it is paying into the business. Since the equity portion of the investment is $19,150 Indulge
investors will earn this back and make a profit. Positive cash flows begin in year two which
makes Indulge able to generate a positive large NPV.
The internal rate of return (IRR) is calculated at 103.3%. This is not the best indicator of profits
since the initial investment is $19,150 and considered to be extremely low. Although this number
is over the 25% return on investment, other indicators may be more accurate for Indulge to use.
The non-leveraged IRR is calculated at 73.2%. This may be more accurate since the initial
portion that needs to be paid in is the full $38,300. Since the initial pay-in is higher, it makes the
IRR more accurate, but still may not be the best indicator of the business returns. The nonleveraged IRR is also about the 25%, meaning Indulge will be making the required return on the
investment in order for investors to invest in the business.
The payback will be $237,421 over the five year period. It is essential to take into account the
initial equity investment to come to a net payback of $218,271. The payback period will be
reached by the end of the second year. Since the first year a loss is generated, it is not possible to
reach the payback period until the second year. After this the remainder of income will be
profits. Since investors are usually looking to generate profits as soon as possible this payback
period may be something they would take into account when looking at investing in Indulge.
6.9 – Overall Feasibility of Indulge
Due to Indulge’s populated high income location, strong marketing plan, and business plan for
operations Indulge would be a profitable business to invest in. Since a positive net present value
is calculated and an internal rate of return higher than expected is achieved, Indulge is seen as a
good investment and a feasible business option. Therefore, Indulge will continue looking into a
Saskatoon location.
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7.0– References
(2011). Retrieved 2011 йил 19-September from City of Saskatoon:
http://www.saskatoon.ca/Pages/default.aspx
Benchmarking. (2011, September 13). Retrieved 2011, from Industry Canada:
http://www.ic.gc.ca/cis-sic/cis-sic.nsf/IDE/cis-sic31181bece.html
Fastest Growing City. (2011). Retrieved 2011 21-November from Saskatoon Regional Economic
Development Authority: http://sreda.com/
Olson, E. (2009, November 25). The Latest Entrepreneurial Fantasy Is Selling Cupcakes.
Retrieved 2011, from The New York Times:
http://www.nytimes.com/2009/11/26/business/smallbusiness/
Standard Cupcake Holders. (2010). Retrieved 2011, from BRP Box Shop:
http://www.brpboxshop.com/cupcake-boxes-and-holders-standard.html
Writing Your Business Plan. (2011, 12 02). Retrieved 2011, from Canada Business Network:
http://www.canadabusiness.ca/eng/86/4877/#c6726
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8.0 – Appendix
Appendices
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Jennifer Schmidt
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Appendix A – Customer Order Form
138 – 1820 McOrmond Drive
www.indulgesaskatoon.ca
Customer Name: ________________________________
Phone Number: (
)____________________________
Date Needed:
Month: __________
Day: __________ Year: __________
Pick-Up time: __________________ am / pm
Cake Flavors
Frosting Flavors
Vanilla
Lemon
Chocolate
Peppermint
Banana
Strawberry
Peanut Butter
Vanilla
Chocolate
Mocha
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Jennifer Schmidt
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Cake Flavor Request: __________________________________________________________
______________________________________________________________________________
Frosting Flavor Request: ________________________________________________________
______________________________________________________________________________
Appendix B – Operating Expenses
Lease ( $30/sq ft)
Sasktel
(Internet
2012
2013
2014
2015
2016
$42,000.00
$42,000.00
$42,000.00
$42,000.00
$42,000.00
$93.00
$93.00
$93.00
$93.00
& $93.00
Phone)
Manager Wages
$67,200.00
$67,200.00
$67,200.00
$67,200.00
$67,200.00
Part Time Staff Wages
$18,144.00
$18,144.00
$20,000.00
$23,144.00
$26,200.00
General Baking Supplies
$466.87
$500.00
$600.00
$800.00
$1000.00
Insurance Expense
$500
$500
$500
$500
$500
Total
$127,403.87 $128,437.00 $130,393.00
$133,737.00 $136,993.00
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Appendix C – Capital Costs
Item
Cost
Oven (2)
$17800.00
Mixer (2)
$800.00
Cash Register
$400.00
Signage
$1000.00
Dishwasher
$3200.00
Sinks
$800.00
Outsourcing of Website
$950.00
Display Case (Chilled)
$4400.00
Display Case (2 – Countertop)
$538.00
Microwave
$216.00
Walk In Cooler
$6700.00
Kitchen Supplies
$500.00
Computer
$1000.00
Total Cost
$38,304.00
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Jennifer Schmidt
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Appendix D – HR Pay Rates and Needed Hours
Job Title
Hours
Pay Rate
Total Pay/Week
Manager
40
$20.00
$800.00
Assistant Manager
40
$15.00
$600.00
P-T Staff 1
22
$10.50
$231.00
P-T Staff 2
18
$10.50
$189.00
Total Wages/Week
120
$56.00
$1820.00
Position
Monday
Tuesday
Wednesday Thursday
Friday
Manager
Assistant
Manager
P-T 1
P-T 2
Total
9-6
4-1
9-6
4-1
9-6
4-1
9-6
4-1
4-1
1-6
1-6
1-6
21
1-6
21
21
21
Saturday
Sunday Total
40
40
4-1
10-6
16
12-4
10-6
16
4
22
18
120
It will be necessary for manager and assistant manager to alternate Saturdays. Part-time staff will
also rotate shifts.
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Appendix E – Sample Product

Chocolate with peppermint icing.
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Appendix F – Pricing Comparisons
Indulge
Cupcake Corner
Cupcake Conspiracy
Per Cupcake
$3.00
$3.00
$2.50
Half Dozen
$16.00
$15.00
$14.00
Dozen
$28.00
$27.00
$25.00
Two Dozen
$52.00
$52.00
$50.00
$30.00
$25.00
$20.00
Per Cupcake
$15.00
Half Dozen
Dozen
$10.00
$5.00
$0.00
Indulge
Cupcake Corner
Cupcake Conspiracy
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Appendix G – Marketing Projections
Year
2012
2013
2014
2015
2016
Cupcakes
36,000
37,080
38,192
39,338
40,518
Wedding
14
15
17
19
21
Cakes
Year
2012
2013
2014
2015
2016
Cupcakes
$108,000
$111,240
$114,576
$118,014
$121,554
Wedding
$9,800
$10,500
$11,900
$13,300
$14,700
$117,800
$121,740
$126,476
$131,314
$136,254
Cakes
Total
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Appendix H – Marketing Cost Break-down
Type
2012
2013
2014
2015
2016
$12,090
$12,090
$9,067
$6,045
$3,022
$4,567.42
$4,567.42
$3,425.56
$2,283.71
$1,141.86
Website
$950.00
$200.00
$200.00
$200.00
$200.00
Print ads
$2,000.00
$2,000.00
$1,500.00
$1,000.00
$1,000.00
Signage
$3,000.00
$3,000.00
$3,000.00
$3,000.00
$3,000.00
$240.00
$240.00
$240.00
$240.00
$240.00
$22,847.42
$22,097.42
$17,432.56
$12,768.71
$8,603.86
Radio
Newspaper
Yellow Pages
Total
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Appendix I – Financial Projections
Financial Projections
(See Excel Spreadsheet)
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Appendix J – Break-even Analysis
45
40
40
42
42
28
27
36
35
31
30
30
31
29
25
Base Case
20
Breakeven
15
10
5
0
1
2
3
4
5
6
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Appendix K – Ratio Analysis
Ratio
2012
2016
Debt Ratio
.49
0
Debt to Equity
1
0
Interest Coverage
1.67
286.67
Profit Margin
90%
90%
Cost of Sales
10%
10%
Return on Assets
-.09
.42
Return on Equity
-.18
.42
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