Spraying Michael Bender Nathan Allen Steven Myers December 4, 2007 Ag Ec 495.

Spraying Spraying

Michael BenderMichael Bender

Nathan Allen Nathan Allen

Steven MyersSteven Myers

December 4, 2007December 4, 2007

Ag Ec 495

OverviewOverview

IntroductionIntroduction Operations AnalysisOperations Analysis Human ResourcesHuman Resources Marketing AnalysisMarketing Analysis Financial AnalysisFinancial Analysis

Introduction Introduction

What is Vegetation Control?What is Vegetation Control? Custom spraying service provided to oil and Custom spraying service provided to oil and

gas industrygas industry Goals and objectives are to focus on Goals and objectives are to focus on

customer service, environmental stewardship, customer service, environmental stewardship, and quality workmanshipand quality workmanship

Headquarters in AlbertaHeadquarters in Alberta

Operations PlanOperations Plan

Organizational Structure Organizational Structure will be a private corporationwill be a private corporation

Five people on board of advisorsFive people on board of advisors

Manager (president) will be in charge of both Manager (president) will be in charge of both dutiesduties

Service staff will consist of two spray truck drivers Service staff will consist of two spray truck drivers as well as a secretaryas well as a secretary

Company will employ four people to start withCompany will employ four people to start with

Site plan located in AlbertaSite plan located in Alberta

Breakdown of Spray UnitBreakdown of Spray Unit

Options and features Capacities Cost of Purchase Importance of GPS and Mapping

Capital BudgetCapital Budget

Description Cost ($)

Building Costs $ 4,449

Equipment Costs $ 42,034

Total Working Capital $ 6,359

Total Land and Equipment Costs $ 46,483

Total Capital Required $ 52,842

Cost of Goods SoldCost of Goods Sold

DescriptionDescription Cost ($)Cost ($)

Beginning InventoryBeginning Inventory ++ - -

Costs of Goods ManufacturedCosts of Goods Manufactured ++$208,276$208,276

Costs of Goods AvailableCosts of Goods Available$208,276$208,276

Ending InventoryEnding Inventory -- - -

Cost of Goods SoldCost of Goods Sold$208,276$208,276

Overhead CostsOverhead Costs

Variable Overhead Costs Cost ($)

Truck Maintenance 7,000

Total Variable Costs 7,000

Fixed Overhead Costs

Lease on Building 2,000

Vehicle Insurance 1,600

Cell Phones 1,600

Capital Cost Allowance 5,926

Total Fixed Costs 11,126

Total Overhead Costs 18,126

Direct MaterialsDirect Materials

Direct Materials Cost ($)

Fuel 43,148

Chemical 66,120

WaterWater 350350

Meals and Accommodations 13,63213,632

Personal Protective Gear 1,950

Total 125,200

Direct LabourDirect Labour

Labour Costs Rate Cost ($)

Total Direct Labour $20/hr* 56,321

Benefits

Employment Insurance 1.87% 1,053

Canada Pension Plan 4.53% 2,551

Holiday Pay 5.80% 3,267

Workers Compenasation 3.12% 1,757

Total Direct Labour and Benefits   $64,949

*Assuming 60 hour weeks with 20 hours per week of 1.5 time wage

Cash ManagementCash Management

Little cash on hand due to accounts payable Little cash on hand due to accounts payable coming due before accounts receivablecoming due before accounts receivable

Have to plan in the case of receivables not Have to plan in the case of receivables not getting paidgetting paid

Line of credit may be essential to cover cash Line of credit may be essential to cover cash shortfall during startup phaseshortfall during startup phase

Inventory ManagementInventory Management

Inventory on hand will be chemicals that are Inventory on hand will be chemicals that are needed for the week along with extra safety needed for the week along with extra safety supplies that will be neededsupplies that will be needed

How we determined a week’s inventory How we determined a week’s inventory .5 acres per site.5 acres per site.4 L Glyphosate + 1L of Dicamba.4 L Glyphosate + 1L of Dicamba150 sites sprayed per week150 sites sprayed per weekResulting in an inventory of 30L glyphosate, and Resulting in an inventory of 30L glyphosate, and

75L of dicamba75L of dicamba

Inventory ManagementInventory Management

Easy access to herbicides that are being used will help to keep inventory to a minimal

Keep herbicide on truck that will be used for the week

Inventory turnover will be within a week as product will be used up at this rate

Accounts PayableAccounts Payable

Managed to avoid paying interestManaged to avoid paying interest Credit Card used to purchase herbicides Credit Card used to purchase herbicides

and safety supplies, meals and hotel and safety supplies, meals and hotel accommodations accommodations

Fleet Card for purchase of fuelFleet Card for purchase of fuel These payables will be due within 30 daysThese payables will be due within 30 days Challenge to obtain enough credit during Challenge to obtain enough credit during

start upstart up

Human ResourcesHuman Resources

Job Descriptions Job Descriptions Manager (president)Manager (president)

Will oversee the business Will oversee the business Hire seasonal staffHire seasonal staff Daily tasks include, organizing inventory, Daily tasks include, organizing inventory,

planning daily activities of the spray trucks, as planning daily activities of the spray trucks, as well as keeping in contact with clients as well well as keeping in contact with clients as well as suppliersas suppliers

Salary will be $4500 per month Salary will be $4500 per month

Human ResourcesHuman Resources

Job Descriptions Job Descriptions Spray truck driversSpray truck drivers

Duties include traveling to oil and gas sites that will Duties include traveling to oil and gas sites that will be sprayedbe sprayed

Carrying out the task of spraying, as well as mixing Carrying out the task of spraying, as well as mixing chemicalschemicals

Record keeping that will be requiredRecord keeping that will be required Wage will be $20 per hour and time and a half for Wage will be $20 per hour and time and a half for

overtime overtime

Human ResourcesHuman Resources

Job DescriptionsJob Descriptions Secretary Secretary

Will work part time approx. 20 hours per weekWill work part time approx. 20 hours per week Duties will be taking calls, organizing Duties will be taking calls, organizing

meetings, book keeping, invoicing and billingmeetings, book keeping, invoicing and billing Wages will be paid hourly at a rate of $12 per Wages will be paid hourly at a rate of $12 per

hour hour

Marketing PlanMarketing Plan

The 4 P’sThe 4 P’s

Products and ServicesProducts and Services Custom Spraying ServiceCustom Spraying Service

Vegetation control in industrial situations such Vegetation control in industrial situations such as oil and gas wellsas oil and gas wells

Site evaluation to access the product that Site evaluation to access the product that needs to be appliedneeds to be applied

Safety orientatedSafety orientated specializes in spraying and focuses on qualityspecializes in spraying and focuses on quality

The 4 P’sThe 4 P’s

PricePrice Competitive PricingCompetitive Pricing

Many established competitors in businessMany established competitors in business All vegetation control has relatively similar All vegetation control has relatively similar

strategy (no differentiation)strategy (no differentiation) Price that will be charged is $80 per sitePrice that will be charged is $80 per site Chemical price will be $68.88 per acreChemical price will be $68.88 per acre

The 4 P’sThe 4 P’s

PromotionPromotion Trade showsTrade shows

Make initial contact with potential clientsMake initial contact with potential clients Show case servicesShow case services Emphasize high quality service, attention to detail and focusEmphasize high quality service, attention to detail and focus

Signage on trucksSignage on trucks Mode to “get name out”Mode to “get name out” Visual images often stick with peopleVisual images often stick with people Trucks cover large area during spraying seasonTrucks cover large area during spraying season

Pamphlets with literature on services providedPamphlets with literature on services provided Breakdown of services providedBreakdown of services provided Position o as a higher quality service provider in comparison to Position o as a higher quality service provider in comparison to

competitorscompetitors

The 4 P’sThe 4 P’sPlace will target oil and gas sites in Alberta Geographic factors will limit the area that

can service Strive to keep resources efficient and effective

SWOT AnalysisSWOT Analysis

Human Resources-Strengths Strong Management Skills

Hired employee's don’t need extensive training Work is relatively basic Day to day actions repetitive

Management has key contacts in Agricultural and Oil and Gas Industry Useful resources Opens doors to new possibilities

Few employees

SWOT AnalysisSWOT Analysis

Human Resources-WeaknessesHuman Resources-Weaknesses Few employee’s Few employee’s

Short staffedShort staffed Services may be restrictedServices may be restricted

Management has little knowledge in accountingManagement has little knowledge in accounting Outsource accounting Outsource accounting

Working long hoursWorking long hours Worker fatigue and stressWorker fatigue and stress Possible liabilityPossible liability

Possible lack of safety personnel Possible lack of safety personnel

SWOT AnalysisSWOT Analysis

Physical Resources-StrengthsPhysical Resources-StrengthsMajority of equipment brand newMajority of equipment brand new Little down time for maintenanceLittle down time for maintenance Increase efficiency Increase efficiency

Precise and user-friendly spraying equipmentPrecise and user-friendly spraying equipment Increase efficacy Increase efficacy

GPS and mapping technologyGPS and mapping technology Can be used in disputesCan be used in disputes

SWOT AnalysisSWOT Analysis

Physical Resources-Weaknesses Using previously owned trucks

Higher repair costsMay lead to increased downtimeMay need to upgrade in near future

External Threats and OpportunitiesExternal Threats and Opportunities

Opportunities Oil and Gas sector growing (market trends)

Alberta- growing and established Saskatchewan- low establishment of oil sites

Huge potential for market boom New products/Services

implement mowing service as well Customers are looking for ways to reduce costs and hassle ATV mounted sprayers

Customers Commercial buildings and other industrial sites

Government policy change Any changes made to oil industry will impact markets

External Threats and OpportunitiesExternal Threats and Opportunities

External ThreatsExternal Threats CustomersCustomers

Larger base customers may desire services out of our region Larger base customers may desire services out of our region Becoming selective of who is hiredBecoming selective of who is hired

Government policy change and competitionGovernment policy change and competition Alberta government raised royalties/this may slow down oil productionAlberta government raised royalties/this may slow down oil production Saskatchewan- Sask. Party winning electionSaskatchewan- Sask. Party winning election

Party platfom/ different ideasParty platfom/ different ideas CompetitionCompetition

Many well established companiesMany well established companies Largest threat 12 large companiesLargest threat 12 large companies

Approx. 20 provincial competitorsApprox. 20 provincial competitors Environmental ThreatsEnvironmental Threats

Temperature, wind speed, precipitation affects agrochemicalsTemperature, wind speed, precipitation affects agrochemicals

CompetitionCompetition Major CompetitorsMajor Competitors

West Country Oilfield ServicesWest Country Oilfield Services Ace VegetationAce Vegetation Precision Oilfield ServicesPrecision Oilfield Services Spray-Rite Vegetation Control Inc.Spray-Rite Vegetation Control Inc. DDK Oilsite ServicesDDK Oilsite Services Weed WackersWeed Wackers All Pro Vegetation ManagementAll Pro Vegetation Management Precision Vegetation ControlPrecision Vegetation Control Altec Vegetation Management Altec Vegetation Management

Corp.Corp. TMT Vegetation Management Ltd.TMT Vegetation Management Ltd. Cunningham Vegetation Cunningham Vegetation

Management Management Site Rite Vegetation ManagementSite Rite Vegetation Management

Minor CompetitorsMinor Competitors Clarke Vegetation ControlClarke Vegetation Control Vanguard Vegetation ControlVanguard Vegetation Control Excel Vegetation ServicesExcel Vegetation Services Ace Vegetation Control ServiceAce Vegetation Control Service Blueweed ServicesBlueweed Services SPS Well ServiceSPS Well Service Target Vegetation Control Ltd.Target Vegetation Control Ltd.

Taber

Major Competitors

Minor Competitors

Advertising  

Brochures/Business Cards/Flyers $ 1,250

Truck Decals $ 900

Total Advertising $ 2,150

Promotion  

Web Page $ 3,000

Travel Expenses $ 5,250

Cell Phones $ 1,600

Trade Shows $ 5,000

Total Promotion $ 14,850

Development  

Insurances (Spray and App. License) $ 6,000

Insurances (Certificate of Recognition) $ 600

Insurances (Corporate Start Up Fee) $ 5,000

Insurances (Business License) $ 500

Human Resources Training Costs $ 1,000

Utilities Expense $ 6,000

Total Development $ 19,100

Total Marketing Expenses $ 36,100

Marketing Plan Budget Marketing Plan Budget

Financial PlanFinancial Plan

Critical VariablesCritical Variables

Critical Variables Base Case Allowable Change %

Wages 24.45 27.00%

Number of Sales 2,400.00 -8.74%

Fuel 43,184.00 15.86%

Selling Price 80.00 -4.45%

Chemical Sold 1,200.00 -22.95%

Chemical Price 68.88 -10.95%

Financial Feasibility Financial Feasibility Year 2008 2009 2010 2011 2012

Sales $ 274,650.00 $ 280,143.00 $ 285,745.86 $ 291,460.78 $ 297,289.99

Cost of Sales 208,275.72 216,635.64 217,993.09 220,212.46 223,071.12

Gross Margin 66,374.28 63,507.36 67,752.77 71,248.31 74,218.87

Expenses 60,241.89 61,446.73 62,675.66 63,929.17 65,207.76

Net Income (Loss) Before Tax $6,132.40 $2,060.64 $5,077.11 $7,319.14 $9,011.12

Income Tax 613.24 206.06 507.71 731.91 901.11

Net Income (Loss) After Tax $5,519.16 $1,854.57 $4,569.40 $6,587.23 $8,110.00

Net Cash Flow to Equity $ 5,519.16 $2,415.22 $(4,851.81) $(10,040.22) $(13,727.31)

Year 2013 2014 2015 2016 2017

Sales $ 303,235.79 $ 309,300.51 $ 315,486.52 $ 321,796.25 $ 328,232.17

Cost of Sales 226,411.91 230,123.92 234,128.86 238,371.55 242,813.18

Gross Margin 76,823.88 79,176.59 81,357.66 83,424.70 85,418.99

Expenses 66,511.91 67,842.15 69,198.99 70,582.97 71,994.63

Net Income (Loss) Before Tax $10,311.97 $11,334.44 $12,158.67 $12,841.72 $13,424.36

Income Tax 1,031.20 1,133.44 1,215.87 1,284.17 1,342.44

Net Income (Loss) After Tax $9,280.77 $10,201.00 $10,942.80 $11,557.55 $12,081.92

Net Cash Flow to Equity $ (16,325.02) $ (18,128.01) $ (19,347.65) $ (20,136.04) $ (20,602.99)

Breakeven AnalysisBreakeven Analysis

70.00

75.00

80.00

85.00

90.00

95.00

100.00

1 2 3 4 5 6 7 8 9 10

Years

Selli

ng P

rice

($) Cash Flow

Net Income

Economic

Base

Scenario AnalysisScenario Analysis

Risk Analysis

Variable Worst Case

(-10%)Base Case

Best Case (10%)

Number of Sales 2160 2400 2640

Average Price 72 80 88

IRR -41.83 19.60% 75.40%

NPV -128,479 -673 117,463

Two critical variables used (10%) change

IRR and NPV are extremely sensitive to change

ConclusionConclusion

Over the next ten years NewCo is Over the next ten years NewCo is projected to have a Internal Rate of Return projected to have a Internal Rate of Return (IRR) of 19.6%(IRR) of 19.6%

NewCo will prove to be a feasible NewCo will prove to be a feasible business if sales objectives can be metbusiness if sales objectives can be met

Focusing on new customer relationships Focusing on new customer relationships will be important to the success of the will be important to the success of the companycompany

QuestionsQuestions