Business Plan TRULY SCRUMPTIOUS CAKE CO Painter/businessplans/plans2010... · Figure 3.1 Organizational Chart ... Wholesale bakery establishments are located in all regions of the

Business Plan

TRULY SCRUMPTIOUS CAKE CO.

Prepared For:

MPAcc 809

July 12, 2010

Prepared By:

Jasmin KohlMahnaz MalikHolly UelandMeng Wang

Business Plan for Scrumptious Cake Co. MPAcc 809

Jasmin KohlMahnaz MalikHolly UelandMeng Wang Pg 1 of 41

Table of Contents

Executive Summary ....................................................................................................................................31.0 Introduction..........................................................................................................................................4

1.1 Business Overview.........................................................................................................................................41.2 Mission Statement ........................................................................................................................................41.3 Goals and Objectives.....................................................................................................................................41.4 Industry Overview .........................................................................................................................................5

1.4.1 Production Costs ....................................................................................................................................61.4.2 Technology and Innovation....................................................................................................................61.4.3 Challenges ..............................................................................................................................................61.4.4 Saskatoon’s Economy.............................................................................................................................7

2.0 Operations Plan ....................................................................................................................................82.2 Organizational Structure ...............................................................................................................................82.3 Site Plan.........................................................................................................................................................92.4 Floor Plan.....................................................................................................................................................102.5 Average Day ................................................................................................................................................102.5.1 Custom Orders .........................................................................................................................................112.5.1 Hours of Operation...................................................................................................................................122.6 Regulations..................................................................................................................................................122.7 Working Capital ...........................................................................................................................................13

3.0 Human Resources Plan ........................................................................................................................ 133.1 Management Team Profiles & Ownership Structure..................................................................................14

3.1.1 Staff ......................................................................................................................................................143.1.2 Advisors................................................................................................................................................15

3.2 Hiring policies and procedures....................................................................................................................163.3 Motivation...................................................................................................................................................173.4 Hours of work..............................................................................................................................................17

4.0 Marketing plan.................................................................................................................................... 184.1 Product ........................................................................................................................................................184.2 Pricing Strategy ...........................................................................................................................................184.3 Place ............................................................................................................................................................194.4 Promotion....................................................................................................................................................194.5 Customers and Target Markets...................................................................................................................234.6 Competition.................................................................................................................................................23

4.6.1 Calories/Solieo .....................................................................................................................................244.6.2 Traegers................................................................................................................................................244.6.3 Cupcake Conspiracy and Cupcake Corner............................................................................................24

4.7 SWOT Analysis.............................................................................................................................................254.7.1 Strengths ..............................................................................................................................................254.7.2 Weaknesses..........................................................................................................................................254.7.3 Opportunities .......................................................................................................................................254.7.4 Threats .................................................................................................................................................25

5.0 Financial Plan...................................................................................................................................... 265.1 Financial Data ..............................................................................................................................................26



5.1.1 Initial Start-up Cost ..............................................................................................................................265.1.2 Capital Structure ..................................................................................................................................265.1.3 Minimum Yearly Revenue Projection ..................................................................................................275.1.4 Minimum Yearly Profit Projection........................................................................................................285.1.5 Break Even Analysis..............................................................................................................................305.1.6 Minimum Yearly Cash Flow Projection ................................................................................................305.1.7 Balance Sheet.......................................................................................................................................315.1.8 Investment Result ................................................................................................................................325.1.9 Sensitivity Analysis ...............................................................................................................................32

6.0 Conclusion .......................................................................................................................................... 33References ............................................................................................................................................... 34

Figures

Figure 1.4 - Saskatoon vs. Canada Employment Growth (Sreda.com, n.d.) ....................................................7Figure 2.3 - Building Specifications ..............................................................................................................9Figure 2.4 - Floor Plan ............................................................................................................................... 10Figure 2.5.1 - Custom Cake – Sesame Street............................................................................................... 11Figure 3.1 Organizational Chart ................................................................................................................. 13Figure 4.4 – Annual Marketing Budget....................................................................................................... 20Figure 4.4.1 – Pamphlet ............................................................................................................................ 21Figure 4.4.2 – Business Card ...................................................................................................................... 23Figure 5.1.1 – Capital vs. Non Capital Expenditures .................................................................................... 26Figure 5.1.2 – Capital Structure ................................................................................................................. 27Figure 5.1.2.1 – Debt Amortization Schedule ............................................................................................. 27Figure 5.1.3 – Minimum Revenue Budget Data .......................................................................................... 28Figure 5.1.4 – Yearly Profit Graph.............................................................................................................. 29Figure 5.1.5 – Break Even Analysis............................................................................................................. 30Figure 5.1.6 – Minimum Yearly Cash Flow Projections................................................................................ 31Figure 5.1.8 – Investment Analysis ............................................................................................................ 32Figure 5.1.9 – Sensitivity Analysis .............................................................................................................. 32

Appendices

Appendix A – Initial Start-up cost .............................................................................................................. 36Appendix B – Income Statement & Statement of Retained Earnings........................................................... 37Appendix C – Cash Flow Statement ........................................................................................................... 38Appendix D – Balance Sheet...................................................................................................................... 39Appendix E – CCA Schedule ....................................................................................................................... 40



Executive Summary

Life is uncertain. Eat dessert first.

Saskatoon’s economy is leading the country in growth, both in business development and expansion,

and in wage rates. There is a general increase in the amount of disposable income available per

household and, as a result, the quality of products being demanded by consumers is also increasing

as they have more to spend on higher end items. There are several high quality bakeries in the city

which are operating successfully. However, none of these establishments cater to the specific needs

of individual customers in order to create cakes which are truly unique and custom-made. Truly

Scrumptious Cake Company intends to fill this void with customized, one-of-a-kind creations made

with the fresh, locally-sourced ingredients. We will bring to reality the cakes our clients have only

dreamed of.

Our target market is the discerning customer who wants to have a truly memorable cake, both in

taste and design, for any special occasion. We will cater not only to the corporate client who wants a

cake decorated with the company logo, but also to the bride who wants a one-of-a-kind cake made to

her exact specifications.

Our committed management team of two partners will be the guiding force for the company. Both

are extremely passionate about providing high quality products which will keep customers coming

back for every special occasion in their life, or to pick up a box of cupcakes after work for a special

evening treat. Our location in the new Stonebridge development puts Truly Scrumptious in the heart

of one of the most affluent and fastest growing areas of Saskatoon. The area boasts several malls

and big box stores, creating an economic centre which draws consumers from all over the city,

placing Truly Scrumptious in an already well-established shopping area.

Start-up costs of $350,000 will be funded by both debt and equity provided by the two partners. We

have chosen a partnership for the company’s initial structure in order to allow the partners to use the

corporate losses personally for tax purposes. However, once the company begins to be profitable,

the partners plan to incorporate. The company expects a loss in the first two years of operations and

to have a small profit in year three. We have attempted to error on the side of conservatism in our



financial analysis. For example, our financial model is based on selling only 3 cakes per week in year

1. Even under these conservative estimates, the company generates an internal rate of return of 28%

over the first 5 years.

Based on the changing demographics of Saskatoon, its expected economic growth, the absence of a

truly customized cake store in the city, and the positive results of our conservative financial analysis,

we believe Truly Scrumptious is a viable business opportunity.

1.0 Introduction

1.1 Business Overview

Truly Scrumptious Cake Company offers an exclusive brand of cakes for special occasions that are not

only delicious down to the last bite but are also pleasing to the eye. Our cakes are literally works of

art, painstakingly decorated to delight our discerning clientele.

Currently, Saskatoon has several bakeries that offer cakes made to order. However, none of the

bakeries offer the fresh ingredients, selection of unusual flavours and the elaborate attention to

detail and customization that we will be offering at our bakery. It is on this basis that we have

identified a real need for elaborate cakes to suit special occasions.

1.2 Mission Statement

To exceed our clients expectations in taste and beauty by bringing to reality the cakes our clients

have only dreamt of.

1.3 Goals and Objectives

To provide delicious confections of superior quality in design and taste

To make cakes that will enhance any special occasion

To achieve a return on investment of not less than 25% per annum.



1.4 Industry Overview

Statistics relating specifically to the specialty cake industry were unavailable at the time of this plan’s

writing. As a result, this industry overview section includes information from the bakery industry as a

whole, focusing on information relating to small and medium sized enterprises (SMEs) when

applicable. Small and medium-sized businesses are defined as those having annual revenues

between $30,000 and $5,000,000 (Industry Canada, n.d.).

The bakery industry in Canada includes two distinct segments classed as "wholesale bakers" and

"retail bakers". Retail bakers produce and sell on the premises and cater to the demand for fresh

baked goods such as bread, rolls and pastries (Agriculture and Agri-Food Canada, n.d.).

The share of total industry sales held by small, medium and large entities has remained relatively

stable during the last decade. In addition to mainstream products (bread, rolls), smaller firms tend to

specialize in niche products (pastries, pies and specialty breads). The average annual net profit was

$11.8 thousand in 2006, and the gross margin was 24.7% during the same year (Agriculture and Agri-

Food Canada, n.d.; Industry Canada, n.d.).

A key characteristic of this industry is the perishable nature of many of its mainstream products. For

this reason, distribution costs and the management of product on the retail shelf is an integral part of

the bakery business. It also imparts a relatively higher cost structure to bakers than other food

processors. When firms consider the advantages of increasing scale in manufacturing, they must

weigh the costs of higher distribution and viable shipping distances against the advantages of

centralized economies of scale in manufacturing. This characteristic is evidenced in the fact that

small- and medium-sized establishments represent about 60% of market share, which is atypical of

the food processing sector. Wholesale bakery establishments are located in all regions of the country,

their relative size and number being roughly proportional to the population (Agriculture and Agri-

Food Canada, n.d.).



1.4.1 Production Costs

Volatility in the cost of raw ingredients is a concern to bakers. Major ingredients such as flour, sugar,

vegetable oil and dairy products are sold on global commodity markets and large buyers (in

particular) need to closely monitor prices to make the most advantageous purchasing decisions

(Agriculture and Agri-Food Canada, n.d.).

Flour is the single most important input in baked goods and, on average, accounts for about 40% of

the cost of raw materials and 20% of overall production costs (excluding labor and capital).

Fluctuating wheat prices have a profound effect on margins. For example, between 1992 and 1995,

the price of wheat increased 132% which translated into flour increases in the order of 36%. During

that period, production costs of bread increased 7%, chiefly because of the rise in flour prices.

Recently, wheat prices have returned to favourable levels enjoyed during the early 1990s. This

volatility is an important issue for the industry (Agriculture and Agri-Food Canada, n.d.).

1.4.2 Technology and Innovation

Significant advances have been made in oven and ingredient technology to create high-quality

products with longer shelf life. Other advances include improvements in yeasts and gluten levels in

flours that lead to superior products. Much of the processing technology used in the manufacture of

bakery products is purchased off-the-shelf from equipment manufacturers in the U.S. or Europe

(Agriculture and Agri-Food Canada, n.d.).

1.4.3 Challenges

There are several significant challenges currently being faced by Canada's bakery industry:

Consumer tastes are constantly changing. Today's consumer is more educated and has more

sophisticated tastes, particularly where quality and nutrition are concerned. The industry is also

experiencing unprecedented growth in "non-traditional" bread products such as bagels, flat breads

and organic products. These changes mean that firms must adjust their technology as well as their

marketing strategies

There is increased concentration of retailer grocers. Manufacturers of all sizes face more consumer

“buying power". The introduction of "every day low pricing" (EDLP) merchandising strategies and club



stores by retailers has placed considerable pressure on bakers to deliver quality products at lower

prices. Smaller and regional manufacturers will have to differentiate their products from national

brands to gain access to customers’ wallets

Like all food processors, bakers are assessing how to deal with the emergence of E-commerce. The

baking industry will have to determine if it can effectively use this medium to increase efficiencies

and sales through the development of web-based marketing strategies

Food safety is a concern to the baking industry. As a result of the increasing number of people

affected by food allergies, the Baking Association of Canada is working with the Canadian Food

Inspection Agency to educate its industry on such issues as allergen awareness and labelling accuracy.

This increases the challenges facing bakers of all sizes to create products which are both delicious and

safe for the consumer at the same time

Bakers are aware of the public's perception of biotechnology and genetically modified organisms

(GMOs). There is concern that the industry could be affected if their products are negatively

associated with these issues. As a result, there is a move towards the use of locally grown and

organic items in the production of baked goods (Agriculture and Agri-Food Canada, n.d.).

1.4.4 Saskatoon’s Economy

Figure 1.4 - Saskatoon vs. Canada Employment Growth (Sreda.com, n.d.)

Saskatoon appears to be leading the country in terms of overall economic health. Its rate of job

creation in January 2010 was the second fastest among the 27 largest metro areas in the country and



Saskatoon has the third lowest rate of unemployment. In addition, a number of factors should cause

Saskatoon’s economic growth to continue through 2010.

First, the stronger outlook for commodity prices in general, and for potash and uranium in particular,

should underpin a recovery in the area’s mining services sector, further increasing the average wage

rate overall in the economy. Second, housing demand should benefit from a sustained pattern of net

migration, which has averaged close to 4,500 individuals over the past three years. Finally, the recent

surge in non-residential building permits suggests that federal and provincial stimulus projects will

give a significant boost to non-residential building that should extend into 2011(Clinkard, 2010;

Conference Board of Canada, 2010).

All this points to a more affluent and diversified general population with the disposal income to

purchase higher end or luxury items. This is further evidenced by the arrival of the first Porsche car

dealership in 2010 – only the 13th such dealership in all of Canada (Enterprise Saskatchewan, 2010).

In addition, the strength of the mining sector will attract younger workers back to Saskatchewan,

lowering the average population and providing a greater market for higher end items overall.

2.0 Operations Plan

2.2 Organizational Structure

The company will be set up as a partnership between Mahnaz Malik (Manager) and Anita Horne

(Head Chef). Losses are expected for the first two years and by setting up a partnership these losses

can be used directly by Mahnza and Anita to reduce their personal taxes. In addition, there are costs

savings when starting a partnership instead of a corporation. When Truly Scrumptious Cake Co.

becomes profitable and the partners do not require all the profits to be paid to them, it will be

incorporated. This gives the company the opportunity to claim the small business deduction on the

first $500,000 of active business income to reduce overall taxes and the profits can remain within the

company.



Each partner will contribute $50,000 of their personal savings and an additional $125,000 each as a

loan from the bank. As collateral for the $125,000 loans, the partners will guarantee their homes. In

total, there is an initial investment of $350,000. See Figure 3.1 for the organizational chart

2.3 Site Plan

The location of Truly Scrumptious Cake Co has been determined as 302 Stonebridge Boulevard in

Saskatoon, SK. This is a newly constructed shopping plaza. See Figure2.3 for an image of the building

and Figure 2.4 for a map of the location in Saskatoon.

Figure 2.3 - Building Specifications

302 Stonebridge Boulevard

Location: Saskatoon, SK

Building: See below

Land: 1.28 acres

Agent: Ron Ritchie

Building 11,108 – 9,878 sq. ft.Building 21,100 sq. ft. (still available)Land size1.28 acresOpportunities exist for– Video Store– Hair Salon– Restaurant– Butcher Shop– Drug Store– Financial Institution



2.4 Floor Plan

The floor plan was designed with efficiency in mind. See Figure 1. The raw ingredients are stored in

the fridge/freezer or on shelves which are both on one side of the kitchen. The counter space runs

the length of the kitchen to provide plenty of room for preparation and easy access from anywhere in

the kitchen. The sink and dishwasher are in the middle of the kitchen to allow for easy access. Finally,

the kitchen to front of the house walkways have been set up as one way, to prevent two employees

from walking into each other. In the front of the house, there are three tables specifically set up for

consultations for speciality order cakes. When the consultation tables are not being used, regular

customer can use these tables and the square tables to enjoy their cupcakes. The cake books, cake

displays and display window all display samples of cake designs and sizes either in picture format or

real life displays.

Figure 2.4 - Floor Plan

2.5 Average Day

The average day starts with Anita coming in early and preparing the cupcakes and cakes required for

the day. If there are many orders, Trina will also be in the store before opening to help Anita



prepare. Before the store opens, Mahnaz will arrive and prepare the front for the day, including

displaying the cupcakes, preparing coffee, getting the till ready and tidying the displays. Anita

relieves Mahnaz at lunch and serves customers during this time. Because Anita works in the kitchen,

she can take lunch anytime when it’s not busy. At the end of the day, Anita tidies the kitchen and

Mahnaz prepares the daily cash outs.

2.5.1 Custom Orders

Custom orders such as wedding cakes are time consuming. A typical order starts with an initial

consultation going through all the available designs and flavours, either in person or on the phone.

Another appointment is booked where the customer gets a chance to taste the flavours of their

choice and then places an order for a custom cake. Anita handles all custom cake consultations,

because she knows the cakes and all the different possibilities available to the customers. See Figure

2.5.1 for a special order Sesame Street cake.

Figure 2.5.1 - Custom Cake – Sesame Street



2.5.1 Hours of Operation

The hours of operation for Truly Scrumptious Cake Co will be as follows:

Monday – Closed

Tuesday – 10 - 7

Wednesday 10 - 7

Thursday 9 - 8

Friday 9 - 8

Saturday 9 - 6

Sunday - 11 – 5

After hour appointments can be booked for custom cake orders.

The hours have been chosen to accommodate our customer base. To order a special occasion cake

can take more than 1 visit and more than an hour. Therefore, having weekend and evening hours

was very important and closing on Monday was the best alternative.

2.6 Regulations

As this is a business in the food industry the following regulations and certifications are required for

the City as well as the Province:

Prior to the business opening, the kitchen will need to be certified by the City of Saskatoon as

meeting all the minimum requirements, such as having extractor fans, proper waste management

and up to date plumbing and electrical.

All kitchen staff will need to take the food Safety course and become licensed with the provincial

government.

On a continuous basis health inspectors will check the business for cleanliness, bugs, rodents, hygiene

and food safety such as proper refrigeration and handling.



Mahnaz and Anita will obtain all the required certifications and licenses prior to opening, and they

will maintain them on an ongoing basis.

2.7 Working Capital

Inventory will be counted once a week and supplies will be ordered when necessary. Supplies will be

ordered from local distributors who have a quick turnaround time which will allow Truly Scrumptious

to maintain low levels of inventory. Payment terms with suppliers will be net 30 days.

Truly Scrumptious will not extend credit to customers and therefore will not have accounts

receivable. Payment can be made in cash or by credit card.

3.0 Human Resources Plan

Initially, the majority of the work will be done by the head chef and the manager. In addition, there

will be one full-time employee. As the company grows, new employees will be trained and

supervised by original employees who have been promoted to a leadership position. It is our belief

that employees who are dedicated to the success of Truly Scrumptious should be rewarded. They will

be leaders in our future store developments.

Figure 3.1 Organizational Chart

Trina BouchondaiseChef’s Assistant

Anita HorneHead Chef

Partner

Mahnaz MalikGeneral Manager

Partner



3.1 Management Team Profiles & Ownership Structure

3.1.1 Staff

Title: Partner and General Manager

Name: Mahnaz Malik, BComm, MPAcc, CA

Job Description:

Responsible for guiding the company in a profitable direction

Oversee all aspects of the business, from sales and marketing to human resources andaccounting

Attend Trade Shows and other promotional events

All employees report directly to the general manager

Qualifications:

Bachelor of Commerce degree from the University of Saskatchewan

Masters of Professional Accounting degree from the University of Saskatchewan

Chartered Accountant

Excellent financial and management skills

Passionate about Truly Scrumptious

Salary: $35,000

Title: Partner and Head Chef

Name: Anita Horne, PICA, MPA

Job Description:

Responsible for the design and creation of Truly Scrumptious products

Assist the General Manager in the day-to-day operations of the business

Attend Trade Shows and other promotional events



Qualifications:

Graduate of the Pacific Institute of Culinary Arts, Vancouver, British Columbia

Degree from L'École du Grand Chocolat, Tain l'Hermitage, France

25 years experience in the creation of innovative food art

Salary: $35,000

Title: Chef’s assistant

Name: Trina Bouchondaise, B.Sc. [Nutrition]

Job Description:

Responsible for providing assistance in the kitchen and the retail store

Attendance at Trade Shows on a part-time basis

Assist in the delivery of cakes

Qualifications:

Bachelor of Science in Nutrition from the University of Saskatchewan with Great Distinction

Salary: $25,000

3.1.2 Advisors

Meng Wang, BComm, MPAcc, CA

Meng Wang has extensive business and financial training. Meng specializes in the details. Her

strength in financial analysis makes her a valuable asset to the Truly Scrumptious advisory

team.

Jasmin Kohl, BBA, MPAcc, CA

Jasmin Kohl brings her innate ability to see the big picture to the Truly Scrumptious advisory

team. Her business and financial background enables her to integrate all the facets of



business management into providing unique and innovative solutions to a wide variety of

business issues.

Holly Ueland, BA, BComm, MPAcc, CA

Holly Ueland brings her years of business experience to the team. Holly has extensive

experience serving as a director for a variety of companies and organizations, and brings her

oversight talents to the Truly Scrumptious team.

Please note: all advisors participate on a voluntary basis and no fee is charged for their business

advice.

3.2 Hiring policies and procedures

Truly Scrumptious human resources strategy will involve hiring competent, friendly and highly

motivated staff as the business expands. We will focus on those who share our passion for the finer

things in life and want to help our customers create the cake of their dreams.

Candidates will be hired by Mahnaz and Anita after submitting their qualifications in writing and

participating in an interview process. It is absolutely imperative these individuals have outstanding

interpersonal skills. They are the representatives of the company and have the potential to make

each customer’s experience special and memorable.

Training will include instruction on the policies and procedures of the company, the company’s code

of conduct and job expectations for each of the roles. In addition, provincial health regulations

require that at least one person who is certified in safe food handling is working in a public eating

establishment at all times when food is being prepared or served. The company will provide this

training for all employees. Truly Scrumptious will also support all employees who want to further

their education in food service or preparation.

Performance will be continually monitored with opportunities for learning and growth provided as

necessary. Customer feedback will be an important component of the monitoring process. Wage

increases will be dependent upon performance.



Exceptional performers will receive public recognition while poor performers will be reprimanded

and fired after the third violation.

3.3 Motivation

An environment that produces motivated people is one in which their ideas and efforts are

recognized and where they are genuinely involved in planning and management decisions.

Truly Scrumptious will base rewards on equal sharing after all costs have been met and investors and

shareholders (after incorporation) have received a return on capital. This method will recognize that

all employees are members of the Truly Scrumptious team. Often, in traditional bonus programs, a

higher percentage is paid to people “at the top”, even though it is the effort of everyone that is

responsible for the company’s success. Those lower down are often in the best position to find ways

to reduce costs and are often closer to the clients on a day-to-day basis. Higher level employees will

receive higher salaries, but the sharing of success through the bonus system will reflect everyone’s

efforts equally.

3.4 Hours of work

Anita will open the shop each morning prior to business hours in order to begin baking the items

needed for the day. Mahnaz will be in the store from opening until close on the short workdays

(Tuesday, Wednesday, Saturday, Sunday), and from 11:00am until close on the long workdays

(Thursday and Friday). Trina will work a flex shift, determined in consultation with Mahnaz and Anita

depending on the amount of cakes needed for the week and the anticipated flow of customers

through the retail store-front.



4.0 Marketing plan

4.1 Product

Our shop will offer a selection of mini-cakes or cupcakes which will give our customers an opportunity

to sample the selection of flavours and design. We will also have photo albums of our designs on

display to showcase to our clients the level of detail and design that goes into the creation of our

cakes and also indicate to them the level of artistry involved in creating something that is exclusive

and very special.

We will offer consultations by appointment, to help our clients select and design the perfect cake for

that special occasion. We will offer color coordination and themes to mix and match a large selection

of cakes and cupcakes as indicated in our brochure.

4.2 Pricing Strategy

Our prices are comparable to those offered by our leading competitor, starting at $3.25 for a cupcake

and $4.50 per slice of cake. Therefore, a mid-range two- or three-tiered cake in a standard flavour

such as chocolate, vanilla, carrot cake or lemon poppy seed with butter-cream icing and minimal

fondant decorations can run $4.50 to $7.00 a slice. Our high-end multi-tiered gourmet cakes with

flavoured fillings, fondant icing and elaborate fondant, gum paste and sugar decorations may cost up

to $10.00 or more per slice. This is consistent with the average cost of $500 for a wedding cake as

per The Bridal Association of North America.

There are additional costs to be considered as well. Decorations make a big difference in the per-slice

cost. Fresh flowers are one of the easiest and least expensive ways to decorate a cake. Fondant,

which can cover a cake in a smooth, satiny shell, is one of the most expensive; it can add $1.00 or

more per slice. Elaborate fondant decorations increase the price even more. Similarly, cheesecakes

and cakes with nuts, dried fruits or special cream fillings can also add $1.00 or more per slice. As well,

most tiered wedding cakes must be delivered and assembled on site by a staff member to prevent a



cake mishap, and delivery charges can be $50 to $100 or more, depending on distance and size of

cake. There can also be cake-cutting fees which can add on $1.00 or more per slice.

Our principal competitive strength is the quality and variety of our confectionary offerings and

leveraging this strength will enable us to command a slight premium price over our competitors.

4.3 Place

Our shop is an 1,100 square foot space located in a freestanding unit in the upcoming Stonebridge

area which is close to the exclusive Willows residential suburb and golf club. Our address is 302

Stonebridge Boulevard, Saskatoon. The Stonebridge area is in the South-East quadrant of the city of

Saskatoon, which is an upcoming and exclusive new residential and shopping area. It is also in close

vicinity to the big box stores and office complexes that have sprung up in the Stonebridge locality.

The location of the unit is visible to the traffic, easily accessible and has ample parking space for our

customers. The lease costs for our shop are $2,000 per month.

4.4 Promotion

In order to raise awareness of our brand to the public, we will actively promote our brand and

product through various media outlets and promotional events. Apart from advertising close to

seasonal events, such as Christmas, on local radio in the first year, we will also raise our visibility by

attending events such as the annual Bridal Show held in Regina, which is widely attended by people

all over the province. There is also a Woman’s World trade show held annually in Saskatoon in which

we will participate to advertise our product and increase our visibility. These trade shows will cost us

about $700 per booth to set up. We will also initially supply our exclusively prepared cakes for dessert

at large corporate events and rely on word of mouth to raise our profile. Our annual $15,000 budget

should suffice for this purpose and the advertising expenses anticipated are detailed as follows:



Figure 4.4 – Annual Marketing Budget

Advertising medium Estimated cost

Local Radio ads (5 times a year) $5,000

Bridal Show (including travel) $1,000

Woman’s World $700

Dessert cake served at various events in the city $3,000

Billboard $1,300

Pamplets, business cards, etc. $2,000

Newspaper advertising to launch opening $2,000

Total $15,000



The design we will use on our pamphlets and business cards are shown below:

Figure 4.4.1 – Pamphlet

Front and Back

Truly Scrumptious

Cake Co.

Truly Scrumptious Cake Co.

LIFE IS UNCERTAIN.

EAT DESSERT FIRST.

Ernestine Ulmer (writer b. 1925)

Address:

Truly Scrumptious Cake Company302 Stonebridge Boulevard

Saskatoon SK, S7T 0G3Phone: (306) luv-cake

Phone: (306) luv-cake



Inside

Select flavours to delight your palette:

BITTER SWEET CHOCOLATE BUTTER CREAMDense ultra chocolate cake layered with bitter sweet

chocolate butter cream

BLACK & WHITE MOUSSERich dark chocolate mousse topped with luscious white

chocolate mousse. Gluten free!

CARROT & ROASTED HAZELNUT CAKEDelicious moist carrot cake with roasted hazelnuts and

raisins, with a cream cheese topping.

CONCORDEHazelnut meringue, layered with rich chocolate

mousse, covered with spires of meringue. Gluten free!

DULCE DE LECHECinnamon flavoured vanilla chiffon layered with dulce de

leche and pecans with milk chocolate ganache.

FRUIT CREAM CAKELayers of vanilla chiffon, fresh fruits, pastry cream and a

hint of Grand Marnier.

HEDGEHOGLayers of hazelnut chiffon and hazelnut chocolate butter

cream with Frangelico.

LEMON MOUSSE CAKELayers of vanilla chiffon, lemon curd and lemon mousse.

We encourage you to set up an appointment with our knowledgeable and talented

Head baker to customize your order.

Call (306) luv-cake



Figure 4.4.2 – Business Card

4.5 Customers and Target Markets

Our products and services are offered to the changing Saskatoon demographic. As the city has

increased in-migration from all over Canada and new corporate offices are setting up shop here,

there is a greater influx of new money and changing demographics. Where the older residents were

more conservative, the general trend now is for people constantly seeking new and novel things to

spend their money on. Our customers are the corporate client, or the brides to be, or the friends and

family surprising a mother to be at a baby shower, or just a special cake for any of the many special

occasions such as anniversaries, birthdays, Christmas, Mother’s or Father’s Day, Valentine’s day, etc.

For us, no event is too big and no client difficult to please.

4.6 Competition

We have three primarily direct competitors in Saskatoon as far as custom cake ordering is concerned

(1) Calories/Solieo (2) Traegers (3) Cupcake Conspiracy and Cupcake Corner

Truly Scrumptious Cake Co.

To help us make your event truly

successful, please contact us at:

Phone: (306) luv-cake

Or visit us at:

302 Stonebridge Boulevard

Saskatoon,SK

S7T 0G3



4.6.1 Calories/Solieo

This is a well known restaurant in Saskatoon and attracts young adults and older well-to-do clients in

the evenings, and corporate and office staff at lunch hour. However, the desserts and cakes offered

are of a limited selection and size since the focus of Calories and Solieo (owned and managed by the

same shareholders) is more on the restaurant side of things rather than on takeout and catering. This

limitation provides us with an opportunity to capitalize on. Calories is located on Broadway Avenue

which is in the centre of the city. Solieo is located within walking distance of Calories at the

intersection of 3rd Avenue and 20th Street East. The downtown location is the reason for the

popularity of the two restaurants with the younger, working downtown crowd.

4.6.2 Traegers

This is also a well known restaurant in Saskatoon and caters to the senior crowd and families. It is well

known for its cake and pastry selection. Similar to Calories, the focus is on the restaurant side of

things rather than catering or preparation of cakes that are exclusive, made from scratch, with quality

ingredients and painstakingly hand crafted. Again, this is a limitation for us to capitalize on. Traegers

is located on the busy 8th Street, close to older residential areas and retired people homes, hence the

attraction for this seniors and families to frequent the restaurant.

4.6.3 Cupcake Conspiracy and Cupcake Corner

Both these shops offer take out cupcakes which may be made to order and customer specifications.

Although they allow for some form of customization, it is mainly cosmetic, with the base flavours of

vanilla and chocolate. This limits the selection for the customer in taste and does not allow for design

and flavour coordination with the cake that will also be a part of most celebrations. Cupcake

Conspiracy is located in the King George building in downtown Saskatoon while Cupcake Corner is

located on the corner of Circle Drive and 8th Street. Both the establishments are popular with families

looking for fun food on their kids’ birthdays and at baby showers. They are also popular with people

taking home a dozen or so boxed cupcakes to enliven an evening with friends and family. Similarly,

office goers tend to drop in and pick up some cupcakes to celebrate a colleague’s special day, a

birthday or promotion.



4.7 SWOT Analysis

4.7.1 Strengths

Creative and talented chef

Unparalleled customization-our cake flavours and designs are only limited by our clients’

imagination

Quality, fresh ingredients-fresh eggs, cream and sour cream sourced directly from our

suppliers

4.7.2 Weaknesses

New to the Saskatoon market with no prior related business experience

The need to seek out an external source of financing

4.7.3 Opportunities

Saskatoon is leading the country in terms of overall economic health with a growing

population and increasing wage rates. Strength in the province’s mining sector has

contributed to an influx of younger workers. These younger workers have more disposal

income to spend on specialty and luxury items. Please see the industry overview section for

further details.

4.7.4 Threats

Specialized, niche market which may be difficult to satisfy

Established competitors

In conclusion, our differentiation strategy and the fact that we will be the first to carve a name for

ourselves in the niche market will help set us apart from the limited competition. The fact that our

name will be well established before a competitor can enter the market will enable our business to

grow and succeed in the years to come.



5.0 Financial Plan

5.1 Financial Data

5.1.1 Initial Start-up Cost

The initial start-up cost is $350, 000. Please refer to Appendix A: Initial Start-up Cost.

This initial start-up cost includes $114,000 for capital expenditures, which is 32.6% of the total start-

up cost. These are mainly for cooking equipment, leasehold improvements, furniture, computer and

communication equipment, and other fixtures of the store. Non-capital expenditures are $236,000

primarily for the first year’s operation, including salary, rent, advertising and so on.

Please see the graph for the comparison of the Capital vs. Non-capital expenditure.

Figure 5.1.1 – Capital vs. Non Capital Expenditures

We can see from the graph that our first year’s operation cost is a little bit more than doubled the

capital expenditure which means this is not a capital intensive business.

5.1.2 Capital Structure

The start-up cost will be funded by both equity and debt. Two partners will each fund $50,000

totalling $100,000 as equity contribution. The remaining $240,000 will be funded by the partners’

through borrowing funds from the bank using personal assets as collateral. This capital structure will



give us the debt/equity ratio of 2.5:1, which makes our business a bit risky. We estimate that the

bank interest rate would be 8% based on personal loan rates, because they are personal loans. We

estimate that the partners require an after tax rate of return of 25%.

Assuming: loan from bank will be 15 years and debt is paid off in equal amounts over this time.

Figure 5.1.2 – Capital Structure

Financing Rate of Return

Equity 100000 25%

Debt 250000 8%

Total investment 350000

Figure 5.1.2.1 – Debt Amortization Schedule

Year 1 2 3 4 5

Openning balance - 240,793 230,849 220,109 208,510

Addition 250,000 - - - -

Yearly Payment 29,207 29,207 29,207 29,207 29,207

Interest 20,000 19,263 18,468 17,609 16,681

Principal reduction 9,207 9,944 10,739 11,599 12,527

Ending balance 240,793 230,849 220,109 208,510 195,984

Debt Amortization Schedule

The above schedule is our debt amortization schedule for the first five years. We can see that our

yearly payment is $29,207 for 15 years. As time goes on, our debt and interest expense are

decreasing.

5.1.3 Minimum Yearly Revenue Projection

The following is our projected revenue for the first five years. The revenue is budgeted on a

conservative basis. Our cake revenue is based on the slices we sell. The average number of slices for

a wedding cake is approximately 100 slices. The sales budget is based on the number of cakes we sell

each week multiplied by 100 slices and then divided by 6 days per week to get the number of slices

per day.

In year one, we project our sales will be 3 cakes per week (minimum) and in year two, 5 cakes

per week. From years three to year five, we estimate selling 7 cakes per week.



For a 100 slices wedding cake, the charge is $4.50/slice, which means the average prices of

our cakes are $450 each.

We assumed a 2% inflation rate each year for our calculations.

The following table shows our detailed minimum revenue budget data.

Figure 5.1.3 – Minimum Revenue Budget Data

Year 1 2 3 4 5

# of days open 312 312 312 312 312

# of cup cakes be sold 100 150 200 200 200

Average price/cup cake 3.25$ 3.32$ 3.38$ 3.45$ 3.52$

Total sales of cup cakes 101,400.00$ 155,142.00$ 210,993.12$ 215,212.98$ 219,517.24$

# of slices of cake sold/day 50 83 117 117 117

Average Price per slice 4.50$ 4.59$ 4.68$ 4.78$ 4.87$

Total sales of cake slices 70,200.00$ 119,340.00$ 170,417.52$ 174,322.52$ 177,808.97$

Total Revenue 171,600.00$ 274,482.00$ 381,410.64$ 389,535.50$ 397,326.21$

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

1 2 3 4 5

From the graph, we can see that our revenue starts at $171,600 and then grows to $274,482 and

then will become stable from year three to five at about $400,000.

5.1.4 Minimum Yearly Profit Projection

Please refer to Appendix B for the projection of income statements and statements of retained

earnings.



Assumptions:

Inflation rate is 2%.

Based on the industry average, we use gross margin 70%.

Interest rate is 8%.

Raw material spoilage is incorporated into our gross margin.

Wages is increased 5% per year.

Salary benefit is 17% of total salary, calculated as EI=2.42%, CPP=4.95%, Holiday Pay=5.77%,

WC=4%.

Depreciation is equal to CCA.

Figure 5.1.4 – Yearly Profit Graph

For the year ended 1 2 3 4 5

Net income (131,130)$ (61,546)$ 12,772$ 15,740$ 14,856$

-140000

-120000

-100000

-80000

-60000

-40000

-20000

0

20000

40000

1 2 3 4 5

Net income

From the projected income statement, we can see that we will have a loss in the first two years.

Starting in year three, we will begin to make profit of about $15,000 each year based on the

projected minimum sales level.



5.1.5 Break Even Analysis

From the above yearly profit graph, we can see that during the first two years, the business is in a loss

position. To break even in these two years, we would have to have sales of $358,929 in year one and

year two respectively. Calculated as following:

Operating expense for the first year: $251,250

Gross Margin 70%

Breakeven revenue in dollars $358,929

If we just sell cakes, we need to sell 2.5 cakes/ day. If we only sell cupcakes, we need to sell 354/day.

Assuming that 60% of our sales are from cupcakes, and 40% is from cakes, then the breakeven units

for cupcakes and cakes are as following:

Figure 5.1.5 – Break Even Analysis

Cupcakes Cakes

Breakeven Dollar amount 358,929 60% 40%

215,357 143,572

Unit price 3.25 450

Units /day to breakeven 212.38 1.02

To breakeven, we have to have sales of 213 cupcakes a day and 1.02 cakes (102 slices) a day, based

on a 312 business days in a year. Our current budgeted sales are 100 cupcakes/day and 0.5 cake/day

for the first year, which is half of the required sales for breakeven. And the second year is 3 quarter of

the required sales for breakeven. Since all of our projections are our minimum sales level, we believe,

through our various promotion activity and strong marketing skills, we would be able to get really

close to the breakeven point during the first two years.

5.1.6 Minimum Yearly Cash Flow Projection

Please refer to Appendix C for the cash flow statement.

Assumptions:

Sales are either on a cash basis or by credit card .



Days of inventory on hand 7 days.

Days of accounts payable are 30 days.

Figure 5.1.6 – Minimum Yearly Cash Flow Projections

For the year ended 1 2 3 4 5

Net Cash Flow 129,553 (52,054) 18,069 16,409 13,330

(80,000)

(60,000)

(40,000)

(20,000)

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

1 2 3 4 5

Net Cash Flow

The graph above tells us that in the first year, due to the debt financing, we have high positive net

cash flow. Entering into year two, we will have negative cash flow due to the loss in operation. But

from year three, we will turn around and have positive cash flows thereafter just from operations.

Although the cash flow is not big, since it’s based on the minimum sales level, we can still conclude

the business is viable.

5.1.7 Balance Sheet

Please refer to Appendix D for the Balance Sheet Statement and Appendix E for the CCA

(depreciation) schedule.

Assuming no additional purchase of equipment for the five years.

No new debt for the five years.



5.1.8 Investment Result

Assumption:

Terminal value is using Year 5’s net cash flow time multiplier of 3.

Required rate of return of shareholders is 25%.

Figure 5.1.8 – Investment Analysis

1 2 3 4 5

Net Cash Flow 129,553 (52,054) 18,069 16,409 13,330

Dividends - - - - -

Terminal Value - - - - 39,991

Total cash flow to Equity (100,000) 129,553 (52,054) 18,069 16,409 53,322

Required rate on Equity 25%

Net Present Value 3,773

Internal Rate of Return 28%

Conclusion: the projected minimum future cash flow results in the internal rate of return 28%, which

is higher than shareholder’s required rate of return, indicating that the business is viable.

5.1.9 Sensitivity Analysis

We have been very conservative to base our projected financial data on the minimum revenue level

to prove even with one cake a day, our business is still viable. If we slightly increase our product,

price, or sales level, our business profit will increase significantly. We have performed the following

sensitivity analysis to show how our bottom line will change if we gradually increase our product

price and sales level.

Figure 5.1.9 – Sensitivity Analysis

From the sensitivity analysis, we can see (using the first year as our base), if we can increase sales of

cupcakes from 100 to 300 per day, then net income will become $10,830. If we combine all the



optimistic conditions together, for instance, increase our cup cake price to $4/each, and sales to

300/day, as well as increase our price of cake to $6/slice and sales of 1.5 cake/day, then our net

income before tax will reach $207,390 which will be the best scenario. Based on the minimum sales

and price and the most optimistic sales and price, our business net income each year will be in the

range from $(131,130) to $207,390.

6.0 Conclusion

Truly Scrumptious Cake Company is the creation of a passion for the finer things in life. Saskatoon’s

growing economy and changing demographics is the ideal setting for this dream to come to fruition.

The company fills a void in the customized cake market for the discerning customer who desires a

one-of-a-kind creation for their special event.

Our carefully analyzed financial data indicates that our business is viable, even based on very

conservative sales projections. There are currently several successful higher-end bakeries in the city,

but Truly Scrumptious creates a competitive advantage by providing customization both in flavour

and design. Our talented and committed head chef has the training and experience to meet every

client’s needs. The company’s general manager has been pursuing the Truly Scrumptious dream as a

hobby for a number of years with great success. It is time for the business to expand and be available

to all who desire the best cake available for their special occasion.

Life is uncertain. Eat dessert first.



References

Agriculture and Agri-Food Canada (n.d.) Retrieved from http://www4.agr.gc.ca/AAFC-AAC/display-afficher.do?id=1171653091262&lang=eng on June 27, 2010.

Clinkard, John (2010) Heading into 2010, Saskatoon’s economic health is second to none. EconomicSnapshot, February 19, 2010. Retrieved fromhttp://www.journalofcommerce.com/article/id37611 on June 27, 2010.

Conference Board of Canada (2010). Metropolitan Outlook 1: Economic Insights into 27 CanadianMetropolitan Economies: Spring 2010 (April 2010). Retrieved fromhttp://conferenceboard.ca/documents.aspx?DID=3537 on June 27, 2010.

Enterprise Saskatchewan (2010). Retrieved from http://www.enterprisesaskatchewan.ca/enr052810on June 27, 2010.

Industry Canada (n.d.) Retrieved from http://www.ic.gc.ca/cis-sic/cis-sic.nsf/IDE/cis-sic445bece.htmlon June 27, 2010.

Lau, Domino. Personal Interview. June 23, 2010

Liu, Vicky. Personal Interview. June 26, 2010

Russell Food Equipment Ltd (2010). Retrieved from http://www.russellfood.ca/ on June 29, 2010

Sreda.com (n.d.) Saskatoon - take a closer look. Retrieved fromhttp://www.sreda.com/Saskatoon___%20Take%20a%20Closer%20Look_Feb2010.pdf on June27, 2010.



Appendices



Appendix A – Initial Start-up cost



Appendix B – Income Statement & Statement of Retained Earnings



Appendix C – Cash Flow Statement



Appendix D – Balance Sheet



Appendix E – CCA Schedule

Documents

Business Plan TRULY SCRUMPTIOUS CAKE CO Painter/businessplans/plans2010... · Figure 3.1 Organizational Chart ... Wholesale bakery establishments are located in all regions of the