Professional Documents
Culture Documents
0 Executive Summary
Bestbuy Enterprise has come up with two rare but highly regarded products that could only
be found in the deep interior of the Sarawak Highlands. Bario Rice and Salt offers a unique taste
and are organically produced and harvested to meet the high expectation and standards of our
customers.
Bario rice is planted in the Kelabit Highlands by the Kelabit community in the north east of
Sarawak, East Malaysia which is very close to the international border with Indonesian
Kalimantan. The Bario rice is planted at an elevation of 3240 feet or 1000 meters above sea
level which gives the area of cultivation a cool climate with an average temperature of 20 degree
Celsius. The location has given a unique and distinct taste for the Bario rice since it is planted
far away from the city and supplied by fresh water from streams of the Bario Mountains.
According to Sarawak Tourism Board, Bario rice has long been regarded as one of the finest
rice grains of the world. It is famous for its soft texture, fine and elongated grains with mild
aromas and splendid taste. The rice is a home-grown, laboriously planted and harvested by hands
using age-old traditional methods. In the planting of the Bario rice, there is no usage of pesticides
and chemical fertilizers. It has all the attributes of organic rice with an added flavor and unique
taste as a result of the cool, pristine and unpolluted environments where it is grown. It is perfect
for health conscious consumers. The Bario Salt is also found just hours away from Bario near
the village called PaUmor. The salt is collected from Lubang Garam PaUmor which is the bestknown Bario salt springs. The spring water, containing brine from lubang Garam Pa Umor, is
boiled for 24 hours before the salt is extracted. The Bario salt spring looks just like an ordinary
spring. The only difference is the water from the spring is salty. The salty water is boiled until all
the water is evaporated, leaving the salt at the bottom of the kawang (big cooking utensil). The
remaining water is completely dripped from the salt before it was put in bamboo pipes to be
burnt in the fire. This is to harden the salt, which is later wrapped in big leaves to be kept in dry
and safe places.
Bestbuy ensures that its customers are acquiring the best there is around in terms of rice and
salt products. In 2002, Bario Rice was accorded an International Presedia Award by Slow Food
Foundation of Italy through the effort of the Department of Agriculture, Sarawak and Padiberas
Nasional Berhad (BERNAS). The benefit of Bario salt is it is naturally and not over processed
1
(bleached) hence its naturally brownish colour. It is less salty than the commercial salt that we
normally get in supermarkets and it contains more natural minerals. Therefore, we feel privilege
as a medium to let the rest of the world sample one of the finest rice in Sarawak and to discover
the unique taste of the Bario Salt.
1.1 The Market
The price of our products in the market is high because of the way it is produced and
transported. Therefore, our main customers are mainly high-end customers who have the
purchasing power which means that there are our initial target markets. We will be promoting
our products especially to high-end restaurants, hotels, souvenir shops and supermarkets. Besides
that, our products would be beneficial to our customers who are health conscious since our
products are organically produced and harvested in a traditional manner. Last but not least, we
are also expecting buyers who are rice lovers and food goers especially those who are curious
about Bario rice and salt.
1.2 The Enterprise
Bestbuy Enterprises boast a strong founding team and experienced board of advisors. Our
primary advisor, Azra Tilai brings in 10 years of industry experience and networked
relationships to accelerate the market penetration of the products line. Bestbuy function only as a
wholesaler by responding to inquiries on the products and making the transaction once the
customer are fully informed and also once agreeing to the terms and agreement. We would first
target two major cities in Sarawak which are Miri and Kuching. Miri would be our base of
operation.
Bestbuy Enterprise will follow three concise strategies to achieve our desired growth:
Offering unique and rare products, which are highly in demand in the market.
Develop a strong branding campaign to build awareness, positive perception and sales of
our products within our target markets.
1.3 Mission
Our mission is to let the rest of the world experience the finest Rice in Sarawak and discover the
unique taste of the Spring Salt through our product.
1.4 Key to Success
Selling products which are highly demanded in the market.
Less competition
Complementary relationship with high-end restaurants, hotels, supermarkets or souvenir shops
that are interested in using or selling our products into their business.
1.5 Objectives
Branch network to interested high-end customers in Miri and Kuching by the 1st year.
Become the leading wholesaler for Bario Rice and Salt in Sarawak by the 2nd year.
Achieve sales of by the 6th year.
Start-Up
200
Expenses
RM ('000)
150
Assets
Investment
100
Loans
50
Start Up
Requirements
Start-up Expenses
RM
Insurance
400
Stationary etc.
1,800
Rent
600
Website Development
11,500
35,000
Other
12,800
62,100
Start-up Assets
Cash Required
30,000
Start-Up Inventory
57,900
Long-Term Assets
0
Total Assets
87,900
Total Requirements
150,000
4
Start-Up Funding
Start-up Expenses to Fund
62,100
87,900
150,000
Assets
Non-cash Assets from Start-up
57,900
30,000
0
30,000
Total Assets
87,900
50,000
Total Liabilities
50,000
Capital
Planned Investment
Azra Tilai
40,000
Ernaflovia Datip
20,000
20,000
Elzwin Balai
20,000
100,000
(62,100)
Total Capital
37,900
87,900
Total Funding
150,000
Bestbuy will sell the Bario rice and salt by under the name Premium Bario Highland
Rice for the rice and Natural Bario Highland Salt for the salt.
For the Premium Bario Highland Rice the price for 1kg would be RM12.36 in Miri and
RM14.50 in Kuching. The price for 500g of Natural Bario Highland Salt would be
RM14.30 in Miri and RM15.40 in Kuching.
The Premium Bario Highland Rice would be sold in small packets of 2kg or the standard
rice sack of 35kg. The Natural Bario Highland Salt would be sold at 500g per pack.
The packaging of our products will be equipped with the enterprise information and also
the nutritional facts. \
Premium Bario Highland Rice and Natural Bario Highland Salt will provide eager food lovers to
grab a chance in experiencing a rare and unique taste of rice and salt that could only be found
1000m above sea level deep in the heart of Borneo.
As our enterprise grows, we would expand our product line and also expand our business to
places where there are few or no products similar to ours. We have identified a few big
companies such as Bernas and Jati who have ventured out into the global market such as Italy
selling products similar to ours. Therefore, in the future we would take this opportunity as a
platform for our product as it has already been established by them at the global stage.
3.3 Sales Literature
In order to sell our product while creating familiarity and a positive brand image, it will be
necessary to develop information about our company and the products that we are selling to our
customers. This is because; we positioned our products at souvenir shops and supermarkets
whereby the customers would be able to see our packaging. The clear and proper display of our
product together with the nutritional facts would convince customers that Bestbuy offers the best
quality rice and salt there is in the market.
3.4 Sourcing
Bestbuy acquire the Bario rice and salt through farmers which had already processed these
items into readily edible food. The farmers also had already packaged them into sacks which are
readily transported into the cargo from Bario to Miri. In Miri, we would then acquire the local
packaging service to print our enterprise information together with the nutritional facts on our
product that they are packaging. The packets or sacks will be design by our own. Apart from
that, we are also acquiring the halal certificate for our products from Jakim.
3.5 Future products
Besides our current products, Bestbuy would like to venture in other famous local Sarawak
products such as the Batang Lupar Rice, and the Simangang Rice. This will add variety to our
rice product line and expand our possibilities of a wider set of target market. Other future
products to add in our business are Ikan Terubuk Masin (Salted Terubuk Fish), Tuak (Sarawak
Rice Wine) or Sarawak Kek Lapis.
7
Perhaps the most promising future market opportunity for our future products would be the Ikan
Terubuk Masin (Salted Terubuk Fish) and the Sarawak Kek Lapis. These two products are
already well known and are especially famous among west Malaysians. This will be a top
priority once the company develops the financial resources enough to mount a national
advertising campaign and distribution system.
Sdn Bhd for the rest of Malaysians to sample the finest rice form the Land of the
Hornbills.
In 2007, there were 14 seed centers (both public and private), supplying seeds to
approximately 138,000 farmers.
The marketed surplus produced by farmers was purchased by 231 mills [174 in
Peninsular Malaysia and 57 mills in East Malaysia (28 mills in Sabah and 29 mills in
Sarawak)].
The output from these mills were sold to some 1,239 wholesalers [927 in Peninsular
Malaysia and 212 wholesalers in East Malaysia (144 wholesalers in Sabah and 168
wholesalers in Sarawak)]
Local and imported rice were supplied to some 44,637 retail outlets [34,338 in Peninsular
Malaysia and 6,646 retailers in East Malaysia (3,237 retailers in Sabah and 3,409 retailers
in Sarawak)]
10
27.17 million consumers were served in 2007 [21.7 million consumers in Peninsular
Malaysia and 5.464 million consumers in East Malaysia (3.06 million consumers in
Sabah and 2.404 million consumers in Sarawak)].
12
Amount (RM)
Cargo fee
0.70(105kg)
Document fee
2.00
Agent fee
10.00
Airport fee
15.00
100.50
14
From the table above, the total fixed cost charge by the Maswing is RM100.50 per 105kg of
rice. Therefore, the cost of 1kg of rice is RM0.96 (RM100.50/ 105kg). The price of the 1kg of
rice in Miri before the interest of profit we will take is as below:
Details
Amount (RM)
8.57
0.96
9.53
Our company decided to transfer maximum 3 sacks of rice per flight because its easier for
our company to measure the costs that will be charge by Maswings. The three sacks of rice
would equal to 105kg and the cost involve is as below:
Details
Amount (RM)
899.85
Transportation fee b
100.50
1000.35
a.
b.
RM100.50
From the tables above, the total costs for 3 sacks of rice is RM1000.35 which the price for
1kg of rice is same as before at RM9.53 per kg of the rice (RM1000.35/105kg). The rice will
arrive at Miri Airport and therefore to transfer our product to our warehouse that is located in
Miri, we need to transfer using our own transport. Therefore, we forecast the fixed costs will
involve for transportation fuel (car) is RM10 per 1 sack. Since, 1 sack equal to 35kg, the cost for
transportation fuel (car) per 1kg is RM0.29 (RM10/35kg). When our company decided to take
15
25% of the interest profit for any 1kg of rice, the price per 1kg for Premium Bario Highland Rice
is shown below:
Details
Amount (RM)
9.53
Transportation fuel(car)
0.29
9.82
2.45
12.27
Amount (RM)
Cargo fee
0.70(105kg)
Document fee
2.00
Agent fee
10.00
Airport fee
15.00
100.50
From the table above, the total fixed cost charge by the Maswing is RM100.50 per 105kg of
salt. Therefore, the cost of 1kg of salt is RM0.96 (RM100.50/ 105kg). The price of the 1kg of
salt in Miri before the interest of profit we will take is as below:
16
Details
Amount (RM)
20.00
0.96
20.96
Our company decided to transfer minimum 21 sacks of salt per one flight because its easier
for our company to measure the costs that will be charge by Maswings. The twenty one sacks of
salt are equal to 105kg and the cost involve is as below:
Details
Amount (RM)
2,100.00
Transportation fee b
100.50
2,200.50
a.
b.
RM 100.50
From the tables above, the total costs for 21 sacks of salt is RM2, 200.50 which the price for
1kg is same as before at RM20.96 per kg of the salt (RM2, 200.50/105kg). The salt will arrive at
the Miri Airport and therefore to transfer our product to our warehouse that is located in Miri, we
need to transfer it using our own transport. Therefore, we forecast the fixed costs would involve
for transportation fuel (car) is RM10 per 1 sack. Since, 1 sack equal to 5kg, the cost for
transportation fuel (car) per 1kg is RM0.29 (RM1.45/5kg). When our company decided to take
25% of the interest profit for any 1kg of salt, the price per 1kg for Natural Bario Highland Salt is
shown below:
Details
Amount (RM)
20.96
Transportation fuel(car)
0.29
21.25
5.31
26.56
17
Amount (RM)
0.70(105kg)
1.00(105kg)
Document fee(flight)
2.00
Agent fee(flight)
10.00
Airport fee(flight)
15.00
205.50
From the table above, the total fixed cost charge by the Maswing is RM100.50 per 105kg of
rice. Therefore, the cost of 1kg of rice is RM0.96 (RM100.50/ 105kg). The total fixed cost
charged by the bus is RM105.00 per 105kg of rice. Therefore, the cost of 1kg of rice is RM1.00
(RM105.00/105kg).The price of the 1kg of rice in Kuching before the interest of profit we will
take is as below:
18
Details
Amount (RM)
8.57
0.96
1.00
profit
Our company decided to transfer maximum of 3 sacks of rice per flight because it would be
easier for our company to measure the costs that will be charge by Maswings and also 3 sacks
when using bus. The three sacks of the rice is equal to 105kg and the cost involved is as shown
below:
Amount (RM)
Details
Prices for 3 sack
899.85
Transportation fee b
205.50
1,105.35
From the tables above, the total costs for 3 sacks of rice is RM1,105.35 which the price for
1kg of rice is same as before at RM10.53 per kg of the rice (RM1,105.35/105kg). The rice will
arrived at Kuching Central and therefore to transfer our product from Miri International Airport
tp Miri bus station, we need to transfer it using our own transport. Therefore, we forecast the
fixed costs will involve for transportation fuel (car) is RM10 per 1 sack. Since, 1 sack equal to
35kg, the cost for transportation fuel (car) per 1kg is RM0.29 (RM10/35kg). When our company
decided to take 25% of the interest profit for any 1kg of rice, the price per 1kg for Premium
Bario Highland Rice is shown below:
19
Details
Amount (RM)
10.53
Transportation fuel(car)
0.29
11.78
2.63
14.41
Amount (RM)
0.70(105kg)
1.00(105kg)
2.00
Agent fee(flight)
10.00
Airport fee(flight)
15.00
205.50
From the table above, the total fixed cost charge by the Maswing RM100.50 per 105kg of
salt and the bus would be RM105.00 per 105kg. Added both transportation fees would be
RM205.50 per 105kg. Therefore, the cost of 1kg of salt is RM1.96 (RM205.50/ 105kg). The
price of the 1kg of salt in Kuching before the interest of profit we will take is as below:
20
Details
Amount (RM)
20.00
0.96
Transportation fee(Bus)
1.00
profit
Our company decided to transfer maximum of 21 sacks of salt per one flight because it
would be easier for our company to measure the costs that will be charge by Maswings and the
bus. The twenty one sacks of salt are equal to 105kg and the cost involve is as shown below:
Amount (RM)
Details
Prices for 21 sack a
Transportation fee
2,100.00
205.50
2,305.50
c.
d.
From the tables above, the total costs for 21 sacks of salt is RM2, 305.50 which the price of
1kg is the same as before at RM21.96 per kg of salt (RM2305.50/105kg). The rice will arrive at
Kuching Central and therefore to be transfer to our product warehouse that would be located near
Kuching Central. Therefore, we need to transfer using our own transport. We forecast the fixed
costs will involve for transportation fuel (car) is RM1.45 per 1 sack. Since, 1 sack equal to 5kg,
the cost for transportation fuel (car) per 1kg is RM0.29 (RM1.45/5kg). When our company
decided to take 25% of the interest profit for any 1kg of salt, the price per 1kg for Natural Bario
Highland Salt is shown below:
21
Details
Amount (RM)
21.96
Transportation fuel(car)
0.29
22.92
5.73
28.65
Packaging
Bestbuy Enterprise would acquire the local packaging service to print our enterprise
information together with the nutritional facts on our product that they are packaging. The
packagings for the Premium Bario Highland Rice are in standard size rice sacks of 35kg and also
2kg. On the other hand, the packaging for the Natural Bario Highland Salt would be in the size of
500g. Therefore there would be fees charged for the packaging. The fees would then be added
into the price after interest profit for the Premium Bario Highland Rice and the Natural Bario
Highland Salt. The price of both products according to places and after added for packaging fees
are shown in the tables below:
Price of Premium Bario Highland Rice 35kg
Details
Miri (RM)
Kuching (RM)
12.27
14.41
Price per 35 kg
429.45
504.35
Packaging Fees
3.05
3.15
432.50
507.50
22
Miri (RM)
Kuching (RM)
12.27
14.41
Price per 2 kg
24.54
28.82
Packaging Fees
1.06
1.08
25.60
29.90
Details
Miri (RM)
Kuching (RM)
26.56
28.65
13.28
14.33
Packaging Fees
1.02
1.07
14.30
15.40
23
24
Distributors
The relationship between our product and the product distributors will be essential. A
flexible distribution system will be critical to the success and growth of our product.
Good distribution will allow our product to satisfy and flexibly expand to accommodate
demand.
The Government
By teaming up with government organizations, our company will be able to utilize
existing high quality and natural salts programs to reach a much larger potential audience
than could be directly contacted. Government endorsement of our product and the
mention of its benefits in government brochures and written materials could be a major
competitive advantage and sales opportunity for Premium Bario Highland Rice and
Natural Bario Highland Salt.
5.11 Milestones
1. Development by the founding team of a 'rough' prototype, to be further developed by a
professional by January 5, 2013.
2. Attain funding to complete the testing and development of a complete and working product
prototype by January 5, 2013.
3. Product development is initially the responsibility of the founding team; later, we will hire a
professional quality control for the final testing and completion of the product. This final
prototype will be completed by January 21, 2013.
4. Final safety testing of the initial product with regulatory oversight in January and February.
5. After the prototype is completed in February of 2013, a patent will immediately be applied for
by the founding team. Target date for patent process completion is February 10, 2013.
25
6. Promotional materials will be developed to preempt the completion of the prototype to allow
for quick acceleration to market, promotional materials development will begin in February 9,
2013.
7. "Phase One" marketing will include market penetration in Miris area. It will begin in
February 11, 2014.
8. After successful implementation within our primary market, we will begin the development of
new products to address the hospital and restaurant markets, targeted for February 22, 2016.
Milestone
5-Jan
12-Jan
19-Jan
26-Jan
2-Feb
9-Feb
16-Feb
23-Feb
Milestones
Milestone
Start Date
End Date
Budget(RM) Manager
Department
Develop
1/5/2013
7/1/2004
Founders
Product Dev.
8/1/2013
21/1/2013
Founders
Product Dev.
Approximate
Prototype
Attain Funding
26
Final 22/1/2013
Develop
23/1/2014
80,000
Founders
Product Dev.
6/2/2014
20,000
Founders
Product Dev.
10/2/2014
10,000
Founders
Legal
17/2/2014
25,000
Founders
Marketing
20/2/2015
18,000
Founders
Marketing
22/2/2016
75,000
Founders
R&D
Prototype
Safety Testing
26/1/2013
Patent 26/1/2013
Begin
Process
9/2/2013
Design
Promotional
Material
"Phase 11/2/2014
Begin
One" Marketing
Begin R & D of 18/2/2014
New Products
Totals
RM228,000
BestBuy Enterprise financed by the founder's and investments from limited partners. The
business will be funded with an investment of RM100 000, RM50 000 is loan from AgroBank.
The initial funding requirements are modest for the business. The growth of the business, beyond
the first year, will be financed by the free cash flows generated by the business. This will allow
for the expansion of staff to include additional expenses, the ramping up of marketing
expenditures, and the resulting increase in sales. Summary of financial information:
Total Funding
: RM 150.000.00
Capital Contribution
: RM 100.000.00
Loans
: RM 50,000.00
Financial year
27
The ownerships of BestBuy Enterprise will retain 100% of the equity in the company. The
parties agree to cause the Corporation to issue stock to the Parties in the following number and
for the stated consideration:
Name
Number of shares
Consideration
(cash or Property)
Azra Tilai
40,000(40%)
RM40,000
Ernaflovia Datip
20,000(20%)
RM20,000
20,000(20%)
RM20,000
Elzwin Balai
20,000(20%)
RM20,000
28
Last but not least, interested parties can drop down their questions regarding our product
in this website. Our product will not be directly available online, but we will build positive
perception and awareness about our product there through statistics and user testimonials
demonstrating our value. Interested parties can also get more knowledge from the website. This
is because the website will provide the history of our product. The website will communicate
company news to create and maintain positive public relations with the surfing community.
7.0 Management Summary
The expansion of the Bestbuy Enterprise will be managed by Azra Tilai and Farazila
Effendy. Our company strength is sales people with experience relevant to each new respective
target market can be attained as need dictates, but the initial management team consists of the
founders themselves.
29
The Vice president of Bestbuy Enterprise is Farazila Effendy. She will be in charge of the
administrative functions, including public relations. She has a background in accounting and
will incorporate his expertise in areas such as marketing relations management.
handle the tasks. We plan to assign RM15000 for the second. For the third year, we are planning
to hire another secretary. We also plan to assign RM1500 for the both secretaries in the third
year.
Personnel Plan
Year 1(RM)
Year 2(RM)
Year 3(RM)
President
10,000
10,500
10,500
Vice President
10,000
10,500
10,500
Sale Secretary
1,500
1,500
Sale Secretary
Total People
Total Payroll
20,000
22,500
24,000
1,500
Based on market research, we expect the business to begin growing at 45% per month for the
first 12 months, then at the yearly rate of 90% for the next two years. Due to our low initial
investment costs, we can maintain the operations of the business with the cash buffer we will
have from start-up. In addition, we will almost immediately have a positive cash flow, allowing
us the flexibility to cover any unforeseen expenses.
100% of sales will be made on credit, the industry standard. Although we do plan to sell
organic rice and natural salt mostly for the promotion purposes to government agencies
31
who usually demand substantially longer payment terms, our major target group will
remain commercial entities. On average, we assume on a 45-day collection schedule.
We try to increasing our marketing and sales expenses to represent the expected increase
in costs associated with developing packaging, advertisements, additional promotions,
and creating awareness of our products in the differing markets after fully analyse the
market segment.
Market
Initial target market aimed respectively at the high-end restaurants kitchen manager,
high-end hotels food and beverage manager and the most popular souvenir shops.
Initial total market size is comprised of local retailers in Sarawak and will begin
expansion into the Peninsular of Malaysia and Sabah.
Research
Funding for research for the organic rice and natural salt will be provided for in the
initial start-up capital outlined in the start up table and summary.
We will use our success market to propel and fund in additional research and
development on producing organic rice and natural salt compete will market demands
especially producing the organic rice, since it take time.
Should the cumulative RM 60, 000 expenses earmarked during the second and third
years for the patent protection of our products be minimized, our bottom line
profitability will be positively affected.
32
General Assumptions
2013
2014
2015
Plan Month
10%
10%
10%
10%
10%
10%
Tax Rate
30%
30%
30%
Other
The benchmarks chart, below, shows a quick comparison of Sales, Gross Margin %, and
Operating Expenses, inventory turnover and collection days.
Benchmarks
4.0
3.0
2013
2.0
2014
2015
1.0
0.0
Sales
Gross
Margin%
Operating
Expenses
collection
Days
33
Inventory
Turnover
Sales - Our sales are projected to grow at a consistent rate of 90% yearly, and we believe this
accurately reflects the realistic growth our product would be capable of attaining if we can
properly utilize existing channels of distribution and gain social acceptance.
Gross Margin - As we grow, become more efficient, and gain economies of scale we begin to
see a slight growth in our margins.
Operating Expenses in 2014 and 2015 we see an increase in number of operating expenses
that we will incur. We begin incurring larger costs involving advertising, promotion, marketing,
and payroll expenses.
Collection days we will collect our accounts receivable on average of 45 days. In 2014 and
2015 we will have the cash to cover unexpected costs or expenses so that we may decide to allow
a longer collection period.
Inventory Turnover our preliminary forecast suggests that for us to be flexible in meeting
customer demand we will need to maintain minimal inventory stock. On average, we will keep
two weeks worth of inventory on hand.
The following fixed costs reflect the relative costs for selling and distributing our product
within the Sarawak area, and do not reflect the fixed costs necessary to expand further. We
expect to pass the break-even point in January 2013. Table below show a breakeven analysis:
34
Break-even Analysis
RM 12,250
Assumptions:
40%
Average Percent Variable Cost
RM 7,350
2014
2015
(4,000)
5,900
40,000
35
(4,000)
5,900
40,000
30,000
26,000
31,000
26,000
31,900
71,900
2013
2014
2015
RM 86,000
RM 93,400
RM 148 000
Calculations:
Cash Received
Less:
-
Cash Spending
(RM 32 000)
Bill payment
(RM 76 000)
(RM 4,000)
RM 40,000
RM 5,900
Our profit and loss projections reflect our expectation that monthly fixed costs will remain
constant over the course of the first year.
This business is projected to become profitable in October, 2013, after the start-up
advertising is completed and customers begin to discover the speciality about the organic rice
and natural salt. For the entire 2014 calendar year the business will be profitable. It will grow at a
rate of over 20% after the third year of operation.
36
Advertising expenses will remain steady during our first year of operations. However,
Advertising and Promotion will grow in years 2013 and 2014 years to reflect the purchase
of print ads, PR brochures, and additional promotional content.
Table below show the monthly sales forecast on the years of 2013, 2014 and 2015:
Sales Forecast for Premium Bario Highland Rice and Natural Bario
Highland Salt
SALES FORECAST
MONTH
(RM)
2013
180,000
2014
324,000
2015
420,000
Pro Forma Income Statement for the year ending 2013, 2014 and 2015
2013
2014
2015
(RM)
(RM)
(RM)
180,000
324,000
420,000
129,000
225,084
275,700
Other
129,000
225,084
275,700
Gross Margin
51,000
101,100
144,300
Gross Margin %
28.33%
31.20%
34.36%
(20,000)
(22,500)
(24,000)
37
Rent
(7,200)
(7,200)
(7,200)
Utilities
(800)
(800)
(1,200)
Insurance
(4,800)
(4,800)
(4,800)
(1,200)
(1,200)
expenses
Total Operating Expenses
34,000
36,500
38,400
17,000
64,600
105,900
Taxation (26%)
(4,420)
(16,796)
(27,534)
Net Profit
12,580
47,804
78,366
Net Profit/Sales
6.99%
14.75%
18.66%
Table above show the positive results of net profit by using the sales forecast in order to
represent the profitability level of our business operations for both rice and salt production. We
assume that in futures, people concern about the standard of living especially on their health
conditions. Organic rice and natural salt may become their choices.
Our only significant Accounts Payable will be inventory, which are a direct reflection of the
level of inventory on hand. We will be paying off our Accounts Payable in accordance with sale
of inventory. Therefore, as we begin to sell more organic rice and salts, we will be increasingly
capable of meeting our obligations in a systematic time condition, ensuring that we have enough
cash on hand to cover our short term liabilities. Table below show the pro forma balance sheets
at the end 2013, 2014 and 2015:
38
Pro Forma Balance Sheets at the end of 2013, 2014 and 2015
2013
2014
2015
(RM)
(RM)
(RM)
Cash
26,000
39,500
71,900
Accounts Receivable
31,180
107,804
118,866
Inventory
68,000
32,800
59,200
Long-term Assets
Total Assets
125,180
180,104
249,966
2013
2014
2015
Accounts Payable
24,700
13,800
27,900
Current Borrowing
24,700
13,800
27,900
Long-term Liabilities
Total Liabilities
24,700
13,800
27,900
Paid-in Capital
150,000
150,000
150,000
Retained Earnings
(62,100)
(31,500)
(6,300)
Assets
Current Assets
Accumulated Depreciation
Current Liabilities
39
Earnings
12,580
47,804
78,366
Total Capital
100,480
166,304
222,066
125,180
180,104
249,966
Net Worth
100,480
166,304
222,066
Equity Value
RM 1,780,000
RM 8,000,000
RM 1,500,000
RM 7,000,000
RM 7,200,000
(RM 22,200,000 / 3)
= RM 7, 400,000
40
A)
our company for RM3,000,000. Therefore, the manager have RM500,000 to invest and have
identified venture investors who willing to invest RM 2,500,000 in return in an expected 25%
annual rate of return. Besides that, to complete the buyout, our managers also must assume an
additional RM5,000,000 of a five-year-term bank debt venture mandating 12% annual interest.
Thus, the Figure 1.0 shows the venture valuation enterprise pie for our company. The left
side of the figure depicts an initial enterprise value of RM 8,000, 000 consisting of a RM
5,000,000 long-term bank loan and RM3,000,000 in equity capital. Our company need to
estimate our ventures exit value for five year. Therefore, our company expected the DCF
enterprise valuation method and an EBITA multiples-based relative valuation model is RM
15,000,000. In addition, on the right side of the figure 1.0 shows that a RM 15,000,000 value
based on an EBIDTA of RM 1,500,000 times a multiple of 10.
Present Value
Future Value
RM 8,000,000
RM 1, 500,000 X 10 =
RM15,000,000
Bank Loan
Management Equity
Venture Equity
Total Value
RM 5,000,000
500,000
2,500,000
RM 8,000,000
41
After that, our company should to determining the future value of our company valuation pie
and dividing the future value equity pie. Therefore the Figure 2.0 shows the determining the
future value of our company valuation pie and dividing the future value equity pie. In the Panel
A of the Figure 2.0 shows how the RM 15,000,000 company value will be divided up at exit in
five years. First, the RM 5,000,000 bank loan will be paid off, resulting in an equity value of RM
10,000,000 because the venture investors expect a 25% compound annual rate of return, their
portion of the equity value at exit would be RM 7,629,395 which the value from [ RM 2,500,000
x (1.25)5]. The managers would receive the residual or remaining equity value of RM 2,370,605
which the value from the [ RM 10,000,000 RM 7,629,395]. On the other hand, the Panel B of
the Figure 2.0 shows the percentage ownership using the future value of the equity that the
venture investors would need up front now to get the deal done. Therefore, for the RM 2,500,000
initial equity investment, the venture investors would expect ownership of 76.29% ( RM
7,629,395 / RM 10,000,000 using future value relationship) of the equity to enable the expected
25% compound annual rate of return.
Figure 2.0 : Determining the future value venture enterprise valuation pie and dividing the future
value equity pie
Panel A : Future Value Enterprise Valuation Pie
FV = RM15,000,000
Bank
RM 5,000,000
Venture Investor
7, 629, 395
Managers
2,370,605
Total
RM 15,000,000
Managers
24%
Venture
Investor
76%
42
Therefore, if the deal develops as projected, the management team will earn a very accurate
rate of return on their initial RM500,000 investment. This is because the managers are expected
to receive RM 2,370,395 at end of five years, and their anticipated rate of return is 36.5%
compounded annually.
B)
occurs when an entrepreneur sells the venture to family members, managers, employees, or
outside buyers. Therefore, our company decided to sells the venture among our family member.
There are two basis ways by which our company can transfer a business, or interest in a business,
to our heirs such as our children or our grandchildren, are giving the company or selling the
company to them. This is because the heirs are unable to generate the necessary financial capital
to purchase the venture outright. Besides that, a strategy of selling a venture to a family member
below its fair value, to make it easier for the new purchaser to finance the purchase, could be
very costly. In addition, the seller of a family business can help heirs purchase the business in a
number of ways. For an example, the seller can provide financing by taking back a promissory
note that will cover part of the ventures purchase price. The seller may enter into net gift of
stock that is actually a combination sales and gifts transaction, whereby the seller sells stock at a
price below its fair value.
43
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