Business Plan

Akulu Coffee Roaster Limited (ACLR)
Business Plan

SURENDRA RAJ ACHARYA
B0261RHRH0412

SCHOOL OF BUSINESS AND LAW
(AN ASSOCIATE COLLGE OF UNIVERSITY OF GLOUCESTERSHIRE)

BUSINESS PLAN PROPOSAL

STUDENT NAME : SURENDRA RAJ ACHARYA
STUDENT NO : B0261RHRH0412
LECTURER : Dr. RAJENDRA KUMAR
: MS.TATIANA PAVLOVKY

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Table Of Contents

Serial
Number
Topics Page Number
1 Executive Summary 4
2 Business Descriptions 5
3 Business Opportunities 6
4 Marketing Strategy 7
4.1 Consumer Analysis 7
4.2 Marketing Analysis 8
4.3 Distribution Channel Analysis 9
4.4 Development Of Marketing Mix 9
Product Strategy on different PLC
Stages
10
Promotion 10
Promotional Strategy on different
stages
11
Place 12
Distribution Strategy on different PLC
stages
13
Pricing 13
4.5 Critical Risk 14
5 Business Operations 15
6 ACLR Management Team 17
7 Technology 19
8 Financial Analysis 22
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8.1 Break Even Analysis 22
8.2 Payback Period 24
8.3 Projected Profit And Loss Statement 25
8.4 Projected Cash Flow Statement 26
9 References 29
10 Bibliography 30

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1. EXECUTIVE SUMMARY

Akulu Coffee Roaster Limited is a start up business located in Victoria, London,
United Kingdom, selling roasted coffee beans from single origin to blended beans and
coffee appliances as well. Akulu Coffee Roaster will distinguish itself from other
competitors in market by keeping a close eye on the trends in the coffee industry and by
establishing a magnificent customer service.

London is one of the strongest financial city with a population of 7,825,200, is one of the
best place to do business. According to the Allerga Research Group, last year only the
coffee market grew by 12.9%. The coffee market in UK is expected to reach over 9
billion by 2015, according to Mintel (2010).

ACLR production field is Victoria London. However, during supply of its product it
aims to cover different parts of London. To increase awareness of ACLRs product, it
intends to launch creative promotional campaign. The promotional process include use of
website, print media advertisements, event sponsoring, yellow pages advertisement,
Internet based advertisement and so on. Through these efforts, the company will establish
its reputation as a trusted provider of high quality coffee beans and coffee appliances.

ACLR will use Probat L12 Roaster machine which is technologically one of the best
roasting brand in the world. As, high temperature evolves during the roasting process, fire
risk is always there. Therefore, VESDA Xtralis smoke detector which is also one of the
best ASD (Aspirating Smoke Detector) brand which will be used if incase firing occurs.
The main character of this machine is, it provides the earliest possible warning.

The initial investment in ACLR will be 90,000. According to the calculation done in the
report, the break even volume is 9278.35 kilos and break even pound is 185,567 retail
sales. ACLR target to meet a profit of 25,000, the company require selling 237,113.40
kilos a year. According to the payback calculation, to recover its investment with the
projected profit of 25,000, ACLR requires 3 years and 7 months.

The proposer of this business plan is an MBA graduate from School of Business and
Law (SBL) which is an associate college of University of Gloucestershire. The
proposer has done several researches and has been analyzing the coffee market from the
last 5 years. The proposer has also completed coffee roasting training from London
School Of Coffee.
To achieve the Companys objectives. ACLR is seeking financial support from the bank
or from the Federation of Small Businesses (FSB). The financial assistance provided by
either bank or FSB will be repaid under all the UK legal obligations.

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2. Business Description
Coffee is one of the most commonly traded commodities in the world. London being one
of the biggest financial city has high demand of the coffee. According to Cater Research,
the UK coffee shop markets will double the size over next decade. As the demand of the
coffee is high, many coffee shops have started to roast their own beans and this trend has
increased by 50 % from the last few years. Over 400 billion cups of coffee is consumed
every year in all over the world. According to Mintel (2010), the increasing coffee
demand would worth 976 million by 2015. 20 million people pop out every week for
their favorites cappuccino or espresso in London (The Sun, 2010).

Akulu Coffee Roaster Limited (ACRL) , is a proposed coffee roaster company with a
mission of providing the varieties of fresh roasted coffee beans and coffee kits in
affordable prices. It aims to maintain a good relationship with its suppliers, stakeholders
to increase the customer satisfaction and company profitability. ACRL has an aspiration
of customer retention through its effective planning, organizing, staffing and directing.
ACRL has a business philosophy of using ethically sourced green beans for better
customer perceived value. ACRL will make customer feel that their prescribed value for
coffee beans and coffee kits are real worth product.

Keeping in mind the higher demand of coffee in London in recent years, ACRL has
planned to develop various roasted coffee beans from single origin to the espresso blend.
Kinunu ( Rwanda), Musasa ( Rwanda ), Gethumbwini ( Kenya), Finca La Do Morro (
Brazil), Baalmaadi ( Indian) are the major coffee beans which will be used by ACLR.
Different other coffee related products like , ceramic mugs, areopress (small machine for
filter coffee),hand grinders and so on can be sell by the company. In order to grow and
survive ACLR can plan as a related multiproduct firm, which is often termed as
Horizontal Integration or Related Diversification whose combination results in increment
in market share and lead to significant impact on market power (Gaughan. P, 2010).

There are different roastery company who has been supplying beans to different cafes
like London Coffee Roasters, Square Mile Coffee Roaster and many more. The coffee
shops like Starbucks, Costa , Pret a manger , local coffee shops are the major coffee
shops in the market and hence it has to be analyzed . Although, the roaster companies are
the competitors of ACLR, the market trend of other coffee cafes like caf Nero ,
Starbucks, Tesco/Sainsburys grounded coffee have to be studied to obtain long term
market share.

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3. BUSINESS OPPORTUNITES

Coffee is one of the addictive drinks which has caffeine in it. In other words, its a
traditional drink despite of its addiction and side effects ( if consume in excessive
amount).London is one of the best place in the world for coffee business because of its
weather. Its the dense city comprising of 7,825,200 people and interestingly it has
hundreds of thousands international immigrants who are real coffee fan.

According to the International Coffee Organization, From March 2010 t0 February 2011,
the United Kingdom had imported 26287614 metric tons of coffee. According to the
Allerga Research , 5.3 billion has met the coffee shop in the UK market in 2010. The
same research also states that the sales growth for coffee market is 12.9% each year.
Since 2005, the number of branded coffee has been doubled. One out of ten visit coffee
shop everyday in London (Allerga Research). Costa, Starbucks, Cafe Nero, Gail are the
leading coffee shops. It was found that the 84% customers preferred to have a coffee
from branded coffee shops rather than local coffee shops (Allerga Research). As a result ,
thousands of new branded coffee chain shops are emerging in UK market whether as a
new branch or through franchise.

Analyzing the above data, just 14.9% customers do not bother to buy a coffee form
unbranded coffee shops(local cafes). The market share for non branded coffee shops
worth nearly a billion pounds. Therefore , ACLR can target this local cafes which need
the roasted coffee beans.

However, there is an indicator of the impinged economy on coffee market, the
customers willingness to pay when they visit a shop has down . The spend per visit is
lowered to 3.18 (in 2011) from 3.50 ( Allegra Research).

Although it has great opportunity , there are some barriers that could be face by ACLR.
One of the problem is machinery and plant. The coffee roaster in general cost 20,000
(though depends on quality) . Though ACLR , do not directly import the beans from the
Africa and South America, the political and economic fluctuation can adversely affect the
green beans. This will also result in trade barriers . As a result, ACLRs suppliers have to
pay extra amount and time which has impact on ACLR also.

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4. Marketing Strategy

Any business is set up with an expectation of profit and expansion in the market. To
achieve this, company must establish a market with high quality product, skimmed price
and effective customer satisfaction which is indeed the most crucial aspect of any
marketing strategy. An investment is made with the expectation of certain projected
return on investment, which can only be achieved through the marketing strategy which
highlighted the customer wants, market growth rate , competitors analysis .

4. 1 Consumer Analysis

Consumer are the important factor for any marketing process as the main function of the
marketing is to identify, anticipate and satisfy the customer requirements ( Chartered Institute
Of Management). The consumer analysis provides the suitable information about the needs and
wants of the product.
The consumer for ACLR are the local cafes and the coffee conscious people. Different people
have different preference for the coffee. As ACLR mainly aims in providing the variety of coffee
beans from the worlds best places, the coffee conscious consumer are aware of the nature of
high quality coffee beans which depends upon the roasting temperature, the altitude in which
coffee is grown etc.

The products offered by ACLR would be the low involvement product where decision making
process is simple and less riskier because of its price factor. Consumer s decision process is
mainly influenced by the high price, the degree of products benefit and products psychological
reward which is on the high involvement product.

The significant difference in ACLR products would be experiment , random choice as it provide
variety of beans. The minor difference would be the costumers selection of cheapest one,
baseless loyalty . If these minor and significant differences in consumer is analysed periodically
and benchmarked its limitation then ACLR can change this low involvement product into high
involvement product.

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4.2 Marketing analysis

The main objective of the marketing analysis is to find out the attractiveness of the market and
the factors that create market to be turbulent ,and to identify the strengthens and
opportunities to overcome such turbulence.

The relevant product market has to be analysed properly as it switch the costumer to shifts
towards other product because of the products price and characteristics. The costumers can
easily interchange or use substitute product like other affordable coffee brands like Costa,
Starbucks or even grounded Sainsburys / Tesco coffees. Therefore to create and maintain
competition in the market , ACLR will analyse the relative market consistently.

In order to enter into the highly competitive market as a new firm, ACLR concentrate on the
competitive factors within the industry. ACLR will provide the high quality of coffee beans in
the affordable price . To institutionalise this , it will adopt every possible advertising process
and effective research and development.

The competitive analysis provides the business to draft the strategy on long term basis. Strategy
is not an abrupt decision and hence, in order to achieve its long term vision , business must
identify the business trend of its competitors and should relate it to the business.

SWOT analysis of the ACLR

Strength
The strength of ACLR is its variety of coffee beans and coffee appliances under the same roof.
The coffee beans offer by ACLR range from 250 gm to bulk purchasing. So, its product involves
in the low involvement purchas1e to high involvement purchase. ACLR has a strong ethical
mission of using ethically sourced green beans.

Weakness
The weaknesses of ACLR is its brand. Its a new business in the traditional mature market.
Customers are not aware of ACLR brands. Coffee business requires a fast innovation. The
customers will not be happy for having the same taste of the coffee for a long time. Hence,
research and development has to be carried out by introducing new coffees, blending different
varieties for better taste. This is an expensive process.

Opportunity
London has a long history of coffee and tea. Its a tradition of having coffee and tea . So, if ACLR
is successful to achieve its mission statement or continuing providing quality products then it
can easily expand its business. As earlier stated, the coffee market in United kingdom is
increasing by 12.9 % every year (The Allerga Research).The coffee market is equally growing on
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other parts of the UK as well. So, the experience gained in London business can be used when
the company decides to expand its business.

Threat
The world economy is shrinking . As a result , financial downturn, unemployment , inflation has
rose and hence the people are compelled to save every penny. According to Allerga Research
Group, the spending power of a customer has reduced to 3.18 on 2011 from 3.50 on every
visit to the coffee shop.

4.3 Distribution Channel Analysis

The coffee beans when roasted are bagged up in the water resistant plastic bag and are kept in
the wheel box which has several layers on it. This actually minimise the space and hence more
coffee can be kept in the small place. Secondly, these coffees are supplied to the cafes on the
van. These products are also supplied to different wholesalers, retailers.

a. Development of Marketing mix

Product : The products of ACLR are mainly the ethically sourced coffee beans. Coffee
kits , ceramics mugs, chemex, coffee grinder, aero press , filter papers . It will also
introduce different new products that will fit in the line extension.

Product differentiation : ACLR consciously focus on the product differentiation as it
distinguishes its product from the market. Some of the differentiated features are :

1. Feature : High quality coffee beans and appliances are provided where the beans are
roasted in highly advance technical method.

2. Reliability : ACLR accepts any products returned back if customers are not satisfied with its
products. Coffee beans if found no fresh, over or under roasted then ACLR will not only
refund their money but also provide extra cash depending on their purchase. Breakable
items such as ceramic mugs, chemex guarantee is not provided.

3. Packaging : Freshly roasted beans are then bagged into bag which has ACLR brand logo with
websites with telephone number.

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4. Sizes : As ACLR provides its beans from 250gm and a kilo bag. Quantitatively customer can
choose for minimum purchase ( low involvement product) to bulk purchase ( high
involvement product ).

Product strategy under different PLC stages

During the introduction phase , ACLR will assure the high quality as it leads to the brand
development. No one will buy its product if the taste at first is worse. It is a compulsory
to assure high quality. During the growth stage , ACLR will be analysing the weaknesses
that have been identified so far. This phase reinforce the brand so, identifying the
weakness will result in the possible solutions during the decline stage. During the
maturity phase ACLR will adjust the product features and finally on decline stage those
solutions identified on growth stage will be used to modify the features.

Promotion :
ACLR mainly focuses on the pull strategy where different promotional tools will be used. Some
of the promotional tools are explained as below :

Advertisement : ACLR will use television , radio for the advertisement whose main
objective is to cover mass customer. Advertising process has a goal of reach and
frequency which are key quantitative measures. Reach is the percentage of target market
who view ACLR advert and frequency is the number of times they saw or heard. Reach
X Frequency = Gross Rating point (GRP ) and the sum of GRP makes total rating
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point (TRP) , which will finally analyse the customers covered by the advertisement. But,
high GRP do not guarantee the sales.

Personal Selling : ACLR has direct relation to the customers , personal selling could be
beneficiary to the ACLR. According to the Professor A. Derek ( University of Virginia ),
personal selling is a problem solving and consultation process. But , ACLR has to take
this into account that , this process is expensive because of high cost of labour and
commission paid.

Sales promotion : The sales promotion method that ACLR will be using are explained
as below :

Coupons : ACLR will introduce a coupon system which are the direct way to price
reduction and encourage the customer to trail purchase , which could finally results in the
brand loyalty.
Refunds : Refund policy accelerate the normal consumer purchase cycle which encourage
customers to make stocks.

Samples : The taste of coffee can be identified in the taste of few shots of the coffee. So,
its an opportunity to introduce a free sample of beans which wont exceeds than 50gm. It
reduces buyers risk of trail.

Trade directed sales promotion: ACLR can also promote through the trade shows or
point of purchase display (POP).

In store demonstration : ACLR can demonstrate the coffee roasting process by trained
exert to make customer attraction.

Public Relation : Promotional tool that broaden the audience is the public relation hence,
it explain the firms action . ACLR can sponsor in different events programme , and can
initiate the viral marketing publicity which is two edged sword.

Direct Sale : ACLR can start direct selling process through internet , junk mails .
According to , The Guardian published on 28
th
October 2010, the internet business in
UK worth 1 Trillion which means internet business has wider scope in London.

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Promotional strategy at each PLC stage

During the introduction phase ACLR will focus on the brand awareness programme which is
indeed a brand development. Secondly, it will provide the information of the brand to continue
its growth. In the maturity stage ACLR will promote in a way to differentiate the brand from the
competitors in order to reposition the brand. Finally, in decline stage it will promote to educate
the changes for brand modification.

Place : The place provide the appropriate channel to fit the product and the
intended buyers. Actually , it is a marketing channel which is a set of
interdependent organisation that make the product available for the
consumer (Kotler et al 2010).

ACLR will directly maintain a relationship with the customers which is
production to consumer distribution strategy. This is a cost effective
approach. As ACLR is a newly started business it is very important to build
up a direct relation with the customers. This will create a quick response to
the customer and hence better customer satisfaction can be made. Later,
when the business is stable , ACLR can adopt different other strategies.

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Distribution Strategy on different PLC stages .

ACLR will build distribution network as the distribution is slowly build up in
introduction phase. During the growth stage, ACLR will solidify the relationship with the
distributor where small trade discount will be given to attracts the bulk purchase for the
stock. In the maturity stage, maximum trade allowances will be given to maintain the
relationship . At last in decline stage, ACLR will focus on re-establishing and delivering
a new version.

Pricing
ACLR will use the market penetration strategy by introducing a low price to gain the
market share. The main goal of this strategy is to lower the cost per unit by producing
many units with an expectation of controlling a market as a low cost producer. So,
initially ACLR coffee will cost 4.00 for 250 gm espresso blend and 14.00 for a kilo
bag espresso. Other than espresso blends , like single origin , Baalmaadi, Kilimanjaro ,
Zamronaa will cost 6.00 for 250gm and 22.00 for a kilo bag. This price are the market
entry price which is comparably inexpensive than the competitors. These pricing has
very less profit margin aiming to cover all the operating and administrative expenses.
Pricing Strategy on PLC stages
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Initially, ACLR will follow the market penetration strategy which will make ACLR
product to be affordable . Secondly, the strategy to meet competition will be adopted to
gain or retain the market share in a competitive market. In maturity stage, will use the
price deals to give continuity to maturity. In decline stage, ACLR will pull the customers
by providing different schemes like discounts, buy a kilo bag coffee and get 250gm for
free. The main objective is to obsolete the coffee beans produced in maturity stage.

4.5 Critical Risk

Any business will face a number of critical risk which should be identify in the business
plan. ACLR has identified couple of business risk which is as below.

No Operational History
ACLR has no operational history . No matter how effectively the
management has been created, a company with no operational history will
lack an experience in terms of cycle time (which is a time needed for a
company to convert its idea into a new product), inventory holding,
scheduling .

Financial Projection
The financial standards of any company is affected by various aspects, but
while drafting financial projection , an analyst simply ignore those aspects.
During 3 years projection thousands of changes could occur which has direct
relationship with the business. Inflation, interest rate, unemployment rate,
government regulations are highly sensitive and hence change very
frequently. How can a business be so sure of its projection when there is
Europes down economy, BRICS economic slump, change in worlds politics,
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which brings an adverse effect in material cost, inflation, interest rate.
Financial projection do not measure the qualitative condition of any
business.

Limited Budget
The capital employed for ACLR might not meet the desired objective and
hence extra cash injection may required.

5. Business Operation
The business operations of ACLR begins after the raw beans are received from the
supplier. Then , these beans are roasted systematically through the coffee roasting
machine. The time period for one batch(10-12kilos ) roasting will take approximately 15-
20 minutes . The different key terms for the business operations are explained below :

a. Quality : The company like ACLR which is entirely new when entering to the market,
the high quality of its product is compulsory. ACLR will not compromise in quality.

b. Location : ACLR will operate in Central London though the rental is expensive . As
it is convenient for the customer, suppliers, ACLR have chosen Victoria which is
also one of the busiest place in London.

c. Amount of space : For operational process ACLRs space is 30 x20 (feet) and 20 x 20
(feet ) for shop.

d. Rental Charge : The rental charge for all the premises is 3000 per month
excluding all other related expenses like electricity, water .

e. No. Of employees : Initially , ACLR will employee 3 technical expert, 3 business
administrator in top management, operational manager, finance manager and
marketing manager, 1 supervisor and 3 semi skilled worker.

f. Pay structure and allowances : ACLR believes that pay is one of the important factor
for motivation. Hence, it will pay 7.50 per hour for the semi skilled worker and
receptionist . For technical and administrative experts , it is negotiable as per their
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experiences . ACLR strongly believe that the employees are the pillar for any
company and therefore will maintain strong relation between management and the
employees for high efficiency .

g. Production Capacity : Technically , the roasting machine in ACLR could roast up to
10-12 kg coffee at a time in half an hour. So, the production capacity is very high.
The greatest limitation in coffee business is , the coffee once roasted should be
consume within 15-20 days. If not, then the quality of the beans ruins. Once the
ACLR is developed , it could adopt just in time roasting process. The beans will be
roasted only when the orders are made . Since , the roasting time is not so long,
300 kilos of coffee can be roast and delivered to the customers after 3-4 hours of
ordered made. This will develop in the unique selling proposition of ACLR.

h. Inventory : The storage of the green raw beans can last for several months without
loosing its properties . As a result, ACLR can make an inventory of 500-1000 kilos
raw beans. Once it is roasted, it is bagged into 250 gm bag and a kilo bag. In such
bags, the brand logo of the ACLR and the date of roast will be stamped.

i. Supplier : The suppliers will provides the minimum order an European pallets ( 600-
750) kilos of raw beans which costs around 4000-5500 depending upon the
qualities of the beans ordered. The full description of ACLR suppliers are listed as
below:
Mercanta : The coffee Hunters, speciality Coffee Merchants. It was founded in
1996 and they supply the coffee beans from 15 different nations .
Merchanta Ltd
2 Princetor Mews
167-169 London Road
Kingston Upton Road
United Kingdom, KT2 6PT
+44(0)2084397778

Drury Tea and Coffee
It was established in 1936. The materials to ACLR to this company would be
coffee kits like , coffee hand grinders, paper filters, cafeteria machines, coffee
chemex and so on.
Drury Tea and Cof0fee Ltd
Unit 15 Rich Industrial Estate
Crinmscott Street
London
SE1 5UF
+44(0)2077401100
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6. ACLR Team

Management Team : The members which are integral unit and transfer the concept of
leader effectiveness with the specific roles and responsibilities in the organization is the
management team. ACLR management teams will have diverse experience in different
field, strategic leadership and are highly motivated.

CEO

Operational Manager Financial Manager Marketing Manager

Supervisor

Line Workers Line Workers Line Workers

Figure : ACLR management Chart

Operational Manager : The main role of operational manager is to design, manage and
improve the operating system which is coffee production system. Process, quality,
capacity and stocks are the main elements in the operational level which has to be handle
by operational manager. Coffee sampling, new blending, new coffee taste which are the
part of the innovation has to done by the operational manager. The Research and
Development process has to be done by the operational management. ACLR do not
directly invest on Research and Development , as it is not complex process for coffee
industry. The operational manager must have a minimum of 5 years of experience in the
related field. Remuneration is negotiable and on the basis of skills, experience and
education .

Financial Manager : The main job of the financial manager is to analyse the financial
condition of the ACLR. The role and responsibilities of a finance manager will be
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monitoring cash flows, managing budgets, minimize financial risk and so on. The finance
manager must have a minimum of masters degree in finance from a University, and also
must have a minimum of 5 years of experience. Remuneration is negotiable.

Marketing Manager
The marketing manager will analyse the market trend in the coffee market. Customer
needs and wants will be monitored by the marketing manager. Some of the roles and
responsibilities are researching market opportunities, developing strategy , and so on.
Marketing manager also must have a masters degree with marketing specialist, with a
minimum of 5 years experience.

Supervisor
The supervisor will be supervising the line workers. The main roles of the line workers is
to weigh up the beans, accessing all the materials that are required for the production.
The role of supervisor is very crucial for the ACLR , because the supervisor is the bridge
between the managerial level and the line worker. So, if any problem is detected, the
supervisor must have to inform the management.

Advisor Teams
ACLR will be advised from the business expert if ACLR do not have any clear directions
to go further . For the business direction , ACLRs advisor team is Wisteria which is an
independent firm of Chartered Accountants, Tax AND Business Advisers . ACLR will
also seek an advice to opt best coffee available in the market. Under that condition,
ACLR has a free advice contract with the suppliers, Merchanta Ltd and Drury Tea and
Coffee for using their product.

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7. Technology
According to the , The Economist(April 21
st
-27
th
-2012), the digitization of
manufacturing will transform the way goods are made and eventually, the third industrial
revolution takes place. This statement indicates the evolution of the technology.
Technology in todays business carries a great significance. In order to run business
especially in the country like UK, without technology seems impossible. According to the
Bill Gates, technology and business are inextricably interwoven. The use of technology
improve the productivity, competitiveness , lower cost per unit ,reduce wastage in a
company. The technology that ACLR will be using is explained as below :

Interactive Voice Response (IVR): It is the telephone technology which enable
someone to interact with the database of the company which provides the
information about the product and services. ACLR will use IVR with an
expectation of minimising the time consumption and expenses. However, ACLR
will provide an options to speak directly with the customer representative in
the IVR application for better interaction under especial condition.

Corporate Portal
Corporate Portal is the generic term for a collection of private computer
networks within a organisation. ACLR will use corporate portal to build up better
communication, knowledge, share company news to the employees.

Online Business through Internet
The UK economy is booming with online business. According to the Guardian ,
the UK online business worth 100 billion. ACLR use the comprehensive
website with information regarding the product and services. Not only to
customers(B to C) who can make purchase of our product but also to the other
companies(B to B) in the same industry with whom ACLR can work mutually.

VESDA Xtralis Smoke Detectors
Prevention is better than cure. Coffee roasting process involves the
temperature of m ore than 200c .Therefore, fire can take place if the
manufacturing process is carried out carelessly. To prevent from such accident ,
ACLR will use effective smoke detection which is VESDA Xtralis , worlds number
1 Aspirating Smoke Detector (ASD). This device will provide the earliest possible
warning if fire occurs.
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VESDA Xtralis ASD.

Coffee Roasting Machine
Coffee roasting process requires roasting machine which can roast a quality
beans in good time. ACLR will use the Probat L12 coffee roaster. This machine
has various capabilities like, it retain more heat, simultaneously roasting and
cooling. Technologically, it has a capacity of 11-26 batch and it has a separate
chaff cyclone which help in cleaning and maintaining the machine.

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Probat L12 Coffee Roaster

Bunn Coffee Grinders
ACLR will use Bunn Grinders which is commercial quality grinder and has a
capacity of three batches per hopper. Some of its features are LCD
alphanumeric display , easy to clean, coffee portions can be controlled at the
right time for right amount.

Bunn Coffee Grinder Commercial Multi-Hopper - MHG

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8. Financial Analysis

8.1 Break Even Analysis
Breakeven analysis is the point at which the fixed costs are recovered from the sale of
goods with no any profit made ( Silbiger , 2005). The breakeven analysis for ACLR is done
below :

Cost () Cost type
Retail Sales price 20.00/kg
Selling Price to Distributors 15.00/kg
Coffee Beans (Green) cost 7.00/kg Variable
Roasting and Processing
Cost
2.00/kg Variable
Packaging Cost 0.50/kg Variable
Logistic Cost 0.20/kg Variable
Spiff Fees 10,000 Fixed Cost
Production tools and
Machinery
30,000 Fixed
Promotional Effort 50,000 Fixed

Breakeven volume : The volume that is required to meet the breakeven point i.e
recovery of sales of good but no profit, is the breakeven volume .

Breakeven Unit Volume : Fixed cost
Unit Contribution
Unit Contribution = Selling Price Variable Cost

Fixed cost = 10,000+30,000+50,000
= 90,000
Unit Contribution = Selling Price Variable Cost
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= 15.00 (7.00+2.00+0.50+0.20)
= 9.70

Therefore,
Breakeven Volume = 90,000
9.70
= 9278.3505 kg Breakeven Volume

Breakeven Pound Sales = Breakeven Volume x Retail Sales
= 9278.3505 X 20
= 185,567 , Retail Sales

Target Volume to yield desired profit (25,000),

Target Volume = Fixed Cost + Profit
Unit Contribution
= 90,000+25000
9.70
= 11855.67 Target Volume to make a profit of 25,000.00

Target Retail Sales = Target Volume x Retail Sales
= 11855.67 x 20.00
= 237113.40 target retail sales.

Revenue Total Cost
Profit
B.E.P
185,567
90,000 Fixed Cost
0 9278 Quantity Sold

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Figure : Break Even Analysis for ACLR
185,567 of breakeven retail sales is just a small share i.e 0.0037% of over 5 billion
market for coffee industry in United Kingdom. However, it will be great achievement if
ACLR could go along with the breakeven because it will be in market share Worthing
over billions.

Though , ACLR has a satisfied breakeven analysis, it has various limitations which need
to be analysed . The sales unit used in breakeven analysis cannot be constant. The
production and sales are not same all the time. The sales of ACLR will have an impact
from emerging competitors in the market which cannot be analysed through breakeven.

8.2 Payback
Payback period is the period that address the length of time to repay the investment. It
has nothing to do with the profit in the company but stresses the capital.
Payback = Initial Investment
Annual Profit
= 90,000
25,00
= 3.6 years
This is approximately 3 years and 7 month. This is a good payback period for ACLR.
However, payback period ignores the time value of money which is very sensitive sector
in any business. It also do not measure total income.

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8.3 Projected Profit and Loss Statement
It is the forecasted summary of income and expenses of ACLR that determines the profit
made in 3 years time period.

Year 1() Year 2() Year 3()
Income 70,000 80,000 100,000
Less Discount (3,000) (3,500) (4,000)
Net Income 67,000 76,500 96,000
Less Cost of Sales (20,000) (24,000) (30,000)
Gross Profit 47,000 52,250 66,000
Less Fixed
Overheads
(7,000) (8,000) (12,000)
Operating Profit 40,000 44,500 54,000
Less Other Expenses (2,000) (2,500) (27,000)
Profit before tax 38,000 42,000 51,300
Less tax

Net Profit
(11,250)

26.75

(12,750)

30,750
(12,825)

38,475

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8.4Projected Cash flow
It is one of the important financial management of a business which plans for the future
cash that is required for the business.

This is only a projected cash flow for ACLR

Year 0
(000)
Year 1
(000)
Year 2
(000)
Year 3
(000)
Investment (90,000)
Revenue 70 80 90
Cost Of Goods
Sold
(20) (24) (27)
Tax * @ 25% (11.25) (12.75) (14.50)
Increase In
Inventory
(10) (12) (14) (16)
Increase In
Payable
(8) (10) (12) (14)
Net Cash flow (72) 16.75 17.75 18.5

Tax Calculation * The tax rate has been assumed to be constant for 3 years,
though its changeable by the Government law.
Year 1
Revenue 70
Cost Of Goods Sold (20)
Margin 50
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Depreciation (5)
Earning Before Tax 45
Taxation @25% 11.25

Year 2
Revenue 80
Margin 56
Depreciation (5)
Taxation @25% 12.75

Year 3

Revenue 90
Margin 63
Depreciation (5)
Taxation @25% 14.50
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Though the financial projections made in ACLR, may not be realistically correct, but
will provide a financial overview. It is forecasted on the basis of certain assumptions so,
inaccuracies can occur due to various internal and external reason.

-80
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
Year 0 Year 1 Year 2 Category 4
Graphical Representaion of Cashflow
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Reference
1. Lancaster. G and Reynolds.P, (2004), Marketing, Palgrave Macmillan.
2. Silbiger.S, (2005), The 10-Day MBA, Piatkus , London .
3. Stevenson.W, (2009), Operation Management , 9
th
Edition , Pearson Education .
4. Heizer.J and Render , B, (2001), Operation Management ,Prentice Hall
5. Wright, J,(2006), Blog Marketing, the revolutionary new way to increase sales, build your
brand and get exceptional result, McGraw Hills Company.
6. Davids.K, (2001), Coffee :A guide to buying , brewing and enjoying, 5
th
Editions, Google E
book.
7. Banks.E,(2007), Finance the Basics , 2
nd
Edition, Routledge
8. Coffee Research, (09-05-2012), Coffee-Coffee Research.org (www.coffeeresearch.org/)
,available from (unknown), accessed.
9. Allerga Research, (14-06-2012), Quality quest keeps coffee sector full of beans,
(http://www.marketingweek.co.uk/quality-quest-keeps-coffee-sector-full-of-
beans/3033917.article), available from (8
th
Feb-2012), Accessed.

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Bibliography
Cartoon.L, (2002), News From Accountancy, The New York Magazine Inc.
Wright.J, (2006), Blog Marketing , The Revolutionary New Way To Increase
Sales, Build Your Brand and Exceptional Result, The McGraw Hill Company.
Reider. R (2008), Effective Operations and Controls for the small privately held
business, John Wiley and Sons, Inc, Hoboken , New Jersey.
Pinson.L(2007), Anatomy of a Business Plan , 7
th
Edition, The McGraw Hill
Company.
Coffee Roasters, (25-05-2012), Coffee Bean Roasting
Machines(http://wholesale-food-and-
beverage.hktdc.com/manufacturers/Coffee-Bean-Roasting-Machine-
Manufacturers/en/6015-1/) , available from (unknown), accessed.

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