SECTION 5.0 OPERATIONAL PLAN
The following section will identify the proposed operational plan for Terra Engineering. Included are the general operating procedures, human resources, insurance, and working capital requirements of the business. Also included is a table outlining the office space requirements, asset acquisition and an outline of Terra Engineering's operational work flow.
5.1 General Operating Hours
Terra Engineering intends to operate Monday thru Friday from 9 am to 5 pm. Terra Engineering will be operational year round.
5.2 Human Resources
Mr. Johnson will be the sole employees of Terra Engineering for the first two years of operation. When additional human resources are needed, Terra Engineering has identified the persons qualified and able to assist on a contract basis for the same rate as the owner. They include:
Mr. Wes Aaron and environmental engineering technician will be sub-contracted to complete work as needed. It is estimated that Mr. Aaron will eventually be hired full time by Terra Engineering once demand warrants growth.
Mrs. Leanne White holds a Masters in Environmental Engineering and will also be sub-contracted to perform work for the company. Eventually, Terra Engineering intends to hire Mrs. White full time.
Mr. Charles Pearson holds a Bachelor's of Science Degree in Environmental Engineering and has a vast technical experience base in the environmental assessment area and will be retained when needed.
Once the business reaches 60% of its operational capacity this will represent 1300 hours, Terra Engineering will offer the above environmental professionals full time positions. Also at this time, an administrative assistant will be sought.
A professional user of Auto Cad will be sought to perform various jobs for the company. It is unknown at this time who will fill this position, however, job advertisements will be put in the local papers and organizations to attract a good pool of respondents.
Once hired, all employees will be covered by the Workers Safety and Insurance Board and covered for Employment Benefits.
5.3 Insurance Requirements
Terra Engineering will have to incur costs for business liability insurance. The estimated cost for this requirement is $4,000 per year.
5.4 Working Capital Requirements
Due to the demands imposed at start up, Terra Engineering will require that the business have sufficient working capital to meet all operational responsibilities of the business for the first three months. It is estimated that the business will need approximately $20,000 in working capital to sustain and ensure the business meets all opening and on-going financial obligations.
Also, throughout the year there tends to be periods of low activities. Consequently, the company will experience financial pressures during these months. While much of this time will be spent developing proposals and marketing strategies, there will be a need to maintain sufficient working capital to cover these periods.
A long term strategy to maintain a positive cash flow during these periods will be to diversify the company and develop environmental training programs for certain communities. These training programs will be given during these months.
5.5 Office Requirements and Asset Acquisitions
Terra Engineering will lease office space on located at:
459 Duncan Avenue, Suite 1003
The office space is leased and will accommodate the necessary office equipment such as computers, fax machine, photo copier, and other engineering equipment. This facility will require an estimated $5,000 to renovate in a style that is aesthetically pleasing to the clients as well as the owners.
These facilities will be leased at $500 per month. In addition, Terra Engineering will require specialized environmental equipment. These are the estimated costs associated with those investments:
The above noted capital purchases will increase work effectiveness, enhance professionalism and will prepare the business for the forecasted demand for services. Further, the equipment may be leased out to partner associates during times of low activity.
5.6 Operational Workflow
As with any consulting firm, the operational workflow for the business is quite uniform and simple to follow. The following is a step by step outline of how contracts are completed on a regular basis:
Step 1: Terra Engineering will respond to a request for proposal (RFP) with a professionally prepared proposal for service;
Step 2: At this point, the potential contract is awarded to either Terra Engineering or other companies which submitted proposals for services. Therefore, communication is made by the contract to the successful consulting firm. If Terra Engineering is successfully selected to perform the work, the contract is then triggered to begin;
Step 3: Terra Engineering will collect a deposit from the client and will begin the project. Deposit values vary depending upon the size and location of the project;
Step 4: Terra Engineering will go ahead and start the project while keeping communication with the client. Once the project reaches 60% - 70% completion, funds will be given to the business by the client to complete the rest of the work;
Step 5: Once the work is completed to the satisfaction of both, Terra Engineering and the client, the final payment for the contract will be made.
The above operational workflow is very standard, easy to understand and within industry's norm.
Terra Engineering will accept cash, cheque and visa payments. These payments are well within industry standards. The business will provide credit to larger account holders. It is estimated that the length and terms of payments are net 30 for all clients. This will allow the business to avoid cash flow problems. Late payment charges are 2% of the projects outstanding balance.
SECTION 6.0 FINANCIAL PLAN
In order to properly start up Terra Engineering, Mr. Norm Johnson has proposed a financing package that includes a combination of owner's equity, government assistance and traditional borrowing. Table #4 illustrates the proposed costs and financing for the project.
Mr. Johnson will make a personal cash equity injection into the business in the amount of $10,200 or 10% of the projects total capital costs. Mr. Johnson will ask that ADCP contribute $40,800 or 60% of the projects total capital costs. Mr. Johnson will also ask that ADCP contribute $12,000 or 60% of the start-up marketing costs and $1,500 or 75% of the identified business support costs. These percentages are well within the programs guidelines and this project meets all eligible requirements of ADCP. Contributions made by ADCP will be in the form of a non-repayable contribution.
The remaining 25% or $17,000 of the projects capital costs will be sought from Mr. Johnson's personal banking institution. It is expected that this loan will be financed over 4 years at 10%. This banking institution will hold lien on the assets of the business as ADCP does not require the assets to be used as collateral. Due to the funding disbursal process of ADCP, Mr. Johnson will require a bridge loan financing for the amount requested from ADCP. It is anticipated that Mr. Johnson will take approximately 1 month to submit a claim to ADCP for the entire amount. This means that Mr. Johnson can repay the bridge loan in month 3.
6.2 FINANCIAL PROJECTION AND NOTES
The following pages contain notes to the financial projections. Also included are a 12 month cash flow projection, 3 year projected income statement, 3 year projected balance sheet, 3 year sources and uses of funds, amortization schedule and a mortgage amortization schedule.
The cash flow of the business remains healthy throughout the first three years of operations. Without the government contribution and loan, the business would not survive. Cash flow must be continually monitored and compared to projections to ensure that operational costs and other expenses were not seriously over or understated.
The business will generate sales by providing a wide array of environmental services. In year one, it is projected that approximately 800 hours will be charged out to market. In years 2 and 3 it is estimated that 900 and 1000 hours will be charged out to market respectively. These sales projections are very conservatively calculated.
Due to the industry, Mr. Johnson will need to retain the services of other specialized people. Therefore, the business will initially receive the monies allotted for these sub-contractors, but then this money will be paid out in full. This is the same for direct travel. The business will charge approximately 5% of each project attained towards administrative fees. This money will be funneled back into the business to cover these costs.
COST OF SALES
In order to show the magnitude of the need for subcontractors and administration costs (IE: travel) and their impact on cash flow, a cost of sales section has been included. It should be noted that Mr. Norm Johnson will bill these costs directly to the client on an actual basis and therefore, in effect cancel out on the cash flow statement. This line has been used to assess the cash flow requirements of the company and to illustrate how Mr. Johnson will flow the money for these expenses. The real sales figure relevant to Mr. Johnson is the billable hours by Terra Engineering.
Expenses were based on the following facts and assumptions.
Marketing Activities and Trade Show Activities
Utilities/Communications/Repairs and Maintenance
Provincial Incorporation Expense
Bank Charges and Interest
Bridge Loan Repayment
Loan and Interest Expense
ASSETS, LIABILITIES AND OWNER'S EQUITY
The assets and liabilities of the business have been well documented throughout the plan. The assistance from federal government departments provides Mr. Johnson with a healthy level of equity. It should be noted that only contributions to the capitalization of the project are included on the balance sheet. Mr. Johnson will not payout any dividends throughout all three years.