Thomson Greenhouse

Business Plan

Prepared for: The Thomson Family

&Marv Painter / Associates

Prepared by:Allison GerhardtTim McMillanReid McBride

Daisy YanIain Smith

Table of Contents

1.0 Executive Summary1.1 The Opportunity………………………………………………………... 31.2 Description of Products and Services……………………………………… 31.3 Differentiation…………………………………………………………….... 31.4 Key Market Drivers………………………………………………………... 31.5 Management……………………………………………………………….. 31.6 Key Financials……………………………………………………………… 4

2.0 Industry Overview………………………………………………. .…………. 5

3.0 The Company3.1 Company Overview……………………………………………………….. 63.2 Market Characteristics…………………………………………………….. 63.3 Mission Statement…………………………………………………………. 73.4 Vision Statement…………………………………………………………... 7

4.0 Operations Plan4.1 Site Development Plan……………………………………………… 84.2 Organizational Structure……………………………………………. 84.3 Hours of Operations………………………………………………… 94.4 Service Providers/Suppliers…………………………………………. 94.5 Operating Expenses, Cost of Goods Sold, Capital Assets…………... 10

5.0 Human Resources Plan5.1 Proposed HR Strategy……………………………………………….. 115.2 Expected Cost of Compensation…………………………………….. 125.3 Training Programs…………………………………………………… 13

6.0 Marketing Plan and Competition Analysis

6.1 SWOT Analysis……………………………………………………… 146.2 The Marketing Mix…………………………………………………... 176.3 Segmentation of Greenhouse Industry………………………………..196.4 Competition Analysis………………………………………………… 22

7.0 Financial Statements Analysis7.1 Financial Overview………………………………………………………….. 247.2 Critical Success Factors………………………………………………………287.3 Sensitivity Analysis…………………………………………………………..287.4 Income Taxes………………………………………………………………....29

8.0 Recommendations……………………………………………….......................30

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1.0 Executive Summary

1.1 The Opportunity

The Canadian Horticulture and Greenhouse Industry recorded revenues of $2.2 billion in 2007,

encompassing more than seven major revenue streams. Thomson Greenhouse, further referred to

as “the Company”, participates in only two revenue streams, resulting in an opportunity to

expand current operations and diversify into other markets. This expansion will require an

operational change from a part-time to a full-time business and a large capital investment in

additional greenhouses to increase both the capacity and variety of the products offered.

1.2 Description of Products and Services

Thomson’s Greenhouse is a small 800 square meter family run business. The Company focus is

on the sale of annuals, perennials, house plants and vegetables to mass market chain stores and

direct public. To stay competitive, sales to the chain stores result in modest margins on products

sold. Sales to the general public show increased margins as the Company has differentiated itself

on quality of goods and service. This has allowed it to obtain, and maintain, a solid market share

in the Regina area.

1.3 Key Market Drivers

Overall, the demand for nursery and greenhouse products is shaped by a broad array of market

forces. A combination of factors such as wellness, fashion/design, home ownership, convenience,

value, ethnicity, indulgence and demographic structures, acting interdependently or independently

influence consumption patterns and demand for nursery and greenhouse products.

1.4 Management

Thomson is being run as a side business to generate secondary income. It is currently co-

managed by Earl and Lisa Thomson, who purchased the business from Lisa’s parents and

relocated it to Regina. The small family run greenhouse plays right into the current market trend

of small owner operated facilities. The family’s goal is to pass the greenhouse business over to

the youngest son, Ryan, so that he can pursue a full time career with the company.

1.5 Key Financials

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A financial analysis is performed on three options in order to assess which alternative bests suits

the qualitative and quantitative needs of our client. One option consists of expanding the

Company to a total of five greenhouses; three commercial and two retail. Under this option, the

Company is projected to operate with significant losses and negative cash flows for the next five

years.

Option two consists of keeping the old greenhouse and building an additional new greenhouse.

One greenhouse will sell to the commercial market, and the other will sell to the retail market

(individual public). The Company is also projected to operate with losses and negative cash flow

for the next five years, with the net losses and cash flow deficiencies becoming worse from year

to year.

The final option consists of replacing the current greenhouse that is becoming outdated, with a

brand new greenhouse. Under this option, the Company is forecasted to operate with losses and

negative cash flow for the next five years, with losses and cash flow improving marginally from

year to year.

In conclusion, only the full expansion option meets our client’s objective to carry the business on

to the youngest son, Ryan, however does not provide enough cash flow and net income to be

considered a viable option.

RecommendationOur recommendation is for the Thompson family to slowly wind-up the greenhouse operation.

This will be a five year process which inevitably leaves the greenhouse as a hobby greenhouse

rather than income producing company. It is suggested that the family either continues to rent out

the farm land, to earn income that can be used to help pay for the son(s) education or provide

additional income. As land is appreciating in value substantially in Saskatchewan another option

is to sell the land in year 5 and recognize the capital gain on the investment.

2.0 Industry Overview

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The Horticulture and Greenhouse industry is a $2.2 billion dollar industry in Canada (see

Appendix E) encompassing more than seven major revenue streams and 21,000,000 square

meters of space (5,200 acres). Revenue streams include sales to retail florists, domestic

wholesalers, mass market chain stores, other greenhouses, and the general public. Revenues even

extend to a large export market, with the growth and sale of greenhouse vegetables being

surprisingly the largest revenue generator. The industry is expansive consuming Canada with a

total number of 3,475 greenhouses that employ just over 41,000 full and part-time staff. The

industry experiences an average growth rate of 4% to 7% annually, which exceeds the average

growth rate of 3% experience by mature industries.

The industry is currently going through an interesting phase as the number of greenhouses

continues to rise year to year, while the square meters of greenhouse space steadily decreases. All

the while revenue grows. One would then have to assume that the trend of the industry is towards

more efficient, smaller, owner managed greenhouses, as opposed to the larger corporate run

structures. This trend is very important when considering the business plan for Thomson’s

Greenhouse.

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3.0 The Company

3.1 Company Overview

As Earl and Lisa Thomson approach retirement and begin planning for the future, it is clear that

they desire to keep Thomson Greenhouse, further referred to as “the Company”, within their

family. The family members of the household have taken an active role in the operations and they

continue to be the salient reason for the success of the business. Lisa’s parents work part-time

which allows the Company to meet the demand of its customers in the busy season. The three

Thomson boys (Derek, Russel, and Ryan) have an attachment to the greenhouse, but as they

mature and graduate they will likely not continue to work for a minimal wage (less than

$3,500/year between the three of them). There is a large capital investment required in order to

maintain the Company in the current year, Earl and Lisa need to choose a course of action for

their family business.

The Thomson’s three options:

1. Replace the existing greenhouse and maintain the business;

2. Repair the current greenhouse, construct a new greenhouse, and slowly increase operations;

or

3. Repair the current greenhouse, begin a slow expansion by constructing four new greenhouses

over the next five years, and continue to diversify operations in the future.

3.1.1 Option 1

The Thomson’s would encounter significant financial difficulties as a result of the large capital

cost of a new greenhouse. With current operations currently turning a meager profit before taxes

of nine-thousand dollars, simply maintaining operations would not produce an adequate amount

of money in order to cover the fifty-thousand dollar cost of a new greenhouse. As a result, the

business would fail to sustain operations for five years and the Thomson’s would be unable to

provide their son(s) employment during the summers.

3.1.2 Option 2

The second option would not give rise to a viable business. Revenues would increase in

correlation with greenhouse capacity however, not quickly enough to cover the rising costs.

Currently, the Company is able to survive due to minimal labor costs; the wages reported on the

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income statement are much lower than labor market standards. Unfortunately, revenues will

simply not increase enough to cover the repairs to the existing greenhouse, the large capital cost

of the new greenhouse, and the increased labor costs to replace the boys. Therefore, the goals of

the Thomson’s would not be achieved under Option Two.

3.1.3 Option 3

The remaining option is to expand the Company at a pace which is quick enough to offset the

increasing capital and operational costs through an increase in growing capacity and revenue.

It is proposed that the Company first repair the existing greenhouse and subsequently construct an

additional four greenhouses over the next five years. Our business plan below will expand on

assessing this Option.

3.2 Mission Statement:

Thomson Greenhouse endures to enrich the lives of its customers by providing friendly gardening

expertise and high quality flowers, plants, and vegetation. We strive to improve your day, by

improving the world, one flower at a time.

3.3 Vision:

To become the largest provider of Greenhouse products in Saskatchewan.

4.0 Operations Plan

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4.1 Site Development Plan

The Company currently owns a twenty acre plot of land and is using less than half of an acre for

their greenhouse. Over a five year period, the business will expand operations to a level that is

more than five times the current capacity by constructing four additional 800m2 greenhouses. In

year one, the old greenhouse will be repaired to extend its useful life an additional five years and

construction of a new greenhouse that will be used solely for commercial operations will

commence. In year two, The Company will be using the existing greenhouse (636.47 m2 of shelf

space and an additional 41.34 m2 of storage room) solely for retail sales. The first new

greenhouse will be complete, which will add 873.75 m2 of shelf space dedicated to commercial

contracts. The shelf space is much larger than the original greenhouse as the new commercial

greenhouses will not contain a separate storage room or customer service counter. Each year a

new greenhouse will be built, thus expanding the total capacity to 3,894.19m2 by year five, which

includes two retail and three commercial greenhouses.

See Appendix A for Site Plans for the Retail Greenhouse and Commercial Greenhouses

4.2 Organizational Structure

Currently, The Company is a partnership with Earl and Lisa at the top splitting up the

management decisions by expertise . Between the two of them, they complete the vital tasks of

the organization (accounting, orders, etc.) and oversee the daily operations of the business. The

only other individuals within the organization include their three sons and Lisa’s parents, Morris

and Anna Slemko, who all work part-time. This structure has been effective in the past, however,

as the company expands and changes, so too must the structure. (See Appendix B for current and

proposed Organizational Structure)

The organizational structure will undergo a change over a five-year period in which the end result

will be The Company as a corporation owned by Earl and Lisa, but being overseen by their

second-oldest son Ryan.

As Ryan desires a more active hand in the business, he will become more involved as he matures.

He is currently going into university and will work part time during the year as well as working

full-time over the summers as he works towards a business degree. With some formal education

and business experience with the greenhouse, Ryan will be completing university in year 5 and

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ready to move into a full time role. This will occur as all five new greenhouses become

operational and moves into smoothing the seasonality of their revenues by selling vegetables

during the winter months.

Earl and Lisa as common shareholders will also act as advisors to the business. The other two

boys, Derek and Russel, will continue to be involved in the direction of the family business by

means of consulting. This role will be completed in addition to the individual career paths chosen

by the boys, as they will have a vested interest in the family business as preferred shareholders.

New roles within the organizational chart will include University of Saskatchewan and University

of Regina horticulture and agriculture co-op students, and staff members, see HR section for

details.

The move to incorporate The Company should occur once it begins to turn a profit, as these

amounts will be subject to tax at the small business rate and can be reinvested in the company as

opposed to being distributed amongst the partners and taxed at their individual rates. In addition,

it will facilitate the gradual transfer of the family business to the three boys as desired by Earl and

Lisa with numerous options regarding the transfer of common vs. preferred, or voting vs. non-

voting shares depending on their wishes.

4.3 Hours of Operations

During the busy season (May to August), the retail store will be open to the public from 10 am to

6 pm Monday, Tuesday, Saturday and Sunday. On Wednesday, Thursday and Friday, the store

will be open from 10am to 9pm to provide more flexibility for the busy consumers.

During slow season, retail operations hours will be 10am to 6pm Tuesday to Sunday. The store

will have extended hours on Thursday evenings by opening until 9pm. Mondays will be

designated as an off day, in addition, stores will be closed on all provincial and federal holidays.

4.4 Service Providers/ suppliers

The company will continue to employ previous service providers and suppliers in maintaining its

new greenhouses. Earl and Lisa will continue with their current process of inventory ordering

system and supplier quality monitoring as it has proved to be successful in the past.

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4.5 Operating Expenses, Cost of goods Sold, Capital Assets

See Financial Statement Analysis Section

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5.0 Human Resources Plan

The Company has traditionally been a family-run operation, during the busy season, Thompsons’

three sons work in the business and their earnings are used to help finance their schooling.

During the busy season, Lisa’s parents, Morris and Anna also help out. Current wage expenses

are $6,150, these are paid to the three sons and Anna and Morris for their work during the

summer. Our business plan calls for a slow expansion with the addition of one greenhouse a year

for the next five years. These include three new commercial greenhouses in year two, three and

four; one new vegetable greenhouse in year five along with renovation of the existing greenhouse

to take place in year five. Since most of the addition involves moving towards the commercial

market, retail sale to individual customers is expected to remain consistent with prior years.

The addition of wholesale greenhouses will result in the need for additional staff to meet

increased demand and workload. The greenhouse industry attracts horticultural enthusiasts, who

enjoy working in a horticultural environment. Starting salaries will be slightly avove minimum

wage, while raises and small bonuses will be offered with annual performance reviews. Our

proposed HR strategy is outlined below:

5.1 Proposed HR Strategy:

Year 1 Year 2 Year 3 Year 4 Year 5

No additional Staff

2 Additional co- op Student

2 Additional co- op Student

Additional full-time Staff member

2 Additional co- op Student

 

Additional full-time Staff member    

Ryan to work full Time

Note: Co-op students explained below

Proposed Staffing Plan:

Title Year 1 Year 2 Year 3 Year 4 Year 5Owner Manager (Lisa & Earl, Ryan) 2 2 2 2 3Staff member (family help) 4 4 4 4 1Co-op Students 0 2 4 4 6Staff member (Full-time) 0 1 1 2 2   Total Number of employees 7 9 11 12 12

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There will be no need for additional staff in year one as the first of the greenhouse additions will

be operational in year two. It is assumed Derek will no longer work in the greenhouse as it is

likely he will pursue a career after graduation from University and he has not shown interest in

managing the Company. We have kept Derek in the organizational chart as he will be a valuable

member of the business as he could be called upon to offer consulting advice. The Company will

continue employing Ryan, Russell, Anna and Morris to continue to work part-time to help out

with the business, however as the grandparents are approaching old age, we will assume that they

will be less involved in the business starting year 4 and stop by year 5. The primary

responsibilities of Lisa will be overseeing the daily operational functions; these will include over-

seeing the horticultural harvesting, nutrition and greenhouse environment. Earl will continue to

look after financial matters of the business. Both will share the responsibilities of supervision.

5.1.1 Horticulture/Agriculture Co-op Program

We propose the Company hire co-op students currently/interested in enrolling in the college of

agriculture within the University of Regina and University of Saskatchewan; these students will

be knowledgeable about horticulture and will be eager to work in an environment that can offer

them a valuable experience. Co-op terms will be 4 months long: from April to August. Co-op

students combined with full-time staff members will be employed in Years two to five to fill the

work demands. They will be expected to perform a variety of jobs from harvesting, planting,

servicing customers, clean-up etc. Discussions with both Universities have already begun to take

place and there has been great interest in pursuing this business arrangement by all parties.

In year five, Ryan will graduate from the University and begin working full-time at the

Greenhouse, through his experiences in prior years, he will be able to take on a managing role in

the daily operations of the Greenhouse, thereby leaving more free time to Lisa and Earl, who will

continue to oversee the business, especially the financial aspect. The financial position will

continue be run by Earl until the time he is ready to pass the business onto his sons.

5.2 Expected Compensation Plan:

Co-op Students $6,400 /summerStaff members $20,000 /year   Ryan - Operations Manager $50,000 /year

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Projected Costs

Year 1 Year 2 Year 3 Year 4 Year 5Owner Manager (Lisa & Earl) - - - - 50,000 Finance/accounting personnelStaff member (family help) 6,150 9,344 9,420 11,641 8,623 Co-op Students - 12,800 26,240 26,896 41,353 Staff member (Full-time) - 20,000 20,500 43,076 44,153    Total 6,150 42,144 56,160 81,613 144,128 - Wages were adjusted for inflation @ 2.5% per year

Wages will be determined as above, we did not take into consideration CPP, EI and workers

compensation as the amount would not materially affect the business plan. Lisa & Earl will not

be given annual wages as they will be able to draw dividends from the after tax income earned in

the year. Families working during the summer has been traditionally been paid minimum wage,

given the labour shortage, we need to allocate a more reasonable wage to the sons helping during

the summer, therefore, we have raised wages to bring it closer to the industry average by the end

of year four, this is desirable in retaining the sons help as the grandparents will begin to phase out

their help in year four.

5.3 Training Program

New employees will receive basic training from Lisa and Earl; these will include basic work

place safety, daily operations and expected duties/responsibilities. Since Thompsons Greenhouse

is a small operation, employees will be encouraged to seek help if they have any questions or

concerns, and they will be able to get timely feedbacks from Lisa and Earl. Performance

evaluations will be reviewed on an annual basis; at which time raises will be considered.

Employees will also be able to work in both wholesale division and retail division, which will

provide job rotation and add variety to their job experience.

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6.0 Marketing Plan

6.1 SWOT Analysis

An analysis of strengths, weaknesses, opportunities and threats (SWOT) must first be assessed in

order to determine the marketing plan to be implemented.

6.1.1 Strengths

The Company is a family owned and operated business, founded 17 years ago by Earl and Lisa

Thompson. The Company has been successful in establishing a name for quality products and

good customer service. The Company has therefore projected a strong sense of brand recognition

and loyalty to its customers. This leads to consistently strong sales, due to the returning customer

base. The Company is therefore able to charge a premium price as compared to industry averages

on sales per square meter, at $55 per square meter for individual sales, and $21 per square meter

per commercial as noted in Appendix L. Industry averages were $44 and $18 respectively

(Government of Ontario, 2008).

Even though the business was founded as a second source of income for the family, it has been

successful in operating with a profit, and is viable as demonstrated by a favorable current ratio of

3.6:1 (current assets divided by current liabilities) and debt to equity ratio of 0.01:1 (liabilities

divided by equity) (Balderson & Clark). This indicates that the company is in a favorable

liquidity position, and is able to repay its current obligations without difficulty.

A final strength is that The Company has been able to diversify into numerous product areas,

such as bedding plants, vegetables, annuals, perennials, and specialty plants and arrangements.

This enables customers to choose from a wider array of product, therefore increasing their

chances of making a purchase. It also attracts customers with various preferences; such as those

who wish to plant shrubs and trees as opposed to purchasing indoor flower arrangements.

6.1.2 Weaknesses

One weakness that currently exists at the Company is that Ryan, who is interested in taking over

the family run business, is currently in Grade 12 and will therefore not be able to manage the

business until the fifth year. This is a concern for The Company, given that Ryan may change his

mind about his future career aspirations as he continues his education in University, thus making

it difficult to keep the business within the family. This is also a concern for the Company, since

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Lisa will need to take a leading role in the business until Ryan is ready to take over, and Lisa has

never before the Company as a full time business – especially through an expansion.

A final weakness is that The Company is a small, family owned business that earns income on the

side. Salaries paid to the family are very low, and profits are also rather low. Therefore, in order

to make a sustainable living solely from this business, significant organizational changes will be

required.

6.1.3 Opportunities

Research has shown that individuals between the ages of 55 to 65 spend more on horticulture

than any other age group (Francese, 2002). With the baby boomers aging (individuals born in the

post-World War II period between 1945 and 1965), spending on plants and flowers will surge in

the next few years (Wikipedia, 2008). This is an opportunity for The Company, since it will be

able to capitalize on this opportunity by increasing profitability and allowing for larger salaries to

be paid.

Another opportunity for The Company is the strength of the Saskatchewan economy. In 2007,

Saskatchewan was one of the leading provinces in Canadian GDP (Gilbert, 2008). This strength

in the Saskatchewan economy has led to the fastest growing real estate market in Canada for the

2007 year (Calder, 2008). Combined, this resulted in an increase in residential homes, and an

elevated level of income. Both are opportunities for The Company given that additional funds

can be spent on new homes purchased by Saskatchewan residents.

Currently, The Company is selling its product to mass market chain stores such as Wal-Mart and

Canadian Tire, and directly to the public. As shown below, a vast market exists in Canada for

greenhouse sales, comprised of seven streams of revenue, totaling $1.5 billion dollars, not

including vegetable sales (Government of Ontario, 2008). The Company is only selling to two of

those seven areas, thus only tapping into 42% of the market. An opportunity therefore exists with

respect to all the other un-targeted revenue streams. The Company could capitalize on this

opportunity by targeting additional segments of the market that are currently being neglected.

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6.1.4 Threats

One threat that is present for the Company is the threat of competition. As shown in Appendix D,

there are numerous competitors in the industry, consisting of other greenhouses, cross-national

chain stores, and retail florists. The numerous competitors make it difficult for the company to

secure sales to the general public, and to obtain contracts with commercial consumers. The threat

of competition is therefore assessed at a high level, thus decreasing potential sales.

Another threat for The Company is unfavorable weather patterns. Regina, Saskatchewan is a city

that experiences rather extreme weather patterns, ranging from negative 30 to positive 30 degrees

Celsius. There are few plants that can succumb to such temperatures. This is a threat for The

Company, given that some product will be grown outside the greenhouse itself, therefore being

directly exposed to the climate. Unfavorable or unpredictable weather patterns can damage the

product, thus resulting in high spoilage and decreased sales. Note that a spoilage factor was

considered in our financial analysis to account for this threat.

An increase in direct costs, such as soil, fertilizer, and pesticide costs are also a threat to The

Company, especially in a very strong economy such as that of Saskatchewan. If suppliers raise

their prices as a result of the favorable economic situation, profit margins will suffer.

A final threat is that of disease or pests. Plants and vegetables are prone to being destroyed by

numerous indoor and outdoor diseases, and by rodents and insects. This risk can be mitigated by

pesticides and therefore is not considered a serious threat unless pesticide prices increase and The

Company reduces their usage. In addition, plants and vegetables will be inspected daily in order

to prevent infestation.

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6.2 The Marketing Mix

In response to the SWOT analysis above, we have formulated a marketing mix that capitalizes on

The Company’s strengths and opportunities, while mitigating its risks and threats.

6.2.1 Products

Over the course of the next five years, The Company is going to build an additional four

greenhouses, and repair the old existing greenhouse. There will be two greenhouses that sell

directly to the general public, and three greenhouses that sell to mass market chain stores,

domestic wholesalers, and florists in order to capitalize on the un-tapped revenue streams

identified in the SWOT analysis. Out of the two greenhouses that sell to the general public, one

will be a vegetable greenhouse open all year round in order to generate some sales throughout the

winter months. The greenhouse will sell tomatoes, cucumber, peppers, broccoli, lettuce and other

leafy vegetables, basil, oregano, dill, coriander, mint, chives, and other spices. The other

greenhouse will consist of full service garden centers selling annuals, perennials, small trees and

shrubs, pots, and other gardening accessories.

The three greenhouses that will sell to mass market chain stores, domestic wholesalers, and

florists will sell the same product as the greenhouses that sell to the individual public (annuals,

perennials, small trees and shrubs, pots, and other gardening accessories).

All products sold will be of premium and high quality. Organic soils, high quality fertilizers,

automated watering systems and fertilizing systems, brand new greenhouse facilities, and

educated, friendly, up-beat and fun staff members all will enable The Company to charge a

premium price. Customers will pay a premium price for high quality product with exceptional

service.

6.2.2 Pricing

The prices charged by the Company will be approximately 25% higher than those in the industry.

As noted in Appendix E, the sales price per square meter is $55, as compared to $44 for the

industry. Higher prices will be charged given that The Company will be positioning itself as a

premium product provider with high quality sales service. Refer to Appendix D for a competitive

analysis including pricing for The Company’s competitors. Customers will also be willing to pay

a higher price, given that currently there is an absence of premium-positioned greenhouses in

Regina, Saskatchewan. A newly premium-positioned greenhouse, in combination with a strong

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economy, increased disposable income, and an aging baby boomer population will appeal to

consumers, and therefore they will be willing to pay a higher price than that of competitors.

6.2.3 Promotion

Our promotion strategy will be focused on our high quality product and sales service approach.

The Company will develop a website outlining company information, product offered, and

current events to be attended by the Company. This website will help promote The Company’s

new image, given that previously, word of mouth was the main source of promotion. In addition,

flyers and advertisements in the local newspapers will also be featured. This method of

advertising will properly target the aging baby boomers, who prefer traditional forms of

advertising as opposed to website or virtual advertising. See Appendix F for our proposed

Website.

With regards to current events, The Company will increase its image and presence in the

community by attending events such as the Lilac Festival, and other charity functions. The

Company will also participate in gardening workshops at The Company’s premises, in order to

promote, encourage, and teach individuals gardening and gardening tips. Again, this will help

endorse The Company’s new image.

In order to have a high energy, fun, but yet educated staff base, The Company, together with the

University of Regina and the University of Saskatchewan will partake in a Horticultural co-

operative educational program (co-op program). The co-op program will enable Horticulture

students from both Universities to work full time with The Company during the busy summer

months. This way, The Company will be employing young, energetic, enthusiastic individuals

who are also knowledgeable in the horticulture field.

6.2.4 Place

The Company’s location in Regina is favorable, given that there are numerous small town and

municipalities that surround it. It is also a government city with a high percentage of individuals

close to retirement age, therefore hitting the prime age group for horticultural spending as

identified in the SWOT analysis.

As noted above in the “products” section, there will be a total of five greenhouses selling to

numerous market segments in order to capitalize on the un-tapped revenue streams. Products will

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be sold either directly to the general public, or to mass market chain stores, domestic wholesalers,

and florists. The website will be for advertising purposes only; no sales will be generated online.

The target market will be segregated into the primary, secondary, and tertiary segments as further

noted in this business plan.

6.3 Segmentation of Greenhouse Industry

The Greenhouse industry can be segmented into providing services to the market through the

following channels: Sales to retail florists, sales to domestic wholesalers, sales to mass market

chain stores, sales to other greenhouses, exports, direct sales to public and other channels. The

Company, in the past, has earned revenue primarily through direct sales to public and secondarily

through sales to mass market chain stores. This market diversification was suitable to the volume

produced.

Three options have been presented as to how the Company could continue running its business.

Options 1 and 2 would continue to focus on the two revenue streams addressed above. Option 3

aims to diversify the revenue streams further to take advantage of additional opportunities

available; such as increasing the contracts with mass market chain stores, begin selling to local

florists and selling to domestic wholesalers.

6.3.1 Demographics of Regina, Saskatchewan

Location of Thompson Greenhouse: Regina, Saskatchewan (Wikipedia, 2008).

Population of Regina: 179,246

Age Structure:

0-14 years: 20%

15-64 years: 67.5%

65 and over: 12.5%

Mean Household Income: $46,487

Median Age: 35.8 years

An analysis of the age structure (above) shows that the majority of individuals are between the

ages of 15-64, with a median age of 36 years old. This shows potential for the Company due to

the following:

Target market exists of individuals from the age of 40 – 65

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When the full expansion of the Company is complete (5 years) the median age will have

increased to 41 years old, resulting in an increased number of potential customers

Saskatchewan is going through an economic “boom” period which the end result will be

increased population base

Beyond Regina there are numerous farm towns surrounding the city. Appendix D shows a map

of Regina and the surrounding area to visually present the additional segments Thompson

Greenhouse can market to including: Deer Valley, Zehner, White City, Richardson, Kronau,

Drinkwater and Belle Plaine; all of which are within 50km’s of Regina.

6.3.2 Positioning

The Company has been a provider of high quality bedding plants. Vegetables, annuals,

perennials, and specialty plants and arrangements, the business also offers a two acre tree nursery

and garden offering a wide range of trees from pines to fruit trees. The potential to increase all of

these products exists as Thompson Greenhouse is positioned with the resource of an additional 15

acres of land. The Thompson family has the ability, knowledge and customer base to increase

marketing efforts and capture greater market share in the greenhouse industry surrounding

Regina, Saskatchewan. The concerns addressing the family are the eventual transition of the

business to son(s), financing difficulties and obtaining additional commercial contracts. The

transition to the son(s) is a simple tax matter that can be discussed at a later date, the financing

issues have been addressed in the Financial Plan presented in this business plan and obtaining

additional commercial and individual customers can be done through a re-branding exercise to

help distinguish what the Company is to their customers, a positioning statement and website to

open up Thompson’s to the worldwide internet. Please see website extracts in Appendix F.

It is important for the Company to increase sales to commercial/wholesaler distributers. The

Thomson family will continue to market to their existing commercial customers and add

additional contracts through continuing market efforts in and around Regina. There will be a

special login on the Company’s website for commercial customers which will show the different

price points of products and contact information.

6.3.3 Re-Branding Thompson Greenhouse

A positioning statement will allow your customers to know what the company is, what it offers

and the integrity of its owners. Thompson will likely be perceived differently by its different

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target market, i.e. individual vs. commercial customers. To this extent two different positioning

statements have been created:

(1) Thompson Greenhouse: To individual consumers, Thompson Greenhouse is a destination that

will provide a beautiful variety of gardening products and supplies, accompanied with the

knowledge to help even the “greenest” individual create their ideal garden.

(2) Thompson Greenhouse: To commercial customers, Thompson Greenhouse is a supplier of

premium quality gardening products and supplies, whose management has a commitment to

service, timely delivery and possess a passion for horticulture.

The Brand Promise of the Company will enable cliental to know the general positioning

statement in a single sentence. It should communicate the commitment Thompson’s has to

providing excellent product, service and knowledge.

Brand Promise: “Your Growth. Your Success. It’s all we think about!”

6.3.4 Projections of Revenues and Marketing Expenses

Development of Website: A graphic designer and web developer have been contacted and the

estimated cost for the website is $2,000. The company performing this branding work for

Thompson Greenhouse is RFX brand and communications. An example of our webpage can be

seen in Appendix F. The annual website maintenance has been estimated to be an additional $500

a year.

Brochures: Brochures will be distributed to Big Box stores of which we have contracts and

various florists around the city. RFX Brand Communications will be creating the advertising

brochures for us as well as the website. Additional costs for the brochures have been quoted at

$1,000. This will provide Thompson Greenhouse with 2,500 brochures.

21

Flower and Garden Shows: There are annual Flower and Garden shows in Saskatoon and

Regina. The cost to set up a booth at these shows is $1,000. It is assumed that the Company will

only attend the Regina shows as the Saskatoon greenhouse and nursery market is not our target

market; and the competition in Saskatoon is greater than that of Regina.

Gift Certificates (Prizes): To get the marketing program off the ground we have allocated $500

to gift certificate prizes that can be given out to customers for purchasing items and bring a

friend. Gift Certificates will result in a promotional boost to the company to kick off the

expansion and generate growing interest in the Company.

The financial cost of the marketing initiatives should not exceed our projected budget of $5,000.

6.4 Competition Analysis

6.4.1 Primary Competition

Wascana Greenhouse & Nursery

The competitive environment facing the Company in the area surrounding Regina is a moderate

risk. There is one primary competitor, Wascana Greenhouses; the business provides nearly all

services offered by Thompson plus a landscaping service. This does not present itself as a

weakness as landscaping is not a core competency of Thompson and as such there would be little

value in trying to copy Wascana’s business model. Some critical identifying factors of Wascana

have been presented below.

Market Share: Wascana has the largest market share in the Regina region as it is the largest

greenhouse company. With 30,000 square feet of area (2,787 sq meters) Wascana is substantially

bigger than Thompson Greenhouse at its present operational capacity. Upon consultation with

Regina citizens the most commonly visited greenhouse/nursery is Wascana; the reason provided

was the diversity of their selection of products.

Strengths/Weaknesses: Products and services of Wascana are of high quality and well

diversified. The management team is a husband/wife combination who has been running the

Greenhouse since 1975. This signifies the durability, credibility and viability of this business.

22

Sherwood Greenhouses – this greenhouse is of small proportions no greater than 15,000 square

feet of growing area (1,400 square meters). The operation focuses primarily on Perennials,

Geraniums, and Petunia’s. The management team is new as the previous owners retired and sold

the greenhouse in 2000. Management had no prior experience in the greenhouse industry prior to

the purchase.

6.4.2 Secondary Competition

Big Box Stores & Wholesalers:

Big Box Stores and Wholesalers are considered secondary competition. Although they will

supply plants at a discount, the employees will not have the knowledge nor premium products.

The following secondary competitors in Regina are:

Canadian Tire

Real Canadian Superstar

Wal-Mart

Home Depot

6.4.3 Tertiary Competition

Surrounding Farms – there are a number of farms surround the Regina area that offer various

arrangements of plants and offer different services, however their core competencies are around

farming and the sale of greenhouse products is of secondary nature. These farms hold a low

proportion of the greenhouse consumer market share.

6.4.4 Differentiation

The Company has operated for many years in the Regina area, over these years they have

generated a significant following and hold a small share of the Regina greenhouse industry. The

Company seeks to differentiate its product offerings through the following unique attributes:

High quality, award winning products

Unparalleled commitment to service

Creative branding techniques – website, brochures, charity events, festivals etc.

Consistent and timely distribution to commercial customers

Experienced and consultative sales force

Management believes that the Company compares favorably to the competition in key service

areas such as product quality, accessibility and customer support and floral knowledge.

23

7.0 Financial Statement Analysis

7.1 Financial Overview

We have adjusted the financial statements for items that were not reflective of current market

conditions. With current revenue at $37,000, and assuming a new greenhouse provides $30,000,

we assumed that the land rental revenue per year is $7,000. With respect to cost of goods sold,

fertilizer, water, soil and truck costs have been increased to reflect current market pricing. Other

costs remain the same, with the exception of building repairs due to the high costs of labour in

today’s economy.

Based on our preliminary research, the costs of building a new greenhouse are approximately

$50,000 for the square footage that you require, as opposed to $12,000 as initially estimated.

We projected revenues to grow at a rate of 3% per year. This figure includes real growth rate of

2.5%, plus inflation of 2.5%, which gives us a nominal rate of 5%. This is between industry

standards of 4 to 7%. In order to adjust for spoilage, we have decreased our growth rate by 2%,

for a total nominal rate of 3%.

With regards to working capital analysis, please refer to the monthly projected cash flow

statement (Appendix S) that shows changes in working capital on a month to month basis. Please

note that higher levels of inventory are required for the busy months. Working capital is also kept

at a minimum due to our capital purchases required in order to run the business.

Option Three

This option involves an expansion totaling five greenhouses over the next five years, as shown in

table below:

1 2 3 4 5

Commercial

Retail

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In year one, total long term debt of $75,000 will be needed to finance the new greenhouse, as well

as the repairs and maintenance for the old greenhouse. In years two, three, and four, additional

debt of $55,000, $60,000 and $65,000 respectively will be required to build the additional

greenhouses. It is assumed that the original greenhouse will be scrapped in year five, and

therefore a new greenhouse will need to be constructed to replace it during year five. This will

result in additional debt required of $70,000. Total debt over the five years will therefore total

$325,000.

With respect to our marketing plan as described previously, total advertising costs will be $5,000

per year. To reflect today’s market cost of labor, we have replaced the selling and direct labor

costs provided, based on our human resources plan described previously. Total labor costs over

the five year period are approximately $330,000.

There is large capital costs totaling approximately $103,000 associated with this option including:

o A new truck in year four for $30,000; we are assuming the current truck will need to be

replaced within the next few years.

o A new computer system in year one for $3,000, and a new computer every two years

costing $2,000. In addition, software upgrading costs of $500 every second year will be

incurred.

o Three additional garden tractors costing a total of $9,000 ($3,000 each) in order to keep

up with the additional greenhouse operations.

o Four additional cash registers costing a total of $4,000 ($1,000 each) given that we have

one additional retail outlet that requires cash registers.

o There are also additional miscellaneous capital costs of $10,000 per greenhouse including

garden tools and other devices.

As shown in the income statement (Appendix Q), the net loss increases from $3,000 in year one,

to $270,000 in year five. This is mainly due to the increased interest and labor costs associated

with the expansion.

Given that this is a cyclical business, we have provided a monthly cash flow projection in order to

ensure that The Company has enough cash to continue its operations throughout its busy and slow

months. As shown on the monthly cash flow statement, the cash position continues to deteriorate

25

on a monthly basis. At the end of the year one, The Company is at a cash deficit position of

approximately $10,000. Unfortunately, this continues to worsen as the years go by. At the end of

year five, the projected cash deficit amounts to approximately $437,000.

Even if the capital costs are not required, this option is not viable because The Company would

still operate with significant losses, as well as significant cash deficits. In conclusion, although

this option achieves the objectives of providing Ryan with a full time career opportunity, it is not

financially viable and should therefore not be pursued.

Option Two

This option involves keeping the old greenhouse, and building a new greenhouse in year two. In

year one, the percentage ratio between individual and commercial contracts will remain the same,

at 75% and 25% respectively. In years two through five, following the completion of building

the new greenhouse, there will be one greenhouse selling directly to individuals, and one selling

to commercial consumers.

There is an increase in long term debt of $25,000 going from $50,000 to $75,000 as required for

the repairs and maintenance for the old greenhouse. In addition, building repairs have increased

substantially, due to the existence of the old greenhouse which needs to be frequently maintained

and upgraded.

The capital costs for this option are similar to option three, except for the following:

o One less garden tractor is required

o No cash register costs are to be incurred as there is no additional retail greenhouse

o Miscellaneous garden tools and devices are only being incurred for two greenhouses

rather than for five

o Total capital costs under this option are projected to be $69,000

In year one, The Company will operate with a net loss of approximately $4,400. This net loss

position will continue until year five, with a net loss of approximately $8,000.

With respect to the cash flow statement (Appendix N), cash flow from operations is positive.

However, due to the high cost of capital items, the cash deficit at the end of year one is

26

approximately negative $11,500. The Company’s cash deficit will continue to decrease

throughout the years, resulting in a total deficit of approximately $25,000 at the end of year five.

In conclusion, the capital costs are creating losses and negative cash flow for this option. In

addition, this option does not address the objectives of our client of providing Ryan with an

adequate return on investment, and a full time career opportunity.

Option One

Option one involves replacing the current greenhouse with a new greenhouse, at a cost of

$50,000, financed entirely through long term debt. This greenhouse will be sold 75% to

individual sales, and 25% to commercial contracts, which is the same sales mix as currently being

undertaken by The Company.

It should be noted that direct selling and labor costs remained at a nominal amount in this option

and were not adjusted for market prices.

The capital costs for this option are similar to option two, except for the following:

o One garden tractor

o Miscellaneous garden tools and devices are only needed for one greenhouse

o Total capital costs under this option are $57,000.

In year one, the company will operate at a loss of approximately $55,000; mainly attributable to

writing off the old greenhouse. By year five, assuming a net growth factor of 3% of revenue, the

net loss will decrease to $5,000.

With respect to cash flow statement, the cash flow from operations is not providing sufficient

cash for the business to operate on a day to day basis. In year one, there is a cash deficit of

approximately $6,400 which fluctuates for the next couple years, resulting in a deficit in year five

of approximately $24,000.

In conclusion, the capital costs are creating losses and negative cash flow for this option. In

addition, this option does not address the objectives of our client of providing Ryan with an

adequate return on investment, and a full time career opportunity.

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7.2 Critical Success Factors

One critical success factor (CSF) that The Company needs to understand is the ability to secure

contracts with commercial consumers. Given that three out of five greenhouses will sell to

commercial consumers, the ability of The Company to achieve the projected level of sales is

dependent on this factor.

A second CSF pertains to The Company’s ability to obtaining financing. Given that an additional

five greenhouses are being built, extensive capital is required to finance this expansion. This

financing cannot be obtained through equity issuances, therefore debt is essential.

A third CSF relates to The Company’s ability to charge a premium price. This factor is

dependent on the consumer’s perception of The Company’s product as “premium”, and service as

high quality. If consumers believe that the product is not worth the premium price, sales will

suffer and The Company will no longer be a going concern.

Due to the threat of unpredictable weather patterns, and extreme weather conditions present in

Saskatchewan, maintaining a consistent climate within the greenhouses is essential to grow high

quality product. These weather patterns will have a high impact on costs of operations, and can

drastically affect the bottom line.

A final CSF involves Ryan remaining actively involved in the business, so that it can be carried

down to future generations and therefore remains in the family. If Ryan decides to change his

future career aspirations, the objectives of our client will no longer be met, as there are no other

family members who could run this business full time.

7.3 Sensitivity Analysis

Given that all three options are not viable, we have computed a sensitivity analysis based on how

many square meters (or number of greenhouses) is required to break even. As shown in

Appendix V, we presented worst case, base case, and best case scenarios by selling prices and

direct costs per square meter. The results of this analysis are as follows:

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In conclusion, with the current project financials, the company will require to build 16

greenhouses over the next five years. This is not possible for The Company, given that the bank

will not extend additional credit since the debt to equity ratio will be far too unfavorable. In

addition, building an additional four greenhouses per year is an overly aggressive expansion plan

as it will put a large strain on daily operations. The best case scenario is overly optimistic and

therefore highly unlikely to occur for this business. We therefore recommend that you do not

base your decisions on this best case scenario. Finally, The Company is unable to break even in

the worst case scenario, given that the contribution margin per unit is negative, therefore

increasing quantities of sales will not produce any excess profits.

7.4 Income Taxes

The current partnership structure at Thomson Greenhouse means that income taxes will be

allocated to each of the partners – Lisa and Earl. Income or losses from the partnership would be

taxed at the personal rates of the owners; losses can be used to reduce their personal tax liabilities

from other sources of income. By incorporating Thomson Greenhouse, it can benefit from the

lower tax rates as a result of the small business deduction. This could mean a tax savings of 10%

on the first $400,000 income as the lowest personal tax rate in Canada is 26% (15% federal and

11% provincial) while the small business rate is $15.5% (11% federal and 4% provincial). Any

income over $400,000 is subject to the normal rate, which is calculated to be 31.5% for 2008

(19.5% federal and 13% provincial), however this liability can be reduced through deducting

bonus payments.

Incorporation of the company would provide many tax advantages due to the favorable tax

treatment of small private businesses, however, these benefits are only advantageous when there

is positive income; any losses within the corporation are limited to be used within the

corporation, and cannot be used to reduce personal income as in the case of the partnership.

Therefore, we recommend the Company to remain as a partnership structure until the company is

able to bring in positive net income.

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8.0 Recommendations

8.1 Recommendation / Contingency Plans

We see an opportunity for the Company to diversify into tree farming. At the current time there

are fifteen acres of land that you are renting out each season to your neighbor. The ability to turn

a profit with this venture is quite high. The initial capital costs for a five acre parcel would be

about $100,000, which would cover irrigation equipment, fencing, grading of the land, and

independent water well. An acre of land can accommodate 800 trees; therefore, total trees on five

acres would amount to 4,000. The purchase price of a tree with a maturity time frame of 3-5 years

would vary from $20 to $30. The selling price upon maturity would vary from $135 to $155. The

input costs per year equal $2 per tree per year for labor, and then costs of water. As you can see

the margins are quite strong, as long as you can overcome the initial financial strain due to the

start-up costs.

A second viable plan would be to cease the current business, or slowly discontinue operations

over the next few years until the current greenhouse is no longer useable for retail or commercial

sales. It is important to note that just because a business is no longer a viable option to operate, it

can still have value. In the case of the Company, there is 20 acres of land. Land in Saskatchewan

is constantly rising, and either selling the 15 acres not in use, or subdividing the land is an option.

Through subdividing the land and giving a 5 acre parcel to each of your sons it will provide them

with future income either immediately if sold or incrementally if rented.

Both options are strong alternatives, or contingency plans, if it is determined that continuing with

the greenhouse business are not a viable option.

30

Appendix A – Site PlanCurrent Thomson Greenhouse (Retail Greenhouse)

8m

Storage Facility

5m

32m

Pl

16.5m ants

2m

2m Desk 2m

20mMain Greenhouse = 636.47 m2 of Shelf Space

Storage Facility = 41.34 m2 of Shelf Space

Loading Dock

31

New Thomson Greenhouses (Commercial Greenhouse)

40m

Plan

17.75m ts

2.5m

20mCapacity = 873.75 m2 of Shelf Space

Loading Dock

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Appendix B – Organization Structure

Thomson Greenhouse Year 2008

33

Thomson Greenhouse Year 2013

34

Appendix C – Map of Regina & Surrounding Area

35

Appendix D – Competition Analysis

Thomson Greenhouse: CompetitorsBelow is a list of the main competitors for Thomson Greenhouse. Please note that there are other greenhouses in Regina, along with other commercial stores. However, we feel that the competitors below are of most significant importance for The Company

Location Attraction Price Wascana Greenhouse & Nurseries

Full service garden centre, tree nursery, and landscaping company.

Marginally lower prices

Sherwood Greenhouses Family owned and operated run business selling fruits, vegetables, trees, annuals, and perennials.

Marginally lower prices

Sweet Pea’s Greenhouse Family owned and operated garden center.

Marginally lower prices

Canadian Tire Home and garden chain store selling annuals, trees, shrubs, garden supplies.

Significantly lower prices – chain store with numerous locations nation-wide

The Real Canadian Superstore Home and garden chain store selling annuals, trees, shrubs, garden supplies.

Significantly lower prices – chain store with numerous locations nation-wide

Rona Home and Garden Home and garden chain store selling annuals, trees, shrubs, garden supplies.

Significantly lower prices – chain store with numerous locations nation-wide

Wal-Mart Home and garden chain store selling annuals, trees, shrubs, garden supplies.

Significantly lower prices – chain store with numerous locations nation-wide

Home Depot Home and garden chain store selling annuals, trees, shrubs, garden supplies.

Significantly lower prices – chain store with numerous locations nation-wide

Various Retail Florists Annuals, indoor plants and flowers

Higher prices

Appendix E – Industry Information

36

(Government of Ontario, 2008)

37

Appendix F – Proposed Website

38

References

Alberta Agriculture and Rural Development. (2008). Starting a Commercial Greenhouse Business in Alberta. Retrieved on July 5, 2008 from http://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/opp11207

Balderson, D. W., Clark, J.D. (2008). Canadian Entrepreneurship and Small Business

Management (7th ed.). Canada: McGraw-Hill Ryerson.

Calder, Kari. (2008). 2007 Saskatoon Real Estate Market in Review. Active Rain Real Estate

Network. Retrieved July 8, 2008 from http://activerain.com/blogsview/371481/2-7-

Saskatoon-Real

Francese, Peter. (2002). Horticulture is Hot. Business Library. Retrieved July 8, 2008 from

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Gilbert, Richard. (2008). As Saskatchewan economy booms, labour and infrastructure challenges

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http://www.omafra.gov.on.ca/english/stats/hort/greenhouse1.htm

Wikipedia. (2008). Baby Boomer. Retrieved July 8, 2008 from http://en.wikipedia.org/wiki/

Baby_ boomer

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http://en.wikipedia.org/wiki/Regina%2C_Saskatchewan

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