Sample McCoy Business Proposal

Table of Contents

Executive Summary 2

Introduction to McCoy’s business proposal 3

Option 1: Take up the business venture as it is 3

Option 2: Charge $17.50 rental fee per goat 5

List of Exhibits

Exhibit 1.1

Exhibit 1.2

Exhibit 1.3

Executive Summary

McCoy has just discovered a possible new business venture that would entail renting out his goats as an alternative to using grass trimming machines in areas with rough terrain. In this new business venture, a lot of factors come into play including the number of goats he would need to accomplish the job, the cost of fencing out the work site, the cost of daily wages, and the cost of transport mainly in form of fuel costs. With this venture, it seems that profitability can be achieved and with changing models of operations, higher profits can be achieved. Nonetheless, aspects of ease of scalability must be considered so as to make the venture profitable in the long run.

Introduction to McCoy’s business proposal

McCoy, a dairy goat farmer is assessing whether the goat-renting business is going to be a new profitable branch to his business. He is currently running a dairy goat business that is raking in $3291.20 of income every year based the 2010 income statement. In light of this new business opportunity, McCoy has to make a decision on whether to take up this new business opportunity and continue with the current business venture or to shut down the dairy business and focus on goat renting as a business or not take up the new business opportunity. The ideal timing to make a decision would be one week so that to ensure that he can tap into this opportunity before the masses come to know of it, that is, if he decides to take up the new business venture.

Option 1: Take up the business venture as it is

McCoy can decide to take up this opportunity at the stated charge of $15 per day per goat. The piece of land that needs trimming is 360 by 121 feet which brings a total of 43560 square feet for the whole acre of land. He has estimated that each goat can eat 250 sq. feet of grass in a day, this brings the total area covered by 25 goats to 6250 sq. feet a day and hence it would take approximately 7 days to clear the land by the 25 goats. His revenues per day would come to $375 and in 7 days he would earn $2625. His expenses in this venture will include set up costs accounting to $100, fencing which costs $0.75 per linear square hence for the proposed piece of land it would cost $360.75. The wages for the Shepherd and his dog would cost $190 a day and hence $1330 for the whole duration of the work. Transport costs would entail cost of fuel which is $0.63 per mile; since the farm is 40 miles from the work site and the trailer ferrying the goats would have to make a round trip every day, it would then cost $352.8 for the whole duration of the project. These are the main costs of this venture. In the course of the business, other overhead costs such as depreciation of the trailers, vehicle repairs and maintenance, Vertinary and medicine costs need to be taken into account. The suggested depreciation; based on the previous year’s cost of machinery depreciation, is $357.50. The repairs and maintenance of the trailer would be estimated at $1100 a year and Vertinary fees and medicine costs would be $2420 per year. The estimated contribution margin per job in this model is estimated to be $481.45 (See: Exhibit 1) and assuming that McCoy would be able to get 12 other jobs within his region in a year, and then he would have a total contribution margin of $5777.4 before subtracting overhead costs. The taxable income would come to $1899.9. This would be a fair amount of profit for the venture at its starting phase but for it to remain profitable, the rental charge may need to be increased but to a limit that the business will be competitive incase other farmers decide to start the same business. It is worth noting that in this model, McCoy will take 16 calendar days to break even of all expenses.

Cost drivers are activities that make a business incur costs (Small Business – Chron.com, 2013). In this case, the cost drivers here include number of days, size of the piece of land and distance between the farm and the work site. The distance between the farm and the work site drive up transport costs whereas the size of the piece of land drive up the cost of labor, fencing and the set up costs which are influenced by the number of goats used for the job.

The number of days is another cost driver that drives up the cost of labor and transport. Bearing this cost driver in mind, the fixed and variable costs for each job in a year are as follows (See Exhibit 1.2).

Option 2: Charge $17.50 rental fee per goat

McCoy could decide to charge $17.50 as the rental fee for each goat. Given that he is still using 25 goats to complete the job on the same size of land, his revenues would shoot up and the expenses would remain the same. This will also mean a higher net profit per year given that he still does the same number of jobs, 12 jobs, per year. His total profit per job would be $918.95 and after subtracting the overheads of vehicle depreciation, Vertinary fees and medicine and vehicle repairs and maintenance; which add up to $3877.5 per year, $7149.9 would be his taxable income per year, this is slightly higher than the previous option. In this model, it will take 14 days to break even of all yearly expenses. (See Exhibit 1.3)

Discussion

McCoy has several options of models for this business. However, he must put to mind other considerations such as the scalability of this business in his region, the challenges he could face whilst doing this business, necessary skills and resources required to expand the business and the social values that this business presents. Ease of scalability is going to be a very important factor because with time he will be facing competitors in the same business whether in his region or over 100 miles away and he will need to ensure his expenses are relatively stable so that he can enjoy larger profits (Spence, 2013).

Recommendation

McCoy should consider the second model where he would charge $17.50 per goat per day because in this option he enjoys more profit. This business idea can be scaled to other farms in the region and perhaps he can consider setting up some goat barns in other regions and expand the reach of the business.

Exhibits