Production of sausages is a highly profitable business. Nevertheless, like any other food production business plan has a lot of nuances and complexities. The main difficulties are associated with the search of suitable facilities for the production site, which would correspond to all sanitary. For example, former kindergartens, dwelling houses and places of mass use are not suitable for sausage production. The minimal area of the facilities should be 50m2. However, even a small production of sausages with a daily output of 1000kg, an area from 100 to 250 square meters is needed. 
The production site should be equipped with a low-temperature chamber for the storage of raw materials, a separate cold store for stuffing and another one for the finished products. The total area of the site is divided into several areas, for instance, a department for the preparation and processing of raw materials, preparation of stuffing area, thermal separation plot, warehouse for dry products, etc. In addition, it’s necessary to arrange a room for changing clothes, showers, warehouse for clothes and sanitary equipment. The main requirement is that during the production process the finished goods should not come into contact with raw materials, that haven’t been processed yet.
A sausage market, according to research, is actively developing during the last decade. The annual growth rate is about 7.5-8.0%. First of all, it’s possible due to a stable and growing demand for meat products. This segment enjoys one of the highest rates of turnover in the food industry and is evaluated by entrepreneurs and investors as a very promising one. This fact explains a constantly increasing level of competition in the industry. Domestic products prevail in the domestic market while the import share is not considerable. Despite the tense competition in the sausage market, it does not lose its attractiveness for new manufacturing companies operating at a local level.
To organize production of sausages it’s necessary to attract employees. First of all, a technologist who controls the product quality and makes the sausages recipes is needed. Two butchers are needed to process meat and prepare it for the next stages of production. At the launch stage you can act as a purchasing manager of raw materials and a salesman of finished products. Modern automated equipment allows save on personnel costs greatly. No more than three workers are needed to cope with one production line. You’ll also need an accountant and a driver to deliver the goods to the selling points. But qualified and experienced employees should be hired to have no problems with the quality of products.
In sausage production business plan The planned salary for 2016 is 312 k$.
In 2017 it is planned to increase personnel costs by 168.48 k$.
In 2018 it is planned to increase expenses by 274.56 k$ compared to 2017.
In 2019 it is planned to increase expenses by 241.61 k$ compared to 2018.
Before 2020 the number of employees at Bistro Ltd. is expected to count 13 staff, while the salary budget amounts to 1187.68 k$, which increases by 191.03 k$ percent compared to the previous year’s indicator.
In order to create a truly successful sausage production idea, some basic rules must be observed. First, it’s necessary to choose a segment, in which you will work. At the moment, smoked sausage is considered the most promising market segment to start business activity. This segment accounts for almost 30% of the total market volume. Secondly, it’s critically important to develop own recipes of sausages to obtain a commercial success. As the business expands, own production recipes may be an excellent platform for marketing campaign, namely a positioning strategy. Another crucial point is the quality. A strict control of the ultimate product quality should be maintained. Apart from this, it’s necessary to invest in quality assurance on every stage of production too. Constant search of sales channels and networking with grocery stores and retail supermarkets is evidently another factor of success.
The advantage of a small sausage production over the large meat-processing companies is its flexibility. Small producers respond faster to the market needs, removing unpopular product from the market and replacing it with something new.
|Environmentally friendly products|
Constant updating of the product range
High quality of the products
|Weak development strategy|
Low qualification of staff during the initial period of activity
|Increasing level of competition|
A limited number of raw materials suppliers
Changes in consumers’ preferences
Rapidly growing market
Increase of consumers’ incomes
Possibility of entering new market segments
Experience shows that sausage business plan is rarely unprofitable, if a sound approach to its organization is preserved. Ensuring the quality of sausages and giving them an exceptional taste you can be sure your products will not remain unnoticed on the marketplace. Commonly, you may orient on two big groups of consumers. The first one is corporate clients like large supermarkets, small shops or local meat stores. They are able to make quite big orders and purchase large batches of sausages. So you’ll enjoy a stable flow of orders and be able to plan your production ahead. The second large group of customers is separate buyers or individuals. In the previous case you deal with them through intermediaries, i.e. supermarkets and stores. But oftentimes it makes sense to reach them directly. An excellent solution is the opening of your own stores, where target customers will always find fresh and quality product. Generally, the development of your own selling network is a risky affair requiring substantial investments. But once you decided to develop it, you would benefit from closer relations with your consumers. It will also result in your better understanding of the clients; tastes and preferences and you’ll be ready to respond faster in case they change. Moreover, it’s possible to conduct marketing surveys to determine the needs of the target segment, thus changing or complementing the assortment.
Locating a plant for the production of sausages in a small village or a residential district, you can minimize the cost of advertising. First choose an appropriate territory for the production and establish a signboard that will draw the attention of people passing by. The place should be crowded enough with plenty of people going or returning from work or just going shopping. At this stage it is vitally important to control the products quality because each buyer is your free marketing assistant in promoting a trademark. Success and prosperity of your business depend directly on the satisfied client.
During the first three months of activity, it is recommended to establish a minimal margin. Since the competition is high, the primary task is to gain a foothold on the market. A special attention during the first year of the sausage production should be paid to the prices of other manufacturers. It also makes sense to charge lower prices when selling large batches to supermarkets and shops. After half a year of business activity it is possible to bring the prices in line with the average on the market. Competition at the expense of price is ineffective in the long run, since prices for raw materials tend to grow and it may appear impossible to support low product prices constantly. The aforementioned type of strategy is applicable only during the launch stage. Instead, it’s preferable to gain a competitive advantage at the expense of product quality and rich assortment.
Product occupies the most important place in every business. Sausage production is extremely diverse with hundreds of various types of sausages that can be produced. That’s why it is recommended to choose a limited number of sausages and concentrate on their production during the first three months. As the positions on the market strengthen, the product range should be expanded. Market surveys will help determine sausage types are in a constant demand. Apart from that, it’s necessary to develop own recipes to attract customers and create a differentiating point compared to the competitors.
The company has to pass the following steps to launch the sausage production:
1. Find the appropriate facilities and prepare them for use
2. Pass the registration procedures and receive the permits from the local authorities
3. Purchase the equipment necessary for manufacturing
4. Arrange the supply of raw materials
5. Hire employees.
It takes from three to six months to finish all the above mentioned preparations.
The company needs to calculate the investments to perform its activity. The company also needs both fixed and working capital to launch business. The fixed capital includes capital assets.
First of all company needs buildings to organize the business activity. The balance value of all facilities and buildings amounts to 400.0 k$. Operating period of facilities is 20.0 years.
The company has to pay 30.0 k$ for the purchase of vehicles for the internal use and the transportation of goods.
The cost of equipment necessary to start production is 130.0 k$.
The furniture for office and production space is also a capital asset and is estimated at 32.0 k$.
The cost of computers is 2.0 k$.
It’s also necessary to purchase appropriate software to ensure an accounting department functioning as well as the overall automation of work. The total amount for this is 1.0 k$.
Biological assets, library collections and some other items may contribute to the fixed assets. The amount of the other types of the capital assets is 4.0 k$.
The table below shows the cost of fixed assets necessary to purchase.
The cost of the necessary fixed assets, k$
In order to form a stable demand, it’s necessary to inform customers about the company and its products. The following marketing steps may be useful promoting the company on the market.
First of all, it’s necessary to concentrate on developing the own brand. All manufacturers that want to expand their business work hard establish their own brand and also dedicate much effort to increase the consumers’ awareness about their brand. Brand development requires lots of investments as well as much time and the first results may be seen even after several years of commercial activity.
As the trade rapidly moves to the Internet, it’s worth follow the trend and create a corporate website. Nevertheless, considering the business specifics, it is preferable to develop an information website instead of the selling one at the initial stage. Informing people about the company and its products should be a main purpose of such website.
When it comes to advertising, conventional methods are not very effective. TV and radio advertising may be avoided, since they are quite expensive. Instead, the promotion campaign should be based on creative approaches. For example, degustation may be a powerful instrument for promoting the product. Degustation and demonstrations may be arranged in large supermarkets and are aimed at attracting new consumers and introduce the company’s products to them.
Another wonderful ways of promoting is sponsorship. The company may donate certain funds and become an official sponsor of some local event. Such step will contribute to the increasing of consumers’ awareness about the brand greatly.
Another element of a successful promotion is a corporative logotype and motto. Both these elements should be accurate and highly recognizable to facilitate the perception of the brand by the customers.
Sometimes billboard advertising is possible. However, its expediency should be considered in each particular case considering such factors as price, location, period of placement, coverage rate, etc.
Sausage production financial plan
Sausage production operation costs planning
The planned amount of material expenses is 806.71 k$ in 2016. In the next year the indicator will increase by 331.65 k$ (increase rate is 41.11%). Material expenses will increase by 528.87 k$ from 2017 to 2018 amounting to 1667.22 k$. The next year indicator increase by 468.25 k$ compared to 2018 (increase rate is 28.09%). In 2020 planned material costs are 2489.91 k$, the increase compared to the previous year indicator is 354.44 k$, increase rate is 16.60%.
In 2016 planned salary fund is 240 k$. In the next year salary fund is expected to increase by 129.60 k$ (increase rate is 54.00% ). Labor costs will increase by 211.20 k$ from 2017 to 2018 and its amount will be 580.80 k$. The indicator will increase by 185.86 k$ in the 2019, increase rate will be 32.00%. In 2020 planning labor costs are expected to count 913.60 k$, it increases by 146.94 k$ compared to the previous year, increase rate is 19.17%.
The planned amount of social expenses is 72 k$ in 2016. In the next year these costs will increase by 38.88 k$ (increase rate is 54.00%). Social expenses will increase by 63.36 k$ from 2017 to 2018 and their amount will be 174.24 k$. The next year indicator increase by 55.76 k$ compared to 2018 (increase rate is 32.00%). In 2020 planned social costs are 274.08 k$, the increase compared to the previous year indicator is 44.08 k$, increase rate is 19.17%.
In 2016 planned depreciated costs are 61.38 k$. In the next year this costs are expected to decrease by 0 k$ (increase rate is 0% ). Depreciation costs will decrease by 0.49 k$ from 2017 to 2018 and its amount will be 60.89 k$. The indicator will decrease by 0 k$ in the 2019, increase rate will be 0%. In 2020 planned depreciation costs are expected to count 51.48 k$, the indicator decreases by 9.41 k$ compared to the previous year, increase rate is -15.45%.
The planned amount of other expenses is 61 k$ in 2016. In the next year the indicator will increase by 10.10 k$ (increase rate is 16.56%). Other expenses will increase by 10.71 k$ from 2017 to 2018 amounting to 81.81 k$. The next year indicator increases by 10.52 k$ compared to 2018 (increase rate is 12.86%). In 2020 other planned costs are 101.56 k$, the increase compared to the previous year indicator is 9.23 k$, increase rate is 10.00%.
In 2016 planned operation costs are 1241.09 k$. In the next year this costs are expected to increase by 510.23 k$ (increase rate is 41.11% ). Depreciation costs will increase by 813.64 k$ from 2017 to 2018 and its amount will be 60.89 k$. The indicator will increase by 720.38 k$ in the 2019, increase rate will be 28.09%. In 2020 planned operation costs are expected to count 3830.63 k$, increasing by 545.29 k$ compared to the previous year, increase rate is 16.60%.
Planning sources for investment
Apart from investments in fixed assets, the company also needs some other kinds of investments. For instance, the registration of the organization requires the amount of 3.0 k$. It is also necessary to collect funds for the purchase of raw materials. The predicted amount for this purpose is 5.0 k$. Additional funds in the amount of 7.0 k$ are needed to organize mutual payments at the initial stage.
It is also necessary to take into account the fact that Bistro Ltd. will not be able to pay fixed costs at the expense of its revenue during the first month. Therefore it is necessary to create a reserve amount enough to compensate all performance costs for a single month. Since the size of annual costs amounts to 1241.09 k$, the company needs 35.30 k$ per month.
Thus, the company requires an amount of 649.30 k$ in the first year including:
- fixed assets - 598 k$;
- intangible assets - 1.0 k$;
- stocks 5.0 k$;
- money on a current account 7.0 k$;
- additional amount in cash to register the business 3.0 k$
- reserve capital to repay the costs 35.30 k$
The company may use both its own capital and the attracted one for the purchase of assets and reimbursement of expenses. Equity is the share capital, due to which assets may be acquired. Bistro Ltd.'s amount of equity is 100.0 k$. Thus, the organization needs a loan in the amount of 549.30 k$ (649.30 - 100.0).
Break-even point is the amount of income at which the company does not receive losses. To achieve it, the income should exceed expenditures. As it was indicated above, we have calculated the amount of operating expenses. It is also necessary to take the financial costs into account, which are also paid out at the expense of the future incomes.
The following conclusions can be made according to the table data. The company will be profitable in the next year. The planned net profit is 228.24 k$. The calculations took the income tax into account, which will be 10% in 2016. The break-even point in 2016 is 1268.03 k$, in 2017 - 1778.25 k$, in 2018 - 2591.90 k$, in 2019 - 3312.28 k$, in 2020 - 33857.57 k$.
Margin is a main source of profit for the company. Bistro Ltd. establishes the margin of 20.0% for its services. Let’s carry out the planning of the company incomes, adding the margin’s percentage to the expenses.
In 2017, the planned income before tax will amount to 355.65 k$. Net profit after paying taxes will be 320.09 k$. A profit growth is planned for the next years, i.e. the growth rate will be 45.76% in 2018, 27.79% in 2019 and 16.46% in 2020.The planned net profit after 5 years is expected to be 694.36 k$.
CashFlow Net Cash Flow 179.76
E1 Discounted net cash flow (Е1) 163.42
NPV Net Present Value 1251.60
Pi Profitability Index 3.04
IRR Internal Rate of Return,% 12.98
PP Payback Period, years 1.65
Sausage production is a highly profitable and promising business despite the increasing competition on the market. A main key to the market success is the competent organization of production. The number of consumers wishing to buy tasty and fresh sausages is constantly growing. Consequently, the flow of buyers is expected to be permanent. Sausage production needs considerable investments but after its launch it brings high returns and repays all costs within several years. Therefore, the financial investments in its creation are justified.
The preliminary assessment of the market and the power of the company makes it possible to estimate that such kind of income is real with a great percentage of possibility, that’s why the company decided to attract credit funds for 60.0 months at 9.0% per annum.
According to preliminary estimates the planned revenue should be 1521.63 k$, that makes it possible to receive a net profit of 228.24 k$.
Evaluation of the investment project effectiveness has shown that under given forecasts a payback period is 1.65 years while a net present value is 1251.60 k$ for a period of 5 years.
As a result of the forecasts, the capital value is expected to be 764.68 k$ in 2017, while a share of the own capital amounts to 325.24 k$. By 2020 the planned capital value is expected to be 1817.94 k$. The average weighted cost of capital will be 9.83%.
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