Home' Trinidad and Tobago Guardian : March 23rd 2017 Contents BG16 | FINANCIAL ROAD MAP
BUSINESS GUARDIAN guardian.co.tt MARCH 23 • 2017
Growing a small business
Phillip, age 27, lost his job last
year when his company closed
its doors. With no signs of work
on the horizon and at the urging
of friends and relatives he de-
cided to try his hand at business,
taking a secret recipe for a homemade barbeque
sauce to the market.
Phillip developed a label and started sup-
plying a few small shops in his area at $25 per
bottle. One day the product ended up at a
charity event hosted by a regional retail chain.
The managers were so impressed by the taste,
they invited Phillip to supply them with a small
quantity in order to test the market. The prod-
uct sold out in the first week and the company
is ready to do business.
Even though Phillip is ecstatic by the op-
portunity, he is also stressed that he might
not be able to meet the demand. His space
is very small and he presently does all of the
Additionally, in order to officially put his
product on its shelves, the chain requires Phil-
lip to be food and drug certified. To do this
Phillip would have to provide evidence of a
fully equipped, health and safety compliant
To set this up he would need about $67,000
for commercial appliances, utensils and fresh
supplies for the first order. He would also need
to get more space, which means renting; this
could cost $3,800 per month plus $300 in
The company indicated that he would have
to supply a minimum consignment of a 1,000
bottles per month. This presents his second
challenge in that he could only produce 12
bottles per day; input cost is $12 per bottle.
He would need to get help and, from his cal-
culations, if he adds one person they could
produce up to 36 bottles per day.
If another person is added, production could
increase to 72 bottles per day. As regards to
labour cost, Phillip thinks $200 per day is a
fair wage for each person with an extra $50 for
himself for general management.
He would also have to double up on transport
costs and cleaning supplies, which currently
are $350 and $250 respectively. He would also
have to do some marketing and promotions,
which he wants to keep within $1,000 per
In addition to the set up costs, Phillip thinks
it is wise to have at least three months of over-
heads covered before the cash starts coming
in. Unfortunately, the only assets he has are:
• car valued $50,000
• utensils valued $5,000 and
• cash in hand:$10,000.
Phillip approached a small business govern-
ment-lending agency that is willing to consider
the initiative with a loan at 5.0 per cent per
annum for up to five years, but he must pro-
vide his car and all of the new equipment as
collateral. As regards to current debts, he owes
$2,500 on a credit card and $18,000 on a small
loan, which has payments of $1,000 monthly.
The lender has asked Phillip to put some
numbers together so that they can evaluate
the request but he is not sure where to start.
Capacity, cash flow & capital
For many people new to the world of busi-
ness, crunching numbers could be intimidat-
ing especially if it means factoring a sizeable
debt from the outset. In its present form the
business is very simple. Phillip makes some
product, sells it to a few customers and pays
Taking things to the next level would entail
pushing his overheads to unprecedented levels.
By adding workers he would have to provide
the space and tools to meet the production
demands, this would have an impact on his
capacity, cash flow and capital requirements.
Phillip's ability to turn out product every
month would have an upper limit. It is this
limit that would give us a starting point for
On his own in a 20-day month Phillip can
produce a maximum of 240 (12 bottles x 20
days) bottles but by adding the first and then
second person, the synergies pushes produc-
tion capacity to 720 (36 bottles x 20 days) and
1,440 (72 bottles x 20 days) bottles per month
This translates into a per capita production
per month of 480 (1,440 bottles / 3 persons)
bottles and at the price of $25 per bottle his
maximum gross revenue can increase from
$6,000 (240 bottles x $25) to $36,000 (1,440
With a variable/input cost of $12 per bottle
Phillip's gross profit or contribution to over-
heads and net profits is $13 per bottle ($25 -
$12). So total gross profit at each production
level is: $3,120 (240 x $13), $9,360 (720 x $13)
and $18,720 (1,440 x $13) respectively.
Whilst his projected maximum monthly
gross profit looks promising, it is the fixed
monthly commitments that would determine
whether this venture is feasible or not.
At present Phillip's overhead is $1,600
(Transport: $350 + Cleaning supplies: $250 +
Loan payment: $1,000) and with maximum
gross revenue of $3,120 his net profit is $1,520,
which represents his compensation or salary
for the effort.
Continued on Page 17
Links Archive March 22nd 2017 March 24th 2017 Navigation Previous Page Next Page