Tree Bien Seedling Nursery
Executive Summary
Introduction
The following is a business plan outlining the development and feasibility of Tree Bien
Seedling Nursery. The mission of the company is to provide high quality, low cost nursery
products to suit customer needs while addressing environmental issues. The purpose of the
business is to set up a greenhouse in conjunction with recycled heat from a SaskEnergy
compressor station located near Rosetown, Saskatchewan. Tree Bien will establish and maintain
contracts for the sale of 850,000 tree seedlings to be sold to Weyerhaeuser Canada.
Tree seedlings are in high demand as a result of the steady increase of deforestation in the
prairie forests. By using recycled heat, Tree Bien can help reduce carbon emissions and produce
seedlings with lower production costs.
Operations Plan
Tree Bien’s seven greenhouses will be located in Rosetown Saskatchewan, directly
across the road and east of the SaskEnergy compressor station. It will be built on a two-acre lot
of land purchased from a local farmer, which, at the present time is under agricultural cultivation.
The compressor station is continuously producing and expelling heat, which is a primary reason
for choosing this location. With the transfer of a continuous flow of waste heat from the
compressor station to the greenhouse, the need for additional heat sources will be minor.
Tree Bién is a greenhouse business that will produce tree seedlings for the purpose of
reforestation by Weyerhaeuser Canada. The seedlings will be sold on an annual contract basis.
Weyerhaeuser Canada will provide the seeds. Sowing of the seedlings will take place in
mid-March where they will grow in the greenhouses until October. From here they will be
transported to freezer storage, paid for by the Weyerhaeuser. The seedlings will remain in freezer
storage until May when they will be sent to their zone of origin for transplanting.
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Tree Bien Seedling Nursery
The following figure illustrates the general tree production process:
March
Seed
Growth period
in greenhouses
Sorting and
Packaging
Peat moss, seed, grit
placed in styrofoam
blocks
Extended light
until target size is
reached
Seedlings below
quality standards are
disposed of
Blocks are
transferred to
greenhouses
Seedlings are
thinned and weeds
are removed
Fertilizer applied each
watering and weeds
removed as needed
Seedlings become
frost hardy and
lights shut off
Remaining seedlings are
wrapped in plastic and
placed in cardboard boxes
Seedlings are
sent to freezer
storage
October
Figure 1. Tree Production Process
The actual capacity of the facility will be a function of the contract for a given year, since
the ratio of the seedlings grown in each block size will be determined in the contract. The
projected real capacity is one million seedlings.
Table 1. Greenhouse Expenses
Expenses
Greenhouses
Watering
Benches
Lights
Climate control board
Ventilation
Equipment
Land
Set-up Costs
Electrical
Natural Gas
Water
Total
$183,500
$31,500
$15,750
$250
$7,500
$2,100
$15,500
$5,000
$9,200
$2,000
$1,200
$6,000
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$213,200
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Tree Bien Seedling Nursery
Human Resources Plan
One general manager will be responsible for the majority of the duties required by the
business. This person will arrange the annual contracts, keep track of all incomes and expenses,
prepare budgets and financial statements, order and make ready the necessary supplies, and
arrange for seedlings to be sent for testing. He or she will organize, train, direct and coordinate
the activities of the casual labor staff. The general manager will also inspect and repair damaged
equipment (or delegate repair duties) as needed.
A casual labour staff of approximately 15 people will be required for a variety of duties
throughout the year. These people will carry out the seeding duties, remove weeds from the
blocks, sort and discard flawed seedlings, and package seedlings for transport. They will upkeep
and maintain the yard and buildings as needed.
Table 2 Labour and Management Costs
Year
Direct Management Labor Cost
Employment Insurance
Canada Pension Plan
Workers Compensation
Total Benefits for Salary Employees
Direct Casual Labor Cost
Employment Insurance
Canada Pension Plan
Holiday Pay
Workers Compensation
Total Benefits for Salary Employees
Total Labor and Management Costs
2001
37,000
3.4%
3.9%
1.0%
1,258
439
113
1,809
11,250
3.4%
3.9%
6.0%
2.0%
383
439
675
225
1,721
51,781
Marketing Plan
Tree Bien operates on a contract basis, with Weyerhaeuser being the solitary customer.
The seedlings will be primarily produced for the reforestation sector. Bid prices of fifteen cents
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Tree Bien Seedling Nursery
to seventeen cents, depending on size, will be sufficient to obtain a contract for the production of
one million seedlings.
The forest industry trends are favorable for the future production of tree seedlings. It is
expected that over the next five years three new Forest Management Areas will be opened,
requiring a larger seedling stocking density. As well, the government of Saskatchewan plans to
speed up reforestation of Not Sufficiently Regenerated areas. These two factors will contribute to
an increased demand for seedlings. Potentially twenty to twenty-five million seedlings may be
required annually to reforest harvested areas.
By consuming heat at a discount rate, Tree Bien can offer a competitive price against the
competition. Major competitors include Pacific Regenerations Technology in Prince Albert,
Mystic Management Ltd. in Meadow Lake, K and C Silviculture in Red Deer, and Four Seasons
Greenhouses in Tisdale. As shown in Table 3 below, the production cost per seedling is 11.4
cents, enabling Tree Bien to have a pricing advantage.
Table 3. Summary of Production Costs per Seedling
Unit Manufacturing Costs
Accounting, Administration & Equity Costs
Total Cost of Production
Profit per seedling (Sell at $0.17)
Profit per seedling (Sell at $0.15)
$0.06
$0.055
$0.115
$0.055
$0.035
Below is the SWOT Analysis showing various strengths and weaknesses Tree Bien will incur
during market entrance.
Table 4. SWOT Analysis
Strengths
Weaknesses
- low energy costs
-small production compared
to most competitors
-guaranteed sale of
production
-lack of name recognition
- solid financial returns
-dependence on one buyer
Opportunities
-potential for an increase in
demand for seedlings
Threats
-new demand may
result in increased
competition
-opportunity to out-price
competitors after initial
start-up because of energy
savings
-dependence on SaskEnery
heat discount
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Tree Bien Seedling Nursery
Financial Plan
Table 5. Working Capital
Working Capital
Accounts Receivables
Inventory
Accounts Payables
Working Capital
Year
2001
68,000
0
1,433
66,567
2004
74,739
0
1,581
73,159
2007
82,146
0
1,744
80,402
2010
90,287
0
1,926
88,362
The working capital of Tree Bien consists of Accounts Payable plus Inventory minus
Accounts Receivable.
Table 6. Summary of Financial Results
Summary of Financial Results
Year
Sales
COGS
Gross Profit
Expenses
Net Profits
Income Taxes
Net Income
Net Cash Flow to Equity
2001
2004
136,000
50,382
85,618
46,759
38,859
7,803
31,056
2,190
149,478
59,849
89,629
49,399
40,230
8,078
32,152
55,788
Expected Rate of Return on Equity Investment
2007
164,292
54,669
109,624
51,988
57,636
11,573
46,063
54,124
2010
180,574
54,484
126,091
54,416
71,675
14,392
57,283
222,746
16.6%
The economic breakeven analysis takes into account all neccesarry expenditures and
costs incurred with tree seedling growth. The breakeven price per tree in order to cover all costs
is $0.114/tree. This is the lowest possible price Tree Bien Seedling Nursery can afford to seel its
seedlings for at current structural inputs.
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Tree Bien Seedling Nursery
Sensitivity Analysis
30.0%
27.8
25.0%
-10.0%
-8.4
-7.5
800,000
15.8 16.6
637,000
15.3
510,000
12.2
casual 200 hrs
casual 150 hrs
14.4
$0.21 weighted avg
16.6
$0.16 weighted avg
16.6
casual 100 hrs
1 super + 20 cas
15.2
$0.09 w.a.
-5.0%
3.8
1 super + 1 gr +20 cas
0.0%
1 super + 15 cas
5.0%
$0/sq. ft
$1/sq. ft
6.1
$0/1000 trees
10.0%
16.6
$2 /sq. ft
IRR
15.0%
17.3
16.6
$4.34/1000 trees
16.6
$2.17/1000 trees
20.0%
1 super + 1 gr+15 cas
5.4
18
-15.0%
Natural
Gas
Box
Costs
Annual
Labour
Casual
Hours
Avg. Selling
Price
Q of
Sales
Figure 2. Sensitivity Analysis
To find out the feasibility of Tree Bien, a number is derived for heat cost breakeven. In
order for the greenhouse to breakeven, a minimum of 38% of the heat needed must be derived
from the heat capturing unit. This works out to a maximum cost of $39,000 per year for Natural
gas to be used in the furnaces available
The major limitations for Tree Bien are heating costs and selling price. If the heatcapturing unit fails or is unable to capture enough heat to heat the entire greenhouse, the costs of
natural gas will make Tree Bien’s profits turn very marginal or end up negative.
With an output of only half of the needed heat, natural gas costs send the IRR of Tree Bien down
to 6.1%. This makes the venture not feasible.
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Tree Bien Seedling Nursery
A slight change in the selling price of the tree output will also degrade the IRR of Tree
Bien. It is a variable that can make or break Tree Bien because the resulting change in IRR is so
drastic.
Conclusion
The financial model has demonstrated that Tree Bien is financially feasible. In the base
case Tree Bien is making 16.6% IRR. This number is variable with respect to the risks, which
may occur to the company. Forest regeneration trends are increasing, resulting in a boost in the
nursery economy. Environmental impacts also amplify the need for reforestation and
regeneration.
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