EnviroWood Business Plan MBA 841. Entrepreneurship ... Painter/businessplans... · Web...

Prepared By:Dawn GibbonsWayne JiangRui WenMathew RalphCarolina Martinez

EnviroWood Business Plan MBA 841. Entrepreneurship & Business Planning


1.0. Executive Summary

'There's gold in there hills', was the cry in the mid 1800's that drove many to Dawson City.

Today there is gold in Saskatoon in the form of woodchips. One of the largest growing sectors is

the recycling business. There have been large developments in the recycling of paper, metal and

even animal waste (City of Saskatoon, Interview). This business case will outline a profitable

venture that will recycle scrap wood into woodchips or shavings. This business plan provides a

viable and effective solution to businesses for the disposal of their wood and offers a unique

product in an established market for the agriculture, landscaping, ener-fuels and large and small

animal care. The revenue stream is based on payment to dispose of scrap wood and recycling the

scrap into marketable products.

There is ample supply of scrap wood in Saskatoon. Many local businesses are experiencing

difficulty in disposing of the wood. Currently the main option is the local landfill site, which

costs $55 per tonne. Our service will take scrap wood at a ceiling of $50 per tonne in year one.

This will not only be a cost benefit to clients but our location on Quebec Avenue is more central.

The process will take wood pallets chop them into pieces then recycle the pieces into either wood

chips or shavings. The initial project production volume is 100 tonnes per week, which is a 1-

shift operation. Maximum capacity is 300 tonnes per week over a 3-shift operation. Increasing

manufacturing capacity to 300 tonnes per week will require no additional capital and variable

costs will be minimal. After year one, manufacturing costs are 18% of revenues, therefore, with

a higher fixed cost base increased volumes will net higher profits. Staffing will consist of four

direct operators and two salary employees: one operations supervisor and business development

officer.

The use of woodchips is spread across many different markets. In year one the majority of the

revenue will be sold in bulk, starting at $55 per tonne for landscaping, agriculture and ener-fuels.

Sales in year two will begin in the packaging segment increasing to $944 per tonne. Prices are set

by current market prices with discounting to entice buyers.

Gibbons, Jiang, Wen, Ralph, Martinez Page 7


Distribution will be based on direct sales, shipping direct from the factory to either the end user

or retailers. Bulk products will be offered to the end consumer only in agriculture and ener-fuels.

All other product will be sold only to retailers for uses such as landscaping and packaged wood

products. Promotion includes agricultural trade shows, industry trade shows and direct contact

with suppliers. We will use a push strategy through the supply chain. Target markets are

customers who require lower quality woodchips and shavings, both bulk and packaged, where

price is a factor as well as the green appeal of our recycled product.

EnviroWood projects an internal rate of return of 280%. This is a very high return, however,

there is a high risk associated with a new business in a unproven industry. The business case

effectively outlines the critical business variables and presents mitigating strategies. The

projected net income in year one is $35, 263.00 increasing to $2,384,455.00 by year five.



Contents

1.0. EXECUTIVE SUMMARY........................................................................................................................... 7

2.0. BUSINESS OVERVIEW...........................................................................................................................12

2.1. PRODUCT OVERVIEW.......................................................................................................................... 12

2.2. COMPANY OVERVIEW............................................................................................................................... 12

2.3. INDUSTRY OVERVIEW: THE PROBLEM OF EXCESS WASTE.........................................................13

2.4. MISSION......................................................................................................................................................... 16

2.5. GOALS AND OBJECTIVES.......................................................................................................................... 16

3.0. OPERATIONS PLAN.................................................................................................................................... 17

3.1. PROCESS FLOW........................................................................................................................................... 17

3.2 INVENTORY LEVELS................................................................................................................................. 19

3.3. LOCATION..................................................................................................................................................... 19

3.4. FLOOR LAYOUT........................................................................................................................................... 20

3.5. QUALITY CONTROL PROGRAM..............................................................................................................21

3.6. AVERAGE BUSINESS DAYS....................................................................................................................... 21

3.7. SAFETY PROGRAM..................................................................................................................................... 22

3.8. CAPITAL BUDGET....................................................................................................................................... 22

4.0. THE HUMAN RESOURCES PLAN.............................................................................................................23

4.1. NUMBER OF EMPLOYEES......................................................................................................................... 23

4.2. LABOUR COST.............................................................................................................................................. 24

4.3. RECRUITING EMPLOYEES........................................................................................................................24

4.4. JOB DESCRIPTIONS.................................................................................................................................... 25

4.5. TRAINING PROGRAM................................................................................................................................ 26

4.6. HUMAN RESOURCES STRATEGIES........................................................................................................ 26

4.7. TOTAL PLANNED - HOURS AND FIVE YEAR LABOUR COST..........................................................27

5.0 MARKETING PLAN...................................................................................................................................... 28

5.1. PRODUCT...................................................................................................................................................... 28

5.2. SEGMENTATION & TARGETING.............................................................................................................295.2.1. INDUSTRIAL WOOD DISPOSAL SERVICES.................................................................................................................295.2.2 RECYCLED WOOD PRODUCTS..................................................................................................................................305.2.3 POSITIONING STATEMENTS......................................................................................................................................31



5.3 MARKETING STRATEGY......................................................................................................................... 315.3.1.INDUSTRIAL WOOD DISPOSAL SERVICE....................................................................................................................315.3.2. RECYCLED WOOD PRODUCTS....................................................................................................................................31

5.4. MARKETING MIX: INDUSTRIAL WOOD DISPOSAL SERVICE........................................................325.4.1. PRICING.......................................................................................................................................................................... 335.4.2. DISTRIBUTION...............................................................................................................................................................345.4.3. PROMOTION.................................................................................................................................................................. 345.4.4. COMPETITION............................................................................................................................................................... 34

5.5. MARKETING MIX: RECYCLED WOOD PRODUCTS............................................................................36

5.6. MARKETING SUMMARY........................................................................................................................... 38

6.0 FINANCIAL PLAN......................................................................................................................................... 39

6.1. FINANCIAL STRUCTURE........................................................................................................................... 39

6.2. CAPITAL BUDGET....................................................................................................................................... 39

6.3. FINANCIAL ANALYSIS................................................................................................................................ 396.3.1. REVENUE ESTIMATES.................................................................................................................................................. 396.3.2. COST OF GOODS SOLD AND EXPENSES ESTIMATES...............................................................................................41

6.4. RISK ANALYSIS............................................................................................................................................ 426.4.1. BASE SCENARIO............................................................................................................................................................ 426.4.2. BEST SCENARIO............................................................................................................................................................ 436.4.3. WORST SCENARIO........................................................................................................................................................ 44

6.5. BREAK-EVEN ANALYSIS........................................................................................................................... 45

6.6. RISK ANALYSIS CONCLUSIONS...............................................................................................................48

7.0. REFERENCES................................................................................................................................................ 49

Figure 1. Excess Scrap Wood....................................................................................................................13Figure 2. 2006 Landfill Content -Saskatoon..............................................................................................14Figure 3. Process Flow.............................................................................................................................18Figure 4. Tub Grinder................................................................................................................................18Figure 5. Aerial View of Location.............................................................................................................19Figure 6. Floor Layout...............................................................................................................................20Figure 7. Organizational Structure.............................................................................................................24Figure 8. Segmentation by attitude............................................................................................................30Figure 9. Composition of Sales Volume....................................................................................................38Figure 10. Trend Analysis Revenue Vs. COGS, Expenses and Taxes.......................................................40Figure 11. Allocation of Industrial Wood Waste.....................................................................................41Figure 12. Comparison Economic and Accounting Break-even vs Projected sales for Bulk product........47



Figure 13. Comparison Economic and Accounting Break-even vs Projected sales for Package product...47

Appendix 1. EnviroWood Projected Income Statement.............................................................................50Appendix 2. EnviroWood Projected Balance Sheet...................................................................................51Appendix 3. EnviroWood Projected Statement of Cash Flow..................................................................52Appendix 4. EnviroWood Revenue Estimates and Economic Variables..................................................53Appendix 5. EnviroWood COGS and Expenses Estimates........................................................................54Appendix 6. EnviroWood Personnel and CCA Estimates.........................................................................55Appendix 7. EnviroWood Capital Budget................................................................................................56Appendix 8. EnviroWood Financing budget and Amortization Schedule.................................................57Appendix 9. EnviroWood Working Capital Estimates..............................................................................58Appendix 10. Letter of intent from New Holland Case.............................................................................59

Table 1. Inventory level per product..........................................................................................................19Table 2. Shift Configuration......................................................................................................................21Table 3. Capital Budget.............................................................................................................................22Table 4. Employee Headcount...................................................................................................................23Table 5. Total Hours of Work....................................................................................................................27Table 6. Direct Labour Cost......................................................................................................................28Table 7. Industrial Wood Disposal Services Segmentation.......................................................................29Table 8. Value spread between disposal service, bulk product and packaged product...............................32Table 9. The EnviroWood Industrial Wood Disposal Experience.............................................................33Table 10. Competitor Analysis..................................................................................................................35Table 11. Natural Wood Animal Care......................................................................................................36Table 12. Landscaping chips.....................................................................................................................37Table 13. Financial Projections...............................................................................................................40Table 14. COGS, Expenses and Taxes Estimates.....................................................................................42Table 15. Base Scenario Information.....................................................................................................42Table 16. Income Statement Results.......................................................................................................43Table 17. Best Scenario Information......................................................................................................43Table 18. Income Statement Results.......................................................................................................44Table 19. Worst Scenario Information...................................................................................................44Table 20. Income Statement Results.......................................................................................................45Table 21. Scenarios Results Comparison................................................................................................45Table 22. Economic and Accounting Break-even vs. Base Scenario.....................................................46



2.0. Business Overview

2.1. Product Overview

EnviroWood Recycling is a two product formula:

Industrial Wood Disposal Service + Recycled Wood Products = $ Profits

EnviroWood’s primary business is the transformation of industrial wood waste from its disposal

service into woodchips and wood shavings. Our value for waste disposal clients is superior

service, competitive prices and a convenient location. Our value for retailers selling our products

is green image offered through a local company at competitive prices.

EnviroWoods Recycled Products

Uses for Woodchips

for landscaping and gardening

for fuelling industrial ener- heating systems such as green houses

Uses for Wood- shavings

for agriculture such as horse bedding

for bedding mid-large pets

2.2. Company Overview

EnviroWood is a new environmental processing company. EnviroWood is an ideal solution and

alternative for companies needing to dispose of wood waste efficiently. It is also ideal for those

businesses that see a market for recycled processed woodchips or require the use of a low cost

wood product for their own inputs. Simultaneously, Envirowood will help to create a cleaner

environment in the city. According to Metro Vancouver, when wood is buried in the landfill; it

decomposes slowly in an oxygen-starved environment and generates methane gas, which is a

greenhouse gas about 20 times more powerful than carbon dioxide (Kurucz, J. 2009).



2.3. Industry Overview: The problem of Excess Waste

In Saskatoon, unlike the residential sector, the industrial, commercial and institutional (ICI)

sector is responsible for disposing their own waste. The ICI sector is comprised of businesses,

industries and institutions (hospitals, schools, government buildings and the University of

Saskatchewan) operating within the city of Saskatoon.

This business plan has been created in response to the need of manufacturing companies

primarily located in the north end of the city of Saskatoon, to find a more efficient alternative for

disposing their industrial wood waste.

It has been common practice for manufacturing companies to accumulate their industrial wood

waste and then contract other companies to collect, transport and dispose of the industrial wood

waste to a landfill (See figure .1 below). As of March 15, 2010 the Saskatoon Landfill, which is

operated by the municipal government, charges an entrance fee of $10.00 for each dump plus

$55 per tonne for solid waste (City of Saskatoon, 2010).

Figure 1. Excess Scrap Wood



Last year, one of our recent customers located in the north end of the city of Saskatoon, disposed

of approximately 41 tonnes of wood per week for a yearly total 2,132 tonnes. The cost paid for

disposing their industrial wood waste was approximately $150,000. This cost includes the

transportation and handling costs.

For the municipal government managing the Saskatoon landfill has become one of its most

costly services. In 2006, the City conducted a waste characterization study to assess the

components of garbage being sent to the landfill. This study indicated that 38% (40,000 tonnes)

was produced by the ICI sector (industrial/commercial/institutional sector). Moreover,

approximately 20% of the total ICI waste was wood (City of Saskatoon, 2007). See figure 2 for

breakdown of landfill contents in 2006.

Figure 2. 2006 Landfill Content -Saskatoon

Dry Wall 3%

Insolation1%

Rubber2%

All paper34%

Plastics12%

Metal7%

Aluminum1%

Fabric8%

Wood20%

Food Waste12%

Composition of ICI Waste in Saskatoon (2006)

In 2008, over 13,449 metric tonnes of used wood pallets and crates were land-filled in our city

according to Environmental Service, City of Saskatoon. An interview with a city employee

indicated that businesses must wait in the same line-ups as residential clients which causes major

delays (City of Saskatoon, 2010).



In the near future, the municipal government is planning to increase the penalty charges for

illegal waste dumping. Currently, in the city’s website, under The Waste Bylaw of 2004, the

penalty charge for the first offence is $100.00; for a second offence $200.00; and for a third or

subsequent offence, not less than $200.00 and not more than $10,000.00 in the case of an

individual or $25,000.00 in the case of a corporation.

Moreover, the City has been progressive in tracking demolitions. For instance, when a building

within the city of Saskatoon is planned to be demolish, the owner of the building has to give

notice to the City estimating the amount and type of waste and how this is going to be disposed

and where. Furthermore, the Saskatoon landfill has projected a price increase of 30% over the

five subsequent years, starting on 2010.

There is a trend into the future where penalties for illegal waste dumping and fees for disposal

services at the landfill will increase over time. Moreover, The Waste Bylaw, which regulates the

City collections of commercial, industrial and institutional waste will be more restrictive. Based

on this, we believe the cost paid by manufacturing companies for disposing their industrial wood

waste will increase over the years, unless a new entity like EnviroWood enters the market with

an innovative idea related to recycling wood waste at a competitive price.

These wastes pose a hazard to our environment in the long term. Meanwhile, an established

market for wood chips and shavings can be entered with an innovative product that can compete

on price with a local/provincial green appeal.



2.4. Mission

EnviroWood will be a leading business in the new green economy: providing a solution to the

environmental challenge of waste management and recycling waste into marketable products.

Our bottom-line is to create profits while creating a greener world.

2.5. Goals and Objectives

Short term goals

Goals to be met within the first 3 years of operations include:

To reach 30% of plant capacity by year 2

To become the first choice for raw wood disposal for large manufacturers and

construction companies in Saskatoon through:

o Competitive pricing

o Efficient service beyond what the competition offers

To penetrate the landscaping markets, garden markets, livestock and small animal

bedding markets, by being recognized as a green, local and competitive priced alternative

in local and provincial markets through:

o Ensuring quality control in the production of recycled products through our

manufacturing process of no less than 2% of foreign material found in total

production

To remain competitive by repaying capital debt within the first two years to dissuade

competitors from moving into waste disposal and allowing EnviroWood to stay ahead

of the competition through lower overheads.

Increase by 200% target sales of packaged and refined product by year 2



Long term goals

Goals to be met beyond the third year of operations include:

To reach sales volume of 10,400 tons by year 4

To become a total service provider with on-site processing of scrap wood after year 5 and

to move beyond Saskatoon with our wood disposal business

To move into highly refined wood chip/shaving products suitable for vet uses, high end

pet markets and higher end landscaping needs by conducting on-going market research

3.0. Operations Plan

EnviroWood will take old pallets that are delivered to our location and chop the pallets down to

pieces then grind the pieces into wood chips or shavings. The wood required for recycling will

be free of containments such as oil and paint. The wood chips or shavings will be bagged in 5kg

bags or stocked piled in bulk. The process, which is detailed below, involves direct operators

and a operations supervisor. The direct operators are paid hourly and the operations supervisor

along with a business development person is compensated based on an annual salary.

3.1. Process Flow

The wood skids and crates are hand fed into the tub grinder.

The grinder breaks down the skids into wood pieces along a conveyer, which is fed into

chipper. See Figure 4 for Tub Grinder picture.

The chipper can either cut down the pieces into wood chips or shavings. See Figure 3 for

Process Flow. The operators has an understanding of what type of finished wood product

is required based on a visual predetermined min/ max inventory levels.

Weekly output is projected at producing 100 pallets per week. Based on a one shift

operation, current capacity is 33%, therefore, there is flexibility in increasing output with

no capital and incurring a minimum cost.



Figure 3. Process Flow

Figure 4. Tub Grinder



3.2 Inventory LevelsTable 1. Inventory level per product

Type Unit on Hand

(maximum levels)

Day's Supply Shortage Space

(square footage)

Raw- wood pallets

and crates

120 6 600

Wood Chips 500 tons 14 1200

Wood Shavings 50 -- 5kg bags 5 500

3.3. Location

The location chosen was 1503 Quebec Avenue, Saskatoon. This location is central and has easy

accessibility for both the north and south end of the city for which majority of the manufacturing

facilities are located. The industrial unit is 5,664 square feet, which will be used to store

inventory along with the manufacturing process (See figure 5).

Figure 5. Aerial View of Location



3.4. Floor LayoutThe floor plan, seen in Figure 6, will accommodate storage of both raw and finished inventory

along with the equipment. The floor layout will include an office along with a rest area and a

washroom. The plan shown below is not to scale.

Figure 6. Floor Layout

incoming

Incoming

Outgoing


Wood Skid

Storage

600 s

Office

200 s Wood chipper 1000’

Wood

Chipper

Wood chip

Storage

Bagging

Bag Storage

Rest Area Washroom


3.5. Quality Control Program

The most critical function of the process is to ensure that the nails and staples are removed from

the finished product. The tub chopper does have the capability to remove the nails and staples,

however, further in-process checks are required. The quality insurance plan to address this issue

will include:

1. Every hour wood pieces are removed from the conveyor after the skids (wood) have been

chopped into pieces and checked for any foreign debris. This process will be conducted

by the operations supervisor and the results recorded.

2. Each bag will be checked with a hand held metal detector. This will be conducted after

the product has been bagged. The inspection will be conducted by the operator. Each

bag will have a quality tag attached that has the clock number of the employee. This tag

gives the consumer the assurance that an inspection has been conducted.

3. For bulk finished goods, the operations supervisor will perform an hourly check with the

hand held metal detector. Results will be recorded.

For steps 1 and 3 the results will be reviewed daily by the operations supervisor revealing

process capability.

3.6. Average Business Days The workweek, 8-hour shift, five days a week, Monday to Friday. Shift configuration as

follows:

Table 2. Shift Configuration

Time Activity

7:00am Shift Starts

9:00am Break (paid)

9:15am Shift Continues

11:30am Lunch (unpaid)

12:00pm Shift Continues



1:45pm Break(paid)

2:00pm Shift Continues

3:30pm Shift End

Both the operators and the shift operations supervisor will follow the shift pattern. The business

development person will work a 40-hour week, Monday to Friday, beginning at 8:00 and

finishing at 4:30pm. If overtime is required, direct operators will be paid time and half after 10

hours each day or after 40 hours cumulative time in a week. Salary personal will not be paid

overtime but will be awarded time in lue.

3.7. Safety ProgramBoth the manufacturing equipment and material handling can cause serve injury. The operators

will be required to complete Safety, Lubrication, Inspection and Clean (SLIC) forms. The

objective of completing the form is to ensure that all safety devices are working properly. An

additional purpose is to maintain the equipment in basic operating condition, which will reduce

breakdowns and extend the length of the equipment. A comprehensive safety program will

reduce WSB claims and thereby receive an annual credit.

3.8. Capital BudgetAll capital will be purchased since the equipment cost is reasonable and the type of equipment

required is not available for lease purposes. The chopper will be purchase used with only

minimum amount of run type all other capital will be new.

Table 3. Capital Budget

Year 1 2 3 4 5

Outside Storage $25,000

Equipment

Chipper $20,000

Chopper $90,000

Bagging $11,000

Detector $5,000

Total Equipment $126,000



Building renovations $40,000

Total Capital $191,00

4.0. The Human Resources Plan

4.1. Number of employeesBased on the company working process, five full time employees will be hired for the first three

years. One manger will operate the entire company and will require a rich management

experience with at least three years experience. One employee will be using the grinder to grind

wood waste. Another employee is mainly responsible for chipping the wood and needs to learn

how to use the chopper; the third will put the chipped wood chips into bags, and seal the bags.

All direct operations will be cross trained on all manufacturing processes to ensure flexibility and

reduce downtime due to absentness. See table 4. for headcount breakdown. The forth employee

will charge the business development and responsible for marketing sales. Due to the employees

have not specific experience in working on these machines, all employees will be trained. Three

years later, the company will reach its volume capacity on one shift, 10400 tones of bulks and

chips will be produced. Three more employees will be recruited, and night shift will be added.

Table 4. Employee Headcount

2010 2011 2012

Directed Employees 3 7 7

Operations Supervisor 1 1 1

Business Development 1 1 1



Figure 7.

4.2. Labour costThe salary for the manager will be $35000.00 per year, and the wages for each of four employees

will be $10 per hour and work for 40 hours per week. The benefit ratio will be 25% that includes

2.42% of EI, 4.95% of CPP, 5.77% of Holiday Pay, and 12% WC and the total benefit will be

25% of all employees’ revenue. The inflation rate is 2% per year and the labour cost for the

projected five years (See Appendix 4. Revenue Estimates and Economic Variables)


Owner

OperationsSupervisor (1)

DirectOperators (3)

Business Development

(1)

Book keeper


4.3. Recruiting EmployeesUnder current labour market, sufficient local labour is available. It seems to be easy to find a

qualified manager and four other employees. Enough candidates make it feasible to select the

best qualified person for our company.

4.4. Job Descriptions

Manager: the manger will involve in the planning, coordination and control all of production

process; ensure the quality, quantity and cost of the products; manage other employees. The

typical work activities include:

Day: 8am-5pm (one-hour lunch)

Oversee the production process

Make sure the production is effective

Meet with potential customers

Supervise and motivate other employees

Resolve the conflicts between employees

Month:

Monitor the production process and adjust the schedule

Analyze the cost and set up new standard for the next month

Meet with other employees

Evaluate the employees’ work performance

Year:

Evaluate himself and employees’ work performance

Complete the financial statements

Analyze the strategy and set up new strategy for next year

Make sure the tax and the employee benefit are paid



Employees:

Operate and troubleshoot production machinery

Be responsible for product quality

Operate within standard operating procedures

Complete daily production logs

Communicate with operators from other shifts

Clean and maintain work area

Turn off and lock out equipment when not in use

4.5. Training Program

In our company, three machines grinder, chopper and bag sealer will be used. Because the

employees we recruited have no experience to operate these machines, it is necessary to train

these employees before using them. All directed employees and the manager will be trained each

year.

When the machines were purchased from the manufacturer, a technician will be sent to set up the

machine, and the technician will train all the employees in our company. Thus all persons in our

company will be crossed trained to operate all the machines in case one employee is absent

during the working day. In addition, when the machine goes is not working correctly, the

employees can work together to solve the problem.

The manager and the business developer will be sent out to learn the new knowledge, new ideas

and new strategies to make our company more profitable. |For the first years, the manager and

the business developer can submit his/ or application for training programs which are tightly

related their work, in their application, they need to describe why they are choosing the program

and why they will benefit the training program.



4.6. Human Resources Strategies

Creating a workplace that is both a comfortable and friendly work environment. The manager

will have monthly meetings with other employees and one-on-one performance evaluations will

also be held with them. The performance of the manager will also be evaluated by the share-

holders.

4.7. Total Planned - Hours and five year labour cost

The breakdown of all labour working hours at EnviroWood is shown table 5 and five year labour

cost over the projected period is shown on table 6.

Table 5. Total Hours of Work

Total Hours of Work

Manager Direct Full

Time

Business

Developmen

t

Daily Total

Monday 8 24 8 40

Tuesday 8 24 8 40

Wednesday 8 24 8 40

Thursday 8 24 8 40

Friday 8 24 8 40

Saturday

Sunday

Total Hours 40 120 40

Shift( ) (1)=7am-3pm (2)=3pm-11pm

Total Full Time Hours The first three year:

120h/per week

Fourth and fifth year:

160h/per week

Total Manage Hours 40 40



Note: Full time 2 starts at the fourth year

Table 6. Direct Labour Cost

5.0 Marketing Plan

5.1. ProductEnviroWood Recycling is a two product formula:

Industrial Wood Disposal Service + Recycled Wood Products = $ Profits

Industrial Wood Disposal Service

The industrial wood disposal service meets a demand for a convenient, efficient, and

competitively priced disposal for industry wood waste specifically palettes and construction

wood. This demand is created by increased pressure on landfill use and increasing government

environmental regulations. (City of Saskatoon, 2010)

Recycled Wood Products

The by-products of the wood disposal service will be refined to create recycled wood products

which will be sold in existing markets. Products are categorized as 1) bulk wood and 2)

packaged wood products.

Bulk wood products: wood chips and wood shavings

wood chips for landscaping and gardening; for fuelling industrial ener-heating

systems such as green houses

wood shavings for agriculture such as horse bedding



Packaged wood products

bagged chips for gardening

wood shavings for bedding mid-large pets

5.2. Segmentation & Targeting

5.2.1. Industrial Wood Disposal Services

Based on the following segmentation, the most profitable target for EnviroWood disposal

services are the large manufacturing and large construction businesses within the geographic

region of Saskatoon. EnviroWood requires 5200 tonnes of waste in year one of business.

EnviroWood has a waste disposal contract from New Holland for 2600 tonnes.

Table 7. Industrial Wood Disposal Services Segmentation

Segmentation by industry Wood type Tonnes per year

Large Manufacturing Palettes Over 1000

Large Construction Construction Wood Over 500

Small business Pallettes Under 1000

Small Construction Business Construction Wood Under 500

Residential Organic wood, small

construction

Not applicable

Other Business Under 1000

Segmentation by Geographic

Location

Landfill tonnage of Wood

Waste

Saskatoon Landfill 13,449 metric tonnes 2008 within city limits

Saskatoon Region 2,689 metric tonnes 2008 Within 60 mile range



5.2.2 Recycled Wood ProductsFigure 8. Segmentation by attitude

The following pie chart illustrates

Market segmentation by attitude.

Although 85% of the population

favour environmental action;

59% of the population are unwilling

to pay a premium price for

the environment. Market segmentation shows that prices for recycled products must remain a

factor, but that being green is an important differentiating factor for the majority of the

population.

Further research (Gibbons 2010) has determined that our product is less refined (not colored, not

sterilized, mixed woods) and thus must be at the lowest end of the price range for both bulk sales

and packaged sales unless we expand into more refining equipment. Local retailers however,

were excited to support a product made in Saskatchewan. Retailers asked for updates as the

product came closer to market. There is currently 426 tonnes in market demand for our grade of

product in landscaping, horse retail feed in one feed store, and pet bedding (Rui 2010). Our

contingency plan for sales is to sell to dairy farms at a reduced rate for bedding. There is a high

demand.


Armchair Earth-saver

27.0%

Naturalist Naysayer15.0%

Frugal Eco-friend17.0%

Enthusiastic Environ-mentalist

41.0%

Proposed target markets for lower grade mixed wood chips and shavings

Proposed target markets for future high grade wood chips and shavings

DairyEner-fuels Bulk Landscaping

Packaged LandscapingChips

Equine Bulk & package Packaged Pet shavingPackaged VeterinaryShavings

37,908 tonnesProvince of Sask

#’s unavailable

328 tonnesLow gradeRegina/Saskatoon

267 tonnesLow gradeRegina/Saskatoon

6,738 tonnes bulk low gradeProvince of Sask.

6 tonnesRegina/Saskatoon

#’s unavailable

Target Markets for low grade wood products with

The above chart uses conservative numbers. Note that in the Regina/Saskatoon packaged market there is a demand for 54,600 - 5 kg (273 tonnes) bags of low grade chips and shavings. To make year two targets 185,400 additional bags must be sold (see appendix 4 revenue estimates). The geographic region for packaged products will require expansion into Western Canada. The break even unit sales for packages in year two is 61,400 packages (307 tonnes).


5.2.3 Positioning Statements

EnerWood Recyling + Good Business = A profitable green economy

EnerWood Industrial Wood disposal service will save our clients money in wood waste costs

through: efficient turn-rounds in our delivery yard, delivery schedules that suit client timelines,

close geographic proximity to client business and competitive waste disposal prices; unlike

traditional landfill disposals we treat our clients and their waste with respect and our efficient

services make the new green economy affordable – a new world is within everyone’s grasp!

Enerwood recycled wood products sell because they are environmentally friendly, they offer the

inherent properties of wood as a superior product for landscaping, caring for large and small

animals, and for ener-fuels; unlike competitors EnerWood products are local, Canadian,

recycled and competitively priced making the new green economy affordable – a new world is

within everyone’s grasp!

5.3 Marketing Strategy

5.3.1.Industrial Wood Disposal ServiceOur marketing strategy is to pursue the largest, most lucrative contracts for the wood disposal

service. This will maximize cash inflows from the disposal service and will ensure a steady

stream of inputs for the recycled product side of the business. Differentiation through premium

service will support the wood disposal marketing strategy.



5.3.2. Recycled Wood ProductsIn the short-term bulk sales in wood chips and wood shavings will be a priority in order to move

more product and create cash flows. This strategy is supported by a competitive pricing model

with product differentiation as a local green product.

Long term, the greatest margins will be made on packaged wood chips and wood shavings, but

more units must be sold (see value spread below). To ensure successful entry into these markets

we have allowed a one year lead-up to market entry. During this year a package prototype will

be developed, marketing research will be conducted and sales contracts solicited from retailers

for the packaged product. Here sales will be supported by a differentiation strategy based on a

strong allegiance to green products but with competitive pricing.

Table 8. Value spread between disposal service, bulk product and packaged product

Industrial Wood Disposal Service Recycled Wood Products Wood Chips and Shavings

(low grade)

$50.00 per tonne disposal fee

Bulk Packaged

$55.00

$926.00 per tonne

$4.63 per 5 kg. bag

(200 bags per tonne)

$55.00 & over high grade $926.00 & over for high grade

5.4. Marketing Mix: Industrial Wood Disposal Service

Value for Customer: EnviroWood Industrial Wood Disposal Services provide the most

convenient disposal location, with pre-scheduled appointments to cut down on delivery times,

with the quickest drop-off services, the friendliest service and competitive rates – it’s a service

experience that saves time, saves money, saves the environment.



Table 9. The EnviroWood Industrial Wood Disposal Experience

The EnviroWood Service Experience: The EnviroWood Service Atmosphere

Client schedules time that suits their needs

Client arrives, is greeted, directed to weigh-in

Unload

Weigh-in

Client drives truck off scale

Pays for disposal service at truck window using

plastic, cash or check

Client receives logo printed thermos cup of coffee

while paying

Cup is our commitment to reusable’s and is an

ongoing advertisement

Client is thanked and sent on their way

Staff are dressed in green coveralls, printed with the

EnviroWood logo. A common uniform suggests

professionalism and uniformity. The key to great

service.

The building interior and grounds are clean for a

professional look and to avoid fire hazards

Rest rooms are clean

Coffee bar is clean and free of wood dust

5.4.1. PricingCity of Saskatoon: $55.00 per tonne

EnerWood: $50.00 per tonne unprocessed; $30.00 per tonne partially processed chips

Prices are set by market rates, which are established by City of Saskatoon Landfill -the current

leader in disposal services - at $55.00 per tonne. To ensure a reliable stream from disposal

service income EnerWood has set its price at $50.00 per tonne. Private landfills are not

interested in charging less for wood, instead they believe the city prices are subsized and below

market rates.



Price will drop for delivery of wood chips by contractors who do the primary chipping process

on site and deliver to EnerWood for disposal and secondary chipping (see operations). The

suggested price for partially processed chips is $30.00 per tonne.

Pricing Forecast: City Landfill will increase disposal costs by 30% over next 5 years (City of

Saskatoon, 2010)

5.4.2. DistributionSite Location: the north quadrant in the City of Saskatoon is the most convenient access for the

largest industrial clients to access EnerWood’s Wood Disposal site.

Direct Sales to primary market: the marketing strategy is to obtain 1- 3 year contracts from large

local manufacturers, construction, and waste disposal contractors. Access to this market will be

done through targeted personal sales.

Indirect Sales to secondary market: personalized solicitation packages will be sent to small

businesses targeted as likely to require wood waste disposal.

5.4.3. PromotionPromotion will be intimate and low-key. There is no reason to alert possible competitors or

encourage new entrants. Market research indicates that there is enough demand for palette

disposal services in particular and wood disposal services in general that we should be able to

reach 33% capacity within the first year using direct sales to large companies.

Promotions supporting sales to the primary market will be personalized consisting of client and

prospective client entertainment with salespeople including activities such as: lunches, dinners

and special event participation.

Secondary market promotions include personalized packages to small manufacturing businesses

and construction companies.

5.4.4. CompetitionOur primary competitors are landfill owners; our secondary competitors are other recyclers who

require wood. Our competitive strength is the service and the competitive prices we offer to our

primary market of large industrial clients and disposal contractors with bulk disposal



requirements. In our secondary markets we will face greater competition, but we still offer

convenience and a competitive disposal rates.

Table 10. Competitor AnalysisCompetitor Product Strength Weakness Price

City of Saskatoon Landfill disposal service

-Well known-Underpriced and subsidized by taxpayer, even with expected price increases

Poor service Long line ups1.45 hour delivery time; 3.5 hour round trip 30% price increase

over next 5 years

$55.00 per tonne

$10.00 per entry

Habitat for Humanity

Palette recycler Well knownNon-profit financing

Small orders, not a volume processor

Cannot meet industrial needs for palette disposal

Palettes must be in reasonable condition

Free service

Private landfills Recycled inputs hauled to factories (USA) for conversion to products

Aggressive competitors if they decide to compete

Distance to haul to by products to USA

Not interested in wood unless they can find a market

Want to charge higher landfill fees $55.00 +

City recycling/Cosmo

Composting forGarden mulch

Can work with city as a competitor

Clients are those willing to use city dump

Usually use by-products only from garden waste

Not set up for large disposal

$55.00 per tonne

$10.00 per entry

Illegal Dumping cheap Illegal Fines Law require

declaration for waste estimates and disposal plans (2004)

Difficult to find drivers willing to break the law

Environmental fines

Company reputation

Burning Cheap Fire control Illegal

Fines

Salvage Companies

Will pick up on-site Most do primary chipping on site

Still need to dispose of chips

Require waste

$35.00 but salvage company must



disposal pay an additional landfill charge for disposal, burn product or find a buyer

5.5. Marketing Mix: Recycled Wood ProductsValue for customer: EnerWood landscaping chips and shavings are a recycled locally

(provincially, Canadian) product, an environmentally friendly choice that help to reduce

landfills but are also competitively priced to meet needs for landscaping, for caring for livestock

and pets, and for ener-fuels.

Table 11. Natural Wood Animal Care

Products

Natural Wood Animal Care Wood is the most absorbent bedding available for all animal care.

Purchasing recycled wood bedding allows you and your animals to keep landfills empty, avoids clearing

more forests, and our wood has been kiln dried in a former life so it is very absorbent

Wood is even more absorbent and costs less than straw, so it keeps animals - especially livestock more

comfortable and healthier.

Bulk Purchases: per tonne Packaged: 5 kg bags – Chippee’s for Pets

Pricing $55.00 per tonne Pricing $4.63 per kg

Distribution Factory pick-up Distribution Wholesale to retailersDirect sales approach to independents, individual franchisers such as Canadian Tire, Home Hardware, and district offices of larger chains: Loblaw’s, Wal-Mart etc.

Promotion Farm shows, sales offers through horse

and 4 H clubs as fundraiser for clubs,

advertisements in producer

publications, direct sales to agricultural

fairs and other major events:

Agribitions etc.

Promotions Buyer Events;Cute packaging and name “Chippee’s” on the bag to appeal to children and pet owners.

Competition -Straw is the main competition. Wood Competition -Pet bedding is shipped in from USA



is a better product and cheaper.

-Straw: $67.00 per tonne/$1.00 per bale

Wood shaving: $55.00 per tonne

-Wood bedding is not made locally in

Saskatchewan and must be shipped in,

so price of competition is higher.

- Local, provincial, Canadian-Recycled-Strong appeal to animal consumers and owners of pets – children who are decision makes (environ research 2009)

Table 12. Landscaping chips

Products

Landscaping Chips

EnerWood Landscaping Chips are a local, affordable product

EnerWood Landscaping Chips leave a greener footprint on this earth than other wood chips

because they are made locally, provincially, Canadian. They are not imported.

Landscaping Mulch Chips EnerWood Landscaping Chips: the greener

wood chip

Price: $55.00 per tonne Price $4.63 per bag

Distribution -Wholesale to landscapers,

Saskatoon region

-direct sales

Distribution Wholesale to retail outlets

including: landscapers, home

gardening centers, big box

outlets, grocery chains,

-local, provincial, national zones

-independents first, franchise

owners, national stores, multi-

nationals

Promotion -tradeshows, brochures, mail-

outs,

Promotion Buyer shows, attractive

packaging appealing to target

market for shelf appeal

Competition -other bulk landscaping

suppliers, most from out of

province, their advantage is

variety of chip woods

Competition Most chips are imported in

generic bags by American

companies

-our advantage:



-our advantage is local,

recycled, and reduced shipping

costs.

-local, provincial,

Canadian,

-price competitive

-recycled

5.6. Marketing Summary

The critical variable to the success of both the service and recycled product sides of

EnviroWood is the supply of wood to the disposal side of the business, which also provides

the inputs for the recycled wood products. There is a demand for wood disposal services

with large contracts available; however, without these large contracts it would be difficult to

sustain this business because constant wood supply would be at risk. A critical success factor

is to establish longer term contracts with the largest players to ensure supply inputs.

There are markets current markets available for the recycled products. Our advantage is

environmental differentiation and our ability to price competitively due to low input costs

from the disposal side of the business. These factors will allow us to penetrate the chip

markets and cut costs if necessary to increase market penetration. Our success in these

current markets is dependent upon a consistent level of quality for lower grade wood chip

and shavings. This is mainly dependent upon eliminating metal contamination.

Figure 9. Composition of Sales Volume



1 2 3 4 5 -

2,000

4,000

6,000

8,000

10,000

12,000

4,400 4,000 3,700

7,500 7,500

800 1,200 1,500

2,900 2,900

EnviroWood. Composition of Sales Volume (metric tonnes)

Package (5Kg)Bulk (Ton)

6.0 Financial Plan

6.1. Financial structure

Envirowood will be financed 50% with equity and 50% with equity. In this way, there will be an

equity cash injection of $110,000. The remaining $110,000 will be a short-term loan, which will

be paid in 3 years at a rate of 9% APR. No additional debt will be required during the following

years (See appendix 8 Financing budget and Amortization schedule).

6.2. Capital budget

The factory will operate in a leased building located in the north end of the city of Saskatoon.

Some building renovations will be required in order to accommodate the equipment. The

renovations have been estimated in $40,000. Regarding the plant equipment, the major part will

be purchased brand new; this is the chipper and chopper machine, the metal detector along with



the bagging machine. Only one machine will be leased, the weighing machine, which will cost

$100/per month. An outside storage facility will be purchased and the cost is estimated on

$25,000. In total, our initial capital budget is about $ 191,000 (See appendix 7 – Capital budget).

6.3. Financial Analysis

6.3.1. Revenue estimates

EnviroWood has 3 sources of revenue: 1) the disposal service, 2) the woodchips and wood

shavings sold in 5 Kg packages and 3) the woodchips and wood shavings sold in bulk. It is

important to highlight the unique relationship among the revenue sources, since finish goods are

produced at the same time as the raw material is received through the disposal service (See

appendix 4 - Revenue estimates).

In year 1, we considered there would not be package sales. This does not mean woodchips will

not be produced. On the contrary, all raw materials will be processed and approximately 800

tonnes or 160,000 bags of 5Kg of woodchips will be packaged. The package product will be

used for marketing purposes, such as product testing, trade shows presentations and in general

promotion to establish contracts with customers. EnviroWood marketing strategy is

conservative. Our business is to sell large volumes of woodchips and woodshaving while doing

our best effort to maintain a steady market share in the high margin product, woodchips and

wood shavings sold in package. Table 13. shows our financial projections and Figure 10.

illustrates the trend among revenues, COGS, expenses, and taxes.

Table 13. Financial Projections



Figure 10. Trend Analysis Revenue Vs. COGS, Expenses and Taxes

Figure 11. below shows the allocation of the industrial wood waste received through the disposal

service between the remaining product lines, bulk sales and package sales.

Figure 11. Allocation of Industrial Wood Waste



6.3.2. Cost of Goods Sold and Expenses Estimates

On one hand, in order to calculate the COGS the following assumptions were made (See

Appendix 5 – COGS and Expenses Estimates):

1) Direct labour is comprised of 4 operators, from year 1 to 3. In year 4 and 5, the number of

operators will increase to 7, since a night shift will be implemented.

2) Direct materials includes the number of bags required for packing the woodchips and wood

shavings. The bagging machine has an estimated production error of 0.5%. Accordingly, extra

materials will be ordered to avoid production delays.

3) The manufacturing overhead cost was allocated based on direct labour hours.

4) In order to project costs, the prices of the following variables were affected by inflation, cost

of labour per hour, price of bag per unit, utilities, maintenance and parts.

On the other hand, to calculate project expenses, the prices of the following variables were

affected by inflation, leasing of the building and the weighing machine, staff salaries, marketing

costs, insurance and other expenses.

Table 14. COGS, Expenses and Taxes Estimates



6.4. Risk analysis

6.4.1. Base scenario

Our base scenario is the same we have projected in the financial statements. We will receive

5,200 tonnes of industrial waste wood through the disposal service at a price of $50/tonne. In

year 1, we will wholesale 4,400 tonnes at a price of $55/tonne and produce 800 tonnes of

woodchips and wood shaving that will be packaged in 5Kg bags, this is 160,000 bags.

Table 15. Base Scenario Information

In this scenario, the present value of the net cash flows is $3,382,008, minus the initial

investment of $110,000, this is an NPV of $3,272,008 at a 20% discount rate. Our internal rate

of return (IRR) is 280%. Moreover, EnviroWood generates net income during all 5 years (See

appendix 1 – Income Statement).

Table 16. Income Statement Results



6.4.2. Best scenarioIn our best scenario, we have projected an increase of 200% in our target package sales starting

in year 2. It is important to note that in year 1, there are no changes in the quantity sold per

product line. We considered this approach because we believed that without the marketing

strategy, which will be executed in year 1, the chance of doubling our target package sales in

year 2 is remote. Another key point in this analysis is that the sales volume will remain constant.

As a result, bulk sales will decrease as package sale is increasing.

Table 17. Best Scenario Information

In this scenario, NPV is $5,861,867 at a 20% discount rate and our IRR is 375%. Moreover, net

income after year 1 increases in average by 78% per year.




6.4.3. Worst scenario

For our worst scenario, we have projected that EnviroWood will receive the industrial waste

wood for-free and our bulk sales will decrease by 50%. In this way, the cost structure remains

the same, because the cost of raw material is zero. In contrast, our revenue projection will be

affected, since one revenue source disappears.

Table 19. Worst Scenario Information

In this scenario, NPV is $ 2,142,849 at a 20% discount rate and IRR is 144%. However,

EnviroWood would experience a net loss of $339,269 in year 1 only.




The following table summarizes the results obtained in the three scenarios.

Table 21. Scenarios Results Comparison

Scenario analysis

Base scenario Worst scenario Best scenario

IRR 280% 144% 375%NPV @ 20% $3,272,008 $ 2,142,849 $5,861,867

Net income Net profit, all 5 years

Net loss only in year 1 of $339,269.

Net profit all 5 years. From year 2 to 5, it increases in average by 78% per year

6.5. Break-even Analysis

We have compared the economic and the accounting break-even with our base scenario, which is

the sales volume stated in our financial projections. The table shows the results obtained in this

analysis. This is also illustrated in figure 12. and 13.

Table 22. Economic and Accounting Break-even vs. Base Scenario



Regarding the accounting break-even analysis, evidently this is much higher than the economic

break-even. This means that in order to have a net income equal to zero, the minimum sales

volume required to be sold in year 2 is 1,025 tonnes of bulk and 307 tonnes of package product..

In this way, at least 1,332 tonnes of raw material should be received through the disposal service.

Regarding the economic break-even, this is much lower level than the accounting break-even. In

this way, lower sales volume levels are required to reach this break-even, which is reached when

NPV is equal to zero.

In sum, EnviroWood has comfortable sales volume levels required to avoid then generation of

net losses and the destruction of value for its shareholders.



Figure 12. Comparison Economic and Accounting Break-even vs Projected sales for Bulk product

Figure 13. Comparison Economic and Accounting Break-even vs Projected sales for Package product



6.6. Risk analysis Conclusions

The major risk for this business is supply of wood from the wood disposal service side.

Currently we are in possession of a 2600 tonne contract. This is 45% of our need for raw

material for the first three years. If we cannot obtain enough large suppliers as customers, we

can mitigate this problem by approaching manufacturers within the region of Saskatoon going as

far as 500 km for wood. However, we believe that with Mathew Ralph on our team, we have an

inside access to other companies in Saskatoon by virtue of his current executive position with

New Holland manufacturing (appendix 10). If we are required to buy our wood, this could also

be a critical factor, but in the short term (5 years) we do not believe this will be a problem given

the current supply of waste wood. We can turn a profit even if we earn only $0.00 from our

disposal business. To avoid competition by others for wood our payback period of 2 years

allows us to compete at $0.00 return for our disposal business, which makes entry by other

competitors difficult.

The second critical area is quality control of the product to ensure marketing success in the long

run, especially if we move into the higher end products (see goals). We believe Mathew with his

manufacturing experience will also be a benefit in this area. The markets exist for wood

products and our research indicates that there is a demand for our green product at a competitive

price. We believe we can meet our sales forecasts.

This is a high-risk venture, which has potential to pay a high IRR. We recommend this business

for the investor who enjoys a challenge and believe we can make a success within 5 years.



7.0. References

Kurucz, J. (2009, August 14). Wood recycling proves popular. The Now.

Rudder, W., Keane, M., Ng, L., and Prime, M., 2007. City of Saskatoon Waste and Recycling Plan. Prepared for the City of Saskatoon, Saskatchewan by Earth Tech (Canada) Inc.

Interviews with employees of the Environmental Services Branch. City of Saskatoon. March 2010.

Interviews with employees of the Saskatoon Landfill. City of Saskatoon. March 2010.

Interviews with Saskatoon Landscaping Retailers. March 2010.

Interviews with Loraas Disposal. Saskatoon Landscaping. March 2010.



Appendix 1. EnviroWood Projected Income Statement



Appendix 2. EnviroWood Projected Balance Sheet



Appendix 3. EnviroWood Projected Statement of Cash Flow



Appendix 4. EnviroWood Revenue Estimates and Economic Variables



Appendix 5. EnviroWood COGS and Expenses Estimates



Appendix 6. EnviroWood Personnel and CCA Estimates



Appendix 7. EnviroWood Capital Budget



Appendix 8. EnviroWood Financing budget and Amortization Schedule



Appendix 9. EnviroWood Working Capital Estimates



Appendix 10. Letter of intent from New Holland Case

March 16, 2010

TO: EnviroWood

Re: Letter of IntentDisposal of Wood Products

This is a letter of intent for which CNH Saskatoon will sell scrap wood products to EnviroWood paying $50 per tonne. CNH will ensure all scrap product is free of plastic, however will not be responsible for sorting out any stained contamination found on or in the scrap wood. CNH assumes the freight costs and shipments will be set on a weekly frequency. EnviroWood has accepted delivery schedule and will have the capacity to process projected supply. Currently, CNH is producing 100 tonnes of wood scrap per month, this number may be reduced with ongoing continuous improvement activities to reduce the amount of wood packaging be supplied from the supplier base.

CNH holds EnviroWood responsible to ensure wood is disposed in accordance to government regulation, failure to adhere to such policies will result in termination of any such forward agreed contracts.

If CNH locates a source to dispose of the scrap wood for a lesser cost, it is agreed that CNH will provide the opportunity for EnviroWood to match the proposed cost, if the cost is not matched, CNH will conclude such contact given 30 days notice.

CNH looks forward to building a partnership with EnviroWood.

Thank you,

Rick PearsonHealth and Safety Manager


Saskatoon Plant Operations1000- 71st Street EastSaskatoon, SK S7K 3S5Canada

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