| | Business summary | Production targets | Financial benchmarks | Market factors | Capital investment | Cash flow projections - tree nursery enterprise | Snapshot enterprise budget - coniferous & deciduous tree nursery - year 7 | Sensitivity analysis | Risk factors | Management strategies
Business Summary
This factsheet provides economic information on establishing and operating a tree nursery in central Alberta. This information was generated by a group of tree nursery operators who arrived at a consensus on investment, production, costs and revenues.
This is an established tree nursery operation that markets both coniferous and deciduous trees to the wholesale market.
This information is intended as a business planning tool. Managers will have to assess all the key production and financial variables that would influence the success of their enterprise.
Production Targets
| Tree losses from seeding until harvest |  |
| Coniferous | 33% |
| Deciduous | 33% |
Production planning should be based on planting sufficient trees each year to sustain target sales and revenues.
Coniferous trees will require 15 acres with 1 acre (600 trees) planted each year. A year of preparation is required followed by planting 1-gallon size seedlings in the next year. Seedlings grow for 5 years and then harvested and marketed at various sizes for the next 6 years.
Deciduous trees will require 70 acres in production with 5˙acres (3,000 trees) planted each year. A year of preparation is required followed by the planting of two-year old liners in the next year. Seedlings grow for 3˙years and are harvested and are marketed at various sizes for the next 7 years.
Financial Benchmarks
| Deciduous revenues as a percentage of total revenues | 80% |
| Labour costs as a percentage of gross revenues | 30% |
Market Factors
This is a wholesale operation marketing caliper trees FOB (freight on board) the nursery. Primary clients are landscapers and municipalities. Marketing strategies focus on providing a wide variety of trees to meet client needs, developing client relationships and providing high quality stock.
Capital Investment
The investment reflects an established operation that has been in business for a period of time and can generate $400,000 per year from tree sales. This is not a startup enterprise.
| | Investment |
| Land (160 acres) | $320,000 |
| | |
| Developments |
| Deer fence | $35,000 |
| Well | $7,000 |
| Single phase power | $25,000 |
| Natural gas | $3,200 |
| Telephone | $1,000 |
| Septic system | $5,000 |
| Yard site development | $15,000 |
| Total Developments | $91,200 |
x |
| Main building (50' x 100') | $160,000 |
x |
| Irrigation system (85 acres) | $115,500 |
x |
| Field Equipment |
| 60 hp tractor | $60,000 |
| 20 hp tractor | $20,500 |
| 60 hp Skidsteer Loader | $125,000 |
| Cultivators (8' & 5') | $3,450 |
| Sprayer | $3,450 |
| Rototillers (4' & 7') | $7,875 |
| Disc | $2,875 |
| Rotary mower | $1,725 |
| Fertilizer spreader | $2,300 |
| Blade | $2,800 |
| Transplanter | $5,500 |
| Trucks | $30,000 |
| Flatdeck trailer | $7,000 |
| Quad & trailer | $5,750 |
| Hand tools | $6,750 |
| Fuel tanks | $1,200 |
| Shop equipment | $11,500 |
| Office equipment | $23,000 |
| Total Equipment | $320,675 |
x |
| Total Capital Investment | $1,006,875 |
Cash Flow Projections - Tree Nursery Enterprise
Cash flow must be looked at separately from revenue and expenses to assess the viability of the enterprise. Year to year variations in prices and the trees marketed will affect cash flow. Individuals investing in a tree nursery enterprise will require sufficient start-up capital to meet cash outflows until sales are made.
| | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 |
| Cash Outflows | .. | .. | .. | .. | .. | .. |
| Total Capital Investment | $672,625 | $308,000 | $26,250 | .. | .. | .. |
| Direct Planting Costs | $68,400 | $68,400 | $68,400 | $68,400 | $68,400 | $68,400 |
| Indirect Costs | $112,355 | $112,355 | $112,355 | $155,941 | $189,053 | $222,263 |
| Total Cash Operating Costs1 | $180,755 | $180,755 | $180,755 | $224,341 | $257,453 | $290,663 |
| Total Debt Payments | $44,670 | $44,670 | $44,670 | $44,670 | $44,670 | $44,670 |
| Cash Withdrawals | $11,250 | $11,250 | $11,250 | $11,250 | $11,250 | $11,250 |
| Total Cash Outflows | $909,300 | $544,675 | $262,925 | $280,260 | $313,373 | $346,583 |
. |
| Cash Inflows | .. | .. | .. | .. | .. | .. |
| Sales Revenues | . | . | . | $89,695 | $179,390 | $358,780 |
| Equity Capital (investment) | $533,644 | . | . | . | . | . |
| Start-Up Capital (operating) | $130,000 | $185,000 | $185,000 | $165,000 | $90,000 | . |
| Debt Capital | $473,231 | . | . | . | . | . |
| Total Inflows | $1,136,875 | $185,000 | $185,000 | $254,695 | $269,390 | $358,780 |
. |
| Net Cash Flows | $227,575 | $(359,675) | $(77,925) | $(25,565) | $(43,983) | $12,197 |
. |
| Cumulative Cash Flows | $227,575 | $(132,099) | $(210,024) | $(235,589) | $(279,572) | $(267,375) |
. |
. | Year 7 | Year 8 | Year 9 | Year 10 | Year 11 | Year 12 |
| Cash Outflows | .. | .. | .. | .. | .. | .. |
| Total Capital Investment | . | . | . | . | . | . |
| Direct Planting Costs | $68,400 | $68,400 | $68,400 | $68,400 | $68,400 | $68,400 |
| Indirect Costs | $305,050 | $260,015 | $260,015 | $260,015 | $260,015 | $260,015 |
| Total Cash Operating Costs | $373,450 | $328,415 | $328,415 | $328,415 | $328,415 | $328,415 |
| Total Debt Payments | $44,670 | $44,670 | $44,670 | $44,670 | $44,670 | $44,670 |
| Cash Withdrawals | $11,250 | $11,250 | $11,250 | $11,250 | $11,250 | $11,250 |
| Total Cash Outflows | $429,370 | $384,335 | $384,335 | $384,335 | $384,335 | $384,335 |
. |
| Cash Inflows | .. | .. | .. | .. | .. | .. |
| Sales Revenues | $448,475 | $448,475 | $448,475 | $448,475 | $448,475 | $448,475 |
| Equity Capital (investment) | . | . | . | . | . | . |
| Start-Up Capital (operating) | . | . | . | . | . | . |
| Debt Capital | . | . | . | . | . | . |
| Total Inflows | $448,475 | $448,475 | $448,475 | $448,475 | $448,475 | $448,475 |
. |
| Net Cash Flows | $19,105 | $64,140 | $64,140 | $64,140 | $64,140 | $64,140 |
. |
| Cumulative Cash Flows | $(248,270) | $(184,130) | $(119,990) | $(55,850) | $8,289 | $72,429 |
Debt level is not likely to exceed 50% of total capital investment.
Snapshot Enterprise Budget - Coniferous & Deciduous Tree Nursery - Year 7
| Projected Revenues | No. | Avg. Price | Revenues | Your Snapshot |
| Coniferous Trees . |
| . .2 metre | 107 | $170 | $18,190 | . |
| .. 2.5 metre | 205 | $225 | $46,125 | . |
| . .3 metre | 64 | $273 | $17,472 | . |
| . .3.5 metre | 27 | $320 | $8,640 | . |
| Deciduous Trees |
| . .50 mm Trees | 533 | $165 | $87,945 | . |
| . .60 mm Trees | 564 | $192 | $108,288 | . |
| . .70 mm Trees | 432 | $210 | $90,720 | . |
| ..80 mm Trees | 229 | $230 | $52,670 | . |
| .100 mm Trees | 67 | $275 | $18,425 | . |
| Total Projected Revenues | . | . | $448,475 | . |
| . |
| Projected Direct Costs . | .. | .. | .. | .. |
| Seedlings/Liners | . | . | $60,000 | . |
| Herbicide | . | . . | $4,500 | . |
| Fertilizer | . | . | $2,000 | . |
| Pesticide | . | . . | $1,200 | . |
| Custom charges | . | . | $500 | . |
| Seed | . | . | $200 | . |
| Packaging | . | . | $28,964 | . |
| Re-planting costs | | | $43,512 | |
| Labour (hired + owner) | . | . | $161,250 | . |
| Worker's Compensation Board | . | . | $1,900 | . |
| Machinery Repairs & Maintenance | . | . | $18,000 | . |
| Fuel and Oil | . | . | $7,800 | . |
| Irrigation Repairs & Maintenance | . | . | $6,500 | . |
| Utilities (power, natural gas, telephone) | . | . | $10,750 | . |
| Marketing and Advertising | . | . | $7,200 | . |
| Building Repairs & Maintenance | . | . | $1,000 | . |
| Office Supplies | . | . | $3,000 | . |
| Memberships | . | . | $600 | . |
| Professional Fees | . | . | $2,500 | . |
| Professional Development | . | . | $2,000 | . |
| Bad Debts2 | . | . | $3,000 | . |
| Interest on Operating3 | . | . | $12,324 | . |
| Total Projected Direct Costs | . | . | $335,188 | . |
| .. |
| Projected Indirect Costs | . | . | . | . |
| Land taxes, licences and insurance | . | . | $6,000 | . |
| Depreciation4 | . | . | $44,138 | . |
| Total Projected Indirect Costs | . | . | $50,138 | . |
| . |
| Total Projected Direct & Indirect Costs | . | . | $385,327 | . |
| . |
| Gross Operating Profit | . | . | $19,636 | . |
| . |
| Interest on Investment5 | .. | .. | .. | .. |
| Land, development, buildings & irrigation | . | . | $20,209 | . |
| Field equipment | . | . | $9,444 | . |
| Total Interest on Investment | . | . | $29,652 | . |
| .. |
| Total Projected Economic Costs | . | . | $414,979 | . |
| .. |
| Return to Management6 | . | . | $10,016 | . |
Sensitivity Analysis
The profitability of a tree nursery enterprise will be strongly influenced by tree losses and market prices.
Tree losses due to weather, deer and rodents will have a significant impact on the profitability of the operation. The table below shows the impact of higher or lower levels of losses on Gross Operating Profit.
Level of Tree Losses | Gross Operating Profit |
25% | $73,186 |
33% | $19,636 |
40% | $(27,219) |
50% | $(94,156) |
Changes in price levels are expected to have the following effect on Gross Operating Profit.
Change in Price Levels | Gross Operating Profit |
+20% | $109,331 |
+10% | $64,484 |
- 10% | $(25,211) |
- 20% | $(70,059) |
Definitions
1Cash operating costs: Direct costs + taxes, licences and insurance.
2Bad debts: An allowance for uncollected debts.
3Interest on operating: The interest on an operating loan, estimated at 7% for 6 months.
4 Depreciation: The reduction in the value of an asset over its lifetime.
5 Interest on Investment: The cost of investing in capital assets rather than in a financial investment. Valued at 5.89% on all asset categories.
6 Return to Management: An amount left to compensate the owner-operator for risk and management.
Risk Factors
Individual operators must address the following risk factors:
- Tree losses from weather, rodents and deer
- Disease and pest problems
- Regulatory changes
- Market conditions - prices and trends
- Insurance - tree nursery crops are not insurable
- Nursery crops have a limited market life
- Out of province competition
Management Strategies
Key management strategies that will contribute to the production and economic performance:
- Ongoing education and seeking the advice of other producers.
- Keeping capital costs down by building own facilities and only paying for materials.
- Growing a diversity of crops.
- Adopting appropriate cultural practices.
- Using "Deer Fences" where the damage to nursery crops by deer is a significant problem.
For more information, contact:
Landscape Alberta Nursery Trades Association
10215 - 176 Street, Edmonton, Alberta T5S 1M1
Phone: (780) 489-1991 Fax: (780) 444-2152
E-mail: info@landscape-alberta.com
Alberta Agriculture and Food
Alberta Ag Info Centre 310-FARM (3276)
Publications
Guide to Establishing A Nursery In Alberta #98-25. Available only from Crop Diversification Centres
The following people contributed to the preparation of this factsheet:
- Alberta Tree Nursery Association
- Dean Dyck, P. Ag., Financial Business Analyst, Red Deer
- Dennis Dey, Farm Management Consultant, Olds
Source: Agdex 275/821-1. Revised June 2007. |
|