Subsections

 Preparatory Investigation: The Water Resource, Land and and Buildings, Market
and Prices
o The Entrepeneurs
o Natural resources
o Buildings
o The Market

 The company and the business idea

 Feasibility Study of a Simple Flow-through Farm
o The Yield of the Simple Flow-through Farm
o Start-up Cost Plan for a Simple Flow-through System
 Tank space and price
o The Project Reviewed

 A Feasibility Study of a Thorough-use System

o Production and Sales Plan
o Start-up Cost Plan for Thorough-use System
 Tank space
o Planning the construction and development
o Cash flow plan
o Purchase planning
o Operation Cost and Income Statement
o Break-even
o Balance sheet
Preparatory Investigation: The Water Resource, Land
and and Buildings, Market and Prices
The Entrepeneurs

A young couple in Iceland, Johann and Rosa, have taken over Johann's parents' farm.
Traditional husbandry of cattle and sheep for production of meat and dairy products has
gone through a rough time so they have been looking for new opportunities in their
farming. Johann believes that arctic charr might suit them well. Before making up their
mind they inspect their water resources, the features of their land and other factors that
might support or rule against their hopes. They also study the basics of fish farming,
collect information on what facilities are required, prices of material and equipment they
would have to buy and, of course, look into the market situation. At the end of the year
they have - aside their regular work on the farm - spent on preparatory inspection and
calculations, they now know:

Natural resources

The stream running through their land has waterflow of 120 liters per second. The
temperature of the water varies along with the seasons, from 4°C in winter up to 9°C in
the summer, average temperature being around 7°C. The source of the stream is by the
roots of a mountain in their land, at about 15 meters height above the possible location
of the tanks and at 0.75 km distance. The declination is therefore 1:50 meters. The
declination of the land is fairly even. In the land there is a small spring of geothermal
water, as in many places in Iceland, but at this point they are considering a simple flow
through of the stream water.

Buildings

As they have decided that farming sheep doesn't pay anymore, they consider putting
the tanks up under roof as well as facilities for bleeding fish in the quite big sheepcote.
The house is a solid concrete building with corrugated iron roof with room, originally
built to house 400 sheep. Feed and packaging could be stored there as well.

The Market

They have contacted a wholesale distributor of fish who is prepared to take on their
product for sale both to the grocery chains on home market and abroad. The price the
distributor is prepared to pay is 5.10 ECU's (FOB) - and they have verified as being the
present market price -, has been stable for quite a while and for the time being nothing
indicates it will fall in the nearest future. The distributor runs a factory for slaughtering
and packaging some 20 km away from Johann's and Rosa's farm, the roads are cleared
of snow all the winter because of the milk transport from all the farms to the dairy
factory. Now the couple decides to proceed and prepare a business plan for making
sure all relevant matters are accounted with.

The company and the business idea

Registered farmers in Iceland are not required to establish a separate company, when
starting a fish farm producing up to 20 tons a year. Now Johann and Rosa have a larger
produce in mind so they would need to apply for a commercial license for selling their
product and have their fish farm registered. They agree with their accountant that a
company with limited liability (Ltd) would be a suitable form. The future aquaculturist has
to apply for an operating permit for farming fish in the area. A preliminary investigation
into whether there are any reasons to fear that their application might be turned down
for environmental reasons, is one of the first things our couple needs to do. In Iceland
the Environmental and Food Agency of Iceland (Hollustuvernd ríkisins), Nature
Conservation Agency (Náttúruvernd ríkisins), Directorate of Freshwater Fisheries
(Veiðimálastjóri) and the Veterinary Officer of Fish Diseases (Dýralæknir fisksjúkdóma))
do respectively estimate the effects on the environment, primarily possible
contamination of natural water resources and the danger of contaminating natural fish
stocks. They will report to the Ministry of Agriculture with their recommendation for or
against permission. The official requirements are described further in Chapter 3,
Construction of a Charr Farm.

The business idea so far is to produce at full capacity of their stream water resource
and sell their product fresh ten months a year. They intend to buy fry at 10 g, grow the
fish to 1 kg and sell all their product to a single distributor. They will bleed the fish at the
farm, then transport it iced in fish-tubs in trucks to the distributor's factory for gutting and
packaging. The business plan they will finally present is based on the facts and
opportunities they discover through their investigations and calculations before making
the final decision. After studying the options and costs of getting the final product to the
market as shown in table below , and customer demand, they decide that 40% of their
product should be sold as fresh fillets and 60% as fresh, gutted fish. The average return
price/kg live fish will be 4.18 ECU/kg (see table).

The final price of your product in ECU/kg

      Ship Air freight Ship Air freight
Gutted Fillets Frozen fillets Frozen fillets Frozen Frozen
CIF-price 5,92 10,53 9,67 10,13 5,53 5,92
Freight 0,79 0,99 0,24 0,86 0,26 0,86
FOB-price 5,13 9,54 9,43 9,28 5,26 5,07
Sales commission 4.5% 0,23 0,43 0,42 0,42 0,24 0,23
Return price to producer 4,9 9,11 9,01 8,86 5,03 4,84
Domestic transport 0,13 0,13 0,21 0,21 0,21 0,21
Packaging 0,26 0,33 0,33 0,33 0,46 0,46
Freezing 0 0 0,13 0,13 0,13 0,13
Slaughtering/processing 0,26 0,79 0,72 0,72 0,2 0,2
Return price of product 4,25 7,86 7,62 7,47 4,03 3,84
Yield from processing % 90% 60% 60% 60% 90% 90%
Return price pr kg live fish 3,82 4,72 4,57 4,48 3,62 3,46

Feasibility Study of a Simple Flow-through Farm

The next step is to work out how much they can produce, looking into all possibilities and
investigating the economy of different models of production. To begin with they estimate the
annual production and income at a given price, with their 120 L/sec and the average
temperature at 7°C, that is the natural conditions of a simple flow-through farm. The calculate
with on-growing from 10 gr. fry. Before we follow their calculations a few financial terms need to
be explained:

 Variable cost,
 fixed cost,
 contribution margin,
 variable unit cost and
 break-even point.

The variable cost is the cost which changes with alterations in the level of production. The fixed
cost is the cost that remains independent of the level of production. Examples of fixed cost:
house rental, depreciation, cleaning, etc. Examples of variable cost: feed, medicine, fry and
production labour cost. Sometimes it is not obvious whether cost in question is fixed or variable.
Contribution margin is defined as the sales price minus the variable cost. Therefore the
contribution margin is the amount which will pay the fixed cost and give the profit. In calculation
of the cost and in estimation of the grounds for the business, it is often best to find the variable
cost per unit produced. That cost is then named variable unit cost (VUC). The break-even point
is where the sales income is equal to the cost. Such the break-even point tells the farmer how
much he has to produce and sell to cover all variable and fixed cost.

The Yield of the Simple Flow-through Farm

The waterflow and temperature throughout the year is known. Johann and Rosa can calculate
how much they can produce in a simple flow-through system at a given temperature by using
the spreadsheet file fish2water. On the sheet called "production" they set the flow rate 120
L/sec, feed conversion rate 1,2 (how much feed is needed to produce 1 kg fish) and the net
salesprice 4.18 ECU/kg based on the sale as 40% fresh fillets and 60% as fresh gutted fish as
mentioned earlier (the price is based on return price for live fish as listed in table on previous
page). An estimate of the annual production can be seen in table below. The average
temperature at their site is around 7°C and their production circa 35 tons of fish per year. Let's
turn to the table: Subtracting variable costs such as feed costs, labour production costs (their
own) and fry cost they have left about 52.000 ECU to pay off the investment cost and for
maintenance of the farm plus supporting the family. (The variable unit cost equals 2,7 ECU/kg
or 96.000 ECU total for the 35 tons.)

In the table variable cost per kg (VUC) is shown as constant. As a matter of fact there
will be a somewhat higher cost pr. kg produced at the lowest temperature as the fish will
grow slower but still need some care (it eats little during winter time so the feed cost will
not be much higher, but it still needs to be feed and the farm looked after).

  Their production at 120 l/sec for a simple flow-through system

Temp. Biomass Annual Income VC/kg Contrib./kg Contribution

(kg fish) production (kECU) (ECU/kg) (ECU/kg) tot (kECU)

4 25.047 32.556 136 2,71 1,47 47,98

5 22.826 34.040 142 2,71 1,47 50,16

6 20.792 34.987 146 2,71 1,47 51,56

7 18.928 35.475 148 2,71 1,47 52,28

8 17.221 35.573 149 2,71 1,47 52,42

9 15.691 35.418 148 2,71 1,47 52,2

10 14.290 34.991 146 2,71 1,47 51,57

11 13.032 34.407 143 2,71 1,47 50,7

12 11.879 33.638 140 2,71 1,47 49,57

Start-up Cost Plan for a Simple Flow-through System

The couple make an estimate of the investment cost for the simple flow through system plus the
main operation cost factors for the first two years. Cost for materials for harnessing of the water
resources are estimated 2.000 ECU. Digging the ditch for the pipeline from the source to tanks
(750 meters) will be around 3.600 ECU, work and gravel included. Expert advice from engineers
is needed to ensure that the pipeline will be correctly dimensioned and designed. As said before
the pipeline is 750 meters long and with a height difference of 15 meters. This equals a height
difference of 20 meters per kilometer and the volume of water will be 120 l/sec. Using the
nomogram in chapter 3 they find that a 250 mm pipe is needed. The 15 m height difference
equals 1.5 bar pressure and therefore a PN 2.5 pipe is sufficient. The price is around 14
ECU/meter and the material cost estimated around 16.000 ECU with bends and other auxiliary
pipes. Around 16 months will pass from the time they acquire the fry for ongrowing until their
first harvest. Taking into account the time it takes to build the fish farm it can be estimated that
during 2 years period the couple will work hard in the fish farm without having any income from
it - the cost, however, will not wait until then, and has to be financed, one way or the other.

Tank space and price

To find out how much tank space is needed for the 17 tons biomass needed, Johann and Rosa
calculate with 1/27 of the biomass being small fish, 8/27 average fish and 18/27 big fish. It is
also expected that the density is 20 kg/m3 of the smallest fish, 40 kg/m3 of the middle sized fish
and 60 kg/m3 of the biggest fish. The total space of the tanks is calculated as follows:

1/27 x 17tons/20kg/m3 = 31m3

8/27 x 17tons/40kg/m3 = 124m3

18/27 x 17tons/60kg/m3 = 186m3

   3/11m3

Rosa has made an inventory of available types and sizes of tanks. Her findings show that earth
ponds and corrugated steel tanks are the cheapest choices. The disadvantage of earth ponds,
however, is that they will demand more cleaning work than tanks, which would be designed for
self-cleaning. Therefore the couple decides that corrugated steel tanks would be a better option.
According to the production plan, they need tank space of 340 m3 at maximum production. It is
cheaper to buy two big tanks, 170 m3 each, than to buy more and smaller tanks. However, there
are two important reasons for taking the more expensive choice:

1. It allows better size grading and therefore prevent that fast growing fish takes all the food
from the smaller ones and thus still increase the difference in size.
2. In case of infection, it can be confined to one tank. One tank must be used as starvation
tank before slaughtering.

A suitable choice would be two tanks of 15 m 3 for the smallest fish, two 60 m3 tanks for
middle size and three more 60m3 for the bigger fish. A start-up cost plan for Johann's
and Rosa's simple flow-through farm could be as in table below:

Start-up Cost Plan for a Simple Flow-through System

Materials for the water resource 2.000

Ditch digging 4.600

Engineering service 950

Water pipes and relative equipment (offer) 16.000

5 tanks and relative equipment (offer) 29.000

Changes of houses (materials) 10.000

40.000 fry (ca. 10 grams each) 6.600

Feed for the first 16 months 51.500

Wages for the first 16 months 44.500

Veterinarian for the first 16 months 1.500

Others 12.000

Total 178.650

The Project Reviewed

At this point it can be estimated whether Johann's and Rosa's projected charr farm is a
reasonable business. Even though they start out with a 50.000 ECU capital of their own, the
couple would still need to take a loan of about 180.000 ECU to cover the initial costs and
payback of the loan for the first year and a half. If we assume 12.5% interest rates and a
payback time of 7 years the annual mortgage + interest will be around 40.000 ECU a year. The
contribution from the aquaculture was 52.000 ECU/year, which leaves the family with 12.000
ECU return plus their salaries of 33.000 ECU which leaves them with 45.000 ECU/year, to
sustain the farm and the family for the first seven years. After the first seven years, when the
loan has been paid off in full the income from the aquaculture has gone up to 85.000 ECU.

The results of these calculation depend a bit on their own contributed capital, the
interest rate and the payback time of the loan. The same loan at e.g. 8% interest and 10
year payback time leaves them with 13.000 ECU more per year. Still, this preliminary
estimation of investment and operation cost measured against the calculated income of
the simple flow through farm doesn't look too promising, if considered as a sole income
source for Johann and Rosa. Our farmers decide then to work on an alternative plan, a
thorough-use system.

A Feasibility Study of a Thorough-use System

Thorough-use is explained in Chapter 3. The alternative is based upon the possibilities in
increasing the production capacity by use of the geothermal water source in their land (5 l/sec of
80°C warm water) and adding oxygen, by which the average temperature will rise from 7° to
10°C. They study the factors that control how much and how fast they can produce with their
120 l/sec., provided they can control the water temperature and add oxygen. Following
components are limiting to the production capacity:

 Waterflow (liters per second)

 Water temperature
 Self cleaning capacity of tanks
 Oxygenation of the water

The amount of water which flows through the tank decides mostly the production capacity, as
long as others components like tank space do not limit the use of the water. The production
capacity increases with increased water flow.

The growth rate of the charr depends primarily on two components: water temperature
and amount of feed. If the fish is properly fed, then the charr grows like shown in figure
A. With 7°C average temperature, the charr grows from 10 grams to 800 grams in about
20 months and to 1000 grams in 22 months. With 5°C average temperature, the growth
takes 23 and 25 months for same weights.
 Figure A: Increase in weight of 10 gram fry at different temperatures.

In the temperature range of 4 to 8°C the production capacity increases proportionally to

increase in temperature. Surpassing 8 - 12°C the saturation level of oxygen becomes a
limiting factor as the oxygen saturation falls with higher temperature. The relationship
between production capacity and temperature is shown in figure B . In this example
calculations are based on 120 l/sec.
 Figure B: Relationship between water temperature and the
mass of fish, which can be produced annually, if the water
flow is 120 L/sec. and no oxygen is added

The water temperature affecting the growth rate (warmer water speeds up the growth)
affects the biomass required to yield the harvest intended. The total weight of living fish
at all age stages in the tank is called biomass. When temperature starts limiting the
production capacity by affecting the oxygen saturation level, the farmer could respond
by limiting the biomass accordingly, but then the harvest would inevitably become less
than it would have been with the same biomass and sufficient oxygen. Thus what the
farmer would strive after in a thorough use system is to keep the balance between water
temperature, biomass and oxygen level at perfection in order to optimize the yield of the
farm.

The oxygen saturation level of the tank water can be controlled by an oxygenation
system (see chapter 3). The calculations of the investment and operational costs of
Johann's and Rosa's aquaculture change considerably with warmer water and an
oxygenation system. When oxygen is added into water, then other restrictive
components affect the product capacity. The factors that come into play and affect the
conditions in the system and call for certain actions to ensure fish health and optimal
yield are discussed in chapter 3.

So now they calculate again their production capacity and possible sales income, using
the worksheet fish2water, given average water temperature at 10°C, water flow at 120
L/sec, liquid oxygen added and 4.5 mg/liter of suspended solids as a limit should be
quite safe. The results of calculated annual production can be seen in table A .

Table A: Their production at 120 l/sec for a thorough use system

Temp.   Biomass   Annual   Income   VC/kg   Contrib./kg   Contribution

  (kg fish)   production (kECU) (ECU/kg) (ECU/kg) tot (kECU)

4 54.000 72.825 305 3,09 1,09 80

5 54.000 84.201 352 3,07 1,11 94

6 54.000 95.750 401 3,06 1,12 107

7 54.000 107.476 450 3,05 1,13 121

8 54.000 119.381 500 3,05 1,13 135

9 54.000 131.467 550 3,05 1,14 150

10 54.000 143.737 601 3,05 1,14 164

11 54.000 156.194 654 3,05 1,14 178

12 54.000 168.841 706 3,05 1,14 192

As you see the variable costs have gone up due to the oxygen addition, pumping of
water and use of Ca(OH)2 to lower the amount of CO2 and to balance the pH. The
benefit is, however, considerable; the increased product capacity gives higher total
contribution margin, than without oxygen addition. Harnessing the geothermal sources
in the vicinity of their farm and adding oxygen appears so far to be a good choice. An
example of Rosa's calculation of the contribution margin may be seen in table B.

Table B: Sales price per unit  

Sales price per unit (kg) 4,18

Variable unit cost  

 Fry 0,13

Feed (feed cost/kg fish) 1,24

Packaging 0,31

Electricity 0,03

Oxygen 0,08

CaO 0,04

Work due to farming 0,94

Medicine 0,02

Other services 0,25

Total variable unit cost: 3,04

Contribution margin per unit: 1,14

Production and Sales Plan

The production and sales planning for a fish farm where the fish is sold fresh are more closely
related than in most production. Many production companies can react rapidly to changes in
demand of the product. For example, if there is increase in demand, and the product capacity of
the company is not used to the full, then the working hours can be increased or the shifts can be
increased. This is more difficult in fish farming where the growth rate can only be manipulated to
a certain extent. In the thorough-use system it is possible to decrease the charr's growth in case
market fluctuations call for slowing down by reducing the feed or temperature. The distributor
who is prepared to sell their charr, if they start doing business, wants fresh fish daily all the year
round. The fish produced must weigh between 700 to 1200 grams with stable quality. Having
worked out a production plan the couple agrees with the buyer to sell him fish in equal monthly
deliveries. The production plan for Johann's and Rosa's charr farm is based upon full utilization
of the capacity of their waterflow at an average temperature of 10°C and constant oxygenation.
Their calculations are based upon starting with fry at the weight of 10 grams, acquired in
September each year. The growth rate of each individual fry is variable, but can be controlled in
part by feeding. Having calculated the annual product capacity of the fish farm and what the
biomass needs to be to maximize the productivity, they would need to forecast the development
month by month, which a computer spreadsheet allows them to do. By logging information into
the program about: The amount of fry bought, the water temperature in each month, the amount
of fish expected to be slaughtered and sold each month and estimated loss of fry, the program
will calculate how much is needed of: Feed, water flow, tank volume, cost due to feed and
income due to the production. These data are extremely important to see how much capital is
needed for running this business. An example of a production plan is shown in Appendix I.

Start-up Cost Plan for Thorough-use System

The start-up costs will necessarily be higher than for the simple flow-through system. More
biomass and more production require more tank space. The additional equipment required by
the thorough-use system will also add to the costs.

Tank space

The total space of the tanks is now:

1/27 x 54tons/20kg/m3 = 100m3

8/27 x 54tons/40kg/m3 = 400m3

18/27 x 54tons/60kg/m3 = 600m3

   1100m3

They calculate with using two 50 m3 tanks for the smallest fish and three 140 m3 tanks
for middle size fish and three 200 m3 tanks for the biggest fish.

Table C: Start-up Investment Cost for a Thorough-use System

Materials for the water resource 2.000

Ditch digging 3.840

Engineering service 2.520

Water pipes and relative equipment (offer) 16.000

5 tanks and relative equipment (offer) 70.000

Changes of houses (materials) 20.000

Automatic feeding system and silo 16.000

Heat exchangers 13.000

Equipment for adding Ca(OH)2 7.500

 Equipment for oxygenation 8.000

Equipment for monitoring oxygen level 12.000

Others 30.000

Total 200.860

Start-up cost other than investment cost must also be counted with. The start-up
expenses add up to our need for working cash during the 16-20 first months.

Table D: Start-up Cost ( Investment and Expenses) for a Thorough-use System

Start-up investment cost 200.860

Feed 170.500

Wages for the first 16 months 137.000

Veterinarian cost and medicine 1.500

Oxygen and rent for oxygen tank 28.590

160.000 fry (ca. 10 grams each) 44.100

Post, fax and telephone 2.000

Insurances 5.000

Taxes, incl. Social Security 6.000

Maintenance 10.000

Legal services 4.250

Miscellaneous 5.000

Total 614.800
 

The couple would take a loan as before. With a similar capital as before of 50.000 ECU,
the total borrowing would amount to perhaps 600.000 ECU. If we assume 12.5%
interest rates and payback time of 10 years the annual mortgage + interest will be
around 108.000 ECU a year. Their calculations show a contribution margin of 164.000
ECU a year, giving a 56.000 ECU return from the business. With 40.000 ECU own
salary for work at the farm leaves them with a sum of 96.000 ECU/year, to sustain the
farm and the family. The financing plan has to be further elaborated and so called cash-
flow plan must be made before further discussion on the pay-load.

Planning the construction and development

A time and work plan for the development and construction needs to be worked out to establish
how much man- and machine power they need to buy and what they and their friends and
family can do themselves and when material and equipment should be brought to the site. The
time schedule, work plan and the start-up cost plan (table D) will then be the base for a cash
flow plan which indicates when and how much cash is needed.

Ground work needs to be done in the spring and summer. The pipeline and the tanks to
receive the fry must be ready in September. During the winter Johann has ample time to
prepare the ordering of material, find and hire help for the summer's work and make the
alterations of the sheepcote and clean it. He will start with the house in order to be able
to put the material and equipment bought under roof when it arrives. He figures out they
will need to hire two people for 10 days to build a dam and a covered channel at the
water source and lay the pipeline, but with his father's and neighbour's help he intends
to take care of preparing the ground for the tanks and put them in place. In Appendix I a
time/work schedule for preparing and building the aquaculture system may be seen.

Cash flow plan

On base of the Start-up Cost Plan, and the time/work plan as shown in the time schedule in
Appendix I a cash-flow plan is worked out in order to assess when and how much cash is
required for the development period, i.e. during the construction and initial operational phase
until the farm is working at full capacity. An example of a cash flow plan may be seen in
Appendix I.

The cash flow plan shows the economy of the farm month by month. In the plan of
Johann and Rosa it is assumed that, at 3 month intervals every year, 40.000 new fry are
bought, each weighing about 10 gr. Slaughtering will be done every month of the year. It
is estimated that 0.5% of the fry will die each month. The harvest starts in the 16th
month after the business starts. Each month 9.5 tons of fish is slaughtered. The use of
feed increases steadily during the first 15 months, but then evens to a steady amount.
The calculation is based on oxygen addition farming. Income from sales will start about
16-20 months after the initial incurring of preparation costs.
In the cash flow plan they see from month to month how the farm will be doing, and,
they can see how the initial investment cost will be distributed in the initial phase and
when they will need to borrow to cover their expenses. The status of the cash fund can
be negative, due to payments of loans, although there is profit from the operation. But
the status of the cash fund is clear in the cash flow plan. Initially they assumed that
preparation and construction started in April first year and were carried out in the
following months. From the cash flow plan they see that to reduce the financial cost as
much as possible, they could start with half the number of tanks at the end of year one,
and install the remaining tanks the next year, this without much effect on the production
capacity. They see that this way they will have to borrow 225.000 ECU in the first year
and 275.000 ECU the next and they see the need for cash input from month to month.

Purchase planning
Along with projecting the start-up cost and work schedule, Johann has made a purchase plan of
the initial investments. But regular purchases of the the farm also require some planning.

A rule of thumb for production companies is that annual supply cost is around 25-35%
of the total value of the average supplies. The main cost terms are:

 Interest rates of bounded capital (8%)

 House rental
 Energy cost due to supplies
 Depreciation of fittings and various equipment (3%)
 Insurance (1%)
 Shrinkage (3%)
 Unsaleable goods
 Personnel management

Some of the above terms do not apply to Johann's and Rosa's operation. The buildings used
belonged to the sheep farm Johann has given up so he will not calculate a house rental as a
cost. Unsaleble goods do not have to be taken into account in a raw material stock. Johann
doesn't want to take the personnel management as a cost, because the extra work involved with
supplies is minimal. The annual supply cost according to his estimation will only be around 15%
of the value of the average supplies. Johann and Rosa deem it important to maintain their
supplies minimal by buying in small amounts. But less supplies in stock inevitably means
increased transport cost and in some cases loss of quantity discount, besides more ordering
cost (phone, fax and work). A truck to Johann costs 182 ECU, whether he transports 4 or 10
tons. To find the most efficient ordering amount, the Wilson's equation can be used.

Q=

where Q = the most efficient ordering amount

annual use = 51.200 kg
buying cost = truck, fax and work = 184 ECU
unit cost of the good = 0.88 ECU / kg
supply cost = 0.15 (15%)

According to the Wilson's equation, the most efficient ordering amount is about 12 tons,
after the fish farm has reached the maximum production level. If a quantity discount is
offered, then it is possible to buy a little bit more each time. Common size of trucks,
takes 10 to 15 tons. Johann is less than 3 months to use 12 tons of feed. Therefore he
would have to buy feed 4 times a year. If the transport cost were lower or e.g. 78 ECU
for each trip, it would be normal to buy about 8 tons each time. Comparable calculations
can be done for the packaging.

Operation Cost and Income Statement

Johann and Rosa have worked out their investment plan for a single flow through system and a
thorough-use system as well the production and sales plan. At this point they decide that the
option of thorough use system is worth the effort of working further on a business plan. There
are yet important things that need to be investigated in full. Rosa has estimated that the
operation cost for the charr farming will be as in table E, when the business is fully developed.
The operating plan is based on maximum output given the farm's constraints. That year she has
estimated that 118 tons of charr will be slaughtered. The feed use will be 144 tons, the feed
price is set at 896 ECU/ton and the return price pr. kg live charr to the farmer will be 4.18
ECU/kg as calculated previously. Thus an example of Rosa's Income Statement for year 3 could
look as follows:

Table E:  Operation Cost and Income Plan for year 3

  Income    

Sales of a charr (4.18 ECU/kg live fish) 118 t 493.240

    Total income: 493.240

   

Cost    

  Variable cost  

Fry (0.13 ECU/kg fish) 15.000

Feed (0.90 ECU/kg feed) 129.000

Slaughtering and packaging (0.79 ECU/kg fish) 93.220

 Electricity (0.03 ECU/kg fish) 3.540

Oxygen (0.08 ECU/kg fish) 9.440

CaO (0.04 ECU/kg fish) 4.720

Rent for an oxygen tank (500 ECU/month) 7.500

Work due to farming (0.94 ECU/kg fish) 102.800

Medicine (0.10 ECU/kg fish) 10.000

Other service (0.10 ECU/kg fish) 10.000

    Total variable cost: 385.220

  Fixed cost  

Taxes including social security 4.500

Insurance 4.000

Depreciation (5

  Maintenance 7.500

Post, fax and phone 1.500

Others 2.500

    Total fixed cost: 35.770

Total cost:   420.990

Profit/Loss before financial cost and taxes 72.230

In the income statement above neither payments of the loans nor the financial cost were
included. Note that paying back a loan is not a cost, only the interest expense is. In a
complete income statement the financial cost is included but often the result is given as
above to show how the operation itself is doing. It has to be mentioned, that the
calculations do not include all management cost although salaries for the couple are
included.
Break-even
To find out what the income has to be to support the variable cost of the operation, Rosa
calculates the contribution margin for each unit and divides that number into the fixed cost
(ECU/(ECU/kg)). There she has found the kilograms which have to be produced so that the
business will be operated at break-even. Using the fixed cost above and the contribution margin
of 1.14 ECU calculated previously, we get that break-even for the operation is 31 ton fish
production. This does not mean that 31 ton is sufficient for the company, this is a break-even for
the operation itself without financing costs. More production is needed to cover the financing
costs also.

Balance sheet
The balance sheet gives information about position of the company's assets and liabilities at a
certain time, usually at the end of the year. The total assets of the company should always be
equal to its debts and owner's equity. The name balance sheet comes about because there is
always balance between assets on the one hand and debts and owner's equity on the other
hand (assets = debts + owner's equity). Accordingly, if the company is in no debt, then the total
assets are equal to the owner's equity. A simplified example of a balance sheet for the fish
farming may be seen in table F.

Table F: Balance Sheet for second year

  Balance sheet   December 31st second year  

Assets   Liabilities and owners equity  

Housing 21.200 Bank loans 421.515

Tanks and all equipment 176.100    

  Other liabilities 2.492

Biomass and supply of feed  

and packaging 331.190    

Cash 1.000    

    Owners'equity  

  Contributed capital 53.961

  Earnings employed 50.522

      

    Total liabilities and  

Total assets 528.490   owners equity 528.490

Usually income statement and balance sheet are prepared by a professional accountant
and are a lot more complex and detailed than shown above. But the main features of a
balance statement are as in the table. Assets are divided into current and fixed assets,
fixed assets being land, buildings, equipment and such things, current assets on the
other hand are accounts receivable, inventories (e.g. production in stock), cash etc., i.e.
everything that can be readily converted into cash. The liabilities are in a similar way
divided into current and long-term liabilities, current being accounts payable, this year's
payment off long-term debt and tax due within a year. The so-called net working capital
of a company is the difference between current assets and current liabilities. Owners'
equity and accumulated surplus round off the liability side of the balance sheet. The
term earnings employed (in the business) represents the accumulated surplus and is
the sum of the net profit made from the operation. In Johann's and Rosa's case the
operation has been yielding a profit both years and this profit is mostly represented by
the accumulated biomass, the fish has been growing, as it well should.