The economic goal of the egg production operation is to generate a positive cash flow to help the villages become economically self-sustaining. A comprehensive Excel cash flow model is available to help villages conduct their specific financial analysis.

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Design Experiment Cash Flow Forecasting

In order to have an idea of the potential ranges of business performance, Lift Kids uses a cash flow forecasting model that was created using a mathematical approach based in design experiment methodology. A design experiment methodology allows for the testing of multiple scenarios. This robust quantitative methodology can accurately forecast multiple scenarios and give a better prediction of performance under volatile market conditions.

As stated before, within the cash flow model there are two dominant factors: the cost of the feed and the price of eggs. With high and low data points we design seven different cash flow experiments, as shown on the table below.

The ranges of optimistic and pessimistic scenarios presented in this matrix-based approach allow Lift Kids to account for market volatility when forecasting business performance.

Feed costs are determined by taking the price of feed multiplied by the assumed consumption per bird, per week. The feed prices and consumption rates have three variable levels throughout the life of the bird, as younger birds consume less feed than older birds, and prices for different feed formulas may change. Egg prices are assumed to be the market price in the area.

In addition to feed costs and egg prices, our background research also identifies other key factors, which are listed below. The values assigned to these data points are derived from our firsthand research done in conjunction with the village.

Additional Variables

1. Layer Productivity (eggs per bird per week)
2. Yield Loss
3. Initial Construction Costs
4. Feed Consumption (per bird)
5. Number of Starter Chickens
6. Starter Chicken Costs
7. Vaccination Costs
8. Labor
9. Supplies
10. Transportation
11. Savings

Cash Flow Model Assumptions

Our cash flow model makes a few material assumptions as listed below.

1. The cash flow is after factoring variable costs, such as labor, transportation, supplies, and weekly savings.
2. No consumption factor by the village was factored into the analysis.
3. A typical layer, in conditions of the egg module, will produce 4 or 5 eggs per week, averaged over its lifetime. Actual performance will decline with age.
4. The layers should be sold once cost of feed for the hens amounts to more than the revenue produced in eggs, typically occurring at about 80 weeks.
5. The analysis does not include the proceeds from the sale of the flock as broilers, occurring at the end of their productive life. These funds should be used to purchase new day-old chicks, and the remaining balance can provide an additional windfall profit.

Excel Cash Flow Model

Below is an example of the financial analysis from the Excel cash flow model. The blue fields show the adjustable input variables, while the red arrows point to the critical variables of feed cost and egg price. The grey tabs allow incremental adjustments to further adjust the analysis.

The most important outputs from the model are the Cumulative Cash Flow (CF) and the Capital Investment. The Cumulative CF shows the net impact on the village's cash flow; it is critical that the Egg Module be a source of cash for the village. The Capital Investment is the amount needed to start operations. In other words, it is the money required to get the hens laying. This figure includes the construction costs, other one-time costs, and operating expenditures such as feed costs.

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Financial Projection Summary

This analysis allows us to estimate high and low ranges for total chick capital costs, which is the total amount of cash that is needed before the birds start laying eggs. This figure is important because if the village does not have adequate funds to purchase feed or veterinary care, then the long-term performance of the flock could be compromised. It is imperative to keep the following factors in mind:

1. To maximize cash flow, feed cost needs to be minimized and egg price needs to be maximized.
2. Feed quality can not be sacrificed. Long-term, it would be wise to investigate methods for creating feed supplements. (For example, sunflower mash has excellent potential to be used as a feed component and would dramatically reduce the feed costs.)
3. Theft and excessive yield loss are major risks to the operation.

If the project is feasible, the next step is to customize the business plan for the specific village. Building size, location, design, and construction materials should also be specified at this stage. Other critical success factors include the supply of chicks, feed, vaccinations, and training of on-site management. Finally, the path to market needs to be determined and price assumptions should be verified. The customized business plan will give each village a reasonable estimate of egg production output, as well as capital requirements and profit potential.