Doubling the Flock
Sunrise Poultry has 400 laying hens. Monthly sales average $1,800; feed costs $1,050 and other costs (labour, transport, electricity) $300. One lodge buys 55% of the eggs and now pays 45 days late. Last season disease killed 40 birds in four days. The coop is beside the road and eggs have gone missing twice. Kago is offered a $4,000 loan at 18% a year over 24 months - about $200 a month - to double the flock to 800 birds. Point-of-lay pullets cost about $8 each. New pullets start laying at about 20 weeks. Kago has $120 in savings and says: 'Doubling is the only way to grow.'
1. Identify four risks facing Sunrise Poultry and rank them by likely impact on the business. For each, give one practical control.
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1. Customer concentration and late payment - highest impact. One lodge is 55% of sales, which is about $990 a month, and pays 45 days late. If the lodge switches supplier or stretches terms further, Kago loses most of his income and his cash. Control: recruit a second and third buyer (guest houses, a tuck shop, direct sales to households) and set written terms - deposit or payment within 14 days.
2. Disease - highest severity, medium likelihood. Forty birds lost in four days is 10% of the flock and it has already happened once. Control: a vaccination and deworming calendar, footbath and visitor limits, quick removal and burial of sick birds, and separate rearing pens for new pullets.
3. Theft - high likelihood, given the coop beside the road and two incidents. Control: lockable egg store, eggs collected and counted twice daily against a simple daily egg record, and a light and fence on the road side.
4. Feed price and supply - steady, corrosive risk. Feed is $1,050 of $1,800 sales, about 58%, so a 10% feed rise costs $105 a month and wipes out a quarter of his $450 surplus. Control: buy in bulk with a neighbour, keep 6–8 weeks of feed in a dry store, and re-check the margin monthly.
Ranking used: impact × likelihood on cash and on the flock itself, not how dramatic the risk sounds.
2. Assess Kago's growth plan using the numbers. Should he take the $4,000 loan?
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Current position: $1,800 − $1,050 − $300 = surplus of $450 a month. Loan repayment about $200 leaves $250 - before any of the new risks are counted.
Where the $4,000 goes: 400 pullets × $8 = $3,200, leaving only $800 for feed, housing and a buffer.
The trap: 800 birds will need roughly $2,100 a month of feed at current rates. Pullets lay nothing for about 20 weeks - nearly five months. Even allowing for lower feed intake while they grow, Kago faces several thousand dollars of feed before the first egg from the new flock is sold. $800 will not cover it.
So the plan fails on cash, not on ambition. The loan is sized for buying birds, not for carrying them to the point of lay. Add that the lodge already pays 45 days late, and the first months of the enlarged business will be the tightest.
Recommendation: do not take the $4,000 as offered. Better options:
- Phase the growth: buy 150–200 pullets, fund the full 20 weeks of feed, keep $1,000 untouched as a buffer.
- Fix the customer side first: get the lodge onto 14-day terms or a written contract, and add a second buyer.
- Ask for a longer repayment period so the monthly $200 does not bite during the no-income weeks.
Growth that runs out of feed money destroys the flock it was meant to double.
3. Apart from borrowing, what would make Sunrise Poultry more resilient over the next twelve months? Give four measures and explain how each reduces risk.
Read the worked answer
1. Build a cash reserve equal to two months of fixed costs (about $2,700 at current size). A reserve is what converts a shock - a disease outbreak, a late lodge payment - from a crisis into a bad month. Start with $150 a month out of the $450 surplus.
2. Reduce dependence on the lodge so no single buyer is more than about 30% of sales. Add a second buyer and some direct household sales. This makes a lost customer a setback rather than a shutdown.
3. Put the relationship with the lodge on paper: price, volumes, delivery days and payment within 14 days, with the option to pause deliveries on overdue accounts. Late payment is a risk Kago can actually contract away.
4. Strengthen biosecurity and the physical site - vaccination calendar, footbath, locked egg store, fencing, and eggs counted daily against the laying record. Disease and theft are the two risks most likely to take birds or stock without warning.
Also worth doing: insure the poultry house and stock if cover is available, and keep a simple daily record of eggs, deaths, feed used and cash. Every measure above depends on knowing the numbers - Kago only needs one bad week of unrecorded egg losses to lose money he cannot trace. Resilience is mostly preparation done in a good month.