THE TECHNICAL UNIVERSITY OF KENYA

FACULTY OF ENGINEERING AND BUILT ENVIRONMENT

SCHOOL OF CONSTRUCTION AND PROPERTY STUDIES

DEPARTMENT OF CONSTRUCTION ECONOMICS AND

MANAGEMENT

BACHELOR OF QUANTITY SURVEYING

ENTREPRENEURSHIP

COVERED CONTENT:

BUSINESS PLAN

ALI MWINYI

EABQ/00330/2015

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MAM DESIGNERS
PRESENTED BY: ALI MWINYI
P.O BOX 9052-0100

THIKA

TEL: 0746570910

EMAIL: alimudenyo@gmail.com

WEBSITE: www.mamdes.com

REG NO: EABQ/00330/2015

PRESENTED TO : THE TECHNICAL UNIVERSITY OF KENYA

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DECLARATION

I Ali Mwinyi, declare that this business plan which I submit for examination in consideration

of the award of a Bachelor’s degree in Quantity Surveying at the Technical University of

Kenya to be my original work and has not been presented anywhere else or in any other insti-

tution for examination.

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ACKNOWLEDGEMENT

. I wish to express my sincere gratitude to my lecturer, for dedicating most of her time in this

course to enlighten me all about developing a successful business. I wish to acknowledge the

moral and financial support from my father, mother, Sisters and my brother in coming up

with this business plan. I would also want to thank my classmates for the moral support they

have given me in the course of writing this business plan. My acknowledgment also goes to

my friends who also have aided me financially and morally and have been with me through

tough times. May the Lord bless you all for your motivation and support.

DEDICATION

I dedicate this project to my friends and family who have been helpful in coming up with this

project.

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TABLE OF CONTENTS

CHAPTER ONE

1.0: Business description……………………………………………………………………..8

1.1: Business name…………………………………………………………......…………….8

1.2: Business sponsors………………………………………………………………………8

1.3: Business location and address ………………………………………………………….8

1.4: Form of business ownership ……………………………………………………………9

1.5: Type of business………………………………………………………………………..10

1.6: Products/Services………………………………….……………………………………10

1.7: Justification of the opportunity……………….…………………………………………10

1.8: The industry……………………………………………………………………………..10

1.9: Business Goals ………………………………………………………………………….10

1.10: Entry and growth strategy……………………………………………………………...11

CHAPTER TWO

2.0: Marketing plan…………………………………………………………………………..11

2.1: Customers…………………………….………………………………………………….11

2.2: Market share ……………………………………………………………………………12

2.3: Competitors……………………….…………………………………………………….12

2.4: Method of promotion………………...…………………………………………………13

2.5: Pricing strategy…………………………….……………………………………………14

2.6: Sales tactics……………………………………………………………………………..15

2.7: Distribution strategy ……………………………………………………………………15

CHAPTER THREE

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3.0: Organization and management plan…………………………………………………….15

3.1: Business manager……………………………….……………………………………….15

3.2: Other personnel …………………………………………………………………………16

3.3: Recruitment, training and promotion……………………………………………………19

3.3.1: Recruitment and training………………………………………………………………19

3.3.2: Promotion……………………………………………………………………………...19

3.4: Remuneration and incentives…….………………………………………………...........19

3.5: Licenses, permits and by-laws…………………………………………………………..20

3.6: Support services…………………………………………………………………………20

3.6.1: Bank…………………………………………………………………………………..20

3.6.2: Auditor………………………………………………………………………………..21

3.6.3: Lawyer………………………………………………………………………………..21

3.6.4: Insurance………………………………………………………………………………21

3.6.5: Contacts for business……………………………………………………………….....22

CHAPTER FOUR

4.0: Production/operational plan……………………………………………………………22

4.1: Production/ operational facilities & capacity………………………………………….22

4.1.1: Facilities required…………………………………………………………………….22

4.1.2: Equipment cost and model…………………………………………………………..22

4.1.3: Business layout………………………………………………………………………22

4.2: Production/ operational strategy……………………………………………………….24

4.2.1: Product development……………………………………………………………...…24

4.2.2: Technology in use……………………………………………………………………24

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4.2.3: Cost of materials per month………………………………………………………….24

4.3: Production/ operational process………………………………………………………..26

4.3.1: Stages in producing/sales of product/ordering methods………………………………26

4.4: Regulations affecting operation ……………………...………………………………. 26

CHAPTER FIVE

5.0: Financial plan…………………………………………………………………..............27

5.1: Pre-Operational costs……………………………………………….………………….27

5.2: Working capital………………………………………………………………………...28

5.3: Projected cash flow statement ……………………………………………………...….31

5.4: Pro-forma income statement …………………………………………………………..32

5.5: Pro-forma balance sheet ……………………………………………………….………33

5.6: Calculating break even analysis …………………………………….…………………33

5.7: Profitability ratios………………………………………………………..……………..33

5.8: Desired financing………………………………………………………………............34

5.9: Proposed capitalization………………………………………………………………...34

CHAPTER SIX

6:0: Potential risks…………………………………………………………………….........34

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EXECUTIVE SUMMARY

The business will be a sole proprietorship owned by Ali Mwinyi. It will operate under the
name MAM Designers. It will be located in Thika town. It is aimed to provide the best prod-
ucts for building and also take contracts with building firms. To enhance the awareness of the
business to the customers, advertisements using posters and banners will be used.

The business will have a well defined structure and the duties of each staff member will be
clearly laid down. Recruitment process will be open and purely on the qualifications of the
applicants and will be fair. Promotion will be purely done on merit .The required permits by
the business will be acquired as per the laws set by authorities to aid in the smooth running of
the business. The business will start up on a rental premises. All equipment used for storage
will be purchased for smooth running of the business. All purchased equipment will meet the
standards set by Kenya bureau of standards.

CHAPTER ONE

1.0 BUSINESS DESCRIPTION

1.1. Business Name

The name of the business will be MAM Designers. I chose the name since it is easy to
remember and it entails provision of materials for design of houses and infrastructure.

1.2. Business Sponsor

The sponsor of the proposed business will be Ali Mwinyi. He’s currently pursuing a
degree in International Relations and Diplomacy. After completion and attaining the
Kenya Certificate of Secondary Education, he was directly involved in family busi-
ness where he gained managerial skills.

1.3. Business location and address

The address of the business will be,

TEL: +254746570910

P.O BOX 9052-0100 THIKA

Email: mamdesigners@gmail.com

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 The business will be located in Thika town. It’s the best place for a startup business
as it’s a town that has developed infrastructure and also a wide market share as com-
petitors are few. The location of the business is most suitable because Thika is an ar-
ea that is coming up in terms of real estate. This is due to the high population in the
area. This directly aids the business as the products being offered are and must be
used in real estate development. The presence of a well established infrastructure will
lead to a direct reduction in the transportation cost and also customer’s convenience
in accessing the place. A clean, well maintained area and ample secure parking lots
will also attract customers to the area.

KENYATTA AVENUE

TUSKYS

TOP GRILL HOTEL

MAM Designers

KENYA MEDICAL INST.

TOTAL PETROL

TO NAIROBI

1.4 Form of Business ownership

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 The form of ownership of the business shall be that of sole proprietorship with aim
of a successful business venture.

1.5 Type of business

The business has not yet begun its operations but it is set to begin in January 2019. This is so
as to give enough time to raise capital for the enterprise, purchase the required equipment and
competent employees to run the business.

1.6 Products/ services

The main products offered by MAM Designers will be building materials [cement,
iron sheets, binding wire, metal sheets, timber, red oxide, wire mesh, metal bars, and
ventilations]. The above goods will be of high quality and from top brand companies
easily identifiable and trusted by customers. To win customers loyalty all customers
will be free to air their views to the concerned department. This will enhance custom-
er’s relations and also have to know their taste and preferences.

1.7 Justification of the business.

The area (Thika) is viable for my business since it is experiencing new infrastructural
projects like roads and ongoing construction of Universities like Gretsa and new malls.
Also the suppliers who supply the same commodities I will are few. The area is also eas-
ily accessible and transportation costs are low. The supply of building materials in the
area by the other companies is very costly hence I will come up with a pricing strategy
that will attract new customers.

1.8 The industry.

MAM Designers will be in the housing sector under the ministry of housing. The
government has laid a scheme to build houses for civil servants in the region and the
set plans coincide with the business start. This will provide the business with a mas-
sive growth as it starts due to the ready market. The region is also growing in terms of
companies which directly mean an opportunity for real estate investors. The area too
is undergoing massive development in growth as building of universities is concerned.

1.9 Business Goals

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 The short term objectives will include; to establish an effective program that generates
increased income and exposure to the business, to put in place a organizational struc-
ture that is able to manage the business efficiently and profitably, to create a well de-
signed website that is fast, easy to navigate, responsive and gives visitors the infor-
mation they need as well as to purchase goods online and to establish a sufficient
market share adequate enough to sustain the business. The long term objectives will
include; developing an effective and efficient online shopping and ordering service, to
become a well known and reputable name in the building industry and to effectively
and successfully initiate a new business in Turkana in the near future.

1.10 Entry and growth strategy

At the introductory stage of the business, the marketing and promotion communica-
tion adopted by the business will include use of local magazines to create awareness
for the reading public. In addition posters will be placed at strategic places as well as
circulation of leaflets to institutions. To capture the corporate business world, MAM
Designers will place adverts through strategic design and placement of internet links
to all business related and corporate companies. By employing the above techniques
MAM Designers will aim in creating awareness of the products it offers and to edu-
cate potential customers about products of the business.

CHAPTER 2

2.0 MARKETING PLAN

2.1 CUSTOMERS

The potential customers of the business shall be categorized as individual customers

and this will include the local community, employed persons and real estates and also
institutions and government offices. As the local community of Thika is growing at a
very high rate, they will need our services as home forms a basic necessity. Also the
plants in the region have employees whose residential area is located within the town
and this directly initiates an increase in housing and thus our services will be needed.

Universities are also increasing in the region like Gretsa University, Thika Technical
Training Institute, Mt Kenya University and thus the market share is increasing. Real

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 estate investors are heavily investing in the region due to its rapid growth and also the
development of Thika super highway. This greatly boosts the market readiness.

2.2 Market share.

Through a market survey financed by the owner, it was revealed that the market is
growing fast due to the developed infrastructure in the area. The survey indicated that
Thika has become a home to many people working out of the town and in the area.
Thus people will be acquiring land to build homes and thus offering another business
market and will greatly boost its growth. Rush Kenya has 75% market share while
Rush hardware has 53% market share and Bora hardware has 47% market share. I in-
tend to have 80% market share

2.3 Competitors

The business as it’s located in a prime land and a strategic position; it will face stiff
competition from the existing and well established business. The competitors include
the following and their distance measured from MAM Designers.

1. 3.5 Rush Kenya P.O Box 279 Thika (2 km from MAM Designers)

2. Bora hardware P.O Box 276 Thika ( 3km from MAM Designers)

3. Tars hardware P.O Box 341 Thika ( 1km from MAM Designers)

The following table shows a comparison between MAM Designers and its main
competitors in terms of strengths and weaknesses

Name of the busi- Strength Weakness

ness

Rush Kenya -large capital base (3 million) -located far from the town (1km)
-well established and experienced -its expensive in terms of prices
(4years) -inconvenient in terms of operating
-loyal customers hours ( open on weekdays from 9:00
am to 4:00 pm and closed on week-

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 ends)

Tars h/w -big number of loyal customers -located far from the town (2km)
-big capital base (2.5 million) -expensive goods
-high level of experience in the -minimum variety of products ( they
sector (3 years) only supply iron sheets timber red oxide
and ventilations)

MAM Designers -will offer affordable goods -no experience

- will be convenient for operating -limited staff
hours (will be open daily from -low capital start up base
7:00 am to 5:00 pm) -new in the market
-will offer credit to loyal custom-
ers
-will offer a wide variety of goods
-will establish great customer rela-
tions

2.4 Method of promotion

The main advertising methods will be

The posters

This will have a picture of the business and a list of goods on sale and their prices.
They will be posted at strategic positions along major roads like Thika superhighway
and be printed once a month. They are advantageous since they are; relatively cheap,
easy to post, attract many people and once put there are no extra charges. They will
cost 5000

Internet

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The business will have a website with its name and all the goods and prices of the dif-
ferent goods. It will be often updated. Its advantages include; it’s easy to use and it
gives prices of goods and prices easily. They will cost 9000

Banners

They will be strategically located on the roads and also along the highway. They are
attractive to many people, they last for long and they have large viewers in terms of
numbers. They will cost 15000

Local magazines

Advertisement will be made on a local magazine that is bought by major institutions

and universities n the area like Mt Kenya University and Gretsa University. They will
cost 10000. The total advertisement cost will be Kshs 39000

2.5 Pricing strategy

The following factors will be considered in setting the prices or my products and ser-
vices.

1. Product cost. If the buying price of the products will be high then the prices will
be affected and vice versa. It includes fixed costs, variable costs, and semi varia-
ble costs incurred

2. Government revenue, if the government raises or changes the revenue the prices
will be affected

3. The utility and demand- the prices will be determined by the demand of the prod-
ucts since consumers demand more units of a product when its price is low and
vice versa. Also consumers are ready to pay up to a point where he receives utili-
ty from a product to be at least equal to the price paid.

4. Marketing method used. As seen above posters, banners and local magazines will
be used to market my products. These methods are relatively expensive and
hence pricing strategy will incorporate this.

5. Extent of the competition in the market. The prices will be set in terms of other
competitors in order to attract new customers.

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 The method of payment will be through use of cash or Mpesa or the use of Airtel
money. The delivery of goods will be done once all the money has been paid in-
cluding the transportation fee. Receipts will be given after payment. Pricing tech-
niques will include pricing for market penetration where my goods and services
will be offered at a relatively lower price than that of my competitors in order to
attract consumers.

2.6 Sales tactics

The business will use agents who are able to market the goods to various companies,
real estate firms and factories and people in the area. Marketing will be done too via
adverts to boost sales. Orders will be received through mobile phones or online for
customers who are far. Orders made by regular clients will be delivered to them if
they are near and also not bulky. Suggestion boxes, use of emails and a customer set
department will be key for customers needs and wants to be met to accordingly. The
customer department will be open to all clients and this will improve customer man-
agement relationship. The main sales appeal of the business is to offer affordable
prices.

2.7 Distribution strategy

The business will supply its goods to the customers according to orders made. The
method of supply to the customers around the business area is using trolleys. This is
due to its cheap labor and not affected by traffic. The trolleys will cost around 15000
shillings. The distribution method is prone to weather changes and will be inconven-
ient to customers who are far. The solutions to these problems will be, for customers
who order large number of goods, transport will be provided but they will have to in-
cur transport costs. Also encouraging the customers to source man power to pull the
trolley and bring them back. The business premises will be improved for car parking
and also for loading zones.

CHAPTER 3

3.0 ORGANIZATION AND MANAGEMENT PLAN

3.1 Business manager

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 Management will mainly be done by the business manager who will be my uncle.
There will be four departments under the business manager that will be reporting di-
rectly to him. The organization will have a total of eight employees. The following
chart shows the chain of flow of authority.

Business Manager

Marketing officer Security personnel Stores manager Sales personnel

Two subordinates

The following table shows job title, qualifications, responsibilities and the salaries for the
managing director.

Title Qualifications Responsibilities

Business Manager -diploma or bachelors degree -create business policies

in business administration -coordinate and control all
from any certified university activities
-final signatory to major un-
-have five years of experi-
dertakings in the business
ence in the business admin-
-inspire and motivate em-
istration sector
ployees
-be above 18 years -ordering and payment of de-
livered goods.
- must have a certificate of
good conduct

-must have effective commu-

nication skills

3.2 Other personnel

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Other than the management team, the business will achieve its set goals and objectives
with the help of subordinates. They will be responsible for the growth of the business
and implementation of policies. Their qualification, responsibility and pay is as shown in
the table below

Title Qualifications Responsibilities

Marketing -a diploma or a bachelors -advise manager accordingly on

manager degree in marketing and marketing plans for the business
management from any cer- -responsible for suggesting
tified University or about promotions
-a certificate in human rela- -laying marketing strategies
tions down and marketing the busi-
-have experience for at ness goods and products to reach
least 1 year the market
-excellent presentation and -public relations i.e. customers
communication skills. will be raising their personal is-
sues directly to his office
-presenting the business in local
workshops for marketing

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Sales per- -A diploma or degree in -After sales the department will
sonnel sales management from any be banking the money
(two em- certified University or col- -selling the goods
ployees) lege -always to consult the store
-excellent client services manager and sales book. Follow-
-good entrepreneurial skills ing the right channels and mak-
-good communication skills ing orders
-receiving of new orders i.e. de-
livery and counter checking the
goods to the set standards and
also the quantity.

Stores man- -a diploma/ certificate in -maintain records on the inven-

ager management from any cer- tory
tified University or college -make a call when goods are be-
-have one year experience low minimum levels
-a certificate in human re- -help in arranging goods in the
source stores
-excellent communication -should be answerable to the
skills MD with a list showing goods in
and out of the stores.

Security good communication skills to provide security in the build-

guard -physically fit ing at night
-a certificate from a medic -cleaning the compound in the
- time conscious morning

-should be between the age of

20-45

Two attend- -physically fit -loading customers goods to

ants -excellent communication their vehicles
skills -to offload the trucks when de-
-hardworking and honest livery is made to the stores
-preferably men at the age -arrange the goods in order as

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 bracket 18-36 shown by the store’s manager
-clean the stores always and re-
port to their manager in case of
anything.

3.3 Recruitment, Training and promotion.

3.3.1 Recruitment and training

In case of a vacancy the business will advertise the post and it will be detailed indicating
the requirements for the job and also the responsibilities. The applicant’s application forms
will be examined and those who qualify will be notified on the day and time for interview
and also the address. The short listed will face a panel that will conduct the interview in an
open and fair way. Those who will qualify will be given an opportunity to work in the
business. This will be temporary as they will train for two months and after they make an
impressive personal profile they will be absorbed into the business and they will sign a job
contract that will be renewable on an annual basis.

3.3.2 Promotion

All employees will be promoted according to their performance. This will be examined
through a crucial process and also personal interest towards the job. Those who deserve a
promotion it will be rewarded to motivate them.

3.4 Remuneration and Incentives

Every employee will have to be paid well for their job and the following is a table show-
ing their salaries

Job Title Basic salary Allowance ( Total monthly Total annual

House allow- salary salary
ance)

Managing di- 25000 10000 35000 420,000

rector

Marketing of- 14000 6000 20000 240,000

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 ficer

Sales personnel 10000 5000 15000 180,000

Stores manager 10000 5000 15000 180,000

Security guard 3500 1500 5000 60,000

2 Attendants 2500 1500 4000 48,000

3.5 Licenses, Permits and By-laws

For smooth running of the business it will require to adhere to the laws of the land in re-
lation to the business act. The law requires a business to obtain the following licenses;
trade, registration and also insurance cover and payment of taxes.

Trade license- it will be obtained at the municipality of Thika at a cost of Kshs 3000 and
renewed on annual basis. This will enable the business to run smoothly as it will have
cleared with the municipal council requirements. The business will also pay its taxes to
the local government authority at Kenya revenue authority premises located in the town.
This will enable the business to operate smoothly as taxes are a requirement to be met by
all businesses and the employed persons.

Registration license-the business will register its name prior to opening as required by
the law at the registrar’s office. This will protect the business from any imposters that
may use the name. This will be paid once upon opening at a cost of Kshs 2000. The
business will be insured under Jubilee insurance group and it will be at a cost of Kshs
3000 per year but the cost is due to change with the expansion of the business. The
workers will be required to fill the forms and be deducted a set amount just in case of a
disaster. To operate smoothly the business will require paying a legal firm in case of any
court issue. It will be Kshs 5000 but it’s due to change due to the expansion of the busi-
ness. This will be essential as the business will be fully represented in the corridors of
justice in case of any arising issues.

3.6 Support services

3.6.1 Bank

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The business will require a bank loan on start up since it is set for future expansion and may
source financial and investment advises from a bank. The contacts for the bank are

COOPERATIVE BANK OF KENYA

P.O BOX 48231-0100

THIKA

3.6.2 Auditor

Although the business will be new, auditing will be necessary for growth of the business.
When required the business will directly ask the service from a well established auditing
firm in the area whose contacts are

ARTHUR AUDITING FIRM

P.O BOX 268-0100 THIKA

TEL: +254734210560

3.6.3 Lawyer

In case of any legal needs from the business, the business will need a lawyer to represent
the business fully. A firm in the region will be consulted for any presentation of the busi-
ness in matters concerning justice. This will be negotiable depending on the weight of
the case. The contacts of the firm are

BAMA ADVOCATES

P.O BOX 567-0100 THIKA

3.6.4 Insurance

The business will be insured for safety in case of any accident. It will get insurance cover
from Jubilee insurance company at a cost of Kshs 3000 per year. Their contacts are

JUBILEE INSURANCE COMPANY

P.O BOX 3356-001000 NAIROBI

EMAIL: jubileeinsurancecompany@org.net

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 Tel: +254789045676/02033507367

3.6.5 Contacts for the business

For smooth operation of the business, customers can directly get in touch with the busi-
ness either by making orders or paying for ordered goods. The contacts of the business
are TEL: +254727368420

P.O BOX 2252-0100 THIKA

Email: mamdesigners@gmail.com

CHAPTER 4

4.0 PRODUCTION/OPERATIONAL PLAN

4.1 PRODUCTION OPERATIONAL FACILITIES &

4.1.1 Facilities required

The business is based on sales of building materials so it will require stores where the
stock will be stored. All departments require certain facilities for maximum output.
Other essentials are water and electricity.

4.1.2 Equipment, cost and model

To operate smoothly, the following is a list of equipments and machines, their cost and
model. This will improve the efficiency of the business

Equipments/ machines Quantity Cost Material and model

Shelves- for iron sheets, nails 4 12000 Metal

Sales desk 1 4500 Wooden

Chairs 10 5000 Ken chair –plastic

Office desk 3 4000

Telephone 5 5000 Landline –Telkom

Stationary 1500

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 Trolley 3 6000 New model Kalka

Computer 4 24000 Dell

Sales book 1 380 Kartasi

Total 62380

4.1.3 Business lay out

The business lay out will be clearly stated to avoid any confusion and is set to change
with growth. The managing director’s office will be on the first floor to economize on
space and also maximize supervision and minimize interference.

a b

c d e

h i

gate

Key
23
a represents parking for staff

b represents managing director office

c represents stores manager office

d represents sales department

e represents marketing manager office

f represents stores

g represents customers parking

h represents security office

i represents restricted parking for MD

4.2 Products/operational strategy

4.2.1 Product development

To develop the product and acquire a large market share, some costs will be incurred in
the process. To minimize on the cost and maximize on the development of the product
there will be a panel of qualified personnel. It will mainly develop the website to boost
on the sales and also on advertisements channel.

4.2.2 Technology in use

The business will not depend largely on the technology as it’s not so much into technol-
ogy. The technology to be used in development of the product will be mainly marketing.
The product will be marketed online to boost sales using a website that will indicate the
business goods and the prices.

4.2.3 Cost of materials per month

Item Amount (Kshs) per month

Cement 100000

Iron sheets 50000

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 Nails 30000

Gutters 80000

Iron posts 70000

Wire mesh 75000

Ventilations 50000

Binding wire 50000

Item Cost of labour per month (Kshs)

Managing director 35000

Marketing officer 20000

2 Sales personnel 30000

Stores manager 15000

Security guard 5000

2 Attendants 8000

Item Overhead costs per month (Kshs)

Electricity 2625

Water 41830

Telephone 1030

Transport 15000

Adverts 12250

Insurance premiums 7500

Rent 12000

Item Amount

25
Cost of materials 505000

Cost of labour 113000

Overhead costs 92235

Total costs 710235

4.3 Production/operational process

4.3.1 Stages in producing/sales of the product/ordering methods

During ordering the following procedure will be used

1. Upon arrival the customer is welcomed gracefully.

2. The customer is asked the order he or she may want to place and a leaflet containing
the prices of all the goods is given to them.

3. If the customer places an order and is in agreement with the prices the total amount of
goods and their cost is taken and he is informed of the payment methods he may use.

4. An official receipt is written and the commodities are released from the store and
packed if necessary.

5. If the customer has placed a large order transport services are provided and he/she is
thanked and welcomed for the next time.

4.4 Regulations affecting operation

For smooth running of the business it will be required to adhere to the laws of the land.
Some of the licenses required and the cost of procuring them are;

1. Trade license act cap 495

This is the legal authorization from the municipal council to operate the business under
or within its jurisdiction. The business will renew the license after two years.

2. Income tax provision cap 470

The business will have to remit a certain percentage of net profit to the Kenya revenue
authority. All workers also will be taxed duly in accordance with the law. Tax will be
remitted on a monthly basis for the employees and on annual basis for the business.
Tax will be remitted at the Kenya revenue authority Thika branch.

26
 3. Insurance cover cap 396

The business will be insured with jubilee insurance group and it will be paid on an an-
nual basis. This will enhance safety in case of any external or internal risks the business
has surety of being refunded.

4. Business registration act cap 242

The business shall acquire business registration certificate from the registrar’s office at
Thika town. This will protect the business name from any imposter and is payable only
once.

The business will also require clearance from

1. National Environmental Management Authority – this regulates the operation of the

business in terms of affecting the environment. This is due to disposing of wastes

CHAPTER 5
5.0 FINANCIAL PLAN

5.1 PRE OPERATIONAL COSTS

These are the costs that the owner will incur on starting the business and all the legal
process he has to adhere to.

Item Amount

Equipment 62,380

Trading license 3,000

Water deposit 800

Telephone deposit 500

Renovations 4,000

Project research 5,000

Starting inventory 710,235

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 Legal fee 2,500

Advertisements 39,000

Miscellaneous 2,500

Total 829,915

5.2 Working capital /operational costs

These are the costs the owner will incur in the business and the costs are recurring af-
ter a specified number of months.

Items 1st month 2nd month 3rd month Total

Current assets

Cash (at hand) 150000 110000 130000 390000

Cash (bank) 250000 260000 260000 770000

Stock 505000 605000 690000 1800000

Debtors 50000 40000 45000 135000

Total assets 955000 1015000 1125000 3095000

Current liabili-
ties

Creditors
100000 150000 160000 400000
Salaries
113000 113000 113000 339000
Rent
12000 12000 12000 36000
Advertisement
12250 12250 12250 36750
Telephone
1030 1030 1030 3090

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Electricity 2625 2625 2625 7875

Water 41830 41830 41830 125490

Total liabilities 282735 332735 342735 948205

Working capital 2146795

Working capital = total assets – total liabilities

Kshs 3,095,000- Kshs 948205

Kshs. 2146795

5.3 Cash flow statement (year 1)

5.3.1 Projected cash flow

5.4 Pro-forma income statement

ITEMS Yr 1

Sales 46100000

Less cost of goods 24610000

sold

Gross profit 21490000

Expenses 451,000

Salaries 1356000

Rent 144000

Water 501960

Telephone 12360

Electricity 31500

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Advertising 229000

Stationery 10900

Postage 12000

Transport 228000

Depreciation 100000

Loan repayment 360,000

Interest 480000

Repairs 123000

TOTAL EXPENSES 4039720

NET PROFIT BE- 17450280

FORE TAX

15 % TAX 2617542

NET PROFIT AFTER 14832738

TAX.

5.5 PROFORMA BALANCE SHEET

Assets Start End of yr 1 End of yr 2

Fixed assets

Machines and equip- 62380 160,500 250,000

ments

Depreciation 20000 21300 25000

Vehicle 1,500,000 1,500,000 2,000,000

Furniture and fittings 80,000 120,000 150,000

Depreciation 1200 1600 2000

Other fixed assets 50,000 70,000 80,000

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Total fixed assets 1713580 1873400 2507000

Current assets

Cash in hand 250,000 400,000 500,000

Cash at bank 800,000 1,500,000 2,000,000

Stock 1,400,000 2,00,000 2,500,000

Total current assets 2450000 3,900,000 5,000,000

Total assets 4163580 5773400 7507000

Current liabilities

Short-term loans 100,000 80,000 50,000

Creditors 100000 75,000 50,000

Bank overdraft 80,000 60,000 75,000

Total current liabilities 280,000 215,000 175000

Long term liabilities

Bank loan 900000 600,000 400,000

Owners equity 1500000 2000000 4800000

Net profit (retained) 1483580 2958400 2132000

Total liabilities & eq- 4163580 5773400 7507000

uity

5.6 Break even analysis

ITEMS FIRST YEAR AMOUNT

Fixed costs

Salaries /wages 1356000

License 10,000

Insurance 50,000

Rent 144000

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Loan payment 360000

Interest 480000

Total fixed costs 2400000

Variable costs

Creditors 508000

Telephone 12360

Water 501960

Purchases 24,610,000

Transport 228000

Stationery 10900

Repairs 123000

Advertising 229000

Other expenses 451000

Total variable cost 26,674,220

Total contribution margin =total sales-total variable costs

46100000 - 26674220 = 19425780

Contribution margin % = Contribution margin (100)

Total sales

=19425780 /100 = 42.14%

46100000

Breakeven point=fixed costs

Contribution margin%

=2400000

42.14=56953

5.7 Profitability Ratios

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Gross profit ratio = Gross profit (100)

Sales

21,490,000(100)

46,100,000

= 46.62 %

Net profit ratio = Net profit before tax (100)

Total sales

17450280(100)

46100000

=37.85%

Return on equity = Net profit after tax (100)

Owners’ equity

= 14832738 (100)

1500000

= 988.85%

Return on investment = Net profit after tax (100)

Total investment

14832738 (100)

9,000,000
= 164.81 %

5.8 Desired business financing

Item Amount

Pre operational costs 829915

Working capital 2146795

Contingencies 1500000

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 Total 4476710

5.9 Proposed capitalization

Item Amount

Personal savings 4000000

Family/ Friends 3000000

Bank Loan 1000000

Total Investment 9000000

6.0 CHAPTER SIX

6.1 POTENTIAL RISKS

Risks Solution

Fire The business will take a fire insurance cover and also put in place fire extin-
guishers in strategic positions. All employees will be taught on how to use
them in case a fault of fire occurs.

Theft The business will hire qualified security guards and thorough checks should
be done to all personnel entering the building.
Use of CCTV will be employed in case anything occurs and also for effi-
ciency in monitoring

Market competi- The business will employ some strategic measures to market the products. It
tion will also major on weaknesses of the other established business to gain a
market share.

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