BUSINESS PLAN GUIDE

(i) INTRODUCTION
Although numerous organizations are in business of granting or lending money, these
agencies will not release their funds just because you have a viable business idea. They need
to be provided with well written and convincing document presenting your plans. They
require proposals that show what you have in mind is a priority, feasible, cost effective and
fit with your own. It is now time to sit down and put your analysis and propositions on paper
and to

1. WHAT IS A BUSINESS PLAN

This is a document that convincingly demonstrate that your business can sell enough of its
product or services, so as to make a satisfactorily profit and be attractive to potential backers
e.g. lenders.

2. WHAT WRITE IT
It is written by the owner of the business and reflects the entrepreneurs experience, goals,
objective, thoughts, visions, philosophy and research into the opportunity he hopes to pursue.

3. WHY PLAN?
Plan helps one to see whether entrepreneur’s vision is realistic and workable. It says
specifically what you need to do in order to turn your vision into a business reality.
Its plan for:
 Strategic vision opening a new business or expanding an existing one.
 A document for obtaining capital from financiers and investors.
 It is used for measuring performance and evaluation.
 Forms a basis for managing every aspect of business operation.
 Used in motivation and in motivation and involving employees.

Therefore a plan keeps you thinking on target, creatively and concentrating on your power on
reaching your goals.

4. WHAT ARE THE BENEFITS OF FORMAL BUSINESS PLANNING

(i) Encourages potential entrepreneurs to establish written goal and objective for their
proposed business.
(ii) Enables potential entrepreneurs to assess viability of their business support unit.
(iii) Assist in identifying potential customers, market opportunity pricing strategy,
promotional activity, distribution, strategy and competitive conditions of a business.
 (iv) Enables identification of employee’s needs, skills they should possess, task they will
perform and methods of remunerations.
(v) Assist financial needs and sources of funds.
(vi) Identify factors for successful entry and growth of business in a given market.
(vii) Expose the entrepreneur to the whole planning, budgeting and forecasting land
acquisition process necessary for starting or expanding a business.

5. WHAT IS A GOOD PLAN

 Should clearly communicate your ideas and plans.
 Must have evidence of focus.
 Have specific understanding of target customers.
 Must have an appreciation of the investors or lender’s needs.
 Must show intimate and thorough understanding of your business.

6. HOW SHOULD IT APPEAR

 It is presented in a format that is logical and well supported.
 Presentable and appealing to the eyes of the readers.
 Typed carefully and printed without errors.
 Used short paragraphs and clear headings and sub-headings.
 Well designed cover page.
 Use good grade papers.

7. DON’T’S IN BUSINESS PLANNING

 Don’t make your plan very lengthy. Keep it short as possible without compromising the
quality of your venture.
 Don’t over diversify your venture; focus your attention onto one or two product line and
market.
 Don’t describe technical products or manufacturing processes in a technical jargon or
language that only experts can understand.
 Don’t estimate your sales on the basis of what you can or would like to produce rather
estimate carefully your potential sales based on realities on the ground.
 Don’t make ambitions, vague or unsubstantiated statements etc.
Market growing rapidly, high economic growth.
NB: For an overall guideline as to format and length, experts suggest a maximum length
of fifty pages, neatly types and a two page executive summary.
The details and depth of your plan depends on the size and scope of the proposed business.

NOTES

IN PRESENTATION OF THE PLAN

 Try as much as possible to write the plan on your own i.e. shows originality of thoughts.
 Be logical, honest, interesting and thorough.
 It requires a lot of discipline, time and privacy.
 Use third persons language i.e. taking the business as the noun (avoid first persons language
such as “we, they” etc.
 Use short simple words where feasible.
 Use simple drafting style by using short sentences, less cross-references to the other part of
the report.
 Avoid ugly unnatural English such as “whereby, provided that, such notwithstanding,
however, nevertheless, nonetheless” etc.
 Use visuals, (illustration) such as tables, charts photographs, graphs etc to present your ideas
effectively.
 When writing convey as much information as possible, as clearly and accurately as possible in
as little reading as possible.
 Proof read the report before printing and also before presenting, remember again that what
you write is what will be evaluated about you.

MAJOR COMPONENTS OF A BUSINESS PLAN

Cover page, dedication, declaration, acknowledgement, executive summary with relevant
subtitles, business description with subtitles, marketing plan with relevant subtitles,
organizational and management plan with relevant subtitles, operation and production with
relevant subtitles, financial plan with relevant subtitles, appendices, neatness and appearance.

1. COVER PAGE
Make an appropriate design of your own. Must be presentable, appealing to the eyes.
Must be well spiral bound with a hard cover and must include:
Title of the document, name of business, address applicable, name of presenter, index number,
institution, to who presented, date of presentation.

2. TABLE OF CONTENT
Code Content Page
1.0 CHAPTER ONE BUSINESS DESCRIPTION
1.1 Business name.
1.2 Business location and address.
1.3 Form of ownership.

2.0 CHAPTER TWO – MARKETING PLAN

2.1 Business customers.
2.2 Market share etc.

3.0 CHAPTER THREE – ORGANIZATION PLAN

Appendices
Bibliography

3. DEDICATION
It is a statement of compliment to a person, organization, institution that inspired you
towards attainment of your goals in schoolwork, business or in general life. Could be a
statement of one line and not exceeding a paragraph.

4. DECLARATION
This is a statement declaring a swearing in that the work presented to KNEC is your original
work not copied and has never been presented to any examining body for an award of
certification.

5. ACKNOWLEDGMENT
Statement of thanks or gratitude to all those people who give support in one way or the other
e.g. moral, financial, access to data etc in two or one paragraph.

6. EXECUTIVE SUMMARY
Should have relevant sub-titles e.g. business description, marketing plan, organization plan,
production/operation plan and financial plan.

It must be brief and convincing highlighting the key point of investment opportunity. It
should be clear and to the point using short phrases and simple language.

Although the executive summary is the last phase of preparing your business plan, it will be
placed at the beginning of the business plan report. It is limited to a maximum of two pages
when typed.
 PREPARATION

Read the whole report noting the key points of your report, summarize these points to fit in one
or two pages without watering down the content of the report.

KEY POINTS
Name of the proposed business, when business is expected to start, location of the business,
legal form of business, nature of the business e.g. making retail or service and specific product
or services, key business goal, entry and growth strategic.

MARKETING PLAN
 Name your primary customer group.
 Market growth potential and market share a entry, year one, year two and year three.
 How many competitors offering the same proposed products or services direct competitors?
 State your competitors’ weakness.
 State your strategies to gain competitive advantage.
 Major costs in production and pricing policy.
 How to advertise and promotional methods.
 Distribution methods.

OPERATION / PRODUCTION PLAN

 Facilities, their capacities and value.
 Labour skills needed.
 Suppliers, regularity of supply and quality needed.
 Process involved in production / operation.
 Regulations affecting production / operation.
 Other production strategies.

FINANCIAL PLAN
 How much money needed to develop your business opportunity and its intended use?
 How did you intend to finance business venture? i.e.
Loan source kshs………………………………………….
Loan Kshs………………………………………………..
 State sources of borrowing, duration of payment, interest to pay and securities needed.
 What will be your return on investment?
 What is your overall assessment?
APPENDICES
Is any reference documents that support your business plan. All supporting documents should be
readable and understandable. Importance:
(i) It demonstrates that you have done a significant amount of thinking, land working in all
areas of venture.
(ii) Exhibit credibility to your plan.
(iii) Allows the read visualize your plan, visions and goals.

EXAMPLES
A. COMPANY AND PRODUCT / SERVICE SUPPORT MATERIAL
 Photos of products / services, equipment, tools and facilities.
 Patents, trademarks, service marks and copyrights documents.

B. LEGAL SUPPORT MATERIALS

 Ownership agreement/contracts.
 Marketing agreements/contracts.
 Lease agreements/contracts.
 Employment agreement/contracts.
 Financial agreement/contracts.
 Licenses and permits.

C. MARKET SUPPORT MATERIALS

 Magazines, newspapers, trade journals article.
 Brochure, drawing, mailing and materials.
 Market share charts.
 Competitive comparisons of strengths and weaknesses.
 Customer contacts and status.
 Letters of interest or intent.

D. MANAGEMENT / ORGANIZATION SUPPORT MATERIALS

 Resumes of key people, references and recommendations, resume is the summary of
curricular vitae management philosophy and style outline.
 Significant milestones and time frames.
 Organizational charts.
 Staff training outlines.
 Role description for key personnel.
 System descriptions.
E. FINANCIAL / INVESTMENT SUPPORT MATERIAL
 Break even analysis.
 Principal financial statements.
 Equipment and capital expenditure listings.
 Additional financial statements.
 Loan payment schedules.

F. OTHERS
Meaning and definition of terms used in the report.
Forms for delivery note, local purchase order, invoice, receipts price list etc.

CHAPTER ONE
1.0 BUSINESS DESCRIPTION
This is the first phase in preparing a business plan. The preparation of a business plan requires
a clear understanding of the nature of the proposed business in terms of purpose, type, status
and location. Also it describes how you intend to make entry to the market and outlines plans
for growth.
1.1 BUSINESS NAME
What is the name of the proposed business?
Explain the business name and how the name was derived e.g. base on:
 Business location
 Combination of owner’s name.
 Business products/services offered.
 Associated with somebody or something.
 Emerging issues.
 When do you intend to start your business?
 Design your business logo (Trade mark) and explain its feature.
 State your business slogan (motto or philosophy) and explain it.

1.2 BUSINESS LOCATION AND ADDRESS

Indicate the physical location of your business i.e.
 Name of rural/urban centre or village it shall be located.
 Name of the building/house, road, street or avenue.
 Proximity from the nearest city or county headquarters.
 State business physical location in relation to other features well known in the area.
 State business addresses, telephone, mobile phone, email, web address etc.

Explain the factors considered while locating the business premises.

 Born in location.
 Infrastructure availability roads, electricity, telephone, water, rail, water.
 Closeness to – source of raw material.
 Potential customers, suppliers, security etc.

Trading area as whole e.g.

 Specific region to be covered by business.
 Approximate population.
 The business activity of community.
 Cultural factors e.g. language of community, diet religion and other practices etc.
 Draw sketch of the business location.

1.3 FORM OF OWNERSHIP

 Which form of ownership will you choose and give reasons for the form chosen.
 Explain reasons for choosing this form.

1.4 TYPE OF BUSINESS

 What type of venture are you proposing.
 Manufacturing, making, producing, wholesaling, retail or service type etc.
 Outline the scope of trade for trading area.

1.5 PRODUCTS/SERVICES
 Which product or service will you offer.
 List and describe your product or services in details.
 Explain other benefits customers will obtain from each product/services e.g. convenience,
economy, comfort, durability, usage flexibility, servicing and warranties of product / services.

1.6 JUSTIFICATION OF OPPORTUNITY

Justify why you stand a chance to succeed in the business: -
(i) Discuss the nature of the opportunity or unique aspect of your concept.
(ii) Viability of opportunity e.g.
 Demand, availability of raw materials.
 Skilled labour availability (managerial/technical)
  High return on investments, security etc.

(iii) Contribution the business will make to local community e.g.

 Employment creation, use of local resources.
 Provision of goods and services.
 Promotion of indigenous technology.
 Improves living standards of community.

1.7 INDUSTRY
 Into which industry does your venture fall?
 Name the type of industry into which your business is based e.g. agricultural, motor vehicle,
building, general engineering, clothing, electrical and electronics, beer industry, sports and
entertainments, hotels and restaurants, leather works.
 Outline the characteristics of the industry.
(a) Capital requirements low or high.
(b) Kind of technology – labour intensive or capital intensive.
(c) Level of technology – modern, outdated/obsolete sophisticated or simple.
(d) Sizes of firms in the industry i.e. small, medium or large, average.
(e) Seasonal factors experience in the industry.
(f) Current trends in the industry i.e. growing, declining, stable etc.

1.8 BUSINESS GOALS AND OBJECTIVES

What are the short term goals (2–5 years)
What are the strategies of achieving the short term and long term goals.
Nb: the goals should be:
S Specific
M Measurable
A Achievable
R Realistic
T Time frame
List them in point from and focus on marketing, management, operational/production and
financial projections.

1.8.1 ENTRY AND GROWTH STRATEGIES

ENTRY AND GROWTH STRATEGIES

1) ENTRY STRATEGIES (START UP STAGE)

What are the key factors for success of your venture at the start-up stage?
 Consider the following: -
Competitive advantage, weakness among competitors, pricing policy, distribution channel to
use, adverts, promotion etc.
2) Growth strategies
What are the key factors for the growth of your business i.e. consider the following: -
Diversify products/services, improved quality of product/services.
Business expansion, more skilled and qualified personnel etc.

CHAPTER TWO
2.0 MARKETING PLAN
This is the strategy created with the purpose of reaching as many customers as possible for a
given area. This will enable you describe your market opportunity and challenges will also
enable you describe the marketing strategies statics and policies required to exploit the

2.1 INTRODUCTION
What are your marketing goals: These are the objectives you intend to achieve in the given
market. State your marketing goals for the first three years. Focus on: -
(a) Number of customers to be served.
(b) Volume of business profits per month.
(c) Gross income and number of contracts.

2.2 CUSTOMERS
A person or organization that buys goods or services from the business.
Who are your target customers e.g.
(a) Wholesalers, retailers, individual customers.
(b) Institutional, future customers.

What characteristics are typical with your customers?

Discuss your customer profile i.e. characteristics of the group e.g. selling of baby feeders, the
customer characteristics are: -

i) They are women, they are child bearing age 14–45 years.
ii) Have babies of expectant, do not have baby feeders, have certain incomes to buy.

This description helps you count the number of people likely to buy and also the number of
units you are likely to sell in that market area.

What will the customers be looking for? i.e. benefits that customers will derive from the
products or services e.g. performance, economy, convenience, comfort, safety durability etc.
 When will the customers purchase? i.e. time of the day, week, month or season.

2.3 MARKET SHARE

What is your percentage market share in absolute size or monetary value?
Nb: Total market share = 100%
Outline the peak sales and low sales period, discussing reasons for them and explain strategies
to adjust to such times.
State the changes in the market in the next 3-5 years, growth potential of the entire market and
your specific share.

2.4 COMPETITION
Who are your object competitors?
Identify them by name, address and location in relation to your business.
What is the market share of each competitor?
What are your competitor’s strengths and weaknesses? You could focus on: -
Product superiority – Quality, price advantage – fair, number of employees, number of brands.

SUMMARY: COMPLETION ANALYSIS

No. Competitor Location % share Strengths Weaknesses Strategy to compete

with your competitors
1
2
3
4
5 Others

Market share could also be shown in a pie chart.

Sales

1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
2.5 METHODS OF PROMOTIONS AND ADVERTISEMENTS TO ATTRACT AND
MAINTAIN CUSTOMERS
(I) PROMOTION METHODS
Which promotional campaigns will you use?
 E.g. making product/services attractive, extra services to offer.
 Business appearance/decorations/writings on the inside or outside.
 Sales promotions e.g. road shows etc.
 Which method will you employ on a regular basis?
 How will you measure effectiveness of your promotional campaigns?

(II) ADVERTISING METHOD

You must first get customers to know that a new business has started; secondly get them to
know you have the product/products they need. Finally convince them that they should buy
fro you not from anybody else.
Which advertising media are you going to use e.g.?
Calendars, magazines, media, other specify, internet.

What message will you pass?

 E.g. shop offers lower prices.
 Shop offer fast services.
 Shop offers variety of products/services etc.
 How much will each method cost?
 Which is the method appropriate to you?

2.6 PRICING POLICY

How are you going to rice your products/services? Price is the computation of a given product
or service in relation to the costs of input. An appropriate pricing system must take into
account the total cost required in producing a product or service whereby an entrepreneur is
able to recover the production cost and be left with a reasonable profit margin which could be
used to improve or expand the business.
What is your pricing strategy/method to be adopted?
Examples
i) Price = cost + mark up
 Costs = direct cost + indirect cost
Direct cost = direct raw material + direct labour
Indirect cost = all other costs of production e.g. licenses, insurance, advertisement, repair,
transport, rent, electricity stationeries etc.

Thus total cost 100%

Price = raw material + direct labour + indirect cost
A % of markup is then added to cover for profits

ii) Pre-determined prices

Some manufacturers may determine retail prices of certain commodities e.g. bread, soda, beer
etc (with a label of prices).
i) Competitor Pricing
Calculate the average price for all competitors before placing a margin of profit.

ii) Consumer Prices

Setting prices according to the level of income of your customers i.e. what they are willing
and able to pay.
iii) Supply and Demand forces
This indicates the market price of a commodity in a given season. This is common with
agricultural products.
iv) Sales volume and profits.
v) Fixed and variable prices / negotiable prices.
Giving reasons for your answers.

2.7 SALES TACTICS (STRATEGIES IN SALESMANSHIP)

Which activities will your business carryout to reach desired objectives of sales focus: -
i) Selling methods e.g. personal selling or selling through an agent.
ii) Sales team-how they will be required, remunerated, trained and motivated.
iii) Sales policy on: quality products, price discounts, credits i.e. % of deposits asked, fixed or
negotiable prices.
iv) Maintaining and increasing sales: raffles, free samples, advertisements.

2.8 DISTRIBUTION POLICY

How will your product/services reach your customers from your business?
Examples: direct selling, middlemen, sales representative, direct mailing, door to door sales,
exports, shows and exhibitions.
What mode of transport will you use? E.g. road, railway, air etc
 How much will the chosen means of transport cost you per month?
What specific distribution problems do you anticipate?
How do you plan to solve these problems?

CHAPTER THREE

3.0 ORGANIZATION AND MANAGEMENT PLAN

 This phase develops policies for staff development and human resource management.
 You will present in details the job analysis and description, employees evaluation,
training and staff compensation plans.
 You also indicate, support staff and series as required for your business management
plans.
3.1 Management Team
Who will manage your business – specify whether the owners are also the managers. State
the role of the management team, name of the manager.
Age, educational, technical and professional qualifications, job description.
State duties and responsibilities, salary and benefits, other incentives.

3.2 Other Personnel

 Total number of employees required, job titles and job description.
 Qualifications and experience, duties and responsibilities, salaries and benefits.
 Other incentives, mode of recruitment, performance evaluation methods,
 Manpower development, recruitment, training and promotion.

SUMMARY PERSONNEL

No. Personnel Number Qualification Duties and Salaries and

required responsibilities benefits
1 Manager
2 Supervisor
3 Technician
4 Sales person

TOTAL XXX XXX

3.3 RECRUITMENT, TRAINING AND PROMOTIONS

i. Recruitment
The process of filling a vacant position.
Which process will you use to fill the vacant position? E.g
 Advertising, job applications, interview, job offer, short listing, job offer, orientation/
training/probation.
 Use of bureaus, contracting other companies, personal contacts.
 Announcements in social gathering e.g. churches, chief’s barazas, cooperative societies,
market centres.
NOTE: Be specific on your business policy.
Explain the whole diligent process from vacant position till job offer.
ii. Training
This is staff development to improve the skill of the workers.
State the process of developing skills of workers e.g.
On job training, further studies, attachments, seminars, tours, industrial attachments, buying
of magazines-journals, books etc.

iii. Promotions
Explain the policy concerning the upward mobility of workers from one rank to another
within the business e.g. education and experience, hard work and ability, loyalty, family-
links etc.

iv. Remunerations
State the procedure of motivating the employees e.g.
Working hours – Normal, shift, overtime.
Code of conduct – Rules and regulations, leave and time offs.
Allowances – hours, transport, suspension and appraisal, rights and privileges.
Other benefits e.g. loans, legal requirements.

3.4 REMUNERATIONS AND INCENTIVES

How will you motivate your employees?
Consider motivating factors for employees: -
i. Working hours- normal, overtimes, shifts, rights and privileges.
ii. Motivation and supervisions, code of conducts i.e. rules and regulations.
iii. Leaves e.g. days off, sick leave, maternity leave, annual leave etc.
iv. Allowances e.g. transport, leave, medical, house etc.
v. Others e.g. parties, tours, car loans etc.
3.5 LEGAL REQUIREMENTS
 What legal requirements do the business need to meet in order to operate and at what cost
e.g. Forms of ownership, business registration and by-laws, licenses and permits.

 State the nature of the legal measures, where to obtain them and the amount charged as legal
fee.
 What external support service will you require to successfully run your business? e.g.
banking, insurance, consultancy lawyer, postage; suppliers repair and maintenance,
telephone.
 Identify the name and address of the organization or person who will provide these services
and at what cost.
 Organization structure.
 Explain how your business is organized, draw an organization structure: focus on the
following: -
Departments/sections, decision making process, communication methods, meetings.

SUMMARY FOR LEGAL REQUIREMENTS

Requirements Registration Where obtained Fee payable (kshs) Remarks

No.
1. Government Registration Registrar of 1,500 Once
regulations societies
2. Labour laws
3. Insurance
4. Building
regulations
5. Local authority
regulations

3.6 EXTERNAL SUPPORT SERVICES

 Which external support services will you employ to successfully run your business?
 What professional or consultancy services will you adopt?
 Identify name address of each specialist and type of assistance each will provide. E.g. legal
and licensing, auditing and accounting, banking services, repair and maintenance, postal
services, insurance services.

3.7 GENERAL ORGANIZATION

 How is your business organized?
 How many departments or sections shall your business have?
 Show various levels of authority or management span in your business.
 Which management style shall your business adopt? E.g. staff meetings, briefings down,
informal/social/cross functional meeting etc.
 Draw a neat organization chart for your business.

CHAPTER FOUR

4.0 OPERATION / PRODUCTION PLAN

This business planning phase explains the facilities, labour and overheads required to
manufacture your proposed products or render your proposed services.
Explain the process of making your products or describe the key process of offering your
services.
Indicate any regulation, compliances and approval that will, affect your operation or
production.

4.1 PRODUCTION FACILITIES AND CAPACITIES

Explain/state what facilities are needed for operation/production of your goods and services.
State your capacity for operation/production.

(i) Production Facilities and Capacities

 What facilities shall you need for your business operations?
 List, machinery tools, equipments need for production purposes.
 What fixtures shall you need for your business operation e.g. benches, shelves, fire
extinguishers, telephone, office internet server etc.
 Give their description, use quantity needed and their costs.
 State the equipment, tools machineries and fixtures that shall be hired or leased. Give
reasons for hire and state the cost involved.
 What are your terms of purchases, cash or credit-what other sale services shall they give
upon purchases e.g. transportation, installation regular servicing.
 Indicate transportation installation or services costs if any before the operation/production
commencement.
 State who shall be servicing or maintain repair your machineries, tools and equipments.
 How often will you carryout maintenance.
 Who will be your dealers or supplier of your tools/equipments/machinery – spare parts.
  If tools /machinery /equipment are not available locally, state your importation
arrangements.
 Indicate depreciation rate of each of your tools, equipments and machinery.
 Indicate economic lifespan of your machines, tools and equipments and fixtures.
 State which machines, tools, equipments and fixtures shall need to be hired or leased.
 Which machine is second hand or reconditioned.

(ii) Business Premises

 What business premises shall you use?
 State the ownership of your business premise, owned or rented.
 Indicate the type of premise for your business.
 Indicate the facilities installed e.g. water, power and telephone, counter shelves etc.
 How big is the premise i.e. working space.
 What is the cost of renting.
 Does your premise require renovations, paintings, repairs? How much will it cost?
 State other conditions attached to the use of the premises, right to renovate, duration or
lease.
 State the location of your business e,g. village, town street/road, building name, room.

(iii) Materials for Production

Describe your major raw materials requirements:
 State your monthly raw materials requirements.
 Quality needed and their cost.
 Who will be your suppliers?
 Will raw materials be available throughout the year? If not, what are your plans for
materials during shortage periods?
 How will the raw materials be transported to the premises and at what cost?
 Which indirect materials will you require i.e. materials that do not become part of
finished product but are necessary to enable production e.g. receipt books, detergents,
cotton waste, stationeries etc.
 Will materials be readily available throughout the year?
 How will raw materials be transported to your business? How much will it cost per
month.
 Tabulate summary for raw materials (if possible).

4.2 PRODUCTION PROCESS / STRATEGY

(i) Production Process
Describe in details the production process of your products or services.
 Indicate the exact production steps involved in producing your proposed products/services
(indicate main features of offering your proposed services).
 How are instructions given to workers and by whom? i.e. monthly, weekly, hourly, per task
etc.
 How is the follow-up for production process done?
 What are the stages of product design, state product formulation especially for foods and
drinks, drugs etc.
 How do you intend to develop your product?
 What are the anticipated cost in deciding and developing your product/service?
 Draw major design or patterns or your products.
 State lifespan of your products, where applicable.
 How appropriate is your technology? Consider simplicity, cost effectiveness, flexibility and
maintenance levels.
 State your immediate plans to cope with changes in technology.

(ii) Quality Control

What standards of products/services do you intend to achieve e.g. appearance i.e. beautiful
and pleasing to eyes?
Consideration
 Performance – ability to achieve targets.
 Durability – long lasting.
 Safety – causes less harm.
 Comfort – highest level of enjoyment.
 Economy – worth the price.

 State the activities that will ensure achievement of the stated standards:
 Consider quality, proper tools and equipment, security, motivated employee, good working
conditions etc.
 Who shall be in charge of quality control, inspection and monitoring?
 Tabulate summary of quality control.

(iii) Labour Control

 Describe your monthly labour requirements.
 How many direct and indirect workers will you need?
 Group your employees according to their production/duties where applicable (indirect labor
comprises manager, supervisors, drivers watchmen etc)
 State the level of skills needed for your workers.
 State anticipated total costs of production labour per month?
 What will be the total cost of production labour per month?

Example:
Number of direct workers x cost per hour x number of weeks or months = ……………..
No. of direct workers x per cost per hour x number of weeks or months = ……………...
 State education level needed for your employees/workers.
 State activities in production process as well as support or indirect labour jobs. Note one
personnel can be assigned multiple jobs.

(iv) TIME CONTROL / WORKING SCHEDULES

 State your worker schedules? Normal working hours, overtimes, shifts etc.
 Shall your employees be working on Saturdays and public holidays? Indicate their
schedules.
 Shall your business close during break times such as tea/lunch etc
 State types of breaks that your business will adopt e.g. shifts, tea as work progress, other
specify)
 Tabulates work schedule summary.

(v) PRODUCTION COSTING

 Determine your monthly costs of production.
 Determine of volume of products expected to product per month.
 What will be the product cost per unit?
 What will be the total cost of production per month?
 What will be the selling price of each unit and the total cost of all products?
 Compile summary for production costing.

(vi) PURCHASING POLICY

 State your purchasing policy
 Who shall be responsible with buyers and suppliers?
 Which form of purchase shall you use e.g. local purchase order, cheque, cash etc
 Who shall be the custodian of purchase records?
 How shall the inspection of goods/services be done and by whom?
 What regulation system of supply shall your business adopt e.g. dairy, weekly, monthly,
quarterly etc
 State whether there are agreements or conditions laid down on purchase?
 Who are your supplies? What benefits will you receive?

(vii) INVENTORY CONTROL

How is your inventory control?
Inventory – a detailed list of goods (stock)
Stock – A store of goods available for sale, distribution or use.

Focus on:-
 Stock of raw material if in production.
 Stock of goods for sale if on operation.
 How much are you going to invest in stock?
 How frequent will you be carrying stock taking?
 What is your stock cycle’s i.e. minimum value of stock to be maintained at any given
time?

Summary – Stock cycle: Example

Cost per Quantity Total Remarks

Item Description unit Kshs.
Supplier
Fabrics
Zips
Buttons
Thread
Lining Silk Meru 150 per 1000 150,000 Readily
materials Textiles metre metres avaialble
Totals

The total value of stock cycles = Kshs……………………….

4.3 PRODUCTION PROCESS

How are your products made and with what? Explain step-by-step process involved in
producing your product (s) alternatively; explain the main features of offering your proposed
services.
 NB: production steps refers to a single complete activity carried out by a worker who is
making a product e.g. making a school bag may be achieved in the following steps: -
Designing, drafting, cutting, hemming, joining, ironing, inspection, display.
 What tools, equipment and machines will you use in each step?
 What requirements are required for each step e.g. space, air, light/darkness?
 How much will you produce per day, week and month?
 What external factors are likely to affect the production/service process?
4.4 PLANT LAYOUT
How will your production/operation layout look like?
 Draw a layout plan for your production process.
 Indicate dimensions of each step.
 State equipment available and requirements for each station.

4.5 REGULATIONS AFFECTING OPERATION / PRODUCTION

Examples: Which regulations are likely to affect your production/operations?
1. Building regulations – space for workers, clean floor walls, proper roofings, ventilations
etc.
2. Safety measures e.g. firefighting devices, safety gears e.g. head helmet, gumboots, dust
coat/overalls emergency doors/ windows, safety guards, precautions, code of conduct etc.
3. Health regulations/conditions e.g. toilets for workers/bathroom, safe drinking water,
drainage, sanitations, clean surroundings.
4. Environmental regulations dumping of wastes toxicity of fumes, gases, funds etc.
5. Business ethics on expired products default in products sub-standard goods,
standardization processes etc.
6. Conditions for registration e.g. as builder, lawyer, doctor, electrician etc.
7. Trademarks, patents, copyrights etc.
8. Factories act – approvals and compliance.
9. Others – specify.

5.0 CHAPTER FIVE

5.1 FINANCIAL PLAN
This phase deals with financial aspect of your proposed business. To gauge your future
financial potential you will prepare projected cash flow statements pro-forma profit and loss
account (Trading Statements) and pro-forma balance sheets. You will also determine the
break-even levels of sales and calculate the expected profitability ratio of your business.
Finally you will indicate your financial requirements and proposed capitalization.
5.2 BOOKS OF ACCOUNTS
Which books of account will your business keep? These could be such as: -
(i) Cash book – cheques and cash money received or spent.
(ii) Ledgers –general ledger used for all bills or expenses e.g. salaries, telephone, electricity,
water.
(iii) Purchase ledger, sales ledger etc.

5.3 PRE-OPERATIONAL COST

Which costs will your business incur before the business begins?
These costs are pain once before the business begins. They must be accurate and realistic.
Examples are such as: Certain licenses and permits, consulting fee, rent, water deposit etc.

Summary – Pre-operational Cost

Example:

No. ITEM AMOUNT KSH.

1. Loan processing fee
2. Bank account opening fee
3. Building renovations/paintings
4. Electricity deposit
5. Installation of machines
6. Construction of counters + shelves
Total xxx

5.4 ESTIMATION OF WORKING CAPITAL

How much working capital is needed in your business?
Working capital is the finance used for day today running of your business.
It includes stocks/purchases and other regular expenses. You need to make accurate and
realistic estimates.
The formula for working capital is: -
Total current assets – current liabilities i.e. C.A.-C.L.
Nb: Financial plan notes.
(i) Salaries will be increased by 4% of basic salary for each employee every year.
(ii) Machines estimated to depreciate at a rate of 4,6,8% in year a23 respectively.
 (iii) Working capital estimated as amount of money needed to finance business operations
for a duration of (1) (2) (3) (4) (5) (6) etc. months before business start making adequate
profits to sustain itself.
(iv) Miscellaneous expenses estimated at 10, 20, 30% of other expenses.

5.5 ESTIMATION OF FIXED ASSETS

How much money are you going to invest in capital machinery tools and equipment etc?
Examples: Machines, computers, land and building, tools and equipments, motor vehicle etc.

Summary Fixed Assets

NO. ITEM AMOUNT KSH.

1. Office furniture xx
2. Tool box xx
3. Welding machine xx
4. Bench vices xx
5. Other tools xx
6. Computers xx
7. Motor vehicle xx
8. Etc xx
Total xxx

5.6 CASH FLOW PROJECTIONS

How do you project your cash flow for the first three years?
Cash flow is the estimation of clash money that the business will generate per month
throughout the year. Net cash inflow is obtained by subtracting the cashflows from cash
inflows.
Example: Cash inflows include:
Cash sales, collection from debtors, others specify e.g. loan, bank interest on deposits,
grant/donations etc. cash outflows (expenses) include:
Salaries, purchases, insurance premiums, water / electricity bills etc
Net cash = Total inflow – Total outflow.
Summary: Projected Cashflow Statement

Months

1 2 3 4 5 6 7 8 9 10 11 12

Cash inflows

Collection debtors

Other specify

Total cash inflow

Cash out flow

Cash purchases

Creditors payments

Rent

Salaries

Telephone

Electricity

Advertisement

Repair/Maintenance

Traveling / Transport

Others – Specify

Total cash flow

Net cash
 Cumulative Cash

SUMMARY OF NET CASH FOR THE FIRST THREE YEARS

ITEM YEAR 1 YEAR 2 YEAR 3

NET CASH

5.7 PRO-FORMA INCOME STATEMENT

(PROFIT AND LOSS ACCOUNT)
What level of profit/loss are you projecting to make in the first three years of business
operations?
The income statement is a summary of all activities involving incomes and expenses
incurred by a business during a particular period of time. It illustrates the profits or loss
during a particular financial period. It could be prepared quarterly, semi-annually or
annually. It has five major sections: -

1. Operating incomes (revenue) = cash sales plus credit sales.

2. Cost of goods sold = direct labour and direct raw materials cost or cost of purchasing
stock for a trader.
3. Gross profits on operations = operating incomes minus cost of goods sold.
4. Expenses–all overhead costs on operations e.g. salaries, rents, electricity, water,
telephone, advertisements, repairs, insurance etc.
5. Net incomes (profits) = gross profits – expenses (overheads).

Preparation of income statements

 List the expected year incomes from sales and other revenue sources.
 List the expected yearly expenses.
 Prepare the income statements.
 Projection is made for the three years of business operations.
Nb: Gross profits = incomes (sales minus major cost of operations).

Summary
Income statement for ………………….business for the year…………………….
 Items Amount Ksh. Amount Ksh.

Cash sales:
Credit sales, totals ales, cost of goods sold, beginning inventory, purchases, total cost of
goods sold, gross profits.
Expenses:
Salaries/wages, advertisements, transport, maintenance and repair, loan payments,
licenses, rent, insurance, others-specify.
Total expenses:
Net profits before tax, Net profits after tax.
SUMMARY OF NET INCOME FOR THE FIRST THREE YEARS

ITEM YEAR 1 YEAR 2 YEAR 3

NET CASH

5.8 PRO-FORMA BALANCE SHEET

Prepare the balance sheet for your business for the first three years of operations. A balance
sheet is a document that shows the financial position of the business at the end of an
accounting period, usually one year. It has the following major sections: -
(i) 1st section shows that what the business owns – called Assets.
(ii) 2nd section shows what the business owes others – called liabilities and the owner’s
investment in the business called EQUITY, NET WORTH CAPITAL.

ASSETS – These refers anything that the business owns that has monetary value? Assets are
classified as either current or fixed assets.

CURRENT ASSETS
This includes cash at hand or in the bank and all those assets that can be converted into cash
within one year e.g. debtors, accounts receivables, stocks or material stocked or finished
products etc.

FIXED ASSETS
These include items that the business has acquired and are expected to last for a long time
usually more than one year e.g. land, buildings, equipments, furniture, machines, vehicles
etc.
LIABILITIES
 Anything the business owes others. They are claims against assets of the business. They are
classified as their current or long term.

CURENT LIABILITIES
Are debts that must be paid within one year e.g. creditors, bank overdrafts, salary arrears,
short-term loans etc.

LONG TERM LIABILITIES

Debts payable in more than a year time e.g. a five year term loan.

5.9 BREAK EVEN ANALYSIS

At what point will your business break-even in year one, two and three?
Breakeven point – is the level of operation at which a business neither makes a profit nor
sustains losses. The business has exactly enough income over expenses with nothing left
over for profits. The information assists a business in setting a reasonable price for a product
to determine markup or profit projections.
Calculate break-even points in terms of sales and also in terms of money.
Draw break-even chart to illustrate this (refer to cost accounting and marketing books).

5.10 PROFITABILITY RATIOS

A ratio is a mathematical relationship between two quantities of variables. It’s used to make
prediction about future in the business. Calculate profitability ratios for each year of your
business operation. These are such as: -
(i) Gross profit margin.
(ii) This determined whether the profit margin is sufficient enough to cover the operating
costs or where the pricing policy need to be reviewed, it is computed by driving gross
profits by sales i.e. calculate the gross profit margin for your business.

Gross profit margin = Gross profit x 100

Sales
G.P.M is prepared for the first three years of business operation.
Give comments by comparing performance and interpreting its impacts to the business.

Summary: Gross Profit Margin

SUMMARY NET CASH FOR THE FIRST THREE YEARS
ITEM YEAR 1 YEAR 2 YEAR 3

NET CASH
 Comments

iii) RETURN ON EQUITY RATIO (R.O.E)

Determine the rate at which the business is receiving returns on owner’s equity to the
business. It is computed by diving net profits after taxation to owner equity i.e.
R.O.E = Net profits after tax x 100
Owner’s Equity

SUMMARY: RETURN ON EQUITY

ITEM YEAR 1 YEAR 2 YEAR 3

NET CASH

Comments ……………………………

5.11 DESIRED FINANCING

How much money do you need to initiate your venture?

NO. ITEMS AMOUNT REMARKS

1 Owners equity Cash
2 Loan – KIE Machine (specify)
3 Loan KCB Cash
Others Specify Specify
Total xxx

Total proposed capitalization = Ksh …………………………

5.12 PRODUCTION LOANS

What is the total amount of loan plus interest will you pay to the lender (s).

Example – Summary: Loan + Interest

No. Funding Loan Rate of Period of Interest Total Remarks

section Ksh. interest payment on loan sum Ksh
in months
1. 24 months 15,000 65,000
KIE 50,000 15% p.a
2. 18% p.a 36 months 33,200
KCB ART 30,000 1,132,000
3. 20% p.a 12 months 65,000
OTHERS 10,000 65,000
TOTAL 190,200

Total amount of loan to pay (principal loan and interests) Ksh 190,200/=
NOTES
1. Equity must be more than 20% and more than 60% of the total.
2. Equity or loan can be in cash, materials tools or machines and equipments.
3. Security refers to some property pledged by the borrower to a lender to be used in the
event of default e.g. land building, vehicle, chattel mortgages guarantors etc.
4. Guarantee and undertaking to pay another person’s debts in s=case of default.
5. Grand period – the duration allowed by the lender to make use of money before you
start paying back.
6. Loan payment schedule shows amount paid per year that encloses principle plus
interest. It m may be broken to nominally quarterly or semi annually.

REFERENCES