BUSINESS PLAN FOR INTEREST

FREE BANKING VEHICLE

FINANCING

Submitted By: Senait Mekonnen

Senait Mekonnen Retail Trade of Cotton Textile and Textile Clothing
Addis Ababa, Ethiopia
1. Table of Contents
2. Executive Summary.............................................................................................................................3
3. Background:........................................................................................................................................4
4. Background of the business................................................................................................................4
5. The Business.......................................................................................................................................5
6. Legality................................................................................................................................................5
7. Vision..................................................................................................................................................6
8. Mission................................................................................................................................................6
9. Objectives:..........................................................................................................................................6
a) Broad objective:....................................................................................................................6
b) Specific objectives:...........................................................................................................6
10. Organization chart...........................................................................................................................7
11. MARKET...........................................................................................................................................7
12. Marketing Strategies.......................................................................................................................7
13. SWOC Analysis.................................................................................................................................8
14. Financial Study.................................................................................................................................8
14.1 Projected Financial Statements:-.....................................................................................................9
14.2 Projected Cash flow Statements:-..................................................................................................10
15. Financial Evaluation.......................................................................................................................10
16. Annex.............................................................................................................................................12
16.1 Mudarabah Financing Schedule.....................................................................................................12
2. Executive Summary

The owner and manager of the business, have an extensive business background and have
developed a variety of businesses with long years of experience and intimate knowledge of the
textile, textile closing and vertical blind dealing sector. Currently in desiring to expand their
business, they wish to purchase a vehicle that facilitate the business at highest level.

The major activities of the business needs to be moved a place to place due to the nature of the
business. Therefore, to increase profitability and reduce related cost as well as compete with
others and come out as outstanding performer in the sector procurement of vehicles to transport
purchased material and products that are customized as finished will be facilitated by the
purchase of the vehicle.

The business create job opportunity for citizens of the qualified professionals, and other
contractual employees required on seasonal basis.

The total planned investment cost of the vehicle which is earmarked as fixed asset estimated at
Birr 4,500,000. Out of the total investment cost 50% will be equity contribution and the rest 50%
(Birr 2,250,000) will be bank loan from Abay Bank interest free Banking product for five years
period on quarterly repayment base which is purchased from the approved supplier of the
vehicle (High roof VAN).
3. Background:
Carpet is a textile floor covering that is distinguished from the more general term "rug" by being
fixed to the floor surface and extending wall to wall. The earliest peoples covered the floors of
their dwellings with animal skins, grass, or, later, woven reed mats. When people learned how to
spin cotton and wool, woven mats of these materials largely replaced earlier coverings. Around
3000 B.C. Egyptians sewed brightly colored pieces of woolen cloth onto linen and placed it on
their floors.

Textile Floor coverings are decorative products with a variety of design and color used in
decorating the interior floor of living rooms, offices, hotel rooms or other places. Since long time
ago carpets were made by hand. Large quantities of carpets known as "Hand knotted” Oriental
Carpets are still made by hand in oriental countries and in Northern Africa as well as in Addis
Ababa and in many other towns and cities.

They are popular as decorative carpets although they are expensive. Hand knotted wool carpets
are also made by hand in Central Shoa region in Ethiopia. Intensive demonstration, training and
other support activities are also being carried out by the Federal Micro and Small Enterprises
Development Agency contributing to small amounts of export sales by small and medium
enterprises.

Nowadays modern carpets are made by machines on broad automatic looms satisfying the
quantitative and qualitative demands of the society. Among several styles of carpet
manufacturing the modern most popular design of carpet is the tufted carpet. It is widely
available in the market with different colors and sizes satisfying the need for broad wall to wall
carpets.

4. Background of the business

 Name of the Owner Senait Mekonnen

 Business Location:-The location of the business is at Addis Ababa city in N/silk sub
city Werda 02, specially called in Jemo Michael. The city of Addis has an estimated
total area of 527 square kilometers. The location is appropriate for the smooth operation
of the business due to the availability of well-developed infrastructure (rail and road
transport, electricity, water, ICT); availability of labor force as well as nearest to the
 major distribution area of the product along with near to the major construction site
which needs this finishing material.

5. The Business

Senait Mekonnen Retail Trade of Cotton Textile and Textile Clothing is a sole proprietorship
business which has been established in 2010 E.C with an initial paid up capital of birr 772, 900
by the founding owner of W/ro Senait Mekonnen .

The business is established to engage in the whole sale and retail trade of cotton, fiber, yarn,
textile and textile clothing’s as well as import and export business.

The founder, W/ro Senait Mekonnen, has tremendous work experience and profound knowledge
in managing different business activities for the last eight years here in Ethiopia well as abroad.
Generally, she is a young, matured, talented and well experienced entrepreneur especially in this
business.

The promoter wants to engage in various businesses which have not been touched in our
country's situation. However, due to lack of finance his vision does not come to exist.

6. Legality

The details of the customer profile are as follows

 Name: - Senait Mekonnen Retail Trade of Cotton Textile and Textile

Clothing

 Managing director: - Senait Mekonnen

 Registered capital: - birr 772,900

 Tin no:-0057983647

 Trade license no:-AA/BO/10/1/0004813/2010

 Legal form of business:-sole proprietorship

  Address: -City: Addis Ababa Sub City: N/Silk Lafto Woreda: 02 Tell #:
+251 913 994581 E-mail:

 Head office: - Addis Ababa N/Silk Lafto sub city woreda 02 H. no. new
7. Vision
The vision of the business is to be one of the leading carpet and vertical blind and cotton
clothing dealer in Ethiopia.
8. Mission
As it is customer oriented, the business recognizes that its success hinges on how effectively
it meets its responsibilities to its customers and to other important group of stakeholders.

The missions and operating philosophy of the business are summarized as follows:

 It requires that the entire organization be continuously customer oriented as the

business’s future success is dependent on meeting the customers’ needs better than its
competitors.

 It maintains a marketing concept and distribution capability to identify the needs of the
market and undertakes effective promotions of its products and items.

 It plans to constantly maintain and upgrade its facilities as modern and clean to make
them conducive for supply of products of high standard quality appropriate for
customer need and satisfaction.

9. Objectives:
a) Broad objective: To prepare an entire financial framework of carpet and vertical blind
service and sales in Addis.

2. Specific objectives:
 To estimate cost of production and find the alternative to reduce the cost in that factor.
 To increase profitability of the carpet and vertical blind business in place like Addis by
utilizing the opportunity and accessibly market.
 Diversifying the current business in many areas of the city to reaches out our customer at
the nearest possible place and time.
10.Organization chart

General Manager

Branch Manager Sales (marketing)

Purchaser
Cleaner and Guard Accountant & Cashier

11.MARKET
There is increasing acceptance of carpet and vertical blind market in the city as well as in the
surrounding area of the city. These days the demand of the times or products is very higher and
the service given by the dealer over all compared to the demand is very low. The construction of
housing in small scale as well as higher lever turns it into poison in increasing the vertical blind
as well as the carpet market. Hence the market of these items can be very high as there is no need
to create demand of the items as there is already big existing market in the places like Merkato.
To have a balance in energy system of that place we would like to make our sale as closer as
possible.

12.Marketing Strategies
As there is a very big market of carpet and vertical blind we will try to keep the marketing
simple and sustainable as possible. We will use traditional as well as modern techniques and
strategies for increasing local market in the city. Some of them are as follows:
  Targeting local scale housing construction to exhibit the finishing work regarding the
carpet and vertical blind work.
 Website and Social Networking Sites to address all
 Market penetration strategy would be selling our product as cheap as possible and as low
as marginal cost of production to spread our market in first year and once people will
start loving our product we will launch our brand and sell at relatively higher price which
includes delivery and installation.

13.SWOC Analysis
a) Strength: Our major strength will be the workforce who will be available for us every
time and commendably. Using local collaborator, road access, people’s interest to use our
products our major strengths. And also the demand of our product is very high in market.
b) Weakness: No proper delivery mechanism created for us which is lack of vehicle makes
us to use rented vehicle which will increase our cost.
c) Opportunities: Increasing demand and huge import of the product we sale and
increasing awareness on service.
d) Challenges: Current condition of the country as well as prevalence of the COVID 19
pandemic.

14.Financial Study
As depicted in below table we request to purchase a new brand vehicle called high roof VAN
with a purchase price of 4.5 million by presenting the proforma from the accepted supplier.
Hence, we is engaged in textile and textile clothing sector that require a vehicle in daily
operation of the business. Therefore we request a debt finance of 50% from the total purchase
price which is 4.5 million for the purchase of one land high roof VAN Automobile with 2021
year of make which help in facilitating our business in the coming future

Our contribution Bank Finance

No Item Qty unit price
(50%) (50%)
1 High Roof VAN 1 4,500,000 2,250,000 2,250,000
Total 1 4,500,000 2,250,000 2,250,000

Assumptions Employed for the projection financial and cash flow statement;
  The sales growth rate assumed to be on average 20% for next coming years
assuming inflation and current cost of material increment.
 The recent period financial statement sales has taken as a base year sales for the
projection.
 Wages and salaries expense is assumed to be Birr 234,000 for the first year and
increases by 5% per annum.
 Pension expense is assumed to be 11% of wages and salaries.
 Repair and maintenance and insurance cost is considered based on the vehicle
purchase price and which is to be sated here below
 Depreciation is calculated on straight-line method based on the following rates:

 Motor vehicles 20%

 Income tax is considered 35% of income after interest.

 Mark up rate for Mudarabah Financing for 5 Years is assumed 51% per the total
finance granted.

 Loan period of 5 years at equal quarterly installments is assumed.

14.1 Projected Financial Statements:-
Senait Mekonnen Retail Trade of Cotton Textile and Textile Clothing
Projected Income Statement
For the Next Five Years 000'
Description Y-1 Y-2 Y-3 Y-4 Y-5
Revenue 9,600 11,520 13,824 16,589 19,907
Cost 7,085 8,148 9,370 10,775 12,392
Gross Profit 2,515 3,372 4,454 5,813 7,515
Operating expenses:
Repair & maintenance - - -
Salary & wage 240 252 265 278 292
Repair & maintenance 8 8 7 7 7
Utilities 15 15 16 16 17
Insurance 7 7 7 7 7
Fuel & Lubricant 140 147 155 163 171
Supplies & cleaning - - - -
Miscellaneous - - - -
Depreciation 900 900 900 900 900
Repayment 170 170 170 170 170
Subtotal 1,480 1,499 1,519 1,540 1,562
Income before tax 1,035 1,873 2,935 4,273 5,952
Less: Income Tax 310 562 880 1,282 1,786
Net income 724 1,311 2,054 2,991 4,167
 14.2 Projected Cash flow Statements:-
Senait Mekonnen Retail Trade of Cotton Textile and Textile Clothing
Projected Cash flow Statement
For the Next five Years 000'
Description Y-1 Y-2 Y-3 Y-4 Y-5
Net income 724 1,311 2,054 2,991 4,167
Add: Depreciation 900 900 900 900 900
Total Cash flow 1,624 2,211 2,954 3,891 5,067
Less: Principal 113 113 113 113 113
Withdrawals 1,500 1,650 1,815 1,997
Net Cash inflow 1,512 599 1,192 1,964 2,958
Cumulative Net cash inflow 1,512 2,111 3,303 5,266 8,224

15.Financial Evaluation
1. Profitability
Based on the projected profit and loss statement, the project will generate a profit throughout its
operation life. Annual net profit after tax will grow from Birr 724 thousand to Birr 4.17 million
during the life of the projection. Moreover, at the end of the projection or the loan period the
accumulated cash flow amounts to Birr 8.31 million.
2. Ratios
In financial analysis financial ratios and efficiency ratios are used as an index or yardstick for
evaluating the financial position of a firm. It is also an indicator for the strength and weakness of
the firm or a business. Using the year-end balance sheet figures and other relevant data, the most
important ratios such as return on sales which is computed by dividing net income by revenue,
return on assets (operating income divided by assets), return on equity (net profit divided by
equity) and return on total investment (net profit plus interest divided by total investment) has
been carried out over the period of the projection life and all the results are found to be
satisfactory.
3. Break-even Analysis
The break-even analysis establishes a relationship between operation costs and revenues. It
indicates the level at which costs and revenue are in equilibrium. To this end, the break-even
point of the business including cost of finance when it starts to operate immediately after it
acquired the vehicle is estimated by using income statement projection.
BE = Fixed Cost = 55 %
Sales – Variable Cost
4. Payback Period
The payback period, also called pay – off period is defined as the period required to recover the
original investment outlay through the accumulated net cash flows earned by the project.
Accordingly, based on the projected cash flow it is estimated that the project’s initial investment
will be fully recovered within 3 years.
5. Internal Rate of Return
The internal rate of return (IRR) is the annualized effective compounded return rate that can be
earned on the invested capital, i.e., the yield on the investment. Put another way, the internal rate
of return for an investment is the discount rate that makes the net present value of the
investment's income stream total to zero. It is an indicator of the efficiency or quality of an
investment. A business is a good investment proposition if its IRR is greater than the rate of
return that could be earned by alternate investments or putting the money in a bank account.
Accordingly, the IRR of this business is computed to be 17.4 % indicating the viability of the
project if we convert the yearly markup rate of 55% to quarterly results 13.5% which is less than
the IRR given above.
6. Net Present Value
Net present value (NPV) is defined as the total present (discounted) value of a time series of cash
flows. NPV aggregates cash flows that occur during different periods of time during the life of a
projection in to a common measuring unit i.e. present value. It is a standard method for using
the time value of money to appraise long-term projects. NPV is an indicator of how much value
an investment or project adds to the capital invested. In principal a project is accepted if the NPV
is non-negative.
Accordingly, the net present value of the business at 13.5% discount rate is found to be Birr 2.25
million which is acceptable.
7. Economic Benefits
The business can create employment for new job seeker professionals in the sector. In addition
to supply of the domestic needs, the business will generate additional income for the government
in terms of tax revenue. The establishment of such business will have a supply chain effect for
the local housing project that need this product. It has also a backward linkage effect with cotton
yarn producers as well as other textile factories.

16.Annex
16.1 Mudarabah Financing Schedule

Mudarabah Financing 5 Years Quarterly Repayment Schedule

Quarterly
Repayment Quarterly principal Quarterly Outstanding
Markup rate
Date Repayment Repayment Balance
repayment
December,2021 Financing Amount 2,250,000.00
5 Yrs Markup rate 51% 1,147,500.00
Total 3,397,500.00
January ,2022 112,500.00 57,375.00 169,875.00 3,397,500.00
April ,2022 112,500.00 57,375.00 169,875.00 3,227,625.00
July ,2022 112,500.00 57,375.00 169,875.00 3,057,750.00
October,2022 112,500.00 57,375.00 169,875.00 2,887,875.00
January ,2022 112,500.00 57,375.00 169,875.00 2,718,000.00
April ,2022 112,500.00 57,375.00 169,875.00 2,548,125.00
July ,2022 112,500.00 57,375.00 169,875.00 2,378,250.00
October,2022 112,500.00 57,375.00 169,875.00 2,208,375.00
January ,2023 112,500.00 57,375.00 169,875.00 2,038,500.00
April ,2023 112,500.00 57,375.00 169,875.00 1,868,625.00
July ,2023 112,500.00 57,375.00 169,875.00 1,698,750.00
October,2023 112,500.00 57,375.00 169,875.00 1,528,875.00
January ,2024 112,500.00 57,375.00 169,875.00 1,359,000.00
April ,2024 112,500.00 57,375.00 169,875.00 1,189,125.00
July ,2024 112,500.00 57,375.00 169,875.00 1,019,250.00
October,2024 112,500.00 57,375.00 169,875.00 849,375.00
January ,2025 112,500.00 57,375.00 169,875.00 679,500.00
April ,2025 112,500.00 57,375.00 169,875.00 509,625.00
July ,2025 112,500.00 57,375.00 169,875.00 339,750.00
October,2025 112,500.00 57,375.00 169,875.00 169,875.00