BUSINESS PLAN

TITLE: LOAM ELECTRICAL SHOP

ADDRESS: P.O.BOX 94-20500, NAROK

PRESENTER: CHERUYOT RONO AMOS

INDEX NUMBER: 5031111567

COURSE: DIPLOMA IN ELECTRICAL ENGINEERING POWER

OPTION

CENTRE: KITALE NATIONAL POLYTECHNIC

PRESENTED TO: KENYA NATIONAL EXAMINATION COUNCIL IN

PARTIAL FULFILMENT FOR THE AWARD OF DIPLOMA IN

ELECTRICAL ENGINEERING

SUPERVISOR: MR. MAKOKHA

SERIES: NOVEMBER 2023

 DECLARATION
I declare that this is my own research work and idea and has not been presented by anybody else
at any time in any institution or college.

NAME: CHERUYOT RONO AMOS

SIGNATURE: _______________________________

DATE: _____________________________________

SUPERVISOR: MR. MAKHOHA

SIGNATURE: _________________________________

DATE: _______________________________________

i
 DEDICATION
To all who supported and inspired me throughout the course work on this project
May God be with them.

ii
 ACKNOWLEDGEMENT
I thank all the people who helped me achieve success in the completion of this project.
Special thanks go to my supervisor Mr. MAKHOHA for the guidance he accorded me through
every stage of this project.

iii
 Table of Contents
DECLARATION...............................................................................................................................................i
DEDICATION.................................................................................................................................................ii
ACKNOWLEDGEMENT.................................................................................................................................iii
EXECUTIVE SUMMARY...............................................................................................................................vii
CHAPTER ONE..............................................................................................................................................1
1.0 BUSINESS DESCRIPTION...............................................................................................................1
1.1 INTRODUCTION............................................................................................................................1
1.2 MISSION STATEMENT..................................................................................................................1
1.3 SPONSOR.....................................................................................................................................1
1.4 EDUCATIONAL BACKGROUND.....................................................................................................1
1.5 PROFFESSIONAL BACKGROUND...................................................................................................1
1.6 FORM OF BUSINESS.....................................................................................................................1
1.7 BUSINESS LOCATION....................................................................................................................1
1.8 JUSTIFICATION OF THE BUSINESS................................................................................................2
1.9 ENTRY AND GROWTH STRATEGY.................................................................................................2
1.9 GROWTH STRATEGY....................................................................................................................3
CHAPTER TWO.............................................................................................................................................4
2.0 MARKET PLAN..................................................................................................................................4
2.1 INTRODUCTION............................................................................................................................4
2.2 IMPORTANCE OF MARKETING.....................................................................................................4
2.3 MARKETING ENVIRONMENT........................................................................................................4
2.4 ECONOMIC ENVIRONMENT.........................................................................................................4
2.5 POLITICAL ENVIRONMENT...........................................................................................................4
2.6 ETHICS IN MARKETING.................................................................................................................4
2.7 SOCIAL FACTOR............................................................................................................................4
2.8 CULTURAL FACTORS....................................................................................................................5
2.9 COMPETITION..............................................................................................................................5
2.9.1 COPING WITH COMPETITION...............................................................................................5
2.9.2 Advertising strategy.............................................................................................................5
2.9.3 Pricing strategy....................................................................................................................5
2.9.4 Customers then getting involved.........................................................................................6

iv
 2.9.5 Distribution strategy............................................................................................................6
CHAPTER THREE..........................................................................................................................................7
3.0 ORGANISATIONAL AND MANAGEMENT......................................................................................7
3.1 ORGANISATION............................................................................................................................7
3.2 ORGANISATION STRUCTURE........................................................................................................7
3.3 OTHER PERSONEL........................................................................................................................8
3.4 RECRUITMENT, PROMOTION AND TRIMMING............................................................................8
3.5 TRAINING.....................................................................................................................................9
3.6 RENUMERATION AND INCENTIVES..............................................................................................9
3.7 INCENTIVES..................................................................................................................................9
3.8 SUPPORT SERVICES......................................................................................................................9
3.8.1 BANKING SERVICES..............................................................................................................9
3.8.2 MEDICAL SERVICES..............................................................................................................9
3.8.3 LEGAL SERVICES.................................................................................................................10
3.8.4 INSUARANCE SERVICES......................................................................................................10
CHAPTER FOUR..........................................................................................................................................11
4.0 PRODUCTION/OPERATION PLAN...............................................................................................11
4.1 PRODUCTION FACILITIES AND CAPACITY...................................................................................11
4.2 PRODUCTION OPERATION STRATEGY........................................................................................11
4.3 COST OF LABOUR.......................................................................................................................12
4.3.1 OVERHEAD EXPENSES........................................................................................................12
4.4 REGULATIONS AFFECTING PRODUCTION/OPERTATION SERVICE..............................................13
4.5 GOVERNMENT REGULATIONS THAT AFFECT PRODUCTION TRADE...........................................13
LICENSE..................................................................................................................................................13
4.5.1 PUBLIC HEALTH..................................................................................................................13
4.5.2 ENVIRONMENT ACT...........................................................................................................13
CHAPTER FIVE............................................................................................................................................14
5.0 FINANCIAL PLAN........................................................................................................................14
5.1 PRE OPERATIONAL COST............................................................................................................14
5.2 ESTIMATION OF WORKING CAPITAL..........................................................................................15
5.3 CASH FLOW STATEMENT.................................................................................................................16
Cash flow statement for the year 1.......................................................................................................16

v
Cash flow statement for the year 2.......................................................................................................17
Cash flow statement for the year 3.......................................................................................................18
5.4 PRO-FORMA INCOME STATEMENT............................................................................................19
5.5 BALANCE SHEET.........................................................................................................................19
5.6 BREAK EVEN POINT ANALYSIS....................................................................................................20
5.6.1 YEAR 1................................................................................................................................20
5.6.2 Year 2.................................................................................................................................20
5.6.3 Year 3.................................................................................................................................20
5.7 PROFITABILITY RATIOS...............................................................................................................22
5.7.1 Years..................................................................................................................................22
5.8 PROFITABILITY RATIO.................................................................................................................22
5.9 DESIRED FINACING.....................................................................................................................24
5.10 PROPOSED CAPITALISATION......................................................................................................24

vi
 EXECUTIVE SUMMARY
BUSINESS DESCRIPTION
The name of the business is LOAM Electricals and supplies. The business will be located in
NAROK County, BOTORET market. It’s based on electrical supplies and repairs.

MARKETING

The owner of the business intends to capture a market share of it. The customers will be
domestic customers. The owner of the business will be using advertisement strategies through
mass media, signboard shows and exhibitions.

ORGANISATIONAL PLAN

The owner of the business will be the manager of the company. In the enterprise this will be
skilled workers hired by the manager. Incentives and allowances unit be given to workers and
permits shall be obtained from the county council.

PRODUCTION/OPERATIONAL PLAN

The operational strategies will be adopted and maximum utilization of the business resources in
order to maximize profits. The regulations affecting the business will include wages and
employment condition.

FINANCIAL PLAN

The business will require capital to run smoothly and will be obtained from own savings and
donations from friends, calculations of profits and losses will be well done to know if the
business is profiting or losing.

vii
 CHAPTER ONE
1.0 BUSINESS DESCRIPTION

1.1 INTRODUCTION
Loam Electricals is a business located at Botoret Market in Narok County.

It is based on products such as electrical supplies, electronic supplies and repair.

1.2 MISSION STATEMENT

To be the leading supplier of electrical materials in the region.

1.3 SPONSOR

The business will be sponsored by CHERUYOT RONO AMOS who is the sponsor of the
business.

1.4 EDUCATIONAL BACKGROUND

Started schooling at BOTORET Primary and proceeded to MARA SIONGIROI HIGH school
where I sat for the Kenya Certificate of Secondary Education.

1.5 PROFFESSIONAL BACKGROUND

I enrolled in KITALE NATIONAL POLYTECHNIC where am pursuing Diploma in Electrical
Engineering.

BUSINESS EXPERIENCE

Due to passion and interest in technology, I worked at LOAM where I gained knowledge in
running and operating the business. I learnt how to manage, plan, run and control the business
effectively.

1.6 FORM OF BUSINESS.

The business will be a sole proprietorship type of business of which I will be manager with the
managerial skills learnt from entrepreneurship lessons.

1.7 BUSINESS LOCATION.

The business is located in LOAM in NAROK County where there is easy means of transport
with good communication network.

1
The address of the business is;-

LOAM ELECTRICALS AND SUPPLIES

P.O.BOX 20500-94

AMALO

Mobile No 0721522277

ADVANTAGES OF THE LOCATION.

1. Good infrastructure

The road is linking NAROK to NAIROBI highway hence provides sufficient transportation.

2. Security

There is adequate security at the location as it’s close to a police station

3. Availability of cheap labor

The area has a lot of people who are unemployed thus needs job to earn a living.

PRODUCTS

 Electrical cables
 Electrical fittings
 Television sets
 Radios
 Solar Panels

1.8 JUSTIFICATION OF THE BUSINESS

The electrical sector recorded growth in the value of the people around thus making work easier.

1.9 ENTRY AND GROWTH STRATEGY

The owners of the business will enter the market mainly through advertising. The following
methods will be used.

i. Mass media e.g. television and radios.

ii. Issue of bill boards along the roads
iii. Use of sign boards
iv. Offering consultations to customers

2
1.9 GROWTH STRATEGY
As business continues to operate will increase in the volume of sales starts to show and profits
margin enlarge then will be plans for expansion of various activities which will benefit the owner
potential customers and workers.

Signals of business growth and how to maintain growth include:-

1. Employees will be offered training to increase their skills for the effective production of the
company.

2. The company will also ensure that there are good services offered to customers such as
assistance and after sale services.

3
 CHAPTER TWO

2.0 MARKET PLAN

2.1 INTRODUCTION.
Marketing plan is a strategy that is used to determine customers demand for a product motivating
its sales and distributing it into ultimate consumption. Also shows how business intends to sell its
products into target.

2.2 IMPORTANCE OF MARKETING

It brings about economy development in marketing organization, keeping it scientifically
organized and stabilizing the economy. It will in turn increase the sales volume thus increase the
profits.

Marketing popularizes the products this by selling products known to the customers in the
market.

Aims at identifying customers’ way of living so that the business know supply and what with
how much.

2.3 MARKETING ENVIRONMENT

The location of the business is profiled since the infrastructure, security, personnel is available.

2.4 ECONOMIC ENVIRONMENT

The people in this consist of middle class and high class.

This makes our products to get high sales when nearing the end months.

2.5 POLITICAL ENVIRONMENT

The region has stable political environment hence enable smooth running of the business.
Issuing of the license is quick and fast and affordable.

2.6 ETHICS IN MARKETING

The area has wide range of market for our products within the area. This making the market
trend being as ethical where only is group sells to other communities. Our business will not be
based on ethical but will support and entrepreneur willing to compost with us.

2.7 SOCIAL FACTOR

Most of our customers are well known to support most of government activities e.g. youth
tournaments such as football for both adults and children.

4
2.8 CULTURAL FACTORS
During any cultural Events most senior business in the area are invited to exchange the business
ideas, due to this the sponsor will be visiting for such events at least to other business people
hence being their customers.

2.9 COMPETITION
The competitors will help the business to come up with competition and good ways in relating
with their customers through competitors weakness.

2.9.1 COPING WITH COMPETITION

The following strategies will be used to cope with the competition from other business within the
locality.

i. Producing and selling of products of good quality at a cheaper and affordable price to the
customers.
ii. Ensuring aggressive and advertisement of the business through posters and noticeboards
to create its awareness.
iii. Ensure that the business is open at regular times so that when the customers’ needs the
products they are always available.

2.9.2 Advertising strategy

This is done to create awareness of the existence of the business and products offered. The
methods include:-

i. Use of radios and televises because majority of the residence mainly gets new items
through watching and listening.
ii. Local magazines will also be used but after the company sees that there is flow of
customers thus this will help to attract more customers, this will be used after 1year of
startup and will cost cheaply.

2.9.3 Pricing strategy

Pricing defects everything in the business this is because the business needs to get profits so as to
set considerate price for the products, the owner should consider the following factors.

VAT (value added tax) of different products and credit facilities will help the company to sit a
certain price margin of the products.

The profit margin expected and discounts to be offered will help price the products so that the
company can have profits.

The demand of the products to be sold. This will help in pricing in the event the prices rise up.

5
The government policies like lances, permits and regulations which require monetary value will
influence pricing of the products since the products are what will bring incomes and after sale
service they must be included in the price of products help cater for business deals.

2.9.4 Customers then getting involved.

Direct methods involve the employer selling commodities to the customers by getting in contact
with them. These methods of direct contact with customers will be used so as to attract
customers and getting to know customer’s needs. In will be used also because it will enhance
good relationship with them.

2.9.5 Distribution strategy

This involves how the commodity will get to the customer from the business. The business
having been located at a good strategic point makes it easily accessible to customers.

Transport will be done using vehicles which will be offered by the company.

The following distribution strategy will be used.

Manufacture-Customers

This is a direct method of distribution

It has the following advantages

i. It maximizes the profit gain since there are no distractors involved and thus no cost of
paying distribution.
ii. The customers got to express their needs of the products and the shape and size
required.
iii. The customers get the commodity they need on required time since they make orders
directly.
iv. The commodities reach the customers in well condition without breakages or
exploitations since the customers handles themselves.

Problems
i. Low sales volume since the owner has to wait for customers to get to know
their premise for purchases before they become aware.
ii. It will be tied to limited region since will serve only the customers who can
access the business.
Solutions

Through aggressive advertisement will be made on posters, notice boards for

creating awareness
Many contacts e.g. telephone, mails will be used for customers to place their
orders and deliveries for the products they need at reasonable charges.

6
 CHAPTER THREE

3.0 ORGANISATIONAL AND MANAGEMENT

3.1 ORGANISATION

This is a system when there is arrangement of work by which the activities in a business are
divided among a group of people to whom duties and responsibilities are allocated in order to
achieve certain goals.

The manager of the business will be the owner who will be responsible for all the activities done
in the business.

3.2 ORGANISATION STRUCTURE

This is a structure where personnel in an organization are represented it shows their level and
position in the business. It also helps show the relationship between the personnel and their
departments. It also helps to show activities from top to bottom level.

Qualification
 Kenyan citizen
 Having public relation with other people
 Fluent in national language

Functions of management
Planning

This involves in advancing the action to be taken

Directing

This in influencing other people towards achieving the organizational goals.

Controlling

This involves checking the progress made towards the desired goals and collecting deviations
that may occur.

Organizing

The manager must delegate tasks to others since I cannot do everything.

7
3.3 OTHER PERSONEL
PERSONEL NO QUALIFICATION DUTIES

Assistant Manager 1 Be Kenyan citizen Control resources

Have certificate in area of operation Organize the business
Fluent language Supervise the
workers

Secretary 1 Fluent in English and Kiswahili Guide the customers

Form four certificate on the price of items

Driver 1 Should have a driving license Delivery of products

Watchman 1 Be energetic Keep security

Competency in languages Keep orders within
the premise

Accountant 2 Be Kenyan citizen Fill forms of

Good in languages payments of workers’
salaries

3.4 RECRUITMENT, PROMOTION AND TRIMMING

This is the process by which workers are enrolled; it’s done through the following ways.

i. Advertisement
If a position arises, the company will announce through advertisement. It’s done
through the media.
ii. Application
Application will be done through letters and dropped in the company.

iii. Short listing

After people apply, the managing director will go through the applicants, he will
consider the requirements for the position and the qualified people will be shortlisted
and will be notified through media.
iv. Interview
The shortlisted people will be expected to come for interview respected dates, the
managing director will do the interview. This will be to test the capability of the
applicant.

8
 v. Employment
The qualified people are expected to report to work or the agreed date and they will
be oriented into the company by the managing director and the superior and the
employee will be expected to deliver the best for the company.

3.5 TRAINING
This is how candidates and workers in the premise will undergo stages of learning to educate
them on the real job.

As time goes by in the business the workers will be undergoing training regulatory so that they
can improve on their skills.

3.6 RENUMERATION AND INCENTIVES

PERSONEL NO SALARY PER MONTH TOTAL SUMMARY PER
MONTH
Managing director 1 20000 240,000

Secretary 1 9000 108,000

Accountants 1 15000 180,000

Drivers 1 8000 96,000

Watchman 1 5000 60,000

Total 57000 684,000

3.7 INCENTIVES
These are the things done to workers so as benefit from the company and rewarding them for
good jobs by them those will be done to increase the morale of the workers so that they can be
productive.

3.8 SUPPORT SERVICES

3.8.1 BANKING SERVICES

The company will open accounts with banks which are reliable and offer effective service which
are pleasing and good interest rates loan request with low interest.

3.8.2 MEDICAL SERVICES.

The medical facility will be offered by local government health core and where the workers will
be entitled to have a hospital card that the company will cover for.

9
3.8.3 LEGAL SERVICES

These services will be offered by Martin Advocates who will be the companies’ representatives
and will also help in saving legal disputes in the business.

3.8.4 INSUARANCE SERVICES

The company will be ensured against risk like accidents, fire and theft that the company does not
suffer great losses. The company name offering the services at a price of Ksh 15,000 per year.

10
 CHAPTER FOUR

4.0 PRODUCTION/OPERATION PLAN

For business to run well and smoothly the company requires essentials facilities and tools so that
they can help in making work easier thus the job can be fast and production of products easy and
of high quality. To ensure efficient and effective communication of the work.

The requirements for production includes labor, capital, transport, communication etc.

4.1 PRODUCTION FACILITIES AND CAPACITY

ITEMS QTY CAPACITY SUPPLIER
Computer 2 3500mb Logistics
Pick up 1 280cc Toyota
File cabinet 3 10pack Johnson’s
Tape measure 10

PREMISES

The business premise will be rented from its owner at a price of Ksh. 40,000.00 per month. The
premise has everything i.e. water and electricity.

SITE OFFICES

OFFICE PARKING WATCHMANS

TOILETS AREA OFFICE

4.2 PRODUCTION OPERATION STRATEGY

This will involve how raw materials shall be made into products. They shall be purchased in time
and the company won’t be waiting for stock to run out. This shall help in reducing the time
wastage during the manufacturing.

The company will set prices that will match up to the competitive prices and affordable to the
customers.

The products will be produced in large quantities so as to meet customers demand all the time.

11
Below are tables of cost of materials, labor and overhead expenses that the business will be
meeting in production/operation of the business. Some expenses will be incurred directly and
others indirectly.

4.3 COST OF LABOUR

PERSONEL NO SALARY PER
PERSONEL

Manager 1 20,000

Accountant 2 15000

Watchman 1 5000

Driver 1 8000

Secretary 1 9000

Total 57000

4.3.1 OVERHEAD EXPENSES

ITEMS AMOUNT PER

MONTH

Electricity 2500

Telephone 1500

Water 2000

Transport 6000

Insurance 1500

Total 13500

12
4.4 REGULATIONS AFFECTING PRODUCTION/OPERTATION SERVICE.
When economy is influenced by inflation the production will be reduced because people will
find it hard to purchase the products and also where prices of materials fluctuate the prices of the
products will fluctuate making it hard for the customers and the business.

4.5 GOVERNMENT REGULATIONS THAT AFFECT PRODUCTION TRADE

LICENSE
According to regulating of trade license act of laws cap 497, it states that a person should
conduct any business in Kenya except in accordance with the terms of current trade license.

TAXATION

Under taxation the business will be affected by value added tax 1989 and payee Act 470.

4.5.1 PUBLIC HEALTH

According to cap 242 this act will relate to the sanitary and hygienic conditions in the premise
like ventilation, toilets, clean water. The business shall provide safety wear for all its employees.

The company is to create awareness to avoid accidents, injuries and diseases outbreak and the
premise shall be installed with emergency press buttons in case of any danger.

4.5.2 ENVIRONMENT ACT

This act states that the premises should not pollute the environment for whatsoever reason. It
should be environmental friendly and should care for the surrounding.

13
 CHAPTER FIVE
5.0 FINANCIAL PLAN

This is the plan which shows the financial managements that the company requires and has
incurred in order to commence the business operations. It will also measure how well the
company will use the assets to operate and generate revenue.

This will be achieved by organizing financial in three basic statements.

i. Projected income statement

ii. Projected cash flow

iii. Projected balance

5.1 PRE OPERATIONAL COST

These are costs and the expenses that the business shall undergo before the actual
implementation of second phase of expansion plan.

ITEM AMOUNT

Pickup 300000

Telephone 20000

Computer 8000

Hard tool 7000

Electricity 15000

Salary 103000

Water 8500

Advertisement 50000

Total 511500

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5.2 ESTIMATION OF WORKING CAPITAL
This is the amount that will be required in running the company operation.

Current Assets 1st year

Cash in hand 700000

Cash at bank 400000

Debtor 300000

Stock 150000

Current Liabilities 1000000

Creditors 300000

TOTAL 2850000

15
5.3 CASH FLOW STATEMENT
Cash flow statement for the year 1
ITEM JAN FEB MAR APRIL MAY JUNE JULY AUG SEP OCT NOV DEC TOTAL
Purchases 560,200 751,800 978,250 1,209,6 1,410,7 1,634,3 1,831,8 2,027,1 2,203,9 2,368,9 2,517,7 2,644,7 20139150
00 00 50 50 50 00 00 00 50
Sales 250,000 300,000 320,000 300,000 330,000 340,000 350,000 355,000 360,000 365,000 370,000 380,000 4020000
Loan 200,000 190,000 185,000 180,000 175,000 170,000 165,000 160,000 155,000 150,000 145,000 140,000 2015000
Total cash 101020 124180 148325 480000 505000 510000 515000 515000 515000 515000 515000 520000 8325250
flow 0 0 0
Expenses
Electricity bill 2,000 2,100 2,150 2,250 2,400 3,000 3,100 4,000 4,500 5,000 5,500 6,000 42000
Water bill 1,000 1,050 1,100 1,250 1,500 2,000 2,500 3,000 3,500 4,000 5,000 5,500 31400
License 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12000
Insurance 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 42000
Salaries 176,100 176,100 176,100 176,100 176,100 200,000 200,000 200,000 200,000 200,000 200,000 200,000 2280500
Maintenance 5,000 5,000 5,000 5,000 5,000 5,000 5,500 5,500 5,700 5,500 5,950 6,000 64150
Allowances 9,000 9,000 9,000 9,000 9,000 9,000 10,000 10,000 10,000 10,500 10,500 10,500 115500
Taxes 800 800 800 800 850 1,000 1,100 1,250 1,300 1,400 1,500 1,650 13250
Rent 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 96000
Transport 10,000 10,000 15,000 15,000 15,000 18,000 20,000 25,000 30,000 40,000 50,000 60,000 308000
Good will 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 24000
Miscellaneou 40,000 45,000 50,000 55,000 57,000 60,000 65,000 75,000 80,000 85,000 95,000 100,500 807500
s
Total flow 751800 978250 120960 141070 163435 183185 319,700 338250 350,000 366,200 387950 404650 9983300
0 0 0 0 349500
Net cash flow 751,800 978,250 1,209,6 1,410,7 1,634,3 1,831,8 2,027,1 2,203,9 2,368,9 2,517,7 2,644,7 2,760,1 22339050
00 00 50 50 50 00 00 00 50 00

16
 Cash flow statement for the year 2
ITEM JAN FEB MAR APRIL MAY JUNE JULY AUG SEP OCT NOV DEC TOTAL
Purchases 2,760,1 2,686,1 2,727,1 2,786,1 3,009,1 3,231,1 3,475,1 4,433,3 4,589,8 4,856,8 5,381,8 5,967,8 45904200
00 00 00 00 00 00 00 00 00 00 00 00
Sales 350,000 500,000 550,000 750,000 800,000 850,000 950,000 1,000,0 120,000 1,500,0 1,600,0 1,800,0 5020000
00 00 00 00
Loan 135,000 130,000 120,000 115,000 105,000 100,000 95,000 90,000 85,000 80,000 75,000 70,000 1200000
Total cash 485000 630000 670000 865000 3,914,1 4,181,1 4,520,1 5,523,3 5,874,8 6,436,8 7,056,8 7,837,8 47994800
flow 00 00 00 00 00 00 00 00
Expenses
Electricity 20,000 30,000 40,0000 50,000 55,000 60,000 70,000 75,000 80,000 84,000 90,000 115,000 729000
bill
Water bill 10,000 15,000 20,000 25,000 35,000 50,000 60,000 75,000 80,000 84,000 95,000 105,000 654000
License 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 60000
Insurance 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 84000
Salaries 350,000 350,000 350,000 350,000 350,000 350,000 450,000 450,000 450,000 450,000 450,000 450,000 4800000
Maintenance 15,000 18,000 20,000 25,000 35,000 40,000 45,000 60,000 75,000 80,000 85,000 95,000 593000
Allowances 35,000 35,000 35,000 35,000 35,000 35,000 40,000 40,000 40,000 40,000 40,000 40,000 450000
Taxes 5,000 7,000 9,000 13,000 15,000 16,000 20,000 25,000 25,000 35,000 38,000 40,000 248000
Rent 16,000 16,000 16,000 16,000 16,000 16,000 20,000 30,000 30,000 30,000 30,000 30,000 266000
Transport 20,000 25,000 25,000 30,000 40,000 45,000 50,000 60,000 70,000 80,000 85,000 90,000 620000
Good will 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 72000
Miscellaneou 70,000 75,000 78,000 80,000 84,000 86,000 95,000 100,500 150,000 154,000 158,000 160,000 1290500
s
Total flow 559000 589000 611,000 642,000 683,000 706,000 868,000 933,500 1,018,0 1,055,0 1,089,0 1,143,0 9896500
00 00 00 00
Net cash flow 2,686,1 2,727,1 2,786,1 3,009,1 3,231,1 3,475,1 4,433,3 4,589,8 4,856,8 5,381,8 5,967,8 6,694,8 49838900
00 00 00 00 00 00 00 00 00 00 00 00

17
 Cash flow statement for the year 3
ITEM JAN FEB MAR APRIL MAY JUNE JULY AUG SEP OCT NOV DEC TOTAL
Purchases 6,694,800 6,798,800 6,948,800 7,265,800 7,726,800 7,931,800 8,175,800 8,251,800 8,296,300 8,471,80 8,422,800 8,396,800 93382100
0
Sales 900,000 1,000,000 1,200,000 1,400,000 1,200,000 1,300,000 1,300,000 1,400,000 1,500,000 1,400,00 1,500,000 1,700,000 15800000
0
Loan 70,000 65,000 60,000 55,000 50,000 45,000 40,000 30,000 20,000 0 0 0 435000
Total cash flow 7,664,800 7,863,800 8,208,800 8,720,800 8,976,800 9,276,800 9,515,800 9,681,800 9,816,300 9,871,80 9,922,800 10,096,800 109617100
0
Expenses
Electricity bill 100,000 115,000 120,000 130,000 140,000 145,000 155,000 165,000 168,000 178,000 195,000 200,000 1811000
Water bill 50,000 60,000 65,000 75,000 85,000 95,000 100,000 110,000 110,500 115,000 125,000 130,000 1120500
License 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 84000
Insurance 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 108000
Salaries 400,000 400,000 400,000 400,000 400,000 400,000 500,000 500,000 500,000 500,000 500,000 500,000 5400000
Maintenance 25,000 25,000 28,000 30,000 35,000 40,000 45,000 55,000 70,000 85,000 95,000 100,000 633000
Allowances 40,000 40,000 40,000 40,000 40,000 40,000 45,000 50,000 50,000 50,000 50,000 50,000 535000
Taxes 40,000 44,000 48,000 58,000 60,000 65,000 75,000 80,000 80,5000 90,000 100,000 250,000 910000
Rent 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 480000
Transport 50,000 55,000 58,000 60,000 64,000 75,000 78,000 84,000 95,000 105,000 115,000 150,000 989000
Good will 60,000 65,000 70,000 80,000 90,000 100,000 110,000 110,500 114,000 120,000 130,000 140,000 1189500
Miscellaneous 50,000 55,000 58,000 65,000 75,000 85,000 95,000 95,000 100,500 150,000 160,000 165,000 1153500
Total flow 866,000 915,000 943,000 994,000 1,045,000 1,101,000 1,264,000 1,385,500 1,344,500 1,449,00 1,526,000 1,741,00 12833000
0
Net cash flow 6,798,800 6,948,800 7,265,800 7,726,800 7,931,800 8,175,800 8,251,800 8,296,300 8,471,800 8,422,80 8,396,800 8,355,800 95043100
0

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5.4 PRO-FORMA INCOME STATEMENT
ITEM AMOUNT
Sales 4095000
Purchase 1516000
Gross profit 2579000
Expenses 744000
Salaries 120000
Rent 10000
Insurance 18750
License/Permits 16000
Advertisement 41000
Promotion 15800
Maintenance 50000
Water bill 23500
Electricity bill 33200
Telephone bill 38800
Miscellaneous 240000
Fuel 4000
Total expenses 1335050
Net profit 12233950
16% T.A.X 195832
NET PROFIT AFTER 1028118
TAX

5.5 BALANCE SHEET

ASSESTS CAPITAL LIABILITIES

Fixed assets

Furniture and fittings 150, 000 Capital equity

Machines 50, 000 Owners’ equity 1, 095, 000

Building renovations 73, 000 Add net profit 410, 000

Totals 273, 000 Long term liabilities

Less depreciation 195, 000

Current assets Current liabilities

Cash at hand/ bank 1, 121, 000 Creditors

Closing stock 50, 500 Account payable 280, 000

Account payable 384, 000

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 Debtors 10, 000 Interest outstanding 14, 000

Totals 210, 000 2, 251, 000

YEAR 2010 2011 2012

Sales 2, 410, 000 2, 451, 000 2, 525, 000

Fixed costs

Salaries 576, 000 576, 000 576, 000

Insurance 24, 000 24, 000 24, 000

Rent 60, 000 60, 000 60, 000

License 8, 500 8, 500 8, 500

Interest and loans 14, 000 14, 000 14, 000

Loan repayment

Depreciation 19, 500 19, 500 19, 500

Total 702, 000 922, 000 1, 042, 000

Variable cost

20
 Purchases 980, 000 880, 000 1, 050, 000

Electricity 59, 500 60, 500 33, 500

Water 28, 300 46, 300 48, 300

Post and telephone 5, 700 16, 700 31, 700

Promotion 28, 000 19, 000 16, 500

Maintenance 10, 000 11, 000 20, 000

Transport and wages 26, 000 30, 000 43, 000

Stationery 13, 000 18, 000 9, 100

Miscellaneous 13, 000 17, 000 9, 000

Total 1, 163, 500 1, 098, 000 1, 278, 000

5.6 BREAK EVEN POINT ANALYSIS

5.6.1 YEAR 1

Break-even point = fixed costs

Sales – variable/sales

702, 050/2,410,000-(1,163,500/2,410,000)

702,000/0.52

=1,350,000

5.6.2 Year 2

Break-even point = fixed costs

Sales – variable/sales

922,000/2,450,000-(1,098,000/2,450.000)

=1, 670, 784

5.6.3 Year 3

Break-even point = fixed costs

Sales – variable/sales

21
1,042,000/2,525,000-(1,278,100/2,525,000)

=2,110,073

22
5.7 PROFITABILITY RATIOS

5.7.1 Years

Operations profit ratio=net profit × 100

Sales
593,000 ×100
2,410,000
=24.61%

Gross profit ratio =Gross profit × 100

Sales
1,480,500
2,410,000

=61%

Returns on capital employed ratio= net profit × 100

Owners’ equity
593,000
500,000
=38%

5.8 PROFITABILITY RATIO

Operations ratio= net profit × 100
Sales
593,000 ×100
2,410,000
=24.61%

Gross profit ratio= gross profit × 100

Sale
= 61%
RETURN ON CAPITAL EMPLOYEMENT

Net profit × 100

Owners’ equity
593000
500,000
=38%

23
YEAR TWO

Operations profit ratio= net profit × 100

Sales
=410,000×100
2,450,000
=17%
Gross profit ratio=gross profit × 100
Sales
=1,550,500
2,450,000
= 63%

Returned on capital employed ratio= net profits × 100

Owners’ equity
=4,100,000
1,502,000
=27%
Rate of return on total assets= net profit × 100
Total asset
=4,100,0000
2,251,000
=18%
Year 3

Operations profit ratio= net profit × 100

Sales

254, 000 =10%

2,525,000

Gross profit ratio = gross profit × 100

Sales

1,525,000 × 100
2,525,000

=60%

Return on capital ratio =Net profit × 100

Owners’ equity

254,900 ×100
1,757,900

=14%

24
Rate of return on total assets = net profit × 100
Total assets
254,900
2,695,000
=9%

5.9 DESIRED FINACING

ITEMS AMOUNT

Pre operation cost 1460600

Working capital 4221000

Total 5681600

5.10 PROPOSED CAPITALISATION

ITEM AMOUNT

Loan 720000

Owners contribution 1995168

Friends and relatives 230000

Total 5015168

25