1. INTRODUCTION.......................................................................................................................................

2
1.1. Background and Justifications..........................................................................................................2
1.2. General Objectives of Loan Required...............................................................................................3
1.3. Specific Objectives of loan Required.................................................................................................3
1.4. Brief History of the Business.............................................................................................................3
1.5. Credits History of the Business.........................................................................................................4
1.6. Purpose and Amount of Loan Required............................................................................................4
1.7. Collateral and Other Requirements..................................................................................................5
2. MARKET ANALYSIS...................................................................................................................................6
2.1. General Market Analysis...................................................................................................................6
2.1. Competitions....................................................................................................................................9
2.3. Marketing Strategy...........................................................................................................................9
2.4. Market Segmentation.....................................................................................................................10
2.5. Supplying Stockholders Analysis.....................................................................................................10
3. CURRENT FINANCIAL STATUS OF THE BUSINESS...................................................................................11
3.1. Business Income Statement Status.................................................................................................11
3.2. Business Cash Flow Statement Status.............................................................................................12
3.3. Business Balance Sheet Status........................................................................................................13
4. PROJECTED FINANCIAL PLAN.................................................................................................................14
4.1. Important Assumptions..................................................................................................................14
4.2. Additional Working Capital Investment..........................................................................................14
4.3. Financing Plan.................................................................................................................................20
4.4. Forecasted Income Statement from the years (2006 – 2008 EC)....................................................20
4.5. Forecasted Cash Flow from the years (2006 – 2008 EC).................................................................22
4.6. Forecasted Balance Sheet for the Years (2006 to 2008EC).............................................................23
1. CONCLUSSION AND RECOMMENDATION..........................................................................................24
ANNEX: 1. Mesfin Getahun Retailing Shop Income Statement from Years 2003 – 2005EC.......................24
ANNEX: 2. Mesfin Getahun Retailing Shop Cash Flow from Years 2003 – 2005EC....................................26
ANNEX: 3. Mesfin Getahun Retailing Shop Balance Sheet from Years 2003 – 2005EC..............................26
ANNEX 4: Forecasted Income Statement of Mesfin Retailing Shop from the year (2006 to 2008)............28
ANNEX 5: Forecasted Cash Flow of Mesfin Retailing Shop fro years92006 to 2008).................................29
ANNEX 6: Forcasted Balance Sheet of Mesfin Retailing Shop from years (2006 to 2008).......................30

1
 1. INTRODUCTION

1.1. Background and Justifications

Chiro town, the residential area of my business,(Ato. Mesfin Getahun Retailing Shop) has many
administrative linkages at which management of public affairs are managed. Administratively,
Chiro town is granted the status of 2 nd “B” grade town and capital town of West Hararghe zone
and Chiro district. In addition, there are large public institutions like Hospital, University and
collages. This has created an opportunity for the residents of the town to get almost all
administrative and social service within the town. This made it the ritual center of Western
Harerghea Zone.Besides, good urban-urban administrative linkage there is also strong rural-
urban linkage with Chiro town which has 33,643 human populations. This enables Chiro to be a
market place for surrounding cash crop producer farmers.

Chiro town is found at the center regional traffic path and flow especially to the eastern part
of the country. The pattern of traffic flow on roads is dependent on economic development
and the resulting business and social interaction between and among the market centers in the
country as a whole (ERA, 2009). By looking on the general trends of the traffic movement
one can observe how the town’s economy behave as the two are positively co-related. For
instance, Volume of AADT flow on asphalt roads of the project town area in 2008 along the
road section of Miesso – Asebe Teferi (24kms long) was about 848. The above mentioned
institutions are also mobilizing thousands of social travelers and students annually.

The Western Harerghea zone which centered by chiro town and consists many woredas as well
as towns has considerable trade contract with local and foreign. Beside the Western Harerghea is
the source of many rich commodities and cash crops such as chat and coffee which has
considerable demand in various parts of the world. This creates a demanded society and
institutions for quality and quantity commodities in accessible way for day to day life.

In spite of all these rising demand of consumers due to improved livelihood means and life
standards there is shortage of standardized service providing shops in the town. Therefore, the
aim of this short loan proposal is to change this challenge to opportunity.

2
 1.2. General Objectives of Loan Required

 To provide a quality products for my target groups

 To be able to provide demanded commodities in quantity
 To support government holistic approach of urban development programme
 To take part in unemployment rate reduction in chiro town
 To establish modern supermarket in the town

1.3. Specific Objectives of loan Required

 To secure additional working capital to attain my general objectives

 To solve the problem of capital shortage
 To expand the business in large scale
 To inject capital to the business and maximize profit

1.4. Brief History of the Business

Mesfin Getahun Retailing Shop is established privately by Mesfin Getahun. It is based in

Oromiya, Western Harerghea zone, Chiro town under the local investment policy and law of
Democratic Republic of Ethiopia. The business is entirely owned by only the owner mentioned
above. It recognized the need for establishing a presence as a local business who meets the
specific needs of its prospective customers by its quality and quantity products including
different food items. The owner still manages this business successfully and his need arises to
expand the business in local area.

 Excellence in fulfilling the promise. To realize a benefit, a claim must be made and proof
presented.

3
  Providing clients with both solutions and value creations. Helping the clients to increase
their own profit potential.

 Quality product and customer satisfaction. Everything we sell is guaranteed, so the

production targeted on what the customers want. Long-term customer satisfaction is
critical to our survival.
 Leveraging from a single pool of expertise into multiple revenue-generating opportunities

 The right management team, with strong foundations in marketing, management, finance,
and future asset development.

 Expand customer awareness over the planning period.

 Reduce competition and risks while lowering price levels by establishing and integrating
with other partners including Muya Minch.

1.5. Credits History of the Business

Name of the lending bank (Commercial Bank of Ethiopia, Abyssinia Bank)

 for how many times (Three times)
 Loan repayment performance (All loans were repaid in very good performance and paid 75%
of borrowed many).
 Status of the debt is 25% which will be completed in the near future.

1.6. Purpose and Amount of Loan Required

Mesfin Getahun Retailing Shop is already existed in Chiro town market in providing different
spices like, tikur asmud, korerima, packed tea, packed shiro, nech asmud, edible oils, green

4
pepper and related items. Pulses like, beans, peas, roasted peas, roasted chick peas, beans and
other pulses family. The business also provides different packed food items like, master oats,
nana-milk, packed mangos(bottle, plastic), packed tomatoes, pineapples and related packages of
food items. Others like, spaghetti, Macaroni, barely (including its floor).

The commodity items listed above are those highly demanded almost in all households for daily
consumption. The demand of some items even increased in some seasons and public holidays.
For example the demand of pulses will increased in Christian fasting times like Hudade,Gena
fasting and other fasting time in the year. According to Lusch (1982), retailing which operates in
an open milieu in cities is continuously subject to various external forces including customer
behavior, rival competition, legislative framework, technological advancement, and changes in
societal status and values. Retailing inevitably evolves in response to these significant changes in
society. However, the commodities listed above can tolerate most of the above factors due to the
social and religious reality on the ground in targeted area.

Based on the above ground and different factors analyzed in the next sections, the business needs
to get loan service of one million (1,125,568.01) birr from Commercial Bank of Ethiopia Chiro
Brunch to secure additional working capital for the ongoing business. Depending on the supply
and demand, experience of the owner and other factors the loan will be subjected to expand the
volume of pulses , spices, packed food, detergents and other items to increase volume of supply.

1.7. Collateral and Other Requirements

It is known that the Bank will relay primarily upon the financial viability of the business itself.
However, in order to safeguard the loan, Mesfin Getahun provides first- degree collateral
security for all loans. The collateral asset is registered by the name of Wenshet Getahun Asfaw
and 1,300,000 birr estimated bill of quantity. The business is also open for Bank to revalue
collateral assets every year as per the Bank’s guideline.

The site plan and blue print of building for collateral, principal registration certificate, marriage
certificate, Tax payer Identification Number (TIN) renewed trade license and other necessary
documents will be provided with loan application letter.

5
 2. MARKET ANALYSIS
2.1. General Market Analysis

Retail has been one of the most active businesses in the Chiro town. Higher disposable income, a
more affluent society as well as more sophisticated tastes of the consumers have led to a rapid
growth of the sector. By this standard it is anticipated that retail trade will continue to be a
prominent economic activity in the country in general and in Chiro town in specific. In tune with
the zonal and woredas leaders aim to establish Chiro as a prime zonal shopping destination,
many new shopping areas have been designated to attract shoppers from town and surrounding
communities.

Commerce is the most important form of economic activities in the town. The livelihood of
significant number residents directly and indirectly rely on this sector that involve the
transaction of highly diversified agricultural and industrial produces raging from substandard
consumer goods to higher order /capital goods. In effect, the emergence and survival of new
business enterprises is attributed to the existing conducive economic and social policies under
which it operates. Entrepreneurial capabilities of a particular society is a driving force for the
upcoming and sustainability of business enterprises.

There are about 992 trade activities are found in; coffee and chat trade took the uppermost
position in business; there is also significant livestock trade particularly fattened animal (Goat
and Cattle), retail trade; vegetable, and Fruits, consumer shops and retail trade are also major
widely carried out.

According to the data obtained from trade and industry office of the town administration, at
present, the number of business formally entering in to the market are 992 business
establishments engaged in various business activities distributed across the four Gendas. As
mentioned above these business enterprises are engaged in highly diversified business activity.
Nevertheless, merchandize retail, catering, clothes, boutique, cosmetics and coffee and Chat
trade are the dominant lines of business activities.
6
The business activity in Chiro is always active; a lot of transactions are carried out all day and on
market day; but in a very much disintegrated manner; road side vending and chat selling are
common phenomenon along the street. Night time also, the dealing goes just like a day time. The
problem is with providing quality goods to satisfy the customers.

Trend of Chiro town trade registration performance (1997 - 2001) E.C, Chiro town

Trend of trade registration and performance for the last Five

years(1997 - 2001) E.C , Chiro town
425
375
325
275
225
175
125
Number

75
25
1 2 3 4 5
Issued 132 41 121 93 60
Renewed 420 419 422 385 343
Returned 49 16 31 18 5

Economic interactions of Chiro town with its hinterland and distant located areas could be
manifested in the forms of flows of agricultural and manufacturing goods (marketing linkage)
and movement of capital executed through financial intermediaries. Agricultural products and
cash crops mainly chat and coffee flows to the center: The size and diversity of agricultural
commodities supplied to the city or town are different agricultural products mainly food items
wheat, teff, barely and cash crops (chat and coffee) and also livestock for sale to different region;
likewise they depend on Chiro town for industrial goods and other primary goods like cleaning
materials (Soaps, detergents), fuels, edible oils, salts, spices, cosmetics etc.

7
To take part in the above transaction out of the resident, sub-urban and surrounding rural areas
Chiro centers play a significant role in linking urban and urban economies to attain a more
balanced development. In this regard, Chiro town serve as a center of distribution and
redistribution center of manufactured goods and services to the rural and district towns thereby
hosting above triple number of its residents. According to the below snapshoot data:

Source: Adapted from Socioeconomic study Document of Chiro Town (2010).

Thus, Mesfin Getahun Retailing Shop has an opportunity to exploit all this diversified and
active marketing existing being its existence at center of the town, which is road side and
accessible for every shopper.

8
 2.1. Competitions

The approach Mesfin Getahun will take to differentiate itself is to convert its features into the
client's benefits; the business needs to offer real benefits rather than only define the features to its
clients.
The benefits it sells shall include many intangibles: reliability, optimizing the client's profit
potential, confidentiality, guaranteed quality, continuous improvements and cost effectiveness.
Long-term customer satisfaction is the most critical component of the commodities offered by
the shop.
It is vital to recall established presence in the market and to start making sales on the growing
segment. Personal relationships are important and memories are long. It is also vital to keep in
mind that it is already in established in current market. Business and market development
timeframes in Chiro may be lengthy: three to four years or more; however, this timeframe can be
compressed by a strong local partner. Besides, in the town there is no shop that provides such a
package commodities.

2.3. Marketing Strategy

Mesfin Getahun Retailing Business Shop marketing strategies are simple but aim to reach a large
amount of people. It will mainly use the, word of mouth, catalogs, broker’s incentives, and others
to communicate with its clients. As well, in the future it will also advertise in the local
newspapers including Capital, Reporter, Fortune, and Addis Zemen including Chiro FM Radio.
The business follows a low pricing strategy to attract large numbers of customers and benefit
from the large numbers. In comparison with others, our business price will be low and it will
charge low prices by minimizing its costs to the minimum yet, the business is planning to have
average prices and compete on quality and service in the future.

9
2.4. Market Segmentation

Mesfin Getahun Retailing Shop follows a low pricing strategy to attract large numbers of
customers and benefit from the large numbers. In comparison with others, our business price will
be low and it will charge low prices by minimizing its costs to the minimum yet, the business is
planning to have average prices and compete on quality in the future.

There is a potential market for spices, pulses, packed food and other items like detergents in the
Chiro town and the Mesfin Getahun buiness is also targeting different hotels, cafeterias and
restaurants; dwellers of the Chiro town Haremaya University Chiro Brunch, Chiro Hospital, and
others including Muya Minch Hotel, a sister business of Mesfin Getahun’s Shop.

2.5. Supplying Stockholders Analysis

Mesfin Getahun Retailing Shop Business is open business to work with any quality suppliers as
far as they are legal traders under the National Business Law. However, currently the business is
a strong client and stockholder of known and relay able sources of targeted commodities in the
shop. These are:
 Tadese Bgato Spices and Pulses Supplier (Found in Adama Town).
 Samu Liquid and Solid Soap Producers and Suppliers (Found in Addis Ababa).
 Bright Liquid and Solid Soap Producers and Suppliers (Found in Adama).
 ALSAM- PLC, it supplies Detergents and other goods and found in Addis Ababa.
 Brundo Ethiopian Spice Produces, Processor, Supplier and Exporter (Found in Addis
Ababa).
 Rim Baltina, Spices Supplier (Found in Addis Ababa).
 Selam Baltina, Spice Processors and Distributers (Found in Addis Ababa).

10
Mesfin Retailing Shop Business has a long time attachment with the above listed organizations.
Therefore, there is presumption that sourcing will not be a big problem for this business. Because
they are a country wise known sources of commodities listed in targets of the business.

3. CURRENT FINANCIAL STATUS OF THE BUSINESS

3.1. Business Income Statement Status
According to the income statement of the business the financial ratios are analyzed and
reveal that the income ratio is normally increasing for the last three years. However, the
efficiency is on and off during the same years. This is due to shortage of capital as the
owner was investing his capital to build large and multipurpose building at the center of
Chiro town (see fig: 3).

Mesfin Retailing Shop Business

25

20

15 Eficiency ratio
Percentage

Income ratio

10

0
2003 2004 2005

Fig: 3. Business Efficiency verses Income Ratio.

11
3.2. Business Cash Flow Statement Status
The sources-and- use of-funds Statement shows that in spite of its efficiency and income
ratio it is deprived of additional funds (see fig: 4).

Mesfin Retailing Shop Cash Flow Statement

1400000

1200000

1000000
Revenu
800000 Fund Avilable
Fund Required
600000

400000

200000

0
2003 2004 2005

12
3.3. Business Balance Sheet Status
The following Balance Sheet table shows healthy growth of net worth and a strong financial
position.

Mesfin Retailing Shop Business Balance Sheet

1000000
900000
800000
700000
Total Asset
600000 Total Liability
500000 Total Liability and Equity
400000
300000
200000
100000
0
2003 2004 2005

Fig: 5. Figure shows the balance Sheet Status of the Business

13
4. PROJECTED FINANCIAL PLAN

4.1. Important Assumptions

Mesfin Retailing Shop Business financial plan and study depends on the assumptions that are
made below. These are annual and monthly assumptions that show the consistent growth of the
business. As well, some of the underlying and general assumptions are:
 The business assumes a healthy growth trend in the local market, along with a continued
strong local economy.
 The business assumes that it stay in line with the continuing advances in technology and
business.
 The business is expected to be self sustained in terms of finance with the payment it
obtains from its clients back from the product they sell.
 Overall activities of the business will grow from time to time and finally will be one of
the medium size industries in the country through expanding its business from time to
time.
 The interest rate assumed to be 10% over the three years.
 The profit income tax rate is assumed to be 30% in the five years.

The financial plan that incorporate the injected capital investment, financing plan, the Forecasted
Income Statement, the Forecasted Balance Sheet, and the Forecasted Cash Flow Statement are
provided in the parts that follow.

4.2. Additional Working Capital Investment

The lists of various types of commodities or capital investment, which will be needed, are
provided as follows and summarized in general and detailed items will be listed with units.

14
 The business will allocate 228,200 birr to purchase and supply spices (Tikur asmud, Nech
asmud, Korarima and etc) in the year 2006.
 The business will allocate 781,260 birr to purchase and supply pulses (beans, peas,
roasted peas, roasted chick peas) in the year 2006.

 The business will allocate 141,404 birr to purchase and supply different packed foods
(oats, nana-milk, packed mangos, packed tomatoes, and pineapples) in the year 2006.

 The business wills also purchase and supply cleaning and detergent materials with the
cost of 69,920 birr in 2006.Tables of listed Items will be shown below.

15
Table1: It shows the List of Pulses to be supplied in 2006EC.

No List of Items Mesuremen Quantity Unit Cost Total Cost Unit Saling Total Sale
t Pri.
1 Nitel Kuital 30 1500 45000 2300 69000
2 split Peas ›› 20 2200 44000 2500 50000
Oats " 10 1650 16500 6000 60000
Bearly flour " 20 2200 44000 3000 60000
3 Peas ›› 20 1800 36000 2500 50000
4 Oats(Kinche) ›› 20 1300 26000 1600 32000
5 Bearly(Qinche) ›› 20 1300 26000 1600 32000
6 Bealy ›› 20 800 16000 1000 20000
7 Chech pea(Read) ›› 10 900 9000 1200 12000
8 Check ›› 10 1600 16000 2000 20000
Pea(Dube)
9 Beans ›› 30 800 24000 1300 39000
10 Abish(Read) ›› 8 1300 10400 1600 12800
11 Abish(white) ›› 10 1650 16500 1800 18000
12 Spit Beans ›› 30 1200 36000 1800 54000
13 Peans (Shiro) › 20 1300 26000 1600 32000
14 Beans Shiro ›› 20 1100 22000 1400 28000
15 Check pea Shiro ›› 8 2000 16000 2500 20000
16 Guaya Shiro ›› 5 800 4000 1100 5500
17 Wheat ›› 20 800 16000 1100 22000
18 Wheat(Qinche) ›› 30 1100 33000 1600 48000
19 Nug ›› 2 2500 5000 3000 6000
20 Telba(Read) ›› 4 1400 5600 1900 7600
22 Rise ›› 30 1300 39000 1800 54000
23 Flour ›› 20 1100 22000 1300 26000
24 Peanapple Pack 5 600 3000 672 3360
25 Total 557000 781260

16
Table 2; It shows the List of Spices to be supplied in 2006EC.

Unit
No List of Items Measurement Quantity cost Total Cost Unit Saling Pri. Total Sale
1 korerima kg 200 80 16000 120 24000
2 Tikur Asmud ›› 200 30 6000 90 18000
3 Nech Asmud ›› 200 30 6000 45 9000
4 Koseret " 200 25 5000 30 6000
5 Besobila " 200 25 5000 30 6000
6 Rise Spice ›› 150 120 18000 140 21000
7 Azmarin ›› 100 25 2500 30 3000
8 Green Paper ›› 700 40 28000 70 49000
9 Mitmita ›› 300 40 12000 60 18000
10 Shiro ›› 400 30 12000 40 16000
11 Abish ›› 300 40 12000 50 15000
12 Oats(mitin) ›› 400 30 12000 45 18000
13 Beda(Bulla) ›› 100 28 2800 40 4000
14 Kolo ›› 80 32 2560 40 3200
16 Kerefa ›› 100 58 5800 80 8000
17 Tea Pack 10 700 7000 1,000 10000
18 Total 152660 228200

Table 3: It Shows Different Packed Food Items to be Supplied in 2006EC.

17
 Unit Saling Total
No List of Items Measurement Quantity Unit Cost Total Cost Pri. Sale
1 Meaza Mango Box 5 340 1700 390 1950
2 Vinto ›› 5 500 2500 600 3000
3 Vinto(Local) ›› 4 350 1400 480 1920
4 Sheno Lega ›› 4 860 3440 900 3600
5 Serdin ›› 10 860 8600 960 9600
6 Aceto ›› 8 220 1760 288 2304
7 Aceto(Small) ›› 8 180 1440 240 1920
8 Oil(1 liter) “ 10 540 5400 600 6000
9 Oil(3liter) ›› 20 450 9000 480 9600
10 Oil(5 liter) ›› 20 480 9600 500 10000
11 Tomato(Cachup ›› 10 360 3600
) 432 4320
12 Salt(Bottled) ›› 10 420 4200 480 4800
13 Salt (Packed) ›› 15 80 1200 100 1500
14 Macth ›› 4 450 1800 500 2000
15 Pastiny ›› 4 300 1200 450 1800
16 Pasta Rose " 15 250 3750 300 4500
17 Pasta Golda " 20 280 5600 340 6800
Abuwaled
18 Biscute " 5 480 2400 550 2750
19 Mojo Oil(5lit) " 12 690 8280 750 9000
20 Mango( rani) " 10 340 3400 390 3900
21 Mekarony " 20 1500 30000 1700 34000
22 2 Lt Water Derzen 20 120 2400 144 2880
23 1.5lt Water " 20 96 1920 120 2400
24 1Lt Water " 20 86 1720 108 2160
25 1/2 Lt water " 10 60 600 70 700
26 Rise Kuintal 5 1300 6500 1600 8000
27 Total 123410 141404

18
Table4: It Shows Listed Items of Cleaning and Detergents Materials to be Supplied in 2006EC.

No list of Items Measuremen Quantity Unit Total Unit Total Sale

t Cost cost Saling
Pri.
1 Warda Soap Karton 10 350 3500 400 4000
2 Nazret Soap ›› 10 350 3500 400 4000
3 Zahra Omo ›› 10 430 4300 480 4800
4 Crawn Omo ›› 10 180 1800 250 2500
5 Areal Omo ›› 5 200 1000 300 1500
6 Glave Soap ›› 5 420 2100 504 2520
7 Diana (small) ›› 8 180 1440 280 2240
Berekina(Large) " 20 170 3400 216 4320
8 Berakina(Small) ›› 20 150 3000 200 4000
9 Ajaks ›› 20 240 4800 270 5400
10 Ajaks(small) ›› 20 210 4200 250 5000
11 Shemu Liqid Soap " 20 300 6000 336 6720
12 Shemu Liqid Soap(2lit) " 16 540 8640 600 9600
13 1Lt Bright soap " 10 203 2030 336 3360
14 2Lt Bright soap " 10 550 5500 600 6000
15 1/2 Bright soap " 10 180 1800 204 2040
16 Shemu Liquid Soap(1/2 " 10 180 192 1920
lit) 1800
17 Total 58810 69920

4.3. Financing Plan

19
In order to re-capacitate the business operation and to acquire working capital, to be prepared
ahead to be able to supply and sales the business commodities to its customers, and others the
business needs money. Since customers are very receptive and if they do not obtain quality
service and timely, they may not be interested to come again, the business shall need funds to
provide quality service and satisfy its customers.

Mesfin Retailing Shop Business requires a total of birr 1,125,568.01 to meet estimated capital
requirements as well as to cover various costs incurred to increase its sales and supply operation.
Hence, to meet estimated capital requirements as well as to cover various costs incurred to start
and run the operation, the business expects to borrow birr 1,125,568.01 from Commercial Bank
of Ethiopia Chiro Branch at the year 2006, at 10% interest rate that will be repayable in three
years on monthly basis.

4.4. Forecasted Income Statement from the years (2006 – 2008 EC).

The Forecasted Income Statement for the three years (2006 to 2009) is prepared using the
forecasted sales and the costs. Hence, the sales are estimated based on the economic forecasts
(considering the economy of the region, country and industry), effect of competition, market
share, and pricing policy or elasticity of demand (competitive response).

In the year 2006, Mesfin Retailing Shop Business expects a total Sale of birr 2,439,968 by
selling various quantities of targeted commodities listed above(Spices, pulses, Packed foods,
Detergents and others) twice this year.

In the year 2006 EC and successive years, the business expects a 10% increase in the total sales.
The forecasted costs and expenses for the year 2006 and successive years for the business are
provided in the parts that follow. Note that, for the purposes of various analyses, the costs and
expenses are treated in the same way.

20
1. Purchasing Pulses. In the year 2006, the business expects to incur a total of birr 781,260
cost. In the year 2006 and successive years the cost is expected to increase by 2% per year
for the successive years.
2. Purchasing Spices. In the year 2006, the business expects to incur a total of birr 228,200
cost. In the year 2006 and successive years the spices cost is expected to increase by 2% per
year for the successive years
3. Purchasing Packed Foods. In the year 2006, the business expects to incur a total of birr
141,404 cost. In the year 2006 and successive years the commodities cost is expected to
increase by 2% per year for the successive years
4. Purchasing Detergents. In the year 2006, the business expects to incur a total of birr
69,920 cost. In the year 2006 and successive years the commodities cost is expected to
increase by 2% per year for the successive years
5. Labor cost (Salary). In the year 2006, the business estimated to incur a total of birr 17,500
and that the labor cost is expected to increase by 2% per year for the successive years.
6. Transportation cost. In the year 2006, the business estimated to incur a total of birr 25,000
transportation cost and that the transportation cost is expected to increase by 2% per year for
the successive years.
7. Loading unloading cost. In the year 2006, the business estimated to incur a total of birr
13,000 and that the load-unloading expense is expected to increase by 2% per year for the
successive years.
8. Stationery Expense. In the year 2006, the business estimated to incur a total of birr 7,000
for stationeries cost and that the cost is expected to increase by 2% per year for the
successive years.

9. Pension Fund. In the year 2006, the business estimated to incur a total of birr 2,000 and that
the cost is expected to increase by 2% per year for the successive years.
10. Par time Expense. In the year 2006, the business estimated to incur a total of birr 17,000
and that the labor cost is expected to increase by 2% per year for the successive years.

21
11. Utility expense. In the year 2006, the business estimated to incur a total of birr 10,000
utility expenses for the electricity, water, and telephone and that the utility expense is
expected to increase by 2% per year for the successive years.
12. Advertising and promotion. In the year 2006, the business estimated to incur a total of birr
1,000 advertising and promotion and that the advertising and promotion is expected to
increase by 2% per year for the successive years.
13. Other costs and expenses. Other costs and expenses including the , professional fee, legal
fee, consultancy fee, cleaning and sanitation, revenue stamp, uniform expense, per-diem,
license renewal fee, and others are assumed to be birr 4,000 in the year 2006 and expected to
increase by 2% in the successive years.
14. Depreciation. The depreciation expense is computed for the year 2006 and coming years
using the deprecation rate of Federal Inland Revenue Authority on the book value of the
assets.
15. Income taxes. Since we expect no changes in either tax law or tax position, we will use the
same tax rate as last year; that is income taxes of 30 %.

The Forecasted Income Statement for the three years (2006 to 2008) depending on the
Forecasted revenue/sales and the costs of sales and expenses provided in the earlier parts are
prepared and presented in (Annex: 4).

4.5. Forecasted Cash Flow from the years (2006 – 2008 EC).

The cash-flow for the three years (2006 to 2008) has been forecasted based on the Forecasted
Income Statement prepared earlier, other assumptions made in the earlier parts, and using the
following assumption:
╬ The beginning cash balance is 200,000 birr as of 2006 EC.
╬ The cash received from providing sales of proposed commodities purchased is taken from
the Forecasted Income Statement.
╬ The cash payments for costs and expenses are taken from the Forecasted Income
Statement

22
 ╬ Bank loan repayment. It is assumed that, from the loan balance of birr 1,125,568.01, the
business expects to pay a total of the principal and interest of birr 900,454.00 in the year
2006, birr 675,341 in the year 2007, and 675,341 in the year 2008. Thus, the Forecasted
Cash Flow Statement for the three years (2006 to 2008) is provided in (Annex: 5).

4.6. Forecasted Balance Sheet for the Years (2006 to 2008EC)

The Forecasted Balance Sheet for the three years (2006 to 2008) is prepared considering the
management’s expertise, future economic conditions, and the following assumptions:
╬ Cash on hand is taken from Forecasted Cash Flow Statement.
╬ The business will maintain an optimal stock balance of supplies and other items of birr
35,000 in 2006 and 2007, and 200,000 at the end of 2008.
╬ Assuming that there will be no major fixed asset sales and retirements, the balance of
fixed assets is stated at net book value for the coming years.
╬ The business will buy various items including equipments, office supplies, feedstuffs, and
other items on credit and will have Accounts Payable balance of birr 10,000 in the year
2006 and zero payable balance in coming years.
╬ Bank loan balance. It is assumed that, from the loan balance of birr 1,125,568.01 the
business expects to pay a total of the principal and interest of birr 487,746.20 in the year
2006, birr 476,490.52 in the year 2007, birr 466,360.41 in the year 2006. As a result, the
outstanding bank loan balance is birr 900,454.00 in the year 2006, birr 675,341 in the year
2007, birr 675,341 in the year 2008.
╬ Paid-up-capital is equal to birr 0 and remain the same in the coming years.
╬ In the year 2006, the estimated retained earnings will increase by the net profit. Thus, the
Forecasted Cash Flow Statement for the three years (2006 to 2008) is provided in
(Annex: 6).

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1. CONCLUSSION AND RECOMMENDATION

The business going to be operated is essential supporting structure of free market economy on
commercial and financially viable basis to provide and sell packaged commodities especially
food items. The operation of this business will have aggregate socio economic importance from
the financial and commercial point of view. The business would be considered to be viable and
remunerative. It will help the government by the tax paid and fills the gap in demand and supply
especially on food items. It is currently at good income and efficiency ratio stage. However, to
keep it up the business encountered a shortage of working capital. Therefore, depending on the
above analyzed factors and facts it is recommended that the business needs additional working
capital to boost its profit margin. The injection of proposed amount of loan to the business is
very important to supply more and earned too.

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ANNEX: 1. Mesfin Getahun Retailing Shop Income Statement from Years 2003 – 2005EC
Revenue 2003 2004 2005
Income from sales of goods 603,000 912,500 1250000
Other income 0 0 0
Total revenue 603,000 912,500 1,250,000
Costs And Expenses
Costs For Goods Sold 58975.12 87235.33
Beginning Inventory 36699.59 486623.98 127,243.10
Purchase 573859.31 568,236.56
Goods Available for sale 425774.71 127243.1 695,479.68
Ending Inventory 87235.33 446616.21 102,950.88
Costs of goods sold 608684.75 465883.79 592,528.78
Operating Cost
Car rent expense 33,333 22,164 78,123
Transportation expense 16,487 10,364 22,164
Loading unloading expense 7,647 17,333 10,364
Par time expense 5,888 25,645 17,333
Breakage fee 8,875 25,645
Total operating Expense 72,230 153,629 153,629
Administrating Expense
Salary expense 7,899 10,344 12,500
Pension fund contribution 0 620.64 1,236
Stationary Expense 1,250 3,000 2,500
Printing Expense 3,300 5121 6,050
Wage expense 23,456 75,254 45,389
Electric expense 2,222 7,313 4,440
Water expense 1,022 13,478 8,712
Miscellaneous expense 4,523 2,323 0
Total Admin Cost 43,673 117,454 80,827
Other Expense
Description expense 15,710.25 37,738.04 490,993.45
Donation 2,500 2,000 1,500
Total Expense 130347.67 310,820.68 285,049.45
Income before tax 92675.99 155063.11 372,421.77
Tax 37671.68 46322.09 122,397.62
Net income after tax 55004.31 108741.02 250,024.15

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ANNEX: 2. Mesfin Getahun Retailing Shop Cash Flow from Years 2003 – 2005EC
YEARS
2003 2004 2005
Revenu 603000 912500 1250000
Add 0
Description 0 0 0
Increase in borrowing 0 0 0
Business investment 50000 0 0
Sales of fixed asset 0 0 0
Decrease in receivable 0 0 0
Increase in payable 0 0 0
Decrease in stock 0 0 0
Fund Available 653000 912500 1250000
Fund Required 577429.63 855725.99 1215789.19
Loan Repayment 0 0 0
Cash purchase fixed asset 405645 492003 805000
Interest payable 0 0 0
Expenses 134112.95 310820.68 285049.45
Income tax payable 37671.68 46322.09 122397.62
VAT or TOT payable 0 6580.22 3342.12
Increase or Decrease in 75570.37 56774.01 34210.81
Cash

ANNEX: 3. Mesfin Getahun Retailing Shop Balance Sheet from Years 2003 – 2005EC
years

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 2003 2004 2005
Asset
Current Asset
Cash on hand 125200 75067.03 15551
Inventory 87235.33 127243.1 102950.88
Total Current Asset 212435.33 202310.13 118501.88
Fixed Asset 500000
Building 0 25000 769568.12
Less Acc .Dep 475000 38478.41
Book Value 731089.71
stock equipment 81523.47 65813.22 53075.18
Less Acc.Dep 15710.25 127738.04 10615.04
Book Value 65813.22 53075.18 42460.14
Total Fixed Asset 65813.22 528075.18 773549.85
Total Asset 278248.55 730385.31 892051.7 3
Liability
Income Tax payable 37671.68 46322.09 12239.62
V.A.T or T.O.T payable 0 6580.22 3342.12
Total liability 37671.68 52902.31 125739.74
Owner’s Equality
Mesefine Getahun, Capital 240576.87 677483 766311.99
Total liability and Owner’s
Equality 278248.55 730385.31 892051.73

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ANNEX 4: Forecasted Income Statement of Mesfin Retailing Shop from the year (2006 to 2008).

Revenue: 2006 2007 2008

Sales 2,439,968 2,683,965 2,952,361
Total Revenue 2,439,968 2,683,965 2,952,361
Costs of Purchasing Goods
Supply Pulses 557,000 568140 579502.8
Supply Spices 152,660 155713.2 186855.84
Supply Packed Foods 123,410 125,878 151,053.84
Supply Detergents 58,810 59,986 71,983
Total Purchsing Cost 891,880 909,718 927,912
Oprating Costs
Transportation Cost 25,000 25,500 30,600
Loading Unloading Cost 13,000 13,260 15,912
Partaime Fee 17,000 17,340 20,808
Utility Expense 10,000 10,200 12,240
Total Oprating Costs 65,000 66,300 79,560
Admin. Costs
Advertizing and Promotion 1,000 1,020 1,224
Salery 17,500 17,850 21,420
Pension Fund 2,000 2,040 2,448
Stationery 7,000 7,140 8,568
Depreciation Expense
Other Costs and Expenses 4,000 4,080.00 4,896.00
Bank Loan Interest Repayment 112,556.80 101301.12 91171.008
Total Admin. Cost 144,057 146,938 176325.5232
Total Costs and Expenses 1,100,937 1,122,955.54 1,145,414.65
Net Income Before Tax 1,339,031 1,561,009.26 1,806,946.63
Less: Profit Tax 401709.36 468,302.78 542,083.99
1,092,706.4
Net Income/ profit 937,322 8 1,264,862.64

ANNEX 5: Forecasted Cash Flow of Mesfin Retailing Shop fro years92006 to 2008).
Cash Inflows: 2006 2007 2008

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 Beginning Cash Balance 200,000.00 220,000.00 242,000
Sales 2,439,968 2,683,965 2,952,361
Borrow from Bank 1,125,568.01 _ _
Total Cash Inflows 3,765,536.01 2,903,965 3,194,361.28
Cash Outflows:
Supply Pulses 557,000 568,140.00 579,502.80
Supply Spices 152,660 155,713.20 158,827.46
Supply Packed Foods 123,410 125,878.20 128,395.76
Supply Detergents 58,810 59,986 61,185.92
Loading Unloading Cost 13,000 13,260 13,525
Partaime Fee 18,000 18,360 18,727
Utility Expense 10,000 10,200 10,404
Pension Fund 2,500 2,550 2,601
Salery 17,500 17,850 18,207
Stationery 8,000 8,160 8,323
Depreciation Expense 0 0 0

Transportation cost 25,000 25,500 26,010

Other Costs and Expense 4,000 4,080 4,162
Bank Loan Principal Repayment 375,189.40 375,189.40 375,189.40
Bank Loan Interest Repayment 112,556.80 101301.12 91171.008
Profit Tax 402,609 99,079.44 133,268.61
Total Cash Outflows 1,880,235.20 1,585,247.56 1,629,500
Net Cash Balance 1,885,300.81 1,318,717.24 1,564,861.11

ANNEX 6: Forcasted Balance Sheet of Mesfin Retailing Shop from years (2006 to 2008).
ASSETS 2006 2007 2008
Current Assets:
Cash on Hand 1,030,712.00 1,133,783 2,021,275
Inventory(Stock) 35,000.00 35,000.00 200,000.00

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 Total Current Assets 1,168,783.2
1,065,712.00 0 2,221,275.40
Fixed Assets:
Buildings 731,089 731,089 731,089
Stock Equipments 53,075 53,075.00 53,075.00
Total Fixed Assets 784,164 784,164.00 784,164
Total Assets 1,849,876.00 1,952,947.20 3,005,439.40
LIABILITIES AND
CAPITAL
Liabilities
Accounts Payable 10,000 0 0
Bank Loan 900,454.00 675,341 675,341
Total Liabilities 910,454.0 675,341 450,227
Capital:
Paid-in-Capital 0.00 0.00 0.00
Retained Earning 939,422.00 1,277,606.20 2,555,212.40
Total Capital 939,422.00 1,277,606.20 2,555,212.40
Total Liabilities and Capital 1,849,876.00 1,952,947.20 3,005,439.40

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