MAKAMITHI ENTERPRISES LTD

BUSINESS PLAN
 DEDICATION
I take this opportunity to return thanks and dedication to the almighty God for giving me life,
strength and the ability to enroll and go through the entire course successfully. I dedicate this
business plan to my loving family who gave me support and the inspiration to undertake work
for a worthy course.

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 DECLARATION
This business plan is my original work and has not been submitted for an award of a degree in
any other University for examination purposes.

………………………….… ………………………………….
Signature Date

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 TABLE OF CONTENTS

DEDICATION.................................................................................................................................ii
DECLARATION..........................................................................................................................iii
CHAPTER ONE............................................................................................................................1
1.0 Business Description..................................................................................................................1

1.1 The Sponsors..............................................................................................................................1

1.2 Business Name...........................................................................................................................1

1.2.1 Vision..........................................................................................................................................1
1.2.2 Mission Statement.......................................................................................................................1
1.3 Business Location and Address.................................................................................................2

1.3.1 Description of the Location.........................................................................................................2

1.3.2 Reasons for Location...................................................................................................................2
1.3.3 Address:.......................................................................................................................................2
1.4 Form of ownership.....................................................................................................................3

1.5 Products and Services..............................................................................................................3

1.6 The Industry.............................................................................................................................3

1.7 Justification................................................................................................................................3

1.8 GOALS OF THE BUSINESS...................................................................................................3

1.8.1 Long term goals...........................................................................................................................3

1.9 Entry and Growth Strategy....................................................................................................4
1.9.1 Entry Strategy........................................................................................................................4
1.9.2 Growth Strategy.....................................................................................................................4
1.10 SWOT analysis........................................................................................................................4

CHAPTER TWO...........................................................................................................................6
2.0 Market Plan................................................................................................................................6

2.1 Customers..................................................................................................................................6

2.2 Market Share Trends..................................................................................................................7

2.3 The Competition........................................................................................................................7

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2.4 Sales Tactics...............................................................................................................................7

2.5 Pricing Strategy..........................................................................................................................7

2.6 Promotion Strategy....................................................................................................................8

2.6.1 Advertising Strategy....................................................................................................................8

2.6.2 Promotion strategy......................................................................................................................9
2.7 Product Strategy.........................................................................................................................9

2.8 Place Strategy.............................................................................................................................9

CHAPTER THREE.....................................................................................................................10
3.0 Management and Organizational Plan.....................................................................................10

3.1 The Organizational Structure...................................................................................................12

3.2 Key Management personnel....................................................................................................13

3.3 Other personnel........................................................................................................................13

3.4 Recruitment, training and promotion.......................................................................................14

3.4.1 Recruitment...............................................................................................................................14
3.4.2 Training.....................................................................................................................................14
3.4.3 Promotions.................................................................................................................................15
CHAPTER FOUR........................................................................................................................16
4.0 The Operational Plan...............................................................................................................16

4.1 Production and operational facilities and capacity..................................................................16

4.1.1 Description of facilities required for operation...................................................................16

4.2 Production and operational strategy.........................................................................................16

4.2.1 Description of Monthly Labor Requirements......................................................................16

4.2.2 The Monthly Operation Expenses.......................................................................................17
4.3 Regulations affecting production and operations....................................................................17

CHAPTER FIVE.........................................................................................................................19
5.0 The Financial Plan...................................................................................................................19

5.1 The Preoperational Cost...........................................................................................................19

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5.2 Working Capital requirements........................................................................................19

5.3 The Projected Cash flow Statement.........................................................................................21

5.4 Pro Forma income statements..................................................................................................23

5.5 Pro Forma Balance Sheets.......................................................................................................24

5.6 Break-Even point.....................................................................................................................26

5.7 The Expected Profitability Ratios............................................................................................26

5.8 Desired financing.....................................................................................................................27

5.9 Proposed Capitalization...........................................................................................................28

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 CHAPTER ONE

1.0 Business Description

The name of the proprietor is Jennifer Mangu and the name of the business is Makamithi
Enterprises Ltd. The business is located in Machakos town, Machakos County. It operates in a
rented building in off syokimau rd, machakos town. The major activity of Makamithi, is to
consistently provide our customers with impeccable products by demonstrating warmth,
graciousness, efficiency, knowledge, professionalism and integrity in our work. The business is
private limited company and the owner is Jennifer Mangu. The business is a private limited
company dealing with agrovet products and services. The products includes farm inputs,
insecticides, seeds for planting, animal feeds whereas the services offered includes artificial
insemination and others.

1.1 The Sponsors

Jennifer Mangu holds a Masters in Business Administration in Finance. The owner holds the
several certificates in management training. Jennifer Mangu has acquired training on
agricultural, and on-the-job training. Jennifer Mangu is the main shareholder as she contributed
eighty percent of the capital.
The business has Kshs.2,000,000/= as the start-up capital.

1.2 Business Name

The name of the business is “Makamithi enterprises ltd”.

1.2.1 Vision
A premier and destination agro-vet joint in the local market.

1.2.2 Mission Statement

To consistently provide our customers with impeccable service by demonstrating warmth,
graciousness, efficiency, knowledge, professionalism and integrity in our work

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1.3 Business Location and Address

1.3.1 Description of the Location

Makamithi Enterprises Ltd is located in Machakos town, Machakos county. It operates in a
rented building off syokimau rd, Machakos town.

1.3.2 Reasons for Location

Accessibility of the premises - the premise is within Machakos town which needs the services
offered.

Security - the building is well secured with security guards on the entrance. The security guards
ensure that every person entering the premise is thoroughly checked.

Banking Services - availability of good banking services e.g. Equity bank which has improved
the living standard of most of the people in the area and MPESA services.

Good Infrastructure - the road network is good and easy to access the premise. There is clean
water and availability of electricity which is essential for the smooth running of the business.

1.3.3 Address:
The addresses are;

Makamithi Enterprises Ltd.

P.O Box 1817,

MACHAKOS

Tel:044-21905

Email: [email protected]

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1.4 Form of ownership
The nature of business is a private limited company.

1.5 Products and Services

Makamithi Enterprises Ltd is involved in sale of seeds, agrochemicals, fertilizers and other farm
inputs. The products and services include Seeds, pesticides, nemacides, fertilisers, animal feeds
and agronomical support

1.6 The Industry

As a key player in the agricultural industry, Makamithi Enterprises Ltd must be focused and
work hard to create acceptance for their products within the market place. The business offers
quality services, create unique, innovative, quality products different from the rest of the
competitors which enable to expand in existing markets and create new markets. It’s also an e-
commerce industry whereby it advertises for its services in the net. E-commerce in Kenya is
rapidly growth especially with people having easier access to the internet even via their phones.

1.7 Justification
i) Availability of farmers around the area.

ii) Availability of customers from the growing population in that County.

iii) There is also a good security since the owner of the building has contracted G4S Security
Ltd which is a private security firm which provides security services. The building is
guarded 24 hours with guards working with shifts i.e. two security officers working
during the day and the other two during the night

1.8 GOALS OF THE BUSINESS

1.8.1 Long term goals

i) The business aim to establish its presence as a successful agro-vet outlet and gain
market share in Kenya’s agri-business industry.
ii) To make Makamithi Enterprises Ltd. a destination spot for farmers
iii) To expand into a number of outlets after five years of operation.

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 iv) Improve the living standard of the employees who work for me by providing
competitive remuneration.

1.8.2 Short term goals

i) To make meaningful profit to raise operational and expansion capital.

ii) To provide quality products at reasonable prices with exemplary services and with
ease of access so that the customers do not go to another place for the same
products.
iii) To portray a positive role model image for self-esteem and good will to the public.

1.9 Entry and Growth Strategy

The business has the following entry and growth strategy:

1.9.1 Entry Strategy

i) About a week to the grand opening of Makamithi Enterprises Ltd., I visited the
surrounding colleges, local businesses and government offices with fliers announcing the
agro-vet grand opening in order to encourage people to come in and try out our agrovet.
ii) Makamithi Enterprises Ltd has a few number of staff who are able to meet the demands
of customers at that time.

1.9.2 Growth Strategy

i) Open up more branches in other major towns.
ii) As the business expands, the business has a computerized information system which
improves and link products and serving operations.
iii) Touch screen ordering programs are also being considered to ensure accurate
communication of customers’ orders and also timing system that monitor a service
progress and can alert staff if an order is running behind the schedule or it’s ready. This
will reduce the long queues in the cashier place.

1.10 SWOT analysis

A SWOT analysis has been used here as a means of an analytical method for a better
understanding of the situation in the Makamithi Enterprises Ltd.. The SWOT analysis is a tool

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for a situation analysis and when used in an appropriate way, it can be a good foundation for
strategy formulation. Its basic aim is to identify the opportunities and threats in the external
environment and strengths and weaknesses in the internal environment. After the mentioned
factors are identified, an internal and an external evaluation are carried out.

The following are the strengths, weaknesses, opportunities and threats of the business:

Strengths
(i) The sponsor have a strong passion to take care of the clients
(ii) The mission and vision statements of the business are quite inspiring
(iii) There is a dominant market share ie the business is one of a kind in Machakos and its
environs since of its brand differentiation
Weaknesses
(i) High competition levels from other operating agro-vet providers in Machakos town
(ii) May be faced with a threat of seasonal workers’ competence, permanent workers’
motivation.
Opportunities
(i) Improving changes in the political environment and growth in GDP
(ii) Promotion of private ownership and enterprise
(iii) Use of marketing and promotional techniques ie use of the ‘agro-vet Providers’ website
(iv) Improvements in technological and speed of its adoption, availability and access
Threats
(i) Increasing cost of technology and innovation
(ii) Close proximity to other agro vets in Machakos county since they could imitate the
business and start giving the services to their clients.

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 CHAPTER TWO

2.0 Market Plan

Marketing is a key part of any business success. It helps to identify the customer’s wants and
needs and making the products and service to satisfy them. It explains how the business can use
its pricing strategy, sales tactics, advertising and promotion to scale down the competition and
know the business market share.

A marketing plan is a comprehensive blueprint which outlines an organization's

overall marketing efforts. A marketing process can be realized by the marketing mix.(Wood,
2003).

This chapter provides the basis for the organization, operational and financial plan. The business
utilizes the services of the current employees, e-commerce, and printed media as part of its
marketing strategy. The employees have excellent customer service.

Position statement - our main focus is to increase customer awareness in the surrounding
community. We direct all our tactics and programs toward the goal by explaining what we are
all about. We price our products fairly, keep our standards high, and execute the concept so that
“word-of-mouth” is our main marketing force.

Marketing strategy – Makamithi Enterprises Ltd. strives aggressively to increase their market
penetration. The marketing strategy seeks first to create customer awareness regarding the
offered products, develop the customer base and work toward building a strong customer loyalty.

2.1 Customers
Majority of the customers are farmers. Makamithi ensures that these customers are well catered
for. The other target is local veterinary organization. Makamithi Enterprises also prioritize their
services to the customers by designing its entire products to meet the taste of its valued
customers. The business teams up with a local veterinary organization to hold open field days
where farmers are educated on crop and animal management.

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2.2 Market Share Trends
Makamithi Enterprises Ltd uses market segmentation as a marketing tool. Makamithi Enterprises
Ltd is the place to meet and hang out for farmers. My second market segment is the veterinary
organizations around Machakos County.

2.3 The Competition

Makamithi Enterprises offers reasonable and affordable prices and ensure that the customers are
happy with all our products also ensure that the business teams up with a local veterinary
organisation to hold open field days where farmers are educated on crop and animal
management. The focus of training should be made viable with examples of successful
enterprises. To attract my target market, I also expect a high degree of enthusiasm and offer a fun
store with friendly staff, which reflects the business youthful and energetic culture unlike my
competitors.

2.4 Sales Tactics

The business sales volume determines its success. Poor sales tactics leads to poor performance
hence the business risks closing down. To ensure the growth and stability of the business, the
owner uses the following tactics:

i) The business hours are opened from 8.00 a.m. to 6 p.m. every day. However, based on
demand of products, the business is flexible and open at hours that satisfy the need of the
customers.
ii) I use personal selling contacts whereby I do the selling myself through looking for orders
in institutions, individuals, schools and other agencies. This tactic helps me to have a
direct contact with my customers and also strengthen the relationship between the
business and the customers.

2.5 Pricing Strategy

Effective pricing in any business is critical to success. The pricing strategy is determined by the
selling price of its services. The business setup a pricing strategy based on an analysis of
competitors pricing.

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At the inception of the business, I lowered the prices compared to my competitors so as to attract
customers and create a share in the market. At a later stage, the prices were gradually increased
depending on the customers and competitor pricing. The pricing strategy is determined by the
following factors:-

(a) Cost of raw materials and production

This includes the initial buying price of the goods, cost of transportation, taxation and labour
cost. The selling price is set to a standard so as to ensure profitability of the business.

(b) Differential strategy

The business follows a differential strategy in order to achieve a competitive advantage in the
market. My product offers a unique attribute that is of value to the customers.

(c) Cost leadership strategy

Makamithi Enterprises Ltd products are of average price compared to its rivals in order to earn a
profit and gain a market share. This ensures that the business maintains a level of productivity
incase of market saturation and price wars.

2.6 Promotion Strategy

Promotion is the method you use to spread the word about your product or service to customers,
stakeholders and the broader public (Tellis, 2007).

2.6.1 Advertising Strategy

Initial advertisement campaign include putting up sign posts at strategic points showing the
direction of business and the products/services offered, I used pamphlets portraying the products
and services offered, I also send out brochures to schools, colleges and governmental offices
detailing the same.
Makamithi Enterprises Ltd introduced a social network profile for the business by creating a
Facebook page and ensure that the business photos are well displayed in the Facebook, what the
business offers and also invite them to visit business. I have also opened up business web page
containing the business philosophy.

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2.6.2 Promotion strategy
The business is competitive enough for people to travel from as far as Kitui to be attended at our
facility. The following are the promotion methods:
1. We take part in radio talks especially vernacular stations, targeting local communities and
people within reasonable distances, use of posters, banners and the internet
2. Conducting seminars and conferences to create awareness and promote products
3. Talking to companies to sponsor clients in form of Corporate Social Responsibility and
for volunteers
4. There is a system for customer feedback so that customer satisfaction (or lack of it) can
be tracked and be addressed amicably. The customer is issued with a small form to fill
and drop in a box.

2.7 Product Strategy

The business provides its products directly to the customers.There is no necessity for sales
people or face to face promotions.
The products tactics applied are:
(a) Participation in product promotions and awareness
(b) Face to face communication and word of mouth
(c) Issuing of pamphlets to create awareness of the new product.
(d) E-marketing of the product

2.8 Place Strategy

The decision of where a firm should sell its products is the question raised under the P of place
of the marketing mix. Place strategies can be classified as exclusive, selective, and intensive,
which are connected to what kind of image a company wants to have. Exclusive means few
places and selling only one brand. Selective is the middle way, where the products are sold at
selected places, that could be outside the company but with high collaboration between the two
parties. Intensive strategy is just a matter of being visible and available everywhere and is most
used by low-price/high-volume strategies (Parment, 2008). The business uses Intensive strategy
whereby, it is available to all clients from all corners of the country.

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 CHAPTER THREE

3.0 Management and Organizational Plan

This chapter will outline all the policies, staff development, human resource management of the
staff that are employed by the business. Also outlined are the details of the support services
needed to run the business. The businesses have the following organization policies
Recruitment Policy: The proposed business only hires staff with customer service experience.
Employment is on a contractual basis in one year increments. Upon employment, an employee
will be under probation for the first three months. After the probation period the employer may
choose to confirm the employee.
Attendance Policy: the business hours will be Monday through Sunday 8.00 am to 5.00pm.
There will be a work schedule posted every Sunday Afternoon. It is the responsibility of each
employee to find out their work schedule for the week.
Code of conduct: The employee shall at all time carry themselves in a professional manner and
be well groomed. The business is driven by customer service therefore every employee must
provide a high level of customer service.
Compensation: Salaries will be paid on the 1st of every month directly to an employee’s bank
account. An employee can get no more than half their salary as an advance; the advance must be
paid back within the same month that it was borrowed. The business is required to withhold
statutory deductions from the employees gross salary. These deductions include NHIF, NSSF
and PAYE.
Drug & Substance Abuse: An employee that is impaired by alcohol or drugs can be a danger to
his fellow employees. As such the Company wishes to safeguard all employees, as part of our
efforts to reduce any accidents or incidents, the rules below must be followed by all employees.
 The offices of The Company are non smoking zones.
 An employee who comes to work under the influence of drugs or alcohol and/or cannot
perform their duties due to the intoxication will be subject to discipline up to summary
dismissal.
 An employee suspected of being intoxicated may be required to undergo drug/alcohol
testing.

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  If an employee is sent home from work or has to undergo the above testing, the hours of
worked missed will be deducted from the employees leave days. If no leave days are
available, it will be considered unpaid leave.
Job Description: Every employee will have a job description which details the employee’s
duties and responsibilities.
Performance Management: A performance review will be conducted twice a year to determine
whether the employee is performing in terms of their job description. Every appraisee shall be
given the opportunity to see and comment on their appraisal. During the appraisal process the
appraiser and appraise shall set goals for the following period to be assessed at the next
appraisal. Results of the performance appraisal will determine whether or not an employee will
get the annual salary increment.
Grievance Procedures: Every employee has the right to make a grievance by following the
below. The purpose of this policy is to ensure a conducive work environment for all employees
allowing them to meet their objectives.
 Verbal Discussion- where the employee approaches the head of the department. The head
of department should then respond to the employee within 48 hours.
 Pre-grievance hearing- If the issue is not resolved with a verbal discussion the employee
can then put their grievance in writing and the head of department should respond within
48 hours.
 Grievance hearing – if the issue is still not resolved the accused and accuser will then
provide their evidence to the Manager, the manager will review the evidence and make a
finding, give recommendations and any disciplinary action if necessary to be taken.
Disciplinary Procedures: The purpose of this policy is to spell out the policy for disciplinary
action when an employee violates any of the proposed business rules. Warnings will be issued to
an employee to give him/her the opportunity to change their behavior. Before a warning is issued
all the facts must be analyzed to ensure a clear picture of what occurred is obtained. The
employee must be given an opportunity to respond. Depending on the severity of the problem, a
warning can be verbal or written.
 Verbal warning: This is having a discussion with the employee explaining what the
problem is and how to change. The employee will then sign an acknowledgement that
the warning was received.

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  First written warning: If the employee does not change behavior after the verbal
warning then a first written notice of complaint. The employee will then have an
opportunity to respond with 2 weeks. The response will then be considered, if found
guilty the employee will be issued with a first written warning. The warning will
outline the complaint, the corrective behavior that needs to occur, and a time period
by which change in behavior will be reevaluated. The employee should sign the
written warning.
 Second written warning: If the employee behavior does not change, a summary of
the verbal and first written warning will be made and will constitute the second
written warning. The employee should sign the second written warning.
 Final written warning: A final warning will be issued where the employee engages
in acts of gross misconduct as outlined in the Employment Act 2007. Or when the
misconduct is repeated within 12 months of any previous warning. The employee
should sign the final warning. After the final the employee may be terminated.
3.1 The Organizational Structure
Figure 3.1: Organizational Structure

Directors

Office Manager

Agro-vet attendants

Cleaners Messengers

Source: Author (2016)

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3.2 Key Management personnel
The management structure of Makamithi is characteristic of a flat organization. Overhead for
management is at a minimum and management is the hands-on type of workers. There is no
intention of having a top-heavy organization that drains profits and complicates decisions. The
structure is as follows
Figure 3.2: The Management team

Manager

Accountants Cashier Receptionist

3.3 Other personnel

The staff team shall comprise of the following designations numbers and the duties:

Table 3.1: Staffing

Personnel Number Responsibilities

Sales 1 Oversee the sales operations of the business and also supervise the
Manager sales team

Accountants 1 Assist the accounting and financial experts in budgetary and

accounting policies.

-Draft plans and accounting statements for presentation to the board of

directors and chief financial officer of the firm.

- Prepare financial reports in case of asset management investments.

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 -Excel in the use of computer accounting principles and use them often

Store 1 Keep record of the stocks

Keeper Keep record of books of accounts

Cleaner 1 Cleaning the floor, counters and tables.

Vetinery 1 Dispensing pet meds

3.4 Recruitment, training and promotion

3.4.1 Recruitment
The business uses external sourcing to commence its business. This is used since it draws and
reaches many candidates at the same time. It is a competitive method of recruiting. The
vacancies depends on the job needs of the business. The process is as follows:-

Job advertising and description: Makamithi eterprises shall advertise for the above vacancies
through fliers which shall be distributed in various places, posters which shall be displayed in
varioustowns and also using Facebook in order to have a wider circulation even in neighboring
towns specifying the job titles and requirements. The staff shall be hired through the interviews
from the shortlisted candidates for each position and the best candidate shall be recruited.

Short listing or selection: The business owner chooses from a list of applicants who meet the
selection criteria for the various positions advertised.

Interviews: The shortlisted candidates are called for a face to face interview and finally the best
candidates who meet the necessary requirements with the highest scores are offered a job.

3.4.2 Training
Training is necessary from time to time depending on the business as it will be growing. The
business recruit qualified staff who are already specialized in those areas. Upon acceptance of
offer of employment, I conducts a three day orientation in line with the mission, vision and goals
of the business.

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Once the business stabilizes, employees are encouraged to undertake short courses and the
business meet the cost of training (60% for all staff). This will help them enhance their
knowledge, skills, values and competencies as it will ensure that the business is up to date with
technological developments.

3.4.3 Promotions
Promotion from position to another through meritocracy. The business owner will use formal
appraisal system to determine the level of job performance, identify good performers and reward
them with pay rise. Promotion will also be based on job performance and attainment of higher
qualification through training. All employees will be given equal opportunities giving each a
chance to develop his/her career.

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 CHAPTER FOUR
4.0 The Operational Plan
This chapter will describe the facilities; labor and overhead cost required provide the service.
The chapter will also outline any government regulations that must be fulfilled by the proposed
business for it to be legally compliant.

4.1 Production and operational facilities and capacity

The proposed business will have the following operational facilities and capacity.

4.1.1 Description of facilities required for operation

Table 4.2: Facilities required for operation

Item Cost per Unit Units Date required Installation Total

Kshs. Required Cost Cost
Kshs.
Computer 40,000 2 January 2016 n/a 80, 000

Printer 8,000 1 January 2016 n/a 8,000

Chairs 1000 10 January 2016 n/a 10,000
Tables 4000 3 January 2016 n/a 12,000
Website 75,000 1 December 2017 n/a 45,000
Source: Author (2016)

4.2 Production and operational strategy

4.2.1 Description of Monthly Labor Requirements
The business have three direct employees who are dealing with the clients on a first line basis,
customer service supervisor and two motorcycle drivers. The business have one indirect
employee, the office manager.
The total cost of operation labor is calculated by multiplying the number of direct workers by
their salary per month (A). Then multiplying the number of indirect workers by their salary per
month (B). To get the total cost of operation labor you would add A+B.
1 Customer Service Supervisor x Kshs. 13,000=Kshs, 3,000

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Total cost of direct labor per month = Kshs. 133,000 (A)
1 Office Manager x Kshs. 40,000= Kshs. 40,000 (B)
Total cost of operational labor per month = A+ B; Kshs. 33,000 + Kshs. 40,000=Kshs. 53,000

4.2.2 The Monthly Operation Expenses

The business have the following operation expenses.

Table 4.3: Monthly Operation Expenses

Expenses Amount
Kshs.
Support Services 5, 791. 5

Monthly Material Requirements 1190

Transport 3,000

Salaries 148,000
Advertising 2500
Electricity 1,250
Water 250
Internet 750
Total Monthly Operation Expense 162,731. 5

Source: Author (2016)

4.3 Regulations affecting production and operations

The business adhered to certain government regulations. First and foremost the proprietor had to
search to reserve the proposed business name at a cost of Kshs. 100. Once the name was
searched and approved, the proprietor had to complete the BN2 form. The certificate of
registration was processed thereafter. After seven days, the proposed business had to be
registered as a private company through the company registry at a cost of Kshs. 1,000. Once the
business was registered, then the proprietor applied for a business permit which was obtained
from the Nairobi City Council Licensing Department at a cost of Kshs. 5,000, this took five days
to get. Next the business was registered with the National Social Security Fund (NSSF) there was
no cost for this, and National Hospital Insurance Fund (NHIF) there was no cost for this either.

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Once all the above were done, then the proprietor applied for a Personal Identification Number
(PIN) from the Kenya Revenue Authority website
Table 4.4: Government Regulations
Government Regulation Source Cost
Kshs.
Business Search Company Registry 100

Business Registration Company Registry 1,000

Business Permit Nairobi City Council 5,000
PIN Kenya Revenue Authority n/a
NSSF NSSF House n/a
NHIF NHIF building n/a

Service Certification Kenya Bureau of Standards 6000

Certificate
Health & Safety Kenya Bureau of Standards 3500
Certificate
Total cost of Government Regulation 15,600
Source: Author (2016)

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 CHAPTER FIVE
5.0 The Financial Plan
A financial plan is a comprehensive evaluation of someone's current and future financial state by
using currently known variables to predict future cash flows, asset values and withdrawal plans
(Scottsdale, 2006). The financial plan will deal with the financial aspects of the proposed
business to determine how financially viable the proposed business will be. This will include pro
forma balance sheets, Profit and Loss and projected cash flow statements. It will also help to
determine the break-even level of sales and calculate expected profitability.
5.1 The Preoperational Cost
The proposed business will incur the following pre-operational costs
Table 5.5: the Preoperational Costs
Item Amount
Kshs.
Support Services 139,000
Government Expenses 15,600
Land rates 1,000
Advertising and promotion 65,960
Facilities 221,000

Recruitment Costs 32,400

Deposits 5,600
Total Preoperational Costs 490,560
Source: Author (2016)

5.2 Working Capital requirements

The proposed business will have the following working capital
Working capital= Current Assets – Current Liabilities.

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Table 5.6: Pro Forma Working Capital
ITEM JAN. 2017 31st 31st Dec. 2018 31st Dec. 2019
Kshs. Dec.,2017 Kshs Kshs.
Kshs
CURRENT ASSETS
Debtors - - - -
Cash 1,509,440 1,676,800 1,939,478 1,962,389.5
Deposits - 5,100 5,100 5,100

TOTAL CURRENT ASSETS (B) 1,509,440 1681900 1,944,578 1,967,489.5

LIABILITIES
Current Liabilities
Creditors - - - -
Tax 100,256 111,341 149,586.5
TOTAL CURRENT - 100,256 111,341 149,586.5
LIABILITIES(C)
WORKING CAPTIAL (B-C) 1,509,440 1,581,644 1,833,237 1,817,903
Source: Author (2016)

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5.3 The Projected Cash flow Statement
Table 5. 7: Projected Cash Flow

Makamithi Project Cash Flow as at January, 2016

Receipts Months
Item Jan Feb Mar. Apr. May. Jun. Jul. Aug. Sept. Oct. Nov. Dec.
Kshs. Kshs Kshs. Kshs. Kshs. Kshs. Kshs. Kshs. Kshs. Kshs. Kshs. Kshs
Balance B/F 62,500 65,000 70,000 77,500 87,500 62,500 50,000 75,000 90,000 95,000 64,720 50,000

Sales 82,500 50,000 72,500 80,000 90,000 95,000 95,000 100,00 105,000 112,500 117,500 145,000
0
Total 145,00 115,00 142,50 157,50 177,500 157,50 145,00 175,00 195,000 207,500 182,220 195,000
Receipts(A) 0 0 0 0 0 0 0
LESS
PAYMENTS
Salaries 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000
Support 69,500 0 0 0 0 0 0 0 0 0 0 0
Services
Electricity 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500
Bank 150 150 150 150 150 150 150 150 150 150 150 150
Advertising 2,882 2,882 2,882 2,882 2,882 2,882 2,882 2,882 2,882 2,882 2,882 2,882
Monthly 1,190 1,190 1,190 1,190 1,190 1,190 1,190 1,190 1,190 1,190 1,190 1,190

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Material
Internet 750 750 750 750 750 750 750 750 750 750 750 750
Loan Interest 3,125 3,125 3,125 3,125 3,125 3,125 3,125 3,125 3,125 3,125 3,125 3,125
Loan 4,166.5 4,166. 4,166. 4,166.5 4,166.5 4,166.5 4,166. 4,166.5 4,166.5 4,166.5 4,166.5 4,166.5
Repayment 5 5 5
Total 114,51 69,500 69,500 69,500 69,500 69,500 69,500 69,500 69,500 69,500 69,500 69,500
Payment (B) 3.5
Net Cash 30,486. 69,986 97,486 112,48 132,486. 112,48 99,986 129,98 149,986. 162,486. 137,206. 149,986.
Flow (A-B) 5 .5 .5 6.5 5 6.5 .5 6.5 5 5 5 5
Source: Author (2016)
Assumptions
1. Balance brought forward= capital less pre-operational cost.
2. Support services are paid for once annually at the beginning of the year.

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5.4 Pro Forma income statements
The proposed business will have the following projected profit and loss accounts.

Table 5.8: Pro Forma income statements

Makamithi Profit and Loss Account Statements for

the Years Ended 31st December 2017; 31st
December 2018; 31st December 2019.
ITEM 31st 31st 31st
December, December, December,
2017 2018 2019
Kshs. Kshs. Kshs.

Revenue 1,550,000 1,760,000 2,012,000

Less Direct Costs 285,600 299,880 308,876
GROSS PROFIT 1,264,400 1,460,120 1,703,124
LESS EXPENSES
Advertising - 33,969 34,988
Salaries 630,000 367,200 374,544
Water/Electricity/heat 16,800 17,136 17,478.5
Cost of materials 14,280 14,708. 15,150
Transport 18,000 5 18,727
Loan Interest 37,500 18,360 37,500
Support Services - 37,500 72,308
Land Rate - 70,890 6,000
Government Regulation - 6,000 7,250
Depreciation of fixed assets 3,720 7,250 3,428.5
3571
TOTAL EXPENSES 450,300 576,863 580,707
NET PROFIT BEFORE TAX 814,100 883,257 1,122,417
PROVISION FOR TAX (16%)
130,256 141,321 179,586.

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 5
NET PROFIT AFTER TAX 683,844 741,936 942,830
Source: Author (2016)

Assumptions
1. Expenses will increase by 3% annually
2. support services will increase by 2%
3. Depreciation will reduce at 4% annually.
4. Salaries will increase by 2% annually.
5. Advertising will increase by 3% annually.
6. Water and electricity will increase by 2% annually.
7. Cost of materials will increase by 3% annually.
8. Transport will increase by 2% annually.
5.5 Pro Forma Balance Sheets
Table 5.9: Pro Forma Balance Sheets
Makamithi
Balance sheet as at start up (January, 2017); 31 st December, 2017, 31st December, 2018, 31st
December, 2019.
ITEM JAN. 2017 31st Dec.,2018 31st Dec. 2019
Kshs. Kshs Kshs
ASSETS
FIXED ASSETS
Building 250,000 250,000 250,000
Plus Appreciation - 5,000 5,250
NET BOOK VALUE 250,000 105,000 110,250
Machinery & Equipment & Furniture 93,000 93,000 89,280
Less depreciation 4% - 3,720 3,571

NET BOOK VALUE 93,000 89,280 85,709

TOTAL FIXED ASSETS(A) 193,000 194,280 195,959

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CURRENT ASSETS
Debtors - - -
Cash 1,509,440 1,676,880 1,939,478
Deposits - 5,100 5,100

TOTAL CURRENT ASSETS (B) 1,509,440 1,681,980 1,944,578

TOTAL ASSETS (A+B) 1,702,440 1,876,260 2,140,537
LIABILITIES
Current Liabilities
Creditors - - -
Tax 100,256 111,321
TOTAL CURRENT LIABILITIES(C) - 100,256 111,321

WORKING CAPTIAL (B-C) 1,509,440 1,782,736 2,055,899

FINANCE BY:
Owners Equity 500,000 500,000 500,000
Donations 250,000 250,000 250,000
Bank Loan 250,000 250,000 250,000
Profit/Loss - 268,844 321,936

Source: Author (2016)

Assumptions
1. The building will appreciate by 5% annually.
2. The Machinery, equipment and furniture will depreciate at 4% annually.
3. Credit sales will be considered after the third year of operation.
4. Cash= capital less operational cost.
5. Cash will grow by 10% annually.
6. Deposits include all utilities.
7. Tax will be assessed at 16% annually.
5.6 Break-Even point
The sales for the first year will be Kshs. 1,550,000 and the direct costs as calculated in chapter
four will be kshs. 285,600. The gross profit will be calculated as below

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Sales – Total direct cost= Gross profit; Kshs. 1,550,000 – kshs. 285,600= kshs. 1,264,400
The gross profit margin is calculated as follows
Gross profit x 100 = Gross profit margin ; 1,264,400 x100 = 81.6
Sales 1,550,000

The total expenses for the year 2017 as reflected in the profit and loss account are Kshs. 450,300.
The break-even level of sales will by calculated as follows

Expenses x 100 = Break-even level; 450,300 x 100 = 551,838.23

Gross profit margin 81.6
5.7 The Expected Profitability Ratios
The gross profit Margin for the first three years will be as follows
The gross profit margin is calculated as follows
Gross profit x 100 = Gross profit margin
Sales
2017 : Total sales Kshs. 1,550,000 and the gross profit will be Kshs. 1,264,250
1,264,250 x100 = 81.6
1,550,000

2018 : Total sales Kshs. 1,760,000 and the gross profit will be Kshs. 1,460,120
1,460,120 x100 = 82.96
1,760,000

2019: Total Sales Kshs. 2,012,000 and the gross profit will be Kshs.1,703,124
1,703,124 x 100 = 84.6
2,012,000

The return on investment in the business for the first three years will be calculated as follows
Net profit after tax x 100 = Return on Investment
Total investment

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2017: The Net profit after tax will be Kshs. 683,844, the total investment is kshs. 2,000,000

683,844x 100 = 34.2%

2,000,000

2018: The Net profit after tax will be Kshs. 741,936 the total investment is Kshs. 2,000,000.

741,936 x 100 = 37.1%

2,000,000
2019: The Net profit after tax will be Kshs. 942,830 the total investment is Kshs. 2,000,000.

942,830x 100 = 47.1%

2,000,000
These ratios indicate that the proposed business is financially viable and that it will continue to
grow year over year.

5.8 Desired financing

The amount of money needed to start up is calculated as below.
Table 5.10: Financial Requirements
Item Amount
Kshs.
Pre-operational cost 490,560
Working Capital 1,509,440

Total Financial Requirements 2,000,000

Source: Author (2016)

5.9 Proposed Capitalization
The total investment needed to start the business is Kshs. 2, 000,000. Holida M. Zakayo will be
the main shareholder contributing all the capital. The business will require Kshs.2,000,000/= as
the start-up capital.
Apart from the cash contributions, the sponsors will also contribute a car for transport /
ambulance services.

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Table 5.11: Proposed Capitalization
Item Amount
Kshs.
Holida M. Zakayo 2,000,000
Total Investment 2,000,000

Source: Author (2016)

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