EXECUTIVE SUMMARY

BUSINESS DESCRPTION
The business will be registered as:
EDITLINE WELDERS ENTERPRINSE
P.O.BOX 1041
KENOL
TEL: 0707803001
The business will be located in Keno in which is in Murang’a County. It
will be situated in a yard with containers along Kabati-Kenol road before
you get to Kenol town.

MARKETING PLAN
The enterprise consider reasonable price for its commodities that are
affordable to every customer which running a low overhead cost.
Customers buying goods in bulky will have their goods transported as
long as they are within 5km radius from the business. This will help win
them and retain the customers. Advertisements programmes are intended
to be conducted every month.

ORGANIZATIONS AND MANAGEMENT PLAN

The business manager will be Edith Wanjiku taking a diploma in
Information Science alongside entrepreneurship skills. The manager will
be over all decision maker in the organization and will take the full
responsibility of managing and conducting the enterprise.
She will undertake the duties of planning, directing, organizing and
evaluating activities involving employer with the help of other

1
personnel. The manager will also make strategies for effective
recruitment, selection and motivating the employees.

OPERATIONAL AND PRODUCT PLAN

The money raised to the start of the business will first be used to acquire
the required machines required for effective production.
The production schedules will be properly planned to permit smooth
flow of production. The operation will include purchasing of raw
materials, clean and shape them according to the desired design and
shapes furnish high quality standards. Safety regulation will be adhered.

FINANCIAL PLAN
This chapter highlights the financial undertakings and the records to be
involved in this project. The business is expected to generate a profit of
40% for the first year. Attached are financial records pro-forma income
statement which help to know how much profit is gained annually. Pro-
forma balance sheet, break down point which should be less than the
annual sales and profitability ratio which is current assets to current
liabilities when the enterprise is 2.1. The records helps the owner to
know the trends of the business.

2
CHAPTER 1
INTRODUCTION
This chapter consist of the following subtitles Business name, Business
location and address, owners profile/background, form of ownership,
type of business, product or service, product industry, goals of the
business and entry or growth strategy.

1.1 BUSINESS NAME.

The name of the proposed business is EDITLINE WELDERS
ENTERPRINSE. This business will be manufacturing and repairing
metallic items i.e. doors, windows, wheelbarrows, tank boxes, chairs,
beds, watering cans. The business name was derived from the proposer
of the business.

1.2 BUSINESS LOCAION AND ADDRESS

The business will be located at kenol town immediately after kabati
town centre along Thika road in Muranga County. The address of the
business will be P.O. Box 1041 Kenol, phone number 0707803001,
email address will be edithngugi@gmail.com. The business will be
located around Jara Street near County supermarket.

1.3 OWNER PROFILE/BACKGROUND

The owner of this proposed business plan is Edith Wanjiku Ngugi. She
was born in 1996 in a family of four being the only girl in the family in
Narumoro location, Nanyunki sub-county in Laikipia County. She was
brought up in Nairobi County and learnt the managerial skills from her
father who has been a major business man in Kenol town. She joined
Kanguno primary school and sat for her K.C.P.E IN THE YEAR 2011
3
and immediately joined Mahiga girl’s high school in Othaya and sat for
her K.C.S.E in 2015. In 2016 she joined THIKA TECHNICAL
TRAINNING INSITITUTE to pursue a Diploma in Information
Science.

1.4 BUSINESS OWNERSHIP

The proposed business intends to operate as a sole proprietorship. This
means that she will be the manager in the business I.e. planning,
organizing, coordinating, controlling, staffing all the activates so as to
ensure that the business goals and objectives are achieved.
She will ensure that profit will be generated without any authority from
anyone and at the same time she will prompt since she shall not need
consultation anyone. She decided to operate as a sole proprietorship kind
of a business since it’s easy to operate and not as complex as
partnership.
The procedure to start a sole proprietorship is easy than the other kind of
businesses that requires an agreements to be made and signatories from
third party. It’s also easy to operate since there is no need of hiring
experts hence reducing the operational cost.
The major activity and aim of the business will be to produce goods of
high quality that will ensure customers smartification.

1.5 TYPE OF BUSINESS

The business intends to deal with primary, production, secondary or
tertiary services type of business. The business will be manufacturing
and repairing metallic goods which is a service and selling product
which have been already manufactured.

4
1.6 PRODUCT OR SERVICES
There are several products that the industry will be producing i.e.
metallic doors, jemnbes, cars, hedges, watering cans, wheelbarrows, iron
sheet. The business will offer after sales service i.e. Free transportation.
The business will also offer trainings to the youth so as they can attain
skills thus making them creative and innovative and able to establish
their own business. The main features of the business will be determined
by the customers themselves because customers have different needs and
priorities and therefore they are the ones to determine and the colour,
shape, size and texture other materials. She intends to put some special
features of products that will play an important role in putting the
business ahead of its competitors i.e. texture, materials and shape. The
texture will be smooth having undergone through processes. The
Martials will be virtue of hardness thus not breaking easily ensuring
durability, shaping and measurements will be done well to ensure quality
products.

1.7 INDUSTRY
The main characteristics for the industry are that its small scale industry.
It’s because it will constitute of several persons who will be operating
the enterprise. The technology that will be used in the business will be
capital intensive and few people in the production department. The
machine will be using electricity and a generator in instances where
power is not available. It will also have a gas cylinder which will be
used for welding activities. The business will engage high Morden
technology since it will use Morden machines in the production of its
goods. The number of employees will six i.e. three skilled, one
unskilled, a watchman and a storekeeper. The basic capital of the
business is 300000 shillings. The level of sale is high due to high
demand in the market.

5
1.8 GOALS OF THE BUSINESS
The business will achieve to its goals and objectives through SMART
specific, measurable, attainable realistic time bound. The business will
consider reasonable price for its commodities that are favourable to its
customers. Customers buying bulky goods will be offered after sale
service that is transportation to their site as long as they are 5km radius
around the business area. These will help to retain and win new
customers from the competitors. The business will be advertised and
programs will be conducted every month. The owner of the business will
have good relationship with staff i.e. promotions will be done according
to level of hardworking and professionality in the business. The owner
will also give allowances to the workers so as to motivate them to put
more efforts in the business hence high performance in the business.

1.9 ENTRLY AND GROWTH STRATEGY

After obtaining the registration certificate and the premises she will be
operating her business she will immediately start operating the business
at her own phase. These will be followed by a series of advertisement to
the public about the products. The business will also have competitive
advantage since it will be using modern technology which will have
products of high quality and also for transport services. The business
will benefit from growth opportunities from extra borrowing soft loans
from banks and other financial institutions, personal savings and
accumulation will also play an important role in the expansion of the
business.

6
 CHAPTER TWO
2.0 MARKETING PLAN
INTRODUCTION
These chapter consist of the following customers, market chart,
competition, methods of promotion and adverting, pricing strategy, sales
tactics and distribution strategy.

2.1 CUSTOMERS
The potential customers of the business will be both low income earners
and middle income earners. The low income earners will be purchasing
goods like watering cans, wheelbarrows, beds and chairs etc. These
products will help them in their way of working in the farms. Middle
income earners will be purchasing goods like metallic doors for security
purposes, windows, cashboxes, Morden metallic fittings etc. the
customers of the business will be the people of age 30-35 years since
they are independent people with their families. Their level of education
is up to form four and their occupation will both small scale farmers and
businessmen and businesswomen’s. High quality products will win the
customers with ease. The products will be having special features like
the designs, the surface and the colour of the products. The performance
of the business will be excellent and economical to use since no special
skills are needed to use them. Safety comfort and durability of the
product and service of the business is assured. Most customers will be
purchasing the products on Saturdays and Fridays when they leave early
from their working stations for the weekends. Much purchasing will be
expected end month since workers will have received their salaries at
their work stations.

7
2.2 MARKET SHARE
The market size of the business will be relatively be big for the
competitors around this is because of high products will be producing
after sale services e.g. free transportation of goods. The appropriate
number of people requiring the products is about 1200 per month. This
number will increase with time as business expands. The total estimates
is 300000ksh. This is to avoid overstocking.

PERCENTAGES POPULATION
Kirwata Welding 14% 400 people
Enterprise
Ndumberi Trades 21% 800 people
Enterprise
Mkulima Fabrication 25% 16000 people
Enterprise
Editline Welders 40% 3200 people
Enterprise
TOTAL 100%

8
 Sales

1.2

1.4 Kirwata
Ndumberi
Mkulima
Editline

3.2 8.2

2.3 COMPETITION
The main competitors in the market are Kirwata Welding Enterprise,
Ndumberi Traders Enterprise and Mkulima Fabrication Enterprise.
Kirwata Welding Enterprise is a small scale enterprise which is located
along Muranga road and not far from Ndumberi Enterprise. It uses
simple technology and has only three people who operate it. The
products are low and are not in position to offer after sale services i.e.
transportation their customers. Ndumberi traders are located 100 metres
adjacent to Editline welder’s enterprise. It is operated by five people.
Their products are relatively high in quality than Kirwata welding

9
enterprise and are incapable of offering after sale services. Mkulima
Fabrication enterprise is located at lower scale of Editline welder’s
enterprise towards Muranga. It uses modern technology but the
employees are incompetent to use the machines. It fixes high prices of
their products and thus it does not maintain its customers.
Editline Welders enterprise will be located in the heart of Kenol town
100 meters from the central business district (CBD) of Kenol before you
get to Muranga town. This is a competitive advantages of the business
over the competitions. The business can be located easy since its near
populated kenol ton and along the road.

COMPARISON BETWEEN PRODUCTS/SERVICES WITH

THOSE OF COMPETITORS
NAME OF THE PRODUCTS NUMBER OF
ERVICES
BUSINESS
OFFERED OUT 10
Kirwata welding 10W 1
enterprise
Ndumberi traders Relatively high 3
enterprise
Mkulima fabrication Relatively high 3
enterprise
Editline welders High 8
enterprise

10
COMPETITIVE ADAVANTANGES OF THE BUSINESS OVER
THE COMPETITORS
NAME OF SERVICE NO. OF ASSETS LOCATION
EMPLOYEE NUMBER
THE
S
BUSINESS
Kirwata POOR 3 4 POOR
welding
enterprise
Ndumberi POOR 2 6 GOOD
traders
enterprise
Mkulima FAIR 5 8 GOOD
fabrication
enterprise
Editline VERY 20 15 VERY
GOOD GOOD
welders
enterprise

2.4 METHODS OF PROMOTION AND ADVERTISING

The business will use posters, newspapers and radio stations to advertise
its products. The business will portray good pictures to the public by
producing quality products at a lower prices and after sale services. The
11
business will incur advertisement cost amounting to 5000 shillings for
the newspapers and a thousand for the radio stations. The effective of the
advertisement will be measured by determine the local radio station and
newspapers she shall be promoting the products in several ways like
participating in trade shows, holding promotion campaign in the areas
surrounding Kenol town. He shall be offering free transport service to
the customers. The method of promotion will cost nine thousand due to
the expenses like fuelling, driver wages, payment of promotion staff etc.
the effectiveness of the promotion will be measured by determining the
number of people involved in promotion activity. The reward obtained
from the promotion exercise will also determine the effectiveness of the
promotion exercise.

2.5 PRICING STRATEGY

The price of the product will be calculated by totalling all the cost that
will be involved in the production of the product. The cos will be cost
of raw martials carriage of raw martials, electricity etc. She will price
the products reasonably such that she gets back reasonable profit from
each product. Government policy, price control and competitors price
will also determine the price of the product/service since she cannot
price the products against government regulations. The selling price will
be varying to the conditions in the market. The business will be offering
credits terms to its customers who will purchase goods worth ten
thousand shillings but they have to prove to the business that they are
capable of paying by depositing certain amount for the security of the
business. The discounts that the business will be offering depending on
the quality that the customers e.g. free transport and additional products.

2.6 SALES TACTICS`

12
She shall embrace various methods of selling the products to the
customers. She shall be selling directly to the customers who come to
the business premises and purchase the products. She shall also be using
indirect selling when the authorised agent saes the products to the agents
of the business will be recruited in the business through interviews from
relevant fields. The business will motivate them through giving
incentives like overtime benefits.

2.7 DISTRIBUTION STRATEGY

The methods of distribution to be used by the customers are by
distributors, Farachinsers, or wholesalers. This method will ensure close
reach of business products of the customers. The method of transport
will be by road because of sufficient road network in the region and door
to door services. This will ensure that the business will close contact
with the customers even when it rains. The cost of transport will be
around seven thousand all through although it shall sometimes depend
on the distances to be travelled. The major problem anticipated is like
dishonesty of the distributors and break down of the vehicle. The
problem will be solved by recruiting staff with honest and who are
trustworthy. Break down of the vehicle will be limited by the business
buying or leasing a spar vehicle.

13
 CHAPTER THREEE
3.0 ORGANISATIONAL/MANAGEMENT PLAN
This chapter consist of the following organizational structure, key
management personnel or business managers, other business personnel,
recruitment, training and promotions of personnel, remuneration and
incentive for personnel, licenses, permits and bye-laws and other support
services.

3.1 ORGANIZATIONAL STRUCTURE

The owner of the business will manage it by himself. She shall be
assisted by the management personnel. This means responsibilities of
the owner will be as follows. Human resources will be looking for the
raw Martials for production. Monitor the production, advertising the
enterprise products and accessing the potential products. She will also
discharge duties of enumerating the employees. She has a responsibility
of ensuring workers are motivated by giving them incentives. Paying
taxes at the correct time and regularly monitoring the changing
technology so as the daily operation of the business can match with the
changing technology. Other duties will be accessing alternative sources
of power inspecting products and carrying out performances appraisal.
The owner of the business will earn not less than Ksh40, 000. This is
after deduction of all expenses.

14
15
3.2 KEY MANAGEMENT PERSONNEL
MNAGER
The key management personnel are production manager and the sale
marketing manager. The duties and responsibilities of managers are as
follows: production manager will see tom it then there is a raw material
for the production. Surprise the workers maintains the productions,
supervise the workers, maintain the production and ensuring
PRDUCTION SALES AND that the
product are of high MANAGER
quality. The overall responsibilityMARKETING
of production is
MANAGER
going on well.
Sales and marketing manager on the other hand will have a
responsibility to ensuring that the products are marketed potential
PRODUCTION
PERSONNELS
buyers. She will also be advertising the products otherSALES
business
MEN so as to
attract more customers. She will conducting market research on which
products are of higher demand and who the potential customers are. She
will also access what extra services to offer to the customers so as to
continue to win the loyalty of the enterprise. This will beDRIVER
as after sale
service. She will also be staging demonstration of the products at
different time and places and participate in trade organization funded by
the enterprise.

3.3 OTHER BUSINESS PERSONNEL

The business will require personnel manager who will who will be in
charge of employee relations to ensure employee relations to ensure
employee relations to the business will require ten people (employee).
There will be a production manager who will lead production
department. Under him there will be three skilled production personnel
sales and marketing manager will head sales department and under him
there will two sales men. Under the sales manager will be the driver of
the business for delivering the products to the premises of the customers.
The managing manager must have a certificate in sales or a rated field to

16
make him produce goods of high quality. Sales manager with a
certificate in sales and marketing. The driver will have a driving license.

3.4 RECCRUITMENT, TRAINING AND PROMOTION OF

PERSONNEL
The recruitment of the employees in Editline Welders Enterprise will be
advertised through posters and electronic Medias. People interested and
meets the requited minimum qualifications will be prompt to apply for
advertised position. After the application the shortlisted applicants will
be called for interview and the management will choose the best from
them. The business will provide training facilities to its employees so as
to improve the skills which will result to production of high quality
products. She will employ trainees to teach the employees how to
interact well with the customers and how to handle them carefully so as
to keep them longer period. Trainee will be assigned to a particular duty
in respective areas of work to help in production thereby growth and
development of the business will be enhanced in a shorter period of time
if well managed. Promotions of the position of the various personnel’s
will be provided. This will be done according to performance of work,
dedication towards work and hard work.

3.5 REMUNERATION AND INCENTIVES FOR PERSONNEL

The owner of the business will ensure that the employees are paid
salaries on time during time agreed by the director. The salaries will be
paid cheques, bank accounts and through M-pesa services to the
employees who got no bank accounts. The salaries will be issued to
employees according the business positions that they hold. The business
will offer incentives to top up the salaries for other expenses such as

17
house allowances, medical expenses, insurance and food allowance
during the day.

PERSONNEL SALARIES ALLOWANCE TOTAL

S S
General 120,000 18,000 138,000
manager
Production 85,000 12,000 97,000
manager
Sales and 65,000 10,000 75,000
marketing
manager
Accountant 45,000 8,000 53,000
Cashier 35,000 6,000 41,000
Drivers 25,000 3,000 28,000
Security officer 15,000 2,000 17,00
Cleaners 10,000 1,000 11,000

3.6 LICENCES, PERMITS AND BY-LAWS

The business permit will be obtained from the county government of
kiambu which will enable the business to function effectively. The
various and licences and supportive documents will be of cost and
validity and set relations of its existence. Food stuffs will be acquired
from the nearby market. Kenya Bureau of standards will be of
importance since it will first test the products, promote standardization
of the business, prepare frame of specification and codes of practices,
permits will be acquired. The government agencies which will be in
consideration to pricing policies. The business permit and licenses is to
proof that the business follows certain laws and ordinances.
18
3.7 OTHER SUPPORT SERVICES
There are several services that the business will require. This will
include banking, accountable lawyer and business advisor. The business
bank will be Equity bank where banking activities will be done. The
business will be hiring a qualified accountant who will be responsible of
preparing the financial statements for the enterprise in case a dispute
arising from the business and outside. The business will have a lawyer
who will be settling the cases. The postal services will be in Muranga
post office which is in Muranga town. Other services like insurance will
be obtained from C.C insurance company to cater against fire, theft and
health.

19
 CHAPTER FOUR
4.0 PRODUCTION/OPERATIONAL PLAN
Chapter four of this business plan will consist of the following plant
facilities and equipment’s, production strategy, production process,
Regulation affecting operations in the business.

4.1 PLANT FACILITIES AND EQUIPMENTS

The business will use several machinery and equipment for its
production. The business will purchase equipment’s and will carry out
regular repairs so as to keep machinery in good condition. The parts will
be supplied from Muranga min hardware. These spare parts include wild
rods, hacksaw, farmers and extra painting brush.

MACHINES AND QUALITY COST

EQUIPMENTS
1. Welding rods 100 2500
2. Gas cylinders 2 30,000
3. Hacksaw 3 700
4. Hummer 4 1000
5. Wire brush 3 500
6. Dark glasses 5 900
7. Side cutter 2 800
8. Generator 1 20,000
9. Printing brush 4 15,000
10. Drill 2 4,000
11. Plies 4 12,000
Total 131 63,100

20
The business will operate as a workshop that will be owned by the
manager. The workshop will allow expansion because of its adequate
space which will give room for expansion.

4.2 PRODUCTION STRATEGY

The raw materials of the business will be available throughout the year.
The raw materials will also be transported to the business premises at the
cost of KS 7,000 per month. The business will require five direct
workers and indirect workers who will be production. The employees
will have high skills to facilitate production of high quality producer.
The total production of labour will be 16,000.

OVERHEADS COST IN (KSH)

1. Incentives 1500
2. Transport 7000
3. Advertisement 1000
4. Maintenance 300
5. Telephone 200
6. Electricity 3000
7. Food 400
8. Water 600
9. Insurance 1000
Total 15,000

21
SUMMARY OF THE EXPECTED COST IN PRODUCTION
Cost of Per week Per month Per year
Production
Cost of labour 1750 7000 84000
Cost of 3500 14000 168000
materials 3625 14000 148000
Cost of
expenses
Total 8875 35500 400000

PREMISES LAYOUT
Production
Personnel manager

Finance manager Store

Manager

Office

Marketing manager

To the gate

Managers Technician Tea

Office Office Room

22
4.3 PRODUCTION PROCESS
The design of the proposed products will be according to the accepted
standards. Most of the products will be designed according to the teste
and preference of the customer. The cost of the incurred when designing
will depend on the nature of design. Compliance design will come cost
more because of power, time and paper work in designing etc. the
business will use Morden technology because of its efficient in
production. This method of technology is simple in application,
utilization and flexible on adoption and efficient in production. As the
business to cope with the changes in future by purchasing a bigger
business premises, buying a business truck and hiring many and
competent employees.

4.4 REGULATION AFFECTING OPERATION

There are few government regulations that will affect the business. The
business will be required to obtain trading licences from local authority
at the cost of 5000. The local tax that the business will be paying is
2000. This tax will be paid every month. The business that the most
satisfying the customer needs.

23
 CHAPATER FIVE
The chapter consist of the following pre-operational cost, working
capital estimates, projected cash flow statements, pre-forms cash flow
statements, pre-forms balance sheet, breakeven point, profitability ratios,
desired financing and proposed capitalization.

5.1 PRE-OPERAIONAL COST

ITEMS COST
License 200
Transport 1500
Advertisement 1000
Telephone 250
Electricity 3700
Water installation 4000
Insurance 1000
Total 11550

The pre-operational cost above was incurred in the business for it to

operate smoothly.

24
5.2 WORKING CAPITAL ESTIMATES
Working capital estimates
YEAR 1
CURRENT ASSETS AMOUNT TOTAL
Cash at bank 80,000
Cash in hand 60,000
Stock 45,000
Debtor 35,000
220,000
CURRENT
LIABILITIES
Short term loan 40,000
Creditor 20,000
Overdrafts 15,000 75,000
Working capital 145,000

YEAR 2
Items Amount Total
Current assets
Cash at bank 90,000
Cash in hand 71,000
Stock 50,000
Debtor 40,000
251,000
Current liabilities
Short term loan 45,000
Creditor 19,000
Overdraft 13,000 77,000
Working capital 174,000

25
YEAR 3

Items Amount Total

Current assets
Cash at bank 100,000
Cash in hand 87,000
Stock 60,000
Debtor 50,000
297,000
Current liabilities
Short term loan 40,000
Creditor 15,000
Overdraft 9,000 6,000
Working capital 233,000

26
 MARCH

SEPT

OCT

DEC
JAN

JULY

AUG

NOV
APRIL

JUNE
FEB

MAY
Opening cash 560000 56400 56900 57450 58400 55700 59400 59900 60750 61600 62350 63800 0
0 0 0 0 0 0 0 0 0 0
Cash sales 487000 47600 48000 48400 48300 48700 48500 48700 48700 48600 48700 46800 0
0 0 0 0 0 0 0 0 0 0 0
Other in flows 38000 37000 40000 41000 44000 38000 42000 41000 38000 48600 41000 38000 0
Total cash flow 522000 51300 52500 52500 52800 52600 52700 52600 52800 52900 52600 52600 0
0 0 0 0 0 0 0 0 0 0 0
Cash available 108000 10700 10890 10990 11090 11150 11200 12700 13550 14500 11450 15400 0
0 0 0 0 0 0 0 0 0 0 0
Cash outflow 90000 80000 60000 70000 65000 68000 72000 79000 80000 90000 10000 11200 0
0
Loan payments 100000 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000 0
0 0 0 0 0 0 0 0 0 0 0
Salary and 500000 50000 50000 50000 50000 50000 50000 50000 50000 50000 50000 50000 0
wages 0 0 0 0 0 0 0 0 0 0 0
Rent 50000 50000 50000 50000 50000 50000 50000 50000 50000 50000 50000 50000 0
Insurance 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 0
Electricity 5000 6000 8000 6500 80000 7000 9000 9000 7000 7000 84000 5000 0
Purchases 332000 33000 33500 34000 34100 34200 34000 34200 34200 34200 34160 34160 0
0 0 0 0 0 0 0 0 0 0 0
Repair and 8000 6000 7000 4000 6000 8000 6500 4000 4000 6000 5000 5000 0
maintain ace
License and 9000 9000 9000 9000 9000 9000 9000 9000 9000 9000 9000 9000 0
permit
Transport 4000 5000 6000 8000 8000 6000 5000 5000 8000 6000 7000 6000 0
Net cash flow 564500 56900 56400 57400 58400 58700 59900 59900 60700 61600 62300 62850 0
0 0 0 0 0 0 0 0 0 0 0
5.3 PROJECTED CASH FLOW STATEMENTS

27
5.4 PRO-FORMA INCOME STATEMENT
ITEM Year 1 Year 2 Year 3
Sales 1,950,000 2,150,000 2,500,000
Less cost of 550,000 650,000 730,000
gold sold
Gross profit 1,400,000 1,500,000 17,700,000
Transport 23,000 24,000 26,000
License 36,000 32,000 1000
Electricity 4,900 500 12,000
Advertisement 11,500 11,000 12,000
Water bills 20,000 16,000 18,000
Salaries 862,000 865,000 12,000
Insurance 18,000 15,000 24,000
Maintenance 29,000 25,000 12,000
Telephone 11,000 11,000 990,000
Total expenses 0 0 0
Net profit 386,900 496,000 780,000
before tax
Provision of 38,690 49,000 78,000
10% tax
Net profit after 348,210 446,400 702,000
tax

5.5 YEAR 1 PRO-FORMA BALANCE SHEET AS AT 31ST

DECEMBER 2015
ITEM DEBTOR CREDITOR
Machine and 63100
equipment 250000
Premises 150000
Motor vehicle 463100
TOTAL 80000
Cash at bank 60000
Cash in hand 45000
28
Stock 35000
Debtor 220000
TOTAL
LIABILITIES 40,000
Short term loan 20,000
Creditor 150,000
Overdraft 285,000
TOTAL 145,000
Working capital 430,000
Financed

Capital
Equity = 120,000
Friends = 140,000
Borrowed capital = 70,000
TOTAL = 330,000

29
YEAR 2 PRO-FORMA BALANCE SHEET IN 31ST DECEMBER
2016
FIXED ASSERTS
Machine and equipment 90,000
Premises 300,000
Motor van 140,000
Current asserts
Cash at bank 90,000
Cash in hand 71,000
Debtor 40,000
Stock 50,000
Liabilities
Short term loan 45,000
Creditors 19,000
Overdraft (174,000) 13,000
Working capital 346,000
TOTAL 1.204,000

Financed by:
1. Equity = 123,000
2. Friends = 149,000
3. Borrowed capital = 357,000
4. Loss drawings = 11,000
TOTAL = 640,000

30
YEAR 3 PROFORMA BALANCE SHEET AS AT 31ST
DECEMBER 2017
FIXED ASSERTS
Machine and equipment 115,000
Premises 340,000
Motor van 145,000
Total 600,000
Current asserts
Cash at bank 100,000
Cash in hand 87,000
Debtor 50,000
Stock 60,000
Total 297,000
Liabilities 30,000
Short term loan 15,000
Creditors 9000
Overdraft (174,000) 54,000
Working capital 243,000
Financed by:
1. Equity = 124,000
2. Friends = 149,000
3. Borrowed capital = 97,000
TOTAL = 370,000

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5.6 BREAK OPEN POINT
Variable expenses Amount Total
Cost of goods 550,000
Advertisement 11,000
Telephone 11,000
Transport 230,000 595,000
Fixed cost
Motor van 150,00
Machine and 63,100
equipment 250,000 403,000
Premises 132,000

TOTAL CONTRIBUTIONS MARGIN = SALES – VARIABLE COST:

195000 – 595000
= 1355000
I. Contribution margin % = contribution / sales * 100
1355000 / 1950000 * 100%
=16.5%

II. Break-even level of sales = fixed cost / contribution

margin %
463,000 / 69.5%
=6666.1

III. Contribution = contribution / total sales

135500 / 1950000
=0.69
IV. Break-even units = fixed cost / contribution ratio
463000/0.69
=671014

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YEAR 2
Variable expenses Amount Total
Cost of goods 650,000
Advertisement 11,000
Telephone 11,000
Transport 240,000 696,000
Fixed cost
Motor van 140,000
Machine and 80,000
equipment 300,000 520,000
Promises 170,000
TOTAL CONTRIBUTIONS MARGIN = SALES – VARIABLE COST:
2150000 – 696000
=14540000
I. Contribution margin % = contribution / sales * 100
1454000 /2150000 * 100%
=67.6%
II. Break-even level of sales = fixed cost / contribution
margin %
520,000 / 67.6
=2692
III. Contribution = contribution / total sales
1454000 / 2150000
=0.68%
IV. Break-even units = fixed cost / contribution ratio
2696 / 0.68
=0.3958

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YEAR 3
ITEMS
Variable expenses Amount Total
Cost of goods 730,000
Advertisement 12,000
Telephone 12,000
Transport 26,000 780,000
Fixed cost
Motor van 260,000
Machine and 145,000
equipment 115,000 600,000
Promises

TOTAL CONTRIBUTIONS MARGIN = SALES – VARIABLE COST:

2500000 – 750,000
=1,720,000
I. Contribution margin % = contribution / sales * 100
1720000 / 2500000 * 100%
=68.8%
II. Break-even level of sales = fixed cost / contribution
margin %
600000 / 9720
=68.0
III. Contribution = contribution / total sales
720,000 / 2500000

IV. Break-even units = fixed cost / contribution ratio

600,000 / 0.68
=882352

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V. Return on investment = Net profit / Total investments
446400 / 720,000 * 100
=0.62
=62%
TOTAL INVESTMENT = 910000
Owners’ equity = 830,000
Borrowed capital = 90,000

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5.7 PROFITABILITY RATIOS
I. Gross profit percentage = gross profit / sales
=1770000 / 2500000
=
II. Return on investment equity = Net profit after tax / Owners equity
702,000/830,000 * 100
=

5.8 DISIRED FINANCING

Total investment = 750,000
Owner investment = 400,000
Borrowed capital = 3525000
Gross profit percentage = Gross profit percentage = Gross profit / sales *
100
1400000 / 1950000 * 100
=72%
Return In investment equity = Net profit after tax / Owners equity
348210 / 400500 * 100
=87%
Return on investment = Net profit tax / total investment
348210 / 759,000
=0.46
=46%

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5.9 PROPOSED CAPITALIZATION
Total investment = 750,000
Own investments = 400,000
Borrowed capital = 3,565,000
i. Gross profit percentage = gross profit * 100% / sales
ii. Return on investments equity = Net profit after tax / Owners
equity
iii. Return on investment = Net Profit after tax / Total investment
Total investment = 720,000
Owners capital = 520,000
Friends and relatives = 250,000
Profitability Gross Profit Percentage = Gross Profit * 100 /
sales
Return on Investments Equity = Net Profit Tax / Owners
Equity

37
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