Professional Documents
Culture Documents
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Table of Contents
1. Executive Summary.............................................................................................................................1
3. Marketing Plan....................................................................................................................................8
3.7. Pricing........................................................................................................................................10
4.1. Location.....................................................................................................................................13
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4.9. Production Cost.........................................................................................................................18
Financial Plan............................................................................................................................................20
Appendix...................................................................................................................................................26
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1. Executive Summary
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2. Description of the Business
The business can be described with respect to the product provided by the enterprise, the
market opportunity of the product/service, and the available initial capital owned and
required by the enterprise.
With respect to the product, the enterprise is envisioned to manufacture locally a triddle
pumps, sieving machines, milk processing machines, seed saw machines as a product and
supply to local market demand and in the long term to the country market using the same
materials as the outdoor producers which all are available in the local market.
Regarding market opportunity of the product, it is fabricated in Jimma for the first time by
the business owner. It has never been produced by any other body in Jimma implying that if
production of agricultural machineries is commenced, the business is clearly virgin with
untapped potential of market opportunity, with no doubt. This is because the machines are
produced with materials available locally, which are same as those imported machines, at
low cost which in turn makes its selling price to be even lower than price of its imported
machines.
Therefore, it makes sense to implicitly infer that there is a very huge market opportunity for
the business to be profitable on its investment.
Despite the agricultural machineries can be manufactured with specifications similar to
competitor products and subjected to changes based on the requirements of customer’s
order, it is to be fabricated with definite product specifications that are to be described
under here.
Even if the maximum production capacity of the enterprise is 6 machines per day, because
of limited number of accessories available such as welding machine and cutting machines,
the production capacity of the machine is forced to be below 7 machines per day. The
capacity is achieved with initial capital requirements of the business.
However, the initial capital is the fundamental requirement to be secured prior to the
commencement of the business. One of the major parts of its initial capital is the processing
machines. This upgrading work requires finance in order to purchase some accessories and
making the machine functional with its specified full production capacity. Other
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requirements pertaining to initial capital would be described together with its
corresponding financial breakdown in the subsequent parts of this plan.
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machine technology has been adopted from other countries, re-engineered, fabricated,
and made ready for use.
Initial Capital Requirements
Machinery and equipment requirements
welding Machine
folding machine
Grinder
Drilling machine
Bench Vice
Hand riveter
Hack saw
Shearing machine
Hammer
Measurement equipment
Safety equipments
Office Furniture
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S.N. Requirements Units Quantity Unit Cost Total Cost
(Birrs)
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1. Welding Machine pcs 6 3,500 21,000
Other requirements
Electric consumption
Telephone consumption
Water consumption
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birr)
Table 3 The required raw materials along with their cost for a single day production
Manager
Accountant
Store Keeper
Designer
Daily Laborer
Security guard
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Accountant 1 1*1,500 18,000
3. Marketing Plan
3.1. Product description
More have been described about the product including its specifications in the business
description section of this plan. In general, the enterprise is envisioned to manufacture
locally a agricultural machineries as a product and supply to local market demand and
in the long term to the global market using the same materials as the outdoor
producers materials which all are available in the local market.
Regarding market opportunity of the product, it is fabricated in Jimma for the first time
by the business owner. It has never been produced by any other body in Jimma
implying that if production of agricultural machineries is commenced, the business is
clearly virgin with untapped potential of market opportunity, with no doubt. This is
because the machines are produced with materials available locally, which are same as
those imported machine materials, at low cost which in turn makes its selling price to
be even lower than price of its imported machines.
Therefore, it makes sense to implicitly infer that there is a very huge market
opportunity for the product by which the business will be profitable on its investment.
3.2. Market Area
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The marketing areas of the product depend on the nature of the customers. The target
customers are farmers, domestic and investors involved in the agriculture sector and
Jimma agricultural office, which they can buy the product by themselves at the location
of production and the location of production, is already mentioned to be in Jimma
town. Therefore, the beginning market area is selected to be in Jimma town, and in the
long run, when the financial potential of the enterprise gets stronger, the marketing
area will include Addis Ababa from where the product can be distributed to other parts
of the country.
3.3. Target Customers
The primary target customers are domestic investors, farmers around Jimma and
Jimma agricultural office, which distributes agricultural machineries to the farmers.
Therefore, the prime target customer is Jimma agricultural office and domestic
investors.
3.4. Competitor Analysis
The competitors for the product “agricultural machineries” and the enterprise as a
whole are are importers themselves. Competitor analysis can be made based on the
following criteria viewpoints. The criteria include:
The capacity of the enterprise to manufacture the product locally which makes
the enterprise is without competitor at all.
The contribution of the enterprise in save the foreign currency that could have
been lost if the product were imported.
Lower selling price of the product with competitive quality as compared with
the imported competitor products.
The satisfactory production capacity of the enterprise to respond to the
demand of the target customers right on order.
3.5. Product Demand
As per the information gathered from the customers targeted for the market, a supply
of 7 machines per day is demanded, and by virtue of which the target customers
requested for an agreement of distribution agency for 5 Years. In the meantime, if the
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demand for the product increases, production quantity per day will increase
accordingly.
3.6. Market Share
Because of its reduced selling price, its contribution in saving the foreign currency, the
enterprise capacity for quicker response to order and maintenance request of
customers and the local presence of the enterprise making possible to entertain any
requests from the customers, there is wider probability of controlling the market over
the competitors.
3.7. Pricing
Competition is an important consideration in pricing the product from the view point of
controlling the market over the competitors’ products. On this basis, a comparative
method of pricing is used to determine price of the enterprise product. It has been
mentioned that the quality and other features of the product are similar to those of the
competitors. Provided that these conditions are considered, price of the product is
determined as production cost (including Administration cost, Marketing cost, labor
cost, raw material cost) + profit + Tax.
Therefore, the selling price of a single machine including VAT (15%).
Triddle pump 3000 birr.
Seed saw machine 1200 birr.
Milk processing machine 1000 birr.
Honey extracting machine 900 birr.
Sieving machine 3500 Birr.
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3.9. Marketing Strategy
This enterprise is involved in manufacturing of agricultural machineries that is imitated
from foreigners’ technology as an innovative imitation. A market follower strategy is to
be followed by the enterprise.
As a product strategy, the product has been imported from abroad at the expense of
the country’s foreign currency. The main reason for importing is that lack of skilled
persons locally available in Jimma; In addition to this, the import quantity is not
sufficient to fill the gap of the product market demand.
Therefore, it has come to be the best option to imitate the machine and manufacture
the product locally. This strategy has been believed that it would be possible to get a
wider market opportunity and make profit while saving the country’s foreign currency
that would be lost for importing the product.
The product distribution is to be carried out based on selective distribution strategy.
The enterprise has to make an agreement with Jimma agricultural office in order to
supply the products.
3.10. Marketing Budget
As per the agreement reached with the Jimma agricultural office and other agents, the
product will be stored in the enterprise store so that the agents in agreement will
transport the product for delivery from the manufacturing site to their own sales
offices. Therefore, the marketing budget including promotion activity costs is to be
obtained from the government and the agents involved in the business.
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4. Production/ Operation Plan
4.1. Location
The starting location for manufacturing the product is Jimma town, around Jimma
agricultural campus. In the future, as an expansion plan of the enterprise, the
marketing locations will be in Addis Ababa.
4.2. Production process
Metal working
process
Assembly
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Painting
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Table 5 The fixed capital owned by the enterprise with cost
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12 Office furniture Tables pcs 2 1,500 3,000
and Chairs pcs 4 700 2,800
equipments
Desktop pcs 1 7,700 7,700
computer
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Table 7Personnel Requirements together with salary
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4.8. Enterprise Overhead Expenses
The enterprise overhead cost incurring segments are given as table 8
Overhead costs 50 60 30 30 40
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Fig2 Organizational Structure
Manager
Accountant Adhesive
Color &
Adhesive & Designer Store Daily Quality
Painting
Color Keeper Laborers Control
Technician
Painting Technician
Technician
Security guard
Financial Plan
Basic financial Assumptions
The costs associated with raw materials and supplies, direct labor, overhead expenses,
and depreciation of fixed capitals vary year by year because of market fluctuations. The
variation is expected to be the result of probable market inflation and other
unprecedented factors that may raise costs. Therefore, it necessitates assuming cost
factor figures that account for the cost inflation. The following assumptions are made
for the next 5 years of agreement made with the domestic investors.
Key Assumptions
Table10 Operating Assumptions
Selling price 10
The Initial cash in bank, account receivables, inventory, work in progress, finished
products, cash in hand are not available and are assumed to be zero for the purpose of
5 years projected financial statement analysis.
5.3. Project Costs
The total investment or project cost required to implement this business is divided into
fixed costs of machineries and equipment, raw material and supplies, direct labor and
miscellaneous expenses. There are also pre-operating costs for electric, telephone, and
water supply lines. Therefore, the amount of money required for the pre-operating
costs is 75,600 birrs .The capital investment requirement is described by Table 11
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Machineries and Equipments 102,500
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Pre operating expense 473,850 568,620 682,344
This projected income statement shows that the business will earn a net profit
1,459,155Birrs at the end of the third year.
5.6. Project Appraisal
The investment capital of the business comprises of the fixed capital and the pre-
operating expenses of the business. The total project capital of the business is therefore
576,350 Birrs and is shown by Table 11.
The return on Total capital Investment (ROI):
This RIO is calculated for the first year
AnnualNet Pr ofit * 100% 1,459,155 * 100%
ROOI year1 253.17%
Totalcapit al Re quirement 576,350
These imply that the business starts to pay back the full initial investment capital of the
project and owner’s investment by the end of the first year showing that it is viable.
Break-Even Analysis (BEP):
For this business, the break-even analysis is required to be used as an indicator to
determine how much should be produced or sold at minimum to ensure the project
does not lose money.
Annual Sales: 2,808,000 Birrs
Annual Fixed Costs: 576,350 Birrs
Annual Variable Costs: 864,525 Birrs
Break –Even Point (BEP) is given by
AnnualSale s * AnnualFixe dCosts 2,808,000 * 576,350
BEPyear1 832,730.44 Birrs
AnnualSale s AnnualVari ableCosts 2,808,000 864,525
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Therefore, the annual sales revenue should never be less than this annual sales specified
by the break-even point calculation which is 832,730 Birrs. In this business, the annual
sales will never be less than the break-even point because, as per the agreement with
domestic investors, the minimum annual sales revenue is by the first year which is equal
to 2,808,000 Birrs. Therefore, the project is viable and the profitability of the business
has been shown by the five years projected financial statement.
5.7. Sensitivity Analysis
This business is expected to be affected by market inflation that would in turn result in
the raise of costs of raw materials and supplies, enterprise overhead and miscellaneous
expenses. Therefore, it is important to check for the sensitivity of the business to cost
increment. For this business, an assumption of 10% cost increment and depreciation
cost rate was considered in the preparation of the five years projected financial
statement. By this rate the project will be profitable by about 253% of the total capital
investment at the end of the first year. This implies that the business will return the
initial investment cost by the first year and get 153% of the investment as profit.
Implicitly, this assures that the business is so much far from being sensitivity to the
market inflation, provided that the business has huge potential to resist unexpected
market inflation as it is implied by about253% profit of the initial capital investment of
the first year operation.
5.8. Risk analysis and Strategy
The only and most threatening uncertainty that hinders the business to be run as
planned is the recurrent market inflation which may cause drastic increment on costs of
the enterprise and as a result induces instability of selling price. However, this case have
been included in the agreement made with the domestic investors in such a way that if
the probable inflation is irresistible, the enterprise and the involving domestic investors
will set a new selling price according to the market stability, reasonably.
6. Social, Economic and environmental Analysis
6.1. Social benefit analysis
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The community can be benefited from the business in various ways from opening job
opportunities for young technicians and laborers to supplying the agricultural
machineries and give maintenance at an affordable cost.
6.2. Economic Analysis
The business is to be registered as Value Added Tax payer and the tax have already
been considered in the five years projected financial statement of this business. This is
one of the economic contributions of the business to the country in addition to saving
the hardly needed hard currency that could have been lost to import similar product of
the enterprise from abroad.
6.3. Environmental Analysis
As it has been described earlier, the business has no influence on the environment
during production and after production. The product is also environmentally friendly
with no emission after it is assembled.
Appendix
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