BUSINESS PLAN

OKUMU’S FASHION DESIGNERS AND UNIFORM SUPPLIERS.

P.O. BOX 40
KENDU BAY
MOBILE: 0797575145

EMAIL: okumufashiondesigners@gmail.com

PRESENTED BY: OKUMU MARY

INDEX NUMBER: 5341010012

COURSE: DIPLOMA SOCIAL WORK AND COMMUNITY DEVELOPMENT

COURSE CODE: 2428

PAPER CODE: 307

CENTRE: RIFT VALLEY TECHNICAL TRAINING INSTITUTE

SUPERVISOR: MR. SEREM

PRESENTED TO: KENYA NATIONAL EXAMINATIONS COUNCIL

IN PARTIAL FULFILLMENT FOR THE AWARD OF A DIPLOMA
SOCIAL WORK AND COMMUNITY DEVELOPMENT

SERIES: NOVEMBER 2022

i
DECLARATION.

I declare that this project is my own original work and that it has never been presented to Kenya
national examinations council or other examinations body.

Student name: OKUMU MARY

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

Supervisor’s name: MR SEREM

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

ii
DEDICATION

I dedicate this project to my parents, and sibling who have supported me both morally and
financially to make this journey a success.

iii
ACKNOWLEDGEMENT

I would like to express my sincere gratitude to my supervisor Mr.SEREM for his

effort in guiding and advice in how to write this project. Also my colleagues
whom with their full support enable me to come out with this project. May God Bless you.

iv
DEDICATION

I dedicate this project to my parents, sister Faith and my brothers Josiah, Philemon and Steve.

v
Table of Contents
DECLARATION. ........................................................................................................................... ii
DEDICATION ............................................................................................................................... iii
ACKNOWLEDGEMENT ............................................................................................................. iv
DEDICATION ................................................................................................................................ v
EXECUTIVE SUMMARY ........................................................................................................... ix
1.0 BUSINESS DESCRIPTION .................................................................................................... ix
2.0 MARKETING PLAN. ............................................................................................................ ix
3.0 ORGANIZATION AND MANAGEMENT PLAN ................................................................ ix
4.0 OPERATIONAL AND PRODUCTION PLAN ...................................................................... ix
5.0 FINANCIAL PLAN................................................................................................................. ix
CHAPTER ONE ............................................................................................................................. 1
1.0 BUSINESS DESCRIPTION. .................................................................................................... 1
1.1 BUSINESS NAME ................................................................................................................... 1
1.2 BUSINESS LOCATION AND ADDRESS. ............................................................................ 1
MAP ................................................................................................................................................ 1
1.3 FORM OF OWNERSHIP. ........................................................................................................ 2
1.4 TYPE OF BUSINESS .............................................................................................................. 2
1.5 PRODUCTS AND SERVICES. ............................................................................................... 2
1.6 JUSTIFICATION OF THE OPPORTUNITY. ......................................................................... 2
1.7 INDUSTRY. ............................................................................................................................. 3
1.8 GOALS OF THE BUSINESS. ................................................................................................. 3
1.8.1 Short term goals. .................................................................................................................... 3
1 .8.2 Long term goals. ................................................................................................................... 3
1.9 ENTRY AND GROWTH STRATEGY. .................................................................................. 4
CHAPTER TWO ............................................................................................................................ 5
2.0 MARKETING PLANS ............................................................................................................. 5
2.1 CUSTOMERS........................................................................................................................... 5
2.1 .1 INSTITUTIONAL CUSTOMERS ....................................................................................... 5
2.1 .2 DOMESTIC CUSTOMERS. ................................................................................................ 5
2.1 .3 COMMERCIAL CUSTOMERS. ......................................................................................... 5

vi
2.2 MARKET SHARE.................................................................................................................... 5
2.3 COMPETITION ....................................................................................................................... 6
2.3.2 COMPETITIVE ANALYSIS TABLE. ................................................................................. 7
2.4 METHOD OF PROMOTION AND ADVERTISEMENT ...................................................... 7
2.4.1 PROMOTION ........................................................................................................................ 7
2.5 PRICING STRATEGY. ............................................................................................................ 8
2.5.2 (II) Cost plus .......................................................................................................................... 8
2.6 SALES TACTICS. .................................................................................................................... 8
2.7 DISTRIBUTION STRATEGY. ................................................................................................ 9
2.7.1 CHANNEL OF DISTRIBUTION. ........................................................................................ 9
CHAPTER THREE ...................................................................................................................... 10
3.0 ORGANIZATION AND MANAGEMENT.......................................................................... 10
ORGANIZATION CHART.......................................................................................................... 11
3.2 OTHER PERSONNEL ........................................................................................................... 11
3.3 RECRUITMENT, TRAINING AND PROMOTION. ........................................................... 12
RECRUITMENT .......................................................................................................................... 12
3.4 REMUNERATION AND INCENTIVES TABLE ................................................................ 13
3.5 LICENSE, PERMIT AND BY LAWS. .................................................................................. 13
3.6 SUPPORT SERVICES ........................................................................................................... 13
3.6.1 Banking services. ................................................................................................................. 13
3.6.2 Insurance .............................................................................................................................. 14
3.6.3 Consultancy Firm ................................................................................................................. 14
CHAPTER FOUR ......................................................................................................................... 15
4.0 PRODUCTION/ OPERATION PLAN................................................................................... 15
4.1 PRODUCTION FACILITIES AND CAPACITY. ................................................................. 15
4.2 PRODUCTION STRATEGY. ................................................................................................ 15
4.2.1 PURPOSE OF PRODUCTION STRATEGY. .................................................................... 15
4.2.2 PRODUCTION DESIGN AND DEVELOPMENT ............................................................ 15
4.2.3 SCALE OF PRODUCTION ................................................................................................ 16
4.3 PRODUCTION PROCESS. ................................................................................................... 16
4.3.4 Processing and Selling ......................................................................................................... 16

vii
4.4 REGULATION AFFECTING THE OPERATIONS. ............................................................ 16
4.4.1 Local government act ........................................................................................................... 16
CHAPTER FIVE .......................................................................................................................... 17
5.0 FINANCIAL PLAN. 5.1 PRE – OPERATIONAL COSTS ................................................... 17
5.2 ESTIMATION OF WORKING CAPITAL. ........................................................................... 17
5.3 CASH FLOW PROJECTION. ............................................................................................... 18
5.4 PROFORMA INCOME STATEMENT. ................................................................................ 20
5.5 PROFORMA BALANCE SHEET. ........................................................................................ 21
5.6 BREAK EVEN POINT ANALYSIS. ..................................................................................... 22
5.7 PROFITABILITY RATIOS. .................................................................................................. 23
5.8 DESIRED FINANCING. ........................................................................................................ 24
APPENDIX ................................................................................................................................... 25
MAP .............................................................................................................................................. 25

viii
EXECUTIVE SUMMARY

1.0 BUSINESS DESCRIPTION

The proposed business name is “OKUMU’S FASHION DESIGNERS AND UNIFORM
SUPPLIERS”. The
business will be a sole proprietorship form of business. The business will be
located at KENDU BAY.

2.0 MARKETING PLAN.

The business targets both domestic and institutional customers. The domestic
customers are majorly residence from Kendu Bay while the institutional
customers are residence of Kendu Bay town and Homabay County at large.

3.0 ORGANIZATION AND MANAGEMENT PLAN

The business will be managed by one person. The manager must have at least a
diploma in business management and entrepreneurial skills. The manager will be
assisted by other staffs.

4.0 OPERATIONAL AND PRODUCTION PLAN

The business will rent an apartment for the start of the operation and after a
while build its own apartment. Some of the regulations that will affect the
operation of the business are the local government act, employment act, health
and safety act and the environmental act.

5.0 FINANCIAL PLAN.

The business requires a capital if Kshs. 438,720. The amount is to be acquired
from personnel saving i.e. equity Kshs. 334,539 and bank loan of Kshs.104, 181.
The borrowed money will be used to purchase machines and pay other pre
operational costs.
The firm is to register a contribution of 1 7.1 % and gross margin of 87.485%.

ix
CHAPTER ONE

1.0 BUSINESS DESCRIPTION.

1.1 BUSINESS NAME

The name of the business will be "OKUMU’S FASHION DESIGNERS AND UNIFORM
SUPPLIERS DESIGNERS AND
SUPPLIERS”. The name Okumu is a family name and is accorded great
respect by the inhabitants around since it's one of the largest families around. It's
also easy to pronounce and easily help the business to be identified since it's a
common name.

1.2 BUSINESS LOCATION AND ADDRESS.

The business will be situated in Kendu Bay opposite Pikadili hotel along
Katito Homabay Road. The location is suitable since it can easily be accessed by
the targeted customer.
The area is very busy with a lot of prospective buyers and customers. The
location is well secure and have good infrastructure and also materials can be
obtained easily.
The business address will be:-
OKUMU’S FASHION DESIGNERS AND UNIFORM SUPPLIERS
P.O BOX 40
MOBILE: 0797575145
EMAIL:okumufashiondesigners@gmail.com
KIOSK
PETROL
MAP
STATION

OKUMU’S FASHION
DESIGNERS AND
UNIFORM SUPPLIERS

KOBALA SEC SCHOOL

PHAMACY

GARAGE
SUPERMARKET

1
1.3 FORM OF OWNERSHIP.
The business ownership will be sole proprietorship. The advantage of this form
of ownership is that the business owner has complete control and decision
making power over the business. There are also a few business requirements to
start and the owner enjoys all the profits alone.

1.4 TYPE OF BUSINESS

The business will be making various types of clothes e.g. ladies fashions,
children clothes, school uniform company uniforms men suits and shirts.
Since the business is surrounded by so many schools it will be taking orders for
schools uniforms and even organization uniforms.
The business will be also supplying ready-made clothes to retailers in the villages
and even in nearby towns such as Kisumu and Homa bay.

1.5 PRODUCTS AND SERVICES.

The product which are going to be provided in this business are ladies, dresses,
men suits, shirts, school uniforms, organization uniform and any other kind of
clothing as far as the customer’s order.
The business will install modern sewing machines which are electrically operated
and therefore reducing manual labour. Another unique thing is that the business
ensure that customer’s orders are finished in good time to maintain their
confidence.
What is needed for making the product?
-Source of power and water.
-Sewing machines especially electric operated ones.
-Labour which is skilled one.
Cloth material for making the product which can be bought within the
suppliers in town or make direct order from the textile industries in Eldoret.

1.6 JUSTIFICATION OF THE OPPORTUNITY.

There are various trends of the viability of the business, these are;
There are a number of schools in the area, so hopefully the business will
familiarize itself to schools.
There are large number of people who are working and so there will be in good
position to find out the selection of their attire.
Other people are running various types of business which are located there and
therefore they can also become customers to this business.
Since the workers will be skilled they will make quality products to meet
satisfaction of the customers and this will increase demand in the business.

2
Through research which has been carried out as far as this business is
concerned. The existing competitors are not meeting the customer’s needs and
therefore they will definitely shift to this business since it will ensure all their
needs are met. The business will also employ very highly skilled personnel.

1.7 INDUSTRY.
OKUMU’S FASHION DESIGNERS AND UNIFORM SUPPLIERS will fall under service
industry involved in the selling of readymade clothes and making others as per the customer’s
description and style. The business will start as a middle level business offering product at
affordable prices. The size of output of the industry under which the business falls is a
steadily stable industry growing due to increasing population in the town.
The business is aiming at offering quality service to all its customers to make
sure that they are satisfied.

1.8 GOALS OF THE BUSINESS.

1.8.1 Short term goals.

The short term goals are:

i) To create employment.

The business will create employment to people who are going to work in the
enterprise.
ii) To provide quality product.

The aim is to provide quality product that will satisfy the customers. This
satisfaction will increase the demands of the service.

1 .8.2 Long term goals.

i) To maximize profits.
After the business has penetrated in the market it will raise its prices slowly in
order to maximize its profits.
ii) To expand its business.

The business after gaining surplus in its profit intends to expand its business to
various locations within the country that will be viable.

iii) To purchase more assets.

In future the business aims at purchasing more assets like new mode of the
sewing machine and other assets.

3
1.9 ENTRY AND GROWTH STRATEGY.
Entry

The business will enter the market through advertisements in posters, through promotional
activities and through personal contacts.

Growth strategy
The increasing demand of goods from the premise will make the business grow and have profits
continually. The business will also monitor sales and profit volumes and manage the resources
well to ensure it continually grows. The business will treat its employees well so as to motivate
them to serve the customers effectively.

4
 CHAPTER TWO

2.0 MARKETING PLANS

This refers to a system of business activities, designed to plan, promote, price and distribute
goods and services to the customers.

2.1 CUSTOMERS.
The business will be located at strategic place that will access to so many customers. Some will
be buying in bulk for resale and others few. The various customers will be:-

2.1 .1 INSTITUTIONAL CUSTOMERS

Institutional customers like schools, hospitals, security agent and others. Examples are Miranga
secondary school ,Kobala secondary school,Kendubay Refferal Hospital etc. They will be buying
in bulky thus enabling the business to expand rapidly.

2.1 .2 DOMESTIC CUSTOMERS.

This will involve people living in this surrounding. There are so many estates around this
location in which most of them are working class, because of their status they will pop in for the
latest fashion.

2.1 .3 COMMERCIAL CUSTOMERS.

There are so many prospective commercial customers who normally buy at smaller quantities
and reselling them to final consumers. Most of their selling is done daily through mobile market
others do hawking within the town, others may even do sale promotion and earn commission at
the end of the day. All this can be done towards promotion of the business.

2.2 MARKET SHARE.

The business has estimated number of customers which will be around 1 8,000
customers in relation to the total customers of 30,000 people.
Below are the percentages of the market share among the competitors.

5
 PERCENTAGE SHARE NO OF CUSTOMERS
BUSINESS NAME

OKUMU’S FASHION 40% 1 2,000

DESIGNERS AND
UNIFORM SUPPLIERS
25% 7,500
YOUNG RICH FASHION
1 5% 4,500
OVERVIEW FASHION
20% 6,000
RICH NIGGAH
Total 1 00% 30,000

2.3 COMPETITION
The business will face stiff competition from competitors who are also running the same
business in town though they are located in different places. The following are the strongest
competitors of OKUMU’S FASHION DESIGNERS AND UNIFORM SUPPLIERS
DESIGNERS.
1. YOUNG RICH fashion
2.Overview fashion
3.Rich niggah
The table below shows the pertaining strengths and weakness of each business.

BUSINESS NAME STRENGTH WEAKNESS

Make quality product.

OKUMU’S FASHION
Fair and affordable price
DESIGNERS AND Financial constraints
Strategic location.
UNIFORM SUPPLIERS
Good management
Poor services
Good location
High prices
Overview fashions Large location
No market/
Well stocked
customers
Unqualified
Good premises personnel
Rich niggah fashion Large life in market Poor quality
Fair prices product
Poor location.

6
 Table 3.3.1
OKUMU’S FASHION DESIGNERS AND UNIFORM SUPPLIERS will win market of the
product for this is the satisfaction of the
customers. Also good management and fair prices will attract customers.

2.3.2 COMPETITIVE ANALYSIS TABLE.

NAMES OF PRODUCT PRICING PROMOTION PERSONNEL LOCATION SIZE TOTAL
BUSINESS SERVICES
OKUMU’S 5 4 4 5 5 5 28
FASHION
DESIGNERS
AND
UNIFORM
SUPPLIERS
Young rich 3 4 3 4 2 3 19
fashion shop
Overview 2 3 4 2 1 3 15
fashion shop
Rich Niggah 4 2 3 1 2 2 14
fashion shop
Maximum 6 6 6 6 6 6 36
Score

2.4 METHOD OF PROMOTION AND ADVERTISEMENT

This will create awareness and enable most people to know the existence of the new business.
The business will also gain popularity and hence diversification in the market.

2.4.1 PROMOTION
The business will use the following ways.

(i) The start of the business the owner will contact personal selling promotion activity so as to
know the tastes and needs the people.

(ii) Discounts.
The business will offer cash discounts especially for bulky buying.

(iii) Sale promotion

When it starts its operation the business will contact a sales promotion in an open air market and

7
it will be done at a reduced price, special displays of the design.
(iv) Credit.
As the business will be growing slowly there will be those regular and known customers who
will be in opposition to be given credit so long as they promise to be reliable and faithful.
2.4.2 ADVERTISING
The business will use the following means of advertising;
(i) the business will be advertising through Ramogi radio and Lolwe radio hence passing out the
message to a wider range area.

(ii) Business cards.

The business will print some card that will be issued to the coming customers.
The cards will bear/ written business name address, location and telephone
number.

(iii) Posters
The business will pin posters all over the town and outcasts of Kakamega town in Kakamega
county to inform customers of the new business upcoming.

2.5 PRICING STRATEGY.

The business will use the following pricing strategy.
2.5.1 (I) Competitive pricing.
The product will be priced basing on the prices of the competitors selling the same products.
This will be done by lowering prices to make the business gain market penetration the business
will know stabilize its price to earn a little profit.

2.5.2 (II) Cost plus

the owner of the business will price its product as per the cost incurred from the acquisition of
the material to the time of production. A small profit will be added to the cater for the salaries
and rent.

2.6 SALES TACTICS.

The business is going to adopt the following sales tactics:-
(i) Offering high quality product.
The business will employ skill personnel so as to give high quality product.

(ii) Courtesy
The business will treat its customers with a lot of courtesy since lack of
courtesy has made customers run away from the business.

8
(iii) Direct contact
The business will adopt direct contact with the customers no agents. High sales will include price
reduction in some services.

2.7 DISTRIBUTION STRATEGY.

The business looks forward to use the following distribution channel sketched below.

2.7.1 CHANNEL OF DISTRIBUTION.

PRODUCER

WHOLESALER

CONSUMER
RETAILER

RETAILER

CONSUMER
CONSUMER

9
 CHAPTER THREE
3.0 ORGANIZATION AND MANAGEMENT.
3.1 KEY MANAGEMENT PERSONNEL.
The top management of stage view designers will comprise of the manager and the accountant.

MANAGER
Qualifications of manager
- Over 22 years.
-Should be computer literate.
-Should be fluent in both Kiswahili and English.
-Certificate in Business Administration.

Duties and responsibilities of manager.

-Recruitment of staff.
-He will be chief controller of the business.
-He will initiate business ideas.
-To offer remuneration for the employees.

ACCOUNTANT
He is entitled to all finance, inlets and outlet in the business.

Qualification.
-Should be a holder of KATC (Kenya Accounting Technicians Certificate
Course) i.e. intermediate level.
-Should be computer literate.

Duties and responsibilities.

-To receive invoices, prepare records and analysis account.
-Control creditor account and maintain debtor records and payments.
-To pay salaries and wages to employees.
-To prepare annual account of the business and compute profit attained.
-To record and control financial affair of the business.

10
 ORGANIZATION CHART.

3.2 OTHER PERSONNEL

I) TYPIST.

Qualifications.

-Holder of certificate in single group secretarial studies.

-Computer literate.
-Experience of not less than one years.
-Letter of recommendation.

Duties and responsibilities.

-Receiving ad recording of information.

-Receiving telephone calls.
-General secretarial duties.

2) CLERK.

Qualifications.

-Holder of KCSE C- (minus) mean grade.

-Fluent in English and Kiswahili.

Duties and responsibilities.

-Filling of records.
-Record keepings.
-Necessary clerical work.

3) CLOTHING AND TEXTILE OPERATOR.

Qualifications

-Holder of diploma in clothing textile and designing.

-Working experience of five years.
-Must have graduate in known institutional.

Duties and responsibilities.

-Designing and making of the clothes.

-Servicing the machines.
-Supervising work done by the tailors.
-Speculating customers’ needs i.e. current needs.

11
4) Security personnel
Qualifications
-Should by physically and mentally fit.
-Should be holder of KCSE certificate.

Duties and responsibilities.

-Direct customers.
-Guard the enterprise.

3.3 RECRUITMENT, TRAINING AND PROMOTION.

RECRUITMENT
OKUMU’S FASHION DESIGNERS AND UNIFORM SUPPLIERS is looking forward to
recruit employees
through printed posters and newspapers. The announcement on posters will
show clearly the requirement and qualification of successive candidate in various
positions. Also the information in advertisement will include reporting time,
venue and date for interview.

TRAINING.
Training of OKUMU’S FASHION DESIGNERS AND UNIFORM SUPPLIERS will be carried
out in the following ways:

a) On the job training.

This will enable unskilled employees to gain skills.

b) Rational training.

Employees will be rotating various sections to ensure that every employee is well
conversant of all the undertaking, so that whenever one is absent, work
continues as usual.
Seminars, fashions shows and exhibitors. The owners of the business will be
sending few representatives each year to exhibitions so as let the business to
meet customers demand.

Promotion.
Promotion of the employees will depend on their performance. The owner plans
that God willing if the business is going to expand, more branches will be opened
and some employees will be given promotions to branch manager.

12
3.4 REMUNERATION AND INCENTIVES TABLE
MONTHLY REMUNERATION.

NO. OF SALAR HOUSE MEDICAL OTHER

JOB
PERSON Y ALLOWAN ALLOWANC SECURIT TOTAL.
TITLE
NEL KSHS. CE ES Y
Manager 1 4,500 2,500 1 ,200 - 8,200

Accountan
1 4,000 1 ,500 1 ,000 - 6,500
t
Clerk 1 3,500 1 ,000 500 - 5,000
Typists
1 2,500 1 ,000 500 - 5,000
Security
2 2,500 500 450 - 6,800
personnel
Clothing &
3 3,800 1 ,000 800 - 1 6,800
textile.

INCENTIVES.
The business intend to give her employees incentive such as:-
Allowances.
Lunch.
Over time payment.

3.5 LICENSE, PERMIT AND BY LAWS.

Both license and permits will be obtained from relevant authorities. These will
include trade license which will be obtained from the county council and the
certificates.

3.6 SUPPORT SERVICES

3.6.1 Banking services.

Banking services will be received from Kenya Commercial Bank KENDU BAY Branch.
The business will operate a current account so that it can make its work easy

13
3.6.2 Insurance
Due to certain risks, the business will be insured against risks such as fire, theft
and any other risks.

3.6.3 Consultancy Firm

For effective running of the business, OKUMU’S FASHION DESIGNERS AND UNIFORM
SUPPLIERS will have different consultants.

14
 CHAPTER FOUR

4.0 PRODUCTION/ OPERATION PLAN.

4.1 PRODUCTION FACILITIES AND CAPACITY.

UNIT COST
ITEM QUANTITY TOTAL KSHS.
(KSHS)
Sewing machine 2 5,500 1 1 ,000

Overlook machine 1 4,500 4,500

Electric machine 1 20,000 20,000
Scissor 3 1 20 360
Threads 2 packets 40 80
Tapes 4 pieces 20 80
Sewing pins 1 packets 50 50
Chalks 1 packets 50 50
Tables 2 700 1 ,400
Iron box/ electric 1 800 800
Iron box charcoal 1 300 300
GRAND TOTAL 38,620

4.2 PRODUCTION STRATEGY.

4.2.1 PURPOSE OF PRODUCTION STRATEGY.

The enterprise will sell goods of high quality and in large quantity in a minimized
price to improve the level of profit generated.

4.2.2 PRODUCTION DESIGN AND DEVELOPMENT

The enterprise will ensure they produce end products with good design to attract
more customers.

15
4.2.3 SCALE OF PRODUCTION
The business will start off as a small scale and then expand to a large scale with
time.

4.3 PRODUCTION PROCESS.

The production process will be as follows;

4.3.1 Ordering of the materials from the suppliers
The ordering will be done in bulk for both the already made clothes and the materials for making
the clothes.
4.3. 2 Delivering good to the enterprise

The delivery will be done by the supplier to take premises

4.3.3 Off-loading and counter checking
On arrival offloading will be done by the employees at the premises.

4.3.4 Processing and Selling

Processing will be done according to the customer's desire and then sold.

4.4 REGULATION AFFECTING THE OPERATIONS.

4.4.1 Local government act

The business will have to obtain trading license from the government first before
beginning to operate.
4.4.2 Employment Act
The business will adhere to the employment act in employing and paying salaries
and allowances to the employees.
4.4.3 Health and Safety Act
The business will consider safety of the employees.
4.4.4 Environmental Act
The business will ensure its environmental friendly.

16
 CHAPTER FIVE

5.0 FINANCIAL PLAN.

5.1 PRE – OPERATIONAL COSTS

DESCRIPTION COSTS
License and permits. 3,200
Furniture and installation 3,000
Initial rent 3,500
Telephone installation 1 ,000
Advertisement 500
Wages and salaries 48,300
Material 80,550
Electricity installation
3,000
Repair and furnishing 3,000
Purchase of production facilities 38,620
GRAND TOTAL 1 88,1 70

5.2 ESTIMATION OF WORKING CAPITAL.

WC = CA – CL.

ASSETS YEAR 1 YEAR 2 YEAR 3

Stock raw 80,550 8,700 9,500

material
Stock of whip 50,000 54,000 60,000
Debtors 55,000 58,000 58,000
Cash at bank 1 20,000 1 40,000 1 60,000
Cash in hand 65,000 70,000 80,000
TOTAL
CAPITAL 370,550 409,000 453,000
ASSETS

17
 LIABILITIES YEAR 1 YEAR 2 YEAR 3
Creditors 20,000 35,000 30,000

Short Term loans 70,000 1 20,000 1 00,000

Bank overdraft 30,000 50,000 40,000

TOTAL
1 20,000 205,000 1 70,000
LIABILITIES

WC YEAR 1 = CA – CL

= 370,550 – 1 20,000

WC = 250,550

WC YEAR 2 = 409,000 – 205,000

WC = 204,000

WC YEAR = 453,000 – 1 70,000

WC = 283,000

5.3 CASH FLOW PROJECTION.

MAR A O
APRI MA JU JUL NO TOTA
Description JAN FEB C U SEP C DEC
L Y NE Y V L
H G T
Cash
inflow
8
55,0 63,0 45, 42, 44, 50, 70, 5, 1 1
65,00 40,00 839,00
Cash sales 0 0 00 00 00 00 00 0 20,0 60,0
0 0 0
0 0 0 0 0 0 0 0 00 00
0
5
Collection 70,0 65,0 40, 38, 32, 39, 42, 6, 62,0 80,0
60,00 55,00 639,00
from 0 0 00 00 00 00 00 0 0 0
0 0 0
debtors. 0 0 0 0 00 0 0 0 0 0
0
1
1 1 1 85, 80, 76, 89, 11 1 240, 1
Total cash 95,00 4
25,0 28,0 25,0 00 00 00 00 2,0 82,0 0 ,478,0
inflows. 0 1
00 00 00 0 0 0 0 00 00 00 00
,0

18
 0
0
Cash
outflows
4
48,3 48,3 48, 48, 48, 48, 48, 8, 48,3 48,3
48,30 48,30 579,60
Salaries 0 0 30 30 30 30 30 3 0 0
0 0 0
0 0 0 0 0 0 0 0 0 0
0
3,
3,50 3,50 3,5 3,5 3,5 3,5 3,5 5 3,50 3,50
Rent 3,500 3,500 42,000
0 0 00 00 00 00 00 0 0 0
0
Advertisem
500 - - - - - - - - - - - 1 ,000
ent
3,50
Insurance - - - - - - - - - - - 7,000
0
2,
Repair and
2,00 2,00 2,0 2,0 2,0 2,0 2,0 0 2,00 2,00
maintenanc 2,000 2,000 24,000
0 0 00 00 00 00 00 0 0 0
e
0
1
1 1 1 1 1
1 1 1 1 0, 1 1 1
Loan 0,0 0,0 0,0 0,0 0,0
0,00 0,00 0,00 0,00 0 0,00 0,00 20,00
repayment 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0
0
4
Waters and 25 1
300 280 250 250 220 200 200 300 0 500 4,1 50
electricity. 0 000
0
6
66,3 62,2 62, 62, 62, 62, 62, 2, 62,5 63,0 752,1
Total cash 62,25 62,25
0 8 22 20 20 25 30 4 0 0 5
outflow 0 0
0- 0 0 0 0 0 00 0 0 0 0
0
7
1 1
58,7 65,7 22, 26, 49, 8, 11 1
Surplus 62,75 32,75 7,8 3,8 725,85
0 2 78 75 70 6 9,5 77,0
0 0
0

0 0 0 0 0 0 0 0 0 0 00 00 0
Accumul 58,7 1 1 21 242, 260, 274, 301 350, 429, 548,
725,8
ate-d 0 24,4 87,1 9,9 7 5 3 ,0 7 3 8
50
cash 0 20 70 20 00 00 00 50 50 50 50

19
5.4 PROFORMA INCOME STATEMENT.

DESCRIPTION YEAR 1 YEAR 2 YEAR 3

Sales 839,000 860,000 870,000

Discount received. 1 ,820,000 1 ,880,000 1 ,890,000

TOTAL. 2,659,000 2,740,000 2,760,000

Less cost of sales. 1 ,621 ,800 1 ,621 ,800 1 ,621 ,800

Gross profit 1 ,037,200 1 ,228,200 1 ,1 38,200

Less expenses.

Electricity
4,1 50
Salaries
579,600
Loans repayment 4,200 4,300
1 20,000
579,600 579,600
Repair and 1 20,000 1 20,000
2,400
2,000 1 ,500
maintenance 700 500
300
-- --
Postage
1 ,000
Advertisement.
3,000
Repair and
furnishing.
TOTAL EXPENSES
723,050 71 8,750 71 8,1 00
Net profit before tax
31 4,1 50 399,450 420,1 00
Less provision of
50,264 63,91 2 67,21 6
1 6%
263,886 335,538 352,884
Net profit after tax

20
5.5 PROFORMA BALANCE SHEET.

DESCRIPTION YEAR 1 YEAR 2 YEAR 3

Fixed assets
38,620 45,000 55,000
Production facilities
3,000 3,500 4,500
Furniture and fitting
450,000 500,000 550,000
Vehicle
Total 491 ,620 548,500 609,500
Less depreciation
1 ,931
5% production 2,250 2,750
facilities.
1 50
1 75 225
5% furniture and
Fittings 50,000 55,000
45,000
1 0% vehicle
Total depreciation 47,081 52,425 57,975
Current assets
1 20,000 1 40,000 1 60,000
Cash at bank
65,000 70,000 80,000
Cash at hand
55,000 54,000 60,000
Debtor
240,000 264,000 300,00300,0000
Total assets 684,539 760,075 8,851 ,525
Current liabilities
20,000 35,000 30,000
Creditors

Bank overdraft 30,000 50,000 40,000

50,000 85,000 70,000
Long term liabilities
300,000 375,000 401 ,000
Long term loan
334,539 300,075 300,025
Owners’ equity
Total liabilities 684,539 760,075 851 ,525

21
5.6 BREAK EVEN POINT ANALYSIS.

DESCRIPTION AMOUNT
Sales 839,000
VARIABLE COST
Electricity 4,1 50
Transport 7,200
Advertisement 1 ,000
Repair and maintenance 2,400
Postage 300
TOTAL 1 5,050

Contribution = Total sales – Total variables

= 839,000 – 1 50,050 = 823,950

a) Contribution margin = Contribution x 1 00

Sales.

= 823,950 x 1 00
= 839,000
= 98.2%

c) Contribution margin.

FIXED COSTS KSHS

Salaries 576,000

Rent 42,000

License and permit 3,200

Insurance 7,000

Loan repayment 1 20,000

928,200
TOTAL FIXED COSTS

Break-even level of sales.

= FC X 1 00
CM
= 928,200 X 1 00
=98.2
= KSHS 945, 21 3.8
22
5.7 PROFITABILITY RATIOS.

i) Gross profit margin = Gross profit x 1 00

Sales

1 ,037,200 x 1
Year 1 = 00
839,000

= 1 23.6%

1 ,1 1 8,200 x 1
Year
= 00
2
860,000

= 1 30%

Year 3 = 1, 1 38,200 x 1 00
=870,000
= 1 30.8%

ii) Return equity= Net profit after tax x 100

Equity contribution.

= 263,886 x 1 00
Year 1
=334,539
= 78.88%

= 335,538 x 1 00
Year 2
=300,075

=1 1 1 .8%

= 35,884 x 1 00
Year 3
300,025
= 1 1 7.6%

iii) Return on investments= Net profit after tax + Interest on loan x 1 00

23
 Total investment.

Total investment = Bank loan + owner equity.

Year 1 = 263,886 + 1 2,000 x 1 00

684,539
= 40.3%

Year 2 = 235,538 + 1 2,000 x 1 00

760,075
= 45.7%

Year 3 = 352,884 + 1, 200

851, 525
= 42.85%

5.8 DESIRED FINANCING.

DESCRIPTION AMOUNT (KSHS)
Co-operation loan 1 04,1 81

Owner’s equity.
334,539
Total 438,720

24
APPENDIX

PETROL
MAP
STATION

OKUMU’S FASHION
DESIGNERS AND
UNIFORM SUPPLIERS

KOBALA SEC SCHOOL

PHAMACY

GARAGE

SUPERMARKET

25