Establishment of vending machine business 2009 E.

BAHIRDAR INSTITUTE OF TCHNOLOGY

FACULTY OF MECHANICAL AND INDUSTRIAL ENGINEERING

MECHANICAL ENGINEERING DEPARTMENT

Course: - Entrepreneur for Engineers

Project Title: - Establishing Of Vending Machine Business

Prepared by ID
1. MULUGETA ESHETU 0502069
2. TAYE MEHERETU 0502535
3. SAMUEL MELKAMU 0502288
4. MIHRET BETEMARIAM 0501805

Advisor M.R. Tomas C.

Submission Date: - 14/05/2009 E.C

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ACKNOWLEDGEMENT
We would like to express our deepest appreciation to all those who provided us the possibility to
complete this report. A special gratitude we give to our teacher, Mr. Tomas C., whose contribution
in stimulating suggestions and encouragement, helped us to coordinate our project especially in
writing this report.

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TABLE OF CONTENT

EXECUTIVE SUMMARY .................................................................................................................VI

CHAPTER ONE .................................................................................................................................... 1
CHAPTER TWO ................................................................................................................................... 2
2.1 Application of vending machine ............................................................................................. 2
2.2 Statement of the Problem ........................................................................................................ 2
2.3 General Objectives .................................................................................................................. 3
2.4 Definition of the project and alternative scenarios and models .............................................. 3
2.4.1 Type and kind of product(s) or service(s) to be marketed ............................................... 3
2.5 Technical processes, size, location, and kind of inputs ............................................................... 5
2.5.1 Technical processes .............................................................................................................. 5
2.5.2 Size and location of the business .......................................................................................... 6
2.5.3 Desired outcome ................................................................................................................... 7
2.5.4 kind of inputs ........................................................................................................................ 7
CHAPTER THREE ............................................................................................................................... 8
3. MARKET FEASIBILITY ............................................................................................................. 8
3.1 Enterprise description .............................................................................................................. 8
3.2 Enterprise competitiveness ...................................................................................................... 8
3.3 Market potential ...................................................................................................................... 9
3.4 Sales projection ....................................................................................................................... 9
3.5 Access to market outlets ........................................................................................................ 11
CHAPTER FOUR ................................................................................................................................ 12
4. TECHNICAL FEASIBILITY ...................................................................................................... 12
4.1 Material input and utilities .................................................................................................... 12
4.2 Quality of raw materials ........................................................................................................ 12
4.3 Availability and sustainability of site .................................................................................... 13
CHAPTER FIVE ................................................................................................................................. 17
5. FINANCIAL FEASIBILITY ....................................................................................................... 17
5.1 Estimate the total capital requirements ................................................................................. 17
5.2 Means of financing our project ............................................................................................. 19
5.2.1 Debt financing ................................................................................................................ 20
5.2.2 Equity financing ............................................................................................................. 21
5.3 Expected cost and returns of the enterprise ........................................................................... 21
5.3.1 Total revenue costs ........................................................................................................ 21

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5.3.2 Breakeven analysis......................................................................................................... 23
5.4 Benchmarking ....................................................................................................................... 28
CHAPTER SIX .................................................................................................................................... 30
6. ORGANIZATIONAL/MANAGERIAL FEASIBILITY ............................................................. 30
6.1 Business structure .................................................................................................................. 30
6.2 Business founders .................................................................................................................. 32
CHAPTER SEVEN ............................................................................................................................. 33
7. CONCLUTION............................................................................................................................ 33
CHAPTER EIGHT .............................................................................................................................. 34
8. REFERENCE ............................................................................................................................... 34

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LIST OF FIGURE
Figure 5-1 figure break analysis ____________________________________________________ 25
Figure 6-1 authority and decision making _____________________________________________ 31
LIST OF TABLE
Table 3-1 Average price of products ................................................................................................... 10
Table 3-2 sales projection .................................................................................................................... 10
Table 4-1 raw material ......................................................................................................................... 16
Table 4-2 labor list ............................................................................................................................... 16
Table 5-1 fixed costs ............................................................................................................................ 17
Table 5-2 Initial stock to fill a single vending machine....................................................................... 17
Table 5-3 Furniture cost ....................................................................................................................... 18
Table 5-4 Variable costs ...................................................................................................................... 18
Table 5-5 Labor cost ............................................................................................................................ 19
Table 5-6 other cost ............................................................................................................................ 19
Table 5-7 Total costs ............................................................................................................................ 19
Table 5-8 Debt payment term. ............................................................................................................. 20
Table 5-9 No of machine and cities in each year ................................................................................. 22
Table 5-10 sales revenue analysis ........................................................................................................ 22
Table 5-11 total sales revenue for 10 vending machine ...................................................................... 23
Table 5-12 Break even analysis table .................................................................................................. 24
Table 5-13 table of break analysis ....................................................................................................... 26
Table 5-14 input summery table .......................................................................................................... 26

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EXECUTIVE SUMMARY
This project is concerned on the establishment of vending machine business with 8 labors, located in
Addis Abeba, Bahir Dar and Mekele and this business starting with 10 machines with total capital of
2,181,350 ETB. The breakeven point of this business is 515 stock which indicates after 515 stocks
our credit will be zero and this credit will be returned in 3.6 year.

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CHAPTER ONE
1. INTRODUCTION
A vending machine is a machine for business, which dispenses certain products to the customers
after they insert currency or credit inside the machine. The first vending machines were in ancient
Greece. The first modern commercial coin-operated vending machines were introduced in London,
England, in the early 1880’s. Richard Carlisle, an English publisher and book shop owner, invented a
vending machine for selling books around the same time. In 1888 the Thomas Adam’s Gum
Company introduced the very first vending machine to the United States. Pulver Manufacturing
Company added animated figures to its Gum machine as an added attraction.
A completely coin-operated restaurant called Horn and Hardart was opened in 1902 and stayed
opened until 1962 in Philadelphia. Moreover, an American inventor named William Rowe invented a
cigarette vending machine. The first automatic vending machine started dispensing soda into cups.
Vendorlator manufacturing company of Fresno, California made a series of classic vending machines
during the 40’s and 50’s that mostly sold Coca-cola and Pepsi. Famous vendorlators included the
VMC 27 and VMC 33.
Nowadays, automated machines are in demand for they make numerous activities not only
easier but also more efficient. These machines require minimal human intervention to do its job.
Vending machine is one of these automated machines which made people’s lives more convenient.
These vending machines have taken its mark in the market world. From sanitary supplies to
beverages, vending machines have gained its throne as one of the sales strategies in the business
world. Starting its operation using conventional mechanical controls, vending machines have
employed electronic components to add more functional features to it and to increase the accuracy of
its system operation.
This study focuses on the feasibility study of implementing a Vending Machine that can
dispense different snacks, hot drinks, soft drinks, and juices through dropping a specified amount of
money. The machine accepts any other type of coins. Once the money/coins have been dropped, the
machine automatically dispenses the right mixture.
The Vending Machine will cater the needs of the customers with no further human
intervention required. The machine is user-friendly and is very simple to operate. The customers will
only have to deal with the amount of money to be dropped to the machine which will correspond to
the need to be dispensed. With this, labor cost will be minimized and it will also give entrepreneurs
the opportunity to attract more customers with this innovation.

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CHAPTER TWO
2. PROJECT DESCRIPTION
The first and foremost step in starting new business venture is to find out suitable business model. As
entrepreneurs looking for different alternative scenarios and analyzing them thoroughly from social,
economic and environmental prospective is very important. Hence, we develop some business model
as alternative and finally select the best business model (alternative), so that the business venture
becomes long life.

2.1 Application of vending machine

Vending machines can be used or for what applications are suitable for these machines apart from
those popular foods, drink, for tickets sale, for Lottery distribution, for Condom distribution
applications? If no, continue reading, and you will be surprised to know that there are much more
than food and drink for a vending machine. Let's see how the they are useful to both the user and the
businessman.
 Advanced uses/applications
With recent massive technological changes, we have come across some other non-traditional uses of
vending machines where have witnessed machines that dispense gold, newspapers and many other.
The first and foremost step in starting new business venture is to find out suitable business model. As
entrepreneurs looking for different alternative scenarios and analyzing them thoroughly from social,
economic and environmental prospective is very important. Hence, we develop some business model
as alternative and finally select the best business model (alternative), so that the business venture
becomes long life.
Factors to be considered while selecting the appropriate business model are:
 Availability of competitors
 Availability of resource
 Technical and financial suitability
 Availability of potential customers
 Social, economical and situation and etc.
Considering all the above factors, analysis and evaluation of business have been made and finally we
decide to do the vending machine business idea.

2.2 Statement of the Problem

This feasibility study aims to answer these following problems:
 Major Problem
Is it feasible to put up vending machines in our country?
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 Minor Problems
 What is the most preferred type of goods that consumers are willing to purchase?
 What is the consumer’s spending capacity?
 What are the most desired locations for vending machines?
 What is the rate of profitability?
 What are the benefits that the consumer can get out of this machine?
 How acceptable is the project, in terms of convenience and efficiency, for the consumers?

2.3 General Objectives

The researchers proposed this study with the following objectives:
 To install Vending Machine that will dispense different products.
 To provide a vending machine which requires minimum space utilization while having large
storage capacity
 To determine the acceptability of the study in terms of convenience and efficiency.
 To be able to make an income generating project for the community.

2.4 Definition of the project and alternative scenarios and models

The main compitatators of vending machine business are hotels, motels,pubs,cafe, and supermarket
also supply our products. When you are into vending business, it is very important for you to learn
the different ways to make your business better because you also have many competitors. Here are
some tips that we can consider in order for our to become successful in beating your competitors
 Choose the best place where you can put your machine
 Choose the best product
 Deploy vending machines in different places
 Always check the machine if it is working
As a businessman who is looking forward to earning money, you have to make sure that every single
opportunity that is presented to make your company better will not be taken for granted. And most
importantly, you should always be updated about the positive developments that your company
needs
2.4.1 Type and kind of product(s) or service(s) to be marketed
There are many types of vending machines available from several manufacturers and suppliers. They
come in different sizes, shapes, colors’, and prices. Some types of vending machines need electricity
in operating, whereas others use mechanical motion in vending. A business owner or a freelance
entrepreneur may establish several vending machines in different settings and for different target
customers.

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 Snacks Vending Machine: - The usual vending machine is one offering candy, soft-drinks, and
other snack food. These machines are available in most locations including office buildings,
schools, train and bus stations, or malls and shopping facilities.
 Coffee Vending Machine: - These vending machines offer a coffee menu that allows customers
to pick specific types of coffees, chocolate drinks, or teas for a given price and provides the cup,
coffee, and milk or cream, if selected. These vending machines are located in offices, universities
and college environments, hospitals, and food courts.

Figure 1-1 Types of vending machine

 Toiletries Vending Machine: - Vending machines offering toiletry and medical supplies are
usually situated in public comfort rooms at airports, bars, restaurants, and clubs. These vending
machines provide sanitary supplies such as facial towels, tampons, dental floss, small
toothbrushes, toothpaste, and condoms.
 Change Vending Machine: - A vending machine offering change in exchange for larger notes or
credit cards is also a useful vending machine in certain environments, like in parking garages or
laundry shops.
 Office Supplies Vending Machine; - This type of vending machine is useful in academic
settings and libraries, airports, and career centers. This vending machine provides pencils,
sharpeners, pens, paper, UBS flash drives, and mailing products like envelopes and stamps
 Customized Vending Machine ;- This machine provides a number of unusual products such as
CDs, DVDs, tickets, console and computer games, stationery equipment, disposable cameras,
and stamps. They are great for supermarkets, malls, and retail stores.

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2.5 Technical processes, size, location, and kind of inputs

2.5.1 Technical processes
Vending machine does charge, you will need to ensure that you have either the correct change, or
check to see if the machine will issue you with change. This information should usually be available
on the machine, so have a good look at the labeling and/or any signs on the vending machine. If a
machine is free to use, you will just be required to enter your drink selection. If it charges, you will
be required to either enter your payment first or then select your drink option, or you may be asked to
enter your drink selection and then your payment. Most vending machines take coins rather than
notes.
 Entering your Payment
As mentioned, you need to check that you have the correct change, or that the vending machine
dispenses change. You will then need to enter your coins into the slot on the machine. If the vending
machine does issue change and/or some of your coins are rejected, these will be returned to you.
Some vending machines will issue your change automatically and some will need you to request
your change. This is usually done by pressing a button closely located to the slot that you originally
placed your money into.
You can also use this button if you decide not to make a selection and just want to get your money
back. Some more modern vending machines may display a 'cancel' button, which you can press
instead.
 Entering your Selection
The machine will give you a range of drink options to choose from. Some will have each individual
drink displayed and their own button to choose your selection. In this instance, you just need to press
the option that you require. You will usually see the option you have chosen light up, which confirms
your selection. Your drink will then be dispensed.
If, however, the drinks are listed with codes, for example: 'White coffee with sugar - F5', you would
need to enter 'F5' into the keypad on the machine. Your drink will then be dispensed.
Safety First
Remember that drinks from vending machines will be very hot, so remove them carefully and only
when you are sure that the machine has finished making it. Some machines will display a countdown
to show when your drink is ready, whilst other machines may make a sound to show that they have
finished
If we are thinking about getting started in the vending machine business and making money on a part
or full time basis, there are a few things to consider before going out and buying a vending machine
for our business.

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Step 1:- Seek for high traffic sites for the location of a vending machine. Find high traffic sites to
begin with, which are relatively free from other competing machines.
Step 2:- Choose what types of customers frequent the chosen locations and decide what to vend
based on that data. Make sure there is enough space available to accommodate the type of vending
machine needed to sell the chosen product. For instance, if the chosen area is a fitness gym, the
target vending clients are people who are watching their shape. This means mineral water, low
calorie drinks, etc., are some smart options for vending products. In this scenario, stay away from
snacks and soft drinks.
Step 3:- Haggle for the permission to set up the machine in the target site. There are many options
for rewarding the location's management; one is an outright rent of the space another is a share of the
percentage of the income. Offering a percentage rather than a fixed fee protects you against unstable
incomes because the amount given to the space's management changes as the revenue fluctuates,
which always leaves some profit for you.
Step 4:- Lease or buy vending machines from a credible dealer who provides machine service and
stock. Be sure the dealer delivers the machines to the target location or that other transportation is
available to accommodate the machines. Choose machines with bill acceptors attached or consider
leasing or purchasing a stand-alone bill changer so change for the vending machine is always
available.
2.5.2 Size and location of the business
The locations of our business are mostly around where mass of peoples are found such as:-
 Stadium
 Bus stations
 Universities and colleges
 Around companies
 Hospitals
 Courts
 Gymnasium
The cities that we have selected for the business is initially 3 cities those are:-
 Bahir Dar in two place
 Addis Ababa in 4 place
 Mekele in 2 place
The most standard vending machine measures 72"H x 39"W x 33"D. However, if the machine is
going to be placed inside an enclosure it is best to allow for 80"H x 45"W x 40"D. These dimensions

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take in consideration the space for the door opening as well as room in the back of the machine for
the plug-in and the need for air movement for the compressor.
2.5.3 Desired outcome
 Foods and Drinks
Greatest application for vending machines is either food or drink or both! Snack and cold/hot drink is
the best thing we ever get out of these machines. No big queues, no time consuming distance, no
issue of unavailability at late night. Just get to any snack vending machine or drink vending machine
and get your favorite food/snack straight into your hands! Latest technological development has led
us to evolution of combination, vegetable, milk and even medicine vending machines – the list is
countless.
 For tickets sale
Ticket vending machine is another latest technological development in this area. It is used to sell
tickets ahead of any specific event ranging from a local baseball game to a music concert to a drama
show.
 For Lottery distribution
Lottery is still in use and there are hundreds of thousands of people who love to buy and try luck
with it. For such people, this has been a great resource of getting instant lottery. No need to go to
lottery store and no need to wait in queue, just look out for a nearby lottery vending machine, insert
the coin, and get your lottery. Good luck.
 For Condom distribution
This sounds strange! But is a fact that nobody can ignore! Walk around your street and we bet, you'll
notice at least one of it. So why to go to medical or retail shop? Just locate yourself to nearby
condom vending machine and get it off the machine.
2.5.4 kind of inputs
Our business is not to manufactured products instead to give service to the community or to sell
products to the customers. these products are
 snack foods
 plastic and tin soft drinks such as coca cola, Pepsi, mirinda, plastic juices
 hot drinks such as coffee and tea

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CHAPTER THREE
3. MARKET FEASIBILITY
3.1 Enterprise description
The size and scope of the industry: -The size of our business is basically inside the country along
each city’s and zones by distributing different types of vending machines based on the society
feeling and interest. It has a large scope due to its different type of products distribution line and
installation of different type of product dispenses vending machine around different city in different
places. And also, this business is new for our country therefore we can increase our scope by looking
customer feedback.
Our vending machine market is segmented on the base of product type which includes beverages
vending machine and food vending machine. Among both of this segment food vending machine
expected to show a healthy growth during the forecast period. Beverage vending machine is further
sub segmented as hot beverage vending machine, cold beverage vending machine and
soda/beer/liquor/wine vending machines. More over food vending machine is further sub segmented
as candy vending machine, snack vending machine, fresh food vending machines, and others.
Further segmented on the basis of end use which includes airport, corporate office, school/colleges,
hotels, gymnasiums, and hospitals. Due to those different segments these businesses show a good
futurity and profitable. This business is need a technological advanced and it update itself day-to-day
so the life cycle of the business is continuing at any time.
Life cycle of business
The business life cycle refers to the succession of stage goes through. It is away to trace the stages of
company product acceptance from its introduction to its demise (end or fall). Identifying the life
cycle helps the industry in the following ways:
 To know where the product exists at this moment.
 Predict what may happen in the future.
 To select the appropriate strategies to be followed.
 To identify competitors at different stages.

3.2 Enterprise competitiveness

We will be first to market a fully automated line of food and beverage vending business inside the
country; therefore, they have no competitor on the market, but we made our products more
preferable and affordable price for each product at the available place.
They have also different supplier for each vending machine products based on its type. Vending
machines can be a lucrative business opportunity. However, owning and running a vending machine

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business involves a great deal of time and work. Like any other type of businesses, you have to keep
your customers coming back for more.
One basic consideration when looking for ways to serve the customers is that vending machines
should be placed in areas that make the products easily accessible to the people who need them
immediately.
Another is when stocking the machines; you need to offer a different product mix to capture the
particular segment of customers. Provide a customer satisfaction survey card at vending locations so
your customers can leave feedback and suggestions. Customer feedback gives you the opportunity to
provide better customer service by finding out what people want. Satisfied customers translate into
higher profits.
And the best ways to attract customers is to keep the machines well-maintained and cleaned. People
won’t come back to a machine that is frequently out of order or machines that take their money
without giving them an item in return. When the machine isn’t working well, make it a priority to
repair the problem quickly to prevent losing business and money.
Concentration competitiveness of food and beverage suppliers & product buyers are also an
important factor for the competitiveness of business.
Another thing to be considered for competitiveness of business is selling price of the product. Some
of the appropriate pricing or marketing method to compete and satisfy customer needs are
 Free service on different occasion to create awareness towards products
 Supply our product to market with affordable price and etc.

3.3 Market potential

Market potential of this business is high because the product is different segments of market and the
usage and demand of the product is high. And also, the market has variety of choices for the buyer to
satisfy their interest.
In this business, we will add some branded products from external supplier by importing those
products at affordable price for the customer.

3.4 Sales projection

Vending machines let the customers buy items without the need of standing in line for a long time.
The customers simply deposit their money in the machine and then select the item of their choice.
Vending machines have myriad benefits, which are best taken by the vendors.
 Immediate flow of cash Your cash flow can start as soon as your equipment is placed. Most
new businesses fail, in large part, from lack of cash flow in the beginning. One of the many
benefits of vending machines is your cash flow can start at day 1.

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 Working 24/7 It’s like having a sales team working 24 hours a day - with no coffee breaks,
no sick leaves, and no unpredictable performance because of emphatic factors. Reduction of
overhead costs by not hiring of staff only increases the profit margin for you, making it a
success.
The selling products are different as they putting place it means for example when we put vending
machine in front of gymnasium we should sell power drinks, high calorie foods and beverages.
The selling price of our products can be summarized as follows in table;-
Products Unit Price(birr)
Different snacks Piece 4 birr- 30 birr
Soft drinks Per cup/bottle 6 birr – 10 birr
hot beverage Per cup 2 birr- 6 birr
Water Per pics 6 birr – 10 birr
Soda Per tin 15 birr
Chocolates Per pics 10- 50 birr
Others - Based on each type
Table ‎3-1 Average price of products
Based on our business scope the sales projection for the next 3 years became

Table ‎3-2 sales projection

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3.5 Access to market outlets

A key feature of the vending machines is their location adaptability. They can be installed almost
everywhere as they need a small area to be put up. In the past, vending machines were installed in
places seen as large catchment areas (captive environment). Most machines are found in busy
locations such as factories, offices, warehouses and transport hubs as railway stations, airport
terminals, cruise ships and public areas. Today, vending machines are often site in theatre and hotel
lobbies, garage spaces, drugstores, hospitals and schools. At the same time, countries such as USA
and Great Britain impose regulations on the installation of vending machines in hospitals and
educational institutions. Their main considerations here are that certain items dispensed through the
vending distribution system can cause serious health problems, such as foods and drinks with high
sugar, salt and fat content. Among other concerns is that access to vending machines located in
governmental institutions and military sites (municipalities, ministries, military bases) is extremely
difficult to gain, which makes it labor intensive. This process is also time-consuming, as it requires
applying and participating in tendering procedures in the public procurement sector, filling in
documents, etc. The same holds true for public spaces – bus and railway stations, airport terminals,
etc. In addition, when vending machines have an outdoor location, they are largely exposed to
various climatic and atmospheric conditions, such as sun, wind, humidity, etc. Accessibility and
convenience are among other important features of vending distribution.

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CHAPTER FOUR
4. TECHNICAL FEASIBILITY
The technical analysis of new enterprise is primarily concerned with analyzing the following issues:-
 Material input and utilities
 Location and site
 Product type
 Manufacturing process/technology
 Plant capacity
 Machinery and equipment
 Manpower requirement
 Structural and civil work

4.1 Material input and utilities

This is primarily concerned with defining the material and utilities required and specifying their
properties in some detail. The basic raw materials for vending machine business are:
 The products to be sold such as coffee, snacks, tea, plastic and tin soft drinks
 use and through cups
This raw material can be collected from companies and enterprises which produces the above
products this companies includes
 COCA COLA
 MOHA soft drink manufacturing factory
 several snack and coffee producers
The proportion of intake from the sources depends on the machine raw material intake capacity and
the market.

4.2 Quality of raw materials

The raw materials obtained from the above companies and enterprises are not directly supplied to the
customers they have to be inspected and also no raw materials are to sold if their expired date are
specify clearly. Again, if the raw materials are out of date due to the absence of market and due to
machine damage they will be absolutely removed.
 Range of specification
Quality of raw materials to be sold should meet the specifications supposed by ISO 9010 and food
quality agency. These specifications are :-
 The products to be sold should have acceptable sugar content
 The products should have less fat

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 The products should have acceptable expired date
 Cost of raw materials
Mostly raw materials are obtained directly from the companies and enterprises and there cost is
mostly decided by those manufacturing industries. The cost of this raw material includes
 The cost of the products such as coffee, soft drinks, snacks, sugar and so on.
 Transportation cost for each raw materials
 Other related costs
The total cost which will spend for this business will be done on the financial analysis
 Utilities
Utilities are also material input which plays vital role for these vending machine businesses. These
include power sources to run the machine, water supply, and control mechanism of the machine etc.
They are mainly concerned with generating power to run the machine. In our country, there are many
rivers that can be used to generate electricity but their utilizations were not being satisfactory for the
past years. But today it shows improvement and so we will get enough electricity for the enterprise.
And there will be a center which will control the machines activity and maintenance center.

4.3 Availability and sustainability of site

To be competent and give long life service to the community selection of appropriate and suitable
site is very important. This is the first step while establishing new business enterprise. While
selecting location and site for the enterprise, we have to consider the following factor.
 Accessibility to market
 Accessibility to raw material
 Availability of infrastructure
 Availability of qualified labor
 Availability of land
 Suitability of environmental conditions
 Availability of auxiliary material, input and utilities,
 Community receptiveness and etc.
Although it is difficult to fulfill all of the above factors while locating an enterprise, priority should
be given for critical factors like proximity to raw material and market and also availability of
infrastructure etc. by considering all the above factors we are selecting the following locations and
sites as the core areas for our business.
 Universities
 stadiums
 market centers

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But initially we are trying to install our business around universities and stadiums. Now let's see how
all above factors affects the location and site of our business.
 Proximity to market
Proximity to market is very critical factor in site selection. Some of the products should be delivered
to customers as soon as possible. Accordingly the site we are selected has good access to the market
since they are crowded areas.
 Proximity to raw materials
Another critical factor which determines the life an enterprise is its proximity to raw material. So it is
one factor that priority should be given to. As mentioned earlier basic raw material is obtained from
the companies and enterprises they are found at small distance from our business areas.
 Future availability of raw material
Proximity of raw material defines the accessibility of raw material, if and only if, its future
availability is assured. In the future since business capacity of Enterprise will increase, it is necessary
that there are direct relationships between the availability of raw material and its capacity. At current
condition since it is new business it may not acquire large availability of raw materials but as the
business becomes more efficient it needs high availability raw materials by this time we make with
different raw material supplier enterprises.
 Availability of infrastructure
These include availability of the following: -
 Power
 Transportation
 Communications
 Water
 Health center
 Financial institutions etc.
Since our business concentrated on towns there will not be lack of all the above infrastructures.
 Access to qualified labor pool
Since the business is machine business it requires skilled laborer’s to operate, control and maintain
the vending machines. As we know there are a lot of educated individuals which can perform the
above all functions. Since the machines are new to our country once we are giving some training to
this educated individual they can easily understand the overall operations.
4.4 Raw materials
Our business is not to manufactured products instead to give service to the community or to sell
products to the customers. these products are

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• snack foods
• plastic and tin soft drinks such as coca cola, Pepsi, mirinda, plastic juices
• hot drinks such as coffee and tea
 Technology
Several technologies are implemented in our business. the technologies are
 vending machine : it is the basic technology that we need to have in order to start our
business. there are allot of vending machines that can be used for our business based on the
type of products used. all this machines are operated electrically. this machines includes:
 Snacks Vending Machine The usual vending machine is one offering candy, and other snack
food. These machines are available in most locations including office buildings, schools, train
and bus stations, or malls and shopping facilities.
 Coffee Vending Machine These vending machines offer a coffee menu that allows
customers to pick specific types of coffees, chocolate drinks, or teas for a given price and
provides the cup, coffee, and milk or cream, if selected.
 Soft drink vending machines this vending machines offer a soft drink menu that allows
customers to pick specify type of soft drink.
controlling technologies for the machines
This vending machines are very advanced computerized machines which acquires advanced
controlling mechanism like ATM machines
installation mechanisms for the machines
when we install the machines, it requires several technologies.
 Machinery and Equipments
Machinery and equipment’s requirement for our business process depend on the following criteria:
• business capacity
• Production technique
• Easiness of operation
• Lower power consumption
• Easiness of transportation
Initially we are trying to have the following machine and equipments with the following quantities
this machines may not only bought but they may also rented.

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Machine name Quantity

Vending machine 10
Computers 3
Car for transportation of products 3
Paper cups 1000

Table ‎4-1 raw material

 Manpower requirement
Total of 8 manpower can be handled within the business. Technical staff with certificate and diploma
is sufficient to look after specific tasks at the business except qualified machine controllers, senior
mechanic (operator) and managerial staff.

Manpower Number Profession

Manager 1 In management
Shop keeper and secretary 1 Secretary
Machine operator 3 Mechanic
Driver 3 Driving
Total 8

Table ‎4-2 labor list

 Buildings
Since the machines are installed around more secured areas no need of special building is acquired
but since they have to protected from environmental impact small buildings are made for the
machines only. But since managerial, controlling and maintenance activities require offices we will
rent buildings.

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CHAPTER FIVE
5. FINANCIAL FEASIBILITY
5.1 Estimate the total capital requirements
 Seed capital: - Seed capital is the initial capital used when starting a business, often coming
from the founders' personal assets, friends or family, for covering initial operating expenses and
attracting venture capitalists. This type of funding is often obtained in exchange for
an equity stake in the enterprise, although with less formal contractual overhead than
standard equity financing. Because banks and venture capital investors view seed capital as an "at
risk" investment by the promoters of a new venture, capital providers may wait until a business is
more established before making larger investments of venture capital funding
Therefore for our business our seed capital is 1 million ETB.
 Initial investment cost
Fixed costs Quantity Total price
Car 3 450,000
Cost of machine 10 vending machines 794,850
Installation and transporting 10 300,000
Total cost ---- 1,544,850 ETB
Table 5-1 fixed costs
 Initial stock to fill a single vending machine
Items Quantity Unit cost Total cost (birr)
Snack 100 3.50 350
Chocolate 200 8 1600
Soft drinks 200 12 2400
Soda 100 13 1300
Water 100 4 400
Hot tea 500 cup 1 500
Hot coffee 500 cup 3 1500
Total 700 pcs - 8050
Table ‎5-2 Initial stock to fill a single vending machine
Where the above cost of each items are price of earning from the supplier. And the volume of hot tea
and coffee is 100 ml per cup. Therefore the total amount of cost for 10 vending machine became
= 10*8050
= 80,500 ETB
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 Furniture & Office equipments.
Furniture & other office equipments required for the enterprise are:
 shelf
 table
 computer
 writing materials & etc
Item Cost(birr)
Shelves 2000
Tables & seats 5000
Computers 10,000
Writing materials 2000
Other necessary equipments 5000

Total 24000
Table 5-3 Furniture cost
For the three offices that located in 3 cities the total furniture cost is: -
= 3*2400
= 72000 ETB
 Ongoing cost
This cost include different costs that spend in monthly or daily costs those are ;-
 Monthly rental for the area or putting a vending machine and
 office and storing room
Ongoing expenses Price per month
Area of putting vending machine 5-10% of sales made
Office and storing room 2000 ETB
Table 5-4 Variable costs
The monthly rental or commissions paid to the business owners where we place our machine based
on the agreement. And this payment is only for a single machine therefore we must multiply it by 10
vending machine. Total office and storing room price is
= 2000*3
= 6000 ETB

 Taxes

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Just like any other business, vending machine businesses are responsible for paying taxes. In most
cases we will have to obtain a tax license for our machines depending on country taxes on the
revenue generated by the machine.
 Labor or worker price per month
Profession Quantity Unit price Total
Driver 3 2000 6000
Shop keeper 3 1500 4500
Technician 1 4000 4000
Manager 1 5000 5000
Total 8 - 19500 ETB
Table ‎5-5 Labor cost
 Other costs
Other operations Cost annually
Service and maintenance cost 5000
Electric power cost 60,000
Transportation 50,000
Personal expenditure 18,000
Total 178,000 ETB
Table 5-6 other cost
 Total capital requirement for this business is the sum of all the above costs.
Accounts head Total cost ETB
Fixed cost 1,544,850
Initial stock to fill 80,500
Furniture and office equipment 72,000
Ongoning costs 72,000
Labour cost 234,000
Other costs 178,000
Total cost 2,181,350
Table 5-7 Total costs

5.2 Means of financing our project

The principal capitals required for the project are:
 Equity capital
 Working capital
 Asset finance
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To meet these different types of capital requirements there are the following options of financing.
 Debt financing
 Equity financing
The business is to be financed by these two financing system in ratio of 4 to 6. That means 60% debt
and 40% equity. There for from the total project cost of 2,181,350 birr the proportion of equity and
debt is follows:
 Equity, 40%*2,181,350 = 872,540 birr
 Debt, 60%*2,181,350=1,308,810 birr
5.2.1 Debt financing
Debt financing requires paying back the amount of money borrowed and interest of this money. In
Ethiopia generally bank debt is at an interest rate of 12% per annum. Therefore, if need to pay back
the debt at the end of first year
1,308,810 + 0.12 ∗ 1,308,810 = 1,465,867.2
But, it is good to borrow this debt from Ethiopian development bank to pay back at a 5-years term
and paying 1\5 of the borrowed money and interest of loan at the end of each year.
1
∗ 1,308,810 = 261,762
5
Interest of money left unpaid at the end of each year can be calculated using the following formula
for 5 years: where
D= total remaining debt
P= payment for each year
Y= amount of left at the end of each year = P-D
I= interest = D*0.12
TP= total payment for each year = P+I
Year Debt Payment Amount left Interest Total payment

1 1,308,810 261,762 1,047,048 157,057.2 418,820

2 1,047,048 261,762 785,286 125,645.8 387,408

3 785,286 261,762 523,524 94,234.3 355,996.3

4 523,524 261,762 261,762 62,822.9 324,584.9

5 261,762 261,762 0 31,411.4 293,173.44

Total 1,779,982.64 birr

Table ‎5-8 Debt payment term.

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5.2.2 Equity financing
The project capital requirement of about 40% is fulfilled by equity financing. The Source of equity is
our selves by sharing the equity capital for 4 shareholders.
In equity financing having a share in profit is the main reason that individuals or organization acquire
ownership of certain business. Based on the amount of shares of stocks, the business should
distribute surplus profit among stockholders. From total profit 20% are divided or distributed among
stockholders according to their share amount in the enterprise for the first 2 years and it increases
based on our capital.
1,308,810
The level of debt-to-equity established by = = = 1.5
872,540
 A ratio of 0.3 or lower is considered healthy by many analysts.[10] In recent years though, others
have concluded that too little leverage is just as bad as too much leverage. Too little leverage can
suggest a conservative management unwilling to take risk.
 A ratio of 1.0 means that the company funds its projects with an even mix of debt and equity.[11]
 A ratio greater than 2.0 means that the company borrows a lot to finance operations. It means that
creditors have twice as much money in the company as equity holders.[12]
 Lower ratios mean that the company has less debt, and this reduces risk.[13] A company with less
debt will also have less exposure to interest rate increases and changes in credit conditions.
 Some companies will choose debt financing despite the increased risk. Debt financing allows a
company to gain access to capital without diluting ownership. It may sometimes also result in
higher earnings.[14] If a company with lots of debt becomes profitable, a small number of owners
may make a lot of money.
Therefore based on the above debt-to-equity established ratio the level of debt is not much higher
than equity it means the business is not in risk to pay the debt.

5.3 Expected cost and returns of the enterprise

The total project cost that we discussed before is the cost of initially acquiring the business and
operational costs to be paid monthly or in terms. This can be called production or operation costs of
the project. These costs are calculated in the table 5-6.

5.3.1 Total revenue costs

The number of vending machine annually based on our net profit and market adaptability. Therefore
based on those factors we decide to increase the numbers of machine and area of installing cities as
the following:-

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Year 1 Year 2 Year 3 Year 4 Year 5

No of cities 3 5 7 7 9

No of machine 10 17 19 24 25
Table ‎5-9 No of machine and cities in each year
Table ‎5-10 sales revenue analysis

1st stock of Year 1 Year 2 Year 3 Year 4 Year 5

Snack 100 100 100 100 100

Supply capacity Chocolate 200 200 200 200 200
Soft drink 200 200 200 200 200
Soda 100 100 100 100 100
Water 100 100 100 100 100
Tea 500 500 500 500 500
Coffee 500 500 500 500 500
Starting capacity 75% 75% 75% 75% 75%
utilization
Capacity utilization
growth rate 10% 5% 5% 5%
Capacity utilization of the 75% 85% 90% 95% 100%
year
supply per year(unit) Snack 75 85 90 95 100
Chocolate 150 170 180 190 200
Soft drink 150 170 180 190 200
Soda 75 85 90 95 100
Water 75 85 90 95 100
Tea 375 425 450 475 500
Coffee 375 425 450 475 500
Sales price per unit in Snack 375 425 450 475 500
year(birr) Chocolate 1500 1700 1800 1900 2000
Soft drink 2250 2550 2700 2850 3000
Soda 1125 1275 1350 1425 1500
Water 450 510 540 570 600
Tea 1125 1275 1350 1425 1500
Coffee 1875 2125 2250 2375 2500

Revenue 8,700 9,860 10,440 11,020 11,600

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This revenue is only for a single vending machine per one stock fill therefore the total amount of
revenue for all vending machine per one stock fill became:-
1 stock of 1 stock of 1 stock of 1 stock of 1 stock of
No of machine Year 1 Year 2 Year 3 Year 4 Year 5

10 87,000 98,600 104,400 110,200 116,000

Table ‎5-11 total sales revenue for 10 vending machine

5.3.2 Breakeven analysis

The concept is to achieve the combination that will yield the greatest amount of profits. Most
companies have many products, and often these products are not equally profitable. Hence, profits
will depend to some extent on the company's sales mix. Profits will be greater if high margin rather
than low margin items make up a relatively large proportion of total sales. Changes in sales mix can
cause interesting variation in profits. A shift in sales mix from high margin items to low margin
items can cause profits to decrease even though total sales may increase. Conversely, a shift in sales
mix from low margin items to high margin items can cause reverse effect-total profit may increase
even though total sales decrease. It is one thing to achieve a particular sales volume; it is quite a
different thing to sell most profitable mix of products. If a company sells multiple products, break
even analysis is somewhat more complex. The reason is that the different products will have
different selling prices, different costs, and different contribution margins. Consequently, the
breakeven point will depend on the mix in which the various products are sold.
Breakeven point occurs when the cost of producing commodity is equal to the total revenue of the
commodity. The level of operation utilized percentage of plant capacity is computed when relatively
simple model of revenue & costs are equated.
To analyze or estimate profit or loss, it is often necessary to determine the quantity of product at
which revenue & costs will be equal. As unit price is increased the revenue curve becomes steeper.
In accounting contribution margin is defined as revenues minus variable expenses. In other words,
the contribution margin reveals how much of a company's revenues will be contributing (after
covering the variable expenses) to the company's fixed expenses and net income.
For the following breakeven analysis table we use the following equations:-
= ∗

= � + + +
= � +
12,076,000
Total Variable Costs % = = ∗ 100% = 96.35%
12,528,000

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Establishment of vending machine business 2009 E.C
= − �
= 12,528,000 − 12,076,000
= 452,000
452,000
%= = 3.6%
12,528,000
�
� =
Number of stock per year
12,076,000
=
144
= 83,861 /
Total Fixed Costs
Total Fixed Costs = Number of stock per year
1,616,850
=
144
= 11,228 /
Sales cost ETB Percentage
 Average Price per stock 87,000
 Number of stock per year 144
Total Sales 12,528,000 100%
Variable Costs
 Initially stock to fill 11,592,000 92.5%
 Storehouse rental 72,000 0.57%
 Labor cost 234,000 1.86%
 Other costs 178,000 1.42%
Total Variable Costs 12,076,000 96.35% 83,861 ETB/stock
Contribution Margin 452,000 3.65%
Fixed Costs
 Investment cost 1.544,850
 Furniture cost 72,000
Total Fixed Costs 1,616,850 12.9% 11,228.2 ETB/stock
Table ‎5-12 Break even analysis table
From the above table breakeven point can be calculated as follows:

��
� =
� −� �

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Establishment of vending machine business 2009 E.C
1,616,850
=
87,000−83,861

= ���

We also calculate breakeven point by using breakeven calculator and we get the following result
Given your profit margin, it is important to know how many units of a certain product that you will
need to sell in order to cover your fixed/startup costs. Use this calculator to determine the number of
units required to breakeven plus the potential profit you could make on your anticipated sales
volume.
ANALYSIS
You would need to sell 515 units in order to cover your fixed costs. If you sell your anticipated
87,000 units then your profit/loss would be 271,476,150 ETB.

Figure ‎5-1 figure break analysis

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Table 5-13 table of break analysis

N.B All the above price is in ETB
Summary of input
Total fixed costs 1,616,850 ETB
Variable cost per unit 83,861 ETB
Sales price per unit 87,000 ETB
Anticipated unit sales 87,000 ETB

Table ‎5-14 input summery table

Results: - we would need to sell 515 stocks in order to cover our fixed costs. If we sell our
anticipated 87,000 units then our profit/loss would be 271,476,150 ETB.
515
There for the total year that we satisfy this amount of stock in =
144
= 3.6
Definitions and terms used in Profit Analysis
Selling Price per Unit The price that a unit is expected to be sold for.
Selling Units The number of units expected to be sold (determined by a contract or market research).
Fixed Cost (FC) The cost that remains constant within a range of production or sales, regardless of
the number of units produced or sold within that range. Typical fixed costs are: rent, mortgage,
equipment, salaries, insurance, fixed utilities (office utilities) etc.
Variable Cost per Unit The cost that vary with the production or the purchase of one unit.
Total Variable Cost (VC) The cost that varies directly with the number of units produced or sold.
Typical variable costs are: materials, packaging and shipping, sales commission, hourly wages,
variable utilities (factory utilities) etc.
Total Variable Cost = Selling Units x Variable Cost per Unit
Total Cost (TC) Total expenses incurred in the process of producing or selling a number of units.
Total Cost (TC) = Fixed Cost (FC) + Total Variable Cost (VC)

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Total Revenue The total sales value of the units produced or sold.
Total Revenue = Selling Units x Selling Price per Unit
Profit The benefits from producing or selling a number of units.
Profit = Total Revenue - Total Cost
Target Profit The profit that the company intend to realize.
Target point The point where the Target Profit is realized.
Profit margin The ratio of profitability calculated as Profit divided by Total Revenue. Profit margin
is an indicator of a company's pricing policies and its ability to control costs. It measures how much
out of every dollar of sales a company actually keeps in earnings (expressed as a percentage).
Profit Margin = (Total Revenues - Total Cost) / Total Revenues x 100
Markup The amount added to the cost of a product to cover expenses and profit in fixing the selling
price. Markup is equal to profit.
Markup percent The ratio calculated as Markup divided by Total Cost. It measures how much is
added to the cost in order to determine the selling price.
Markup percent = (Total Revenues - Total Cost) / Total Cost x 100
Using profit analysis calculator we get the following results

Input
Selling Price per Unit: 87,000.00
Fixed Cost: 1,616,850.00
Variable Cost per Unit: 83,861.00
Target Profit: 2,000,000.00
Target units: 1,152.23
Total Revenue: 100,244,010.83
Total Cost: 98,244,010.83
Total Cost per Unit: 85,264.24
Profit margin: 2.00 %
Markup percent: 2.04 %
Profit: 2,000,000.00
5.3.3 Assumption Reliability
 Price: price determination of products is not solely set; rather it depends on the following factor:
 Price of the same products in related industry
 Proportion of cost and sales values
 Customer (society) considerations: it is better to look to customer when setting price for
products.

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 Production capacity: production capacity of the business is not solely made; rather consider the
following points:
 Demands of the products
 Amounts of inputs
 Capacity of our machineries and equipments
 And other governmental and political issue
Consideration of the above point will certify the reliability of production capacity assumptions.
 Efficiency: -efficiency of the business depends on the following points:
 Reliability of machineries and equipments
 Willingness of our customer to buy our products in the feature and etc.
Fulfilling the above condition the enterprise can meet its plan to some extent .but there are
constraints and tackles which limits (reduce) efficiency. Some of these are:
 Shortage of supplier
 Culture of people
 Shortage of power
 Competition with related business scenarios
 Market access and market share: As mentioned so far accessibility of market may vary through
the year. It may be quarterly or monthly due to the reason mentioned so far, but the variation from
year to year is almost constant. Since we introduce new technology to the market we have to
consider the following points:
 Reducing of price
 High advertisement and etc.
All the above the reason will certify the reliability of our assumption.

5.4 Benchmarking
Benchmarking is determination of specification taking other industry as reference .this includes
taking good trials by other industry and bring it to work. Another way of benchmarking is
benchmark against competitors that is looking competitor’s strategy and then fitting the pricing
strategy to be followed by the enterprise. for our business there is no benchmarks in our country but
there are a lot of bench marks in foreign countries.
 Availability of skilled man power
As mentioned so far the business will not require many skilled and experienced manager rather one
qualified manager can lead the business. Because the business is not such complex, it is small
business with small number of employer and machineries and equipment.
 Availability of consultant and service provider

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When unpredictable problem which is not solved by manager and owners of business the business
requires another body which work with them and plant manager to solve the problem. Consultant
and service providers are required when there is:
 Accounting problem
 Legal problem
 Organizational problem and etc.
And this body includes:
 Legal experts
 Accounting experts
 Industry experts and etc.

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CHAPTER SIX
6. ORGANIZATIONAL/MANAGERIAL FEASIBILITY
6.1 Business structure
There are various forms of legal structure of organization such as sole proprietorship ,partnership
,corporation and cooperatives to organize small business. We evaluate each of these available forms
of legal structure by considering the merit and demerit of each structure. Then we select the one
which is optimal for the establishments of our enterprise. That is called partnership.
As definition, partnership is the association of two or more people to carry as co-owner of business
where the relation is based on agreement. Establishment of our enterprise is due the association of
four persons (our group), where the relationship is based on an agreement. The partner decides to use
the available asset of the enterprise to cover the debt. The following are advantage of partnership
forms of legal structure, which are critical for the enterprise:
 ease of starting
 increased source of capital
 combination of managerial skill
 definite legal status
 motivation of important employees
 reduced risk
By considering all the above advantages we are selecting the partnership form of legal structure for
our business establishment .But this partnership also has demerit such as:
 unlimited liability
 risk of implied authority
 lack of harmony
 lack of continuity (instability)
Even if it has this disadvantage it is more important for the establishment of our enterprise as
compared to the other legal structure of the business.
 Identify any potential joint venture partners, alliances or other important share take
holders
At the start of our business we are not want to include joint venture partners and important share take
holders. This is because:
 They will influence our decision making process
 of course joint ventures have limited scope and time but it needs agreement with the
partners so it is difficult to make agreement with other share holders and joint ventures

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But in the future with the advancement of our business we may open our doers for other business
ventures and share take holders.
 Identify availability of skilled and experienced and business managers
It is quite important to have a more experienced and skilled manager for the success of our business.
This is because manager is the highest decision making body in the enterprises. Since our business is
new it may be difficult to get a skilled and experienced manager on this vending machine business
but managers who have skills on other businesses can easily manage this business enterprise. In our
country context several individuals are graduated from the universities in business management.
Therefore availability of business managers is not a difficult thing.
 Identify availability of consultants and service providers,
At the starting of the business and during the business process we need several consultants in terms
of:
 business laws and governmental legislations
 What factors will lead to failure to our business
 selecting business sites etc
There are a lot of legal , accounting, and industrial experts who can consult our business enterprise in
our country who have their own office.
 Lines of authority and decision making
In current condition all governmental and nongovernmental institution, industry both in
manufacturing and service are obliged to implement new way of governance. What we call it
business reprocess engineering (BPR). This BPR is used to:
 Redundancy in the job is reduced
 Bureaucracy is eliminated
 Supervision by different person
 Good way of decision making
 Shortest lines of reporting

MANAGER

SECERETARY $ OPERATORS $
FINANCE DRIVING
TECHNICIAN

Figure ‎6-1 authority and decision making

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6.2 Business founders

 Do the founders have the skills and ability to complete the project?
Since we start the business with grate study and analysis the project can be goes to completion. and
since the founders of this business are clearly understand what role this business does play to the
society we can devote all what we have to complete the project.
 What key individuals will lead the project?
All the partners of this business have the ability to lead the project but sometimes one individual may
have greater ability than the others so that individual will be a key to lead the project than the others.
 Is there a reward system for the founders? Is it based on business performance?
The reward for the founders is being the owner of the business and they will get profit in the future
also they can make decisions without the influence of any one.

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CHAPTER SEVEN
7. CONCLUTION
Based on the above feasibility study we conclude that this business does not have any competitors
and the exits alternating are does not the ability to compete with our business because of its different
variety and scope of the business is wide. And also the visibility of this business is tangible when we
see the revenue and total capital of the project. Us we mentioned in the above this business is
initially started using 10 vending machine and 2,181,350 ETB of initial capital in three selected
areas. Then it returned its debt and any other costs in 3.6 years and gives full profit because of these
our sales projection is increasing highly and it goes to 25 vending machine installation in 9 cities for
the next 5 years.

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CHAPTER EIGHT
8. REFERENCE
1. ↑ http://www.investopedia.com/terms/c/capitalstructure.asp
2. ↑ http://www.investopedia.com/terms/l/leverage.asp
3. ↑ http://www.investopedia.com/terms/e/equity.asp
4. ↑ http://www.investopedia.com/terms/d/debtequityratio.asp
5. ↑ http://www.investopedia.com/terms/d/debtequityratio.asp
6. ↑ http://www.accounting4management.com/debt_equity_ratio.htm
7. ↑ http://www.investopedia.com/terms/o/obsf.asp
8. ↑ http://www.fool.com/investing/value/2007/06/20/using-the-debt-to-equity-
ratio.aspx
9. ↑ http://www.investopedia.com/university/ratios/debt/ratio3.asp
10.↑ http://www.fool.com/investing/value/2007/06/20/using-the-debt-to-equity-
ratio.aspx
11.↑ http://www.accountingformanagement.org/debt-to-equity-ratio/
12.↑ http://www.investopedia.com/university/ratios/debt/ratio3.asp
13.↑ http://accountingexplained.com/financial/ratios/debt-to-equity
14.↑ http://www.investopedia.com/terms/d/debtequityratio.asp
15.↑ http://www.investopedia.com/terms/d/debtequityratio.asp
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