NAME: SAKA KEHINDE

SEAT NUMBER: 55

COURSE NAME: ENTREPRENEURSHIP

HND 1 (EVENING) COMPUTER SCIENCE

QUESTION: A BUSINESS PLAN OF WATER TUBES PLUMBING

BUSINESS PLAN FOR WATER TUBES PLUMBING 

Executive Summary 

Water Tubes Plumbing is a Akure-based plumbing company that has chosen residential
new homes as their niche. Water Tubes will be able to handle any service request for
plumbing of volume home builds or custom new homes. By concentrating on a specific
segment of the market, Water Tubes will be able to rapidly gain market
share demonstrating their proficiency and professionalism in serving a specific market
niche.

Water Tubes will leverage their competitive edges of professionalism and trim quality by
properly training all of their employees and impress customers who are used to the
lackadaisical attitude of most plumbers. Water Tubes will have a total of four employees
and will reach profitability by month eight.

1.1 Objectives

The objectives for the first three years of operation include:

1. To develop a company whose primary goal is to exceed customer’s expectations.

2. To increase sales so in four to five years Don can hire another master plumber.
3. To create a sustainable business, surviving off its own cash flow.

1.2 Mission

Water Tubes Plumbing’s mission is to provide the finest new house plumbing

installation. We exist to attract and maintain customers. When we adhere to this
maxim, everything else will fall into place. Our services will exceed the expectations of
our customers.

1.3 Keys to Success

The keys to success are to provide the customer with a fair price and outstanding
service.
Company Summary 

Water Tubes Plumbing, soon to be located in Akure, OR, will offer plumbing services for
residential new houses as well as custom new houses. The business will be based out
of Saka Kehinde’s house. Water Tubes will have four employees by the end of the year.

2.1 Start-up Summary

Water Tubes will require the following equipment and materials:

 Two trucks (used) fitted with a pipe rack on top.

 Assorted pipes (different diameters and materials).
 Assorted fittings.
 A 30 gallon bucket to store fittings.
 Pipe wrenches.
 Reciprocating saw.
 Circular saw.
 Whole hog (high torque right angle drill).
 Cordless screw gun.
 Propane torch.
 Cast iron pipe cutter.
 Extension cords.
 Pipe dope (Teflon tape in paste form).
 Computer with CD-RW, printer, Microsoft Office, QuickBooks Pro.
 Desk, chair, and filling cabinet, and assorted stationary.
 Mobile phone.

Please note that the items which are considered assets to be used for more than a year
will be labeled long-term assets and will be depreciated using G.A.A.P. approved
straight-line depreciation method.

Start-up
Requirements
Start-up Expenses
Legal N200
Stationery etc. N150
Brochures N0
Consultants N0
Insurance N0
Rent N0
Research and Development N0
Expensed Equipment N0
Other N0
Total Start-up Expenses N350
Start-up Assets
Cash Required N19,650
Other Current Assets N0
Long-term Assets N24,000
Total Assets N43,650
Total Requirements N44,000
Start-up Funding
Start-up Expenses to Fund N350
Start-up Assets to Fund N43,650
Total Funding Required N44,000
Assets
Non-cash Assets from Start-up N24,000
Cash Requirements from Start-up N19,650
Additional Cash Raised N0
Cash Balance on Starting Date N19,650
Total Assets N43,650
Liabilities and Capital
Liabilities
Current Borrowing N0
Long-term Liabilities N0
Accounts Payable (Outstanding Bills) N0
Other Current Liabilities (interest-free) N0
Total Liabilities N0
Capital
Planned Investment
Don N24,000
Friends and family N20,000
Other N0
Additional Investment Requirement N0
Total Planned Investment N44,000
Loss at Start-up (Start-up Expenses) (N350)
Total Capital N43,650
Total Capital and Liabilities N43,650
Total Funding N44,000
2.2 Company Ownership

Water Tubes Plumbing is a sole proprietorship owned by Saka Kehinde.

Services

Water Tubes offers the finest in residential home plumbing construction as well as
custom new home construction.  Residential construction is chosen because it is
straight forward and clean.  Estimates are far more accurate and the company is
dealing with a few contractors instead of many home owners.  Additionally, there is no
need to be on call 24 hours a day, a major downside of being a  traditional plumber.

New construction will be typically bid at N1 per foot plus a multiple of N400 per fixture. 
Fixtures include sinks, toilets, tubs, etc.

The two other elements of Water Tubes services are professionalism and trim quality. 
Professionalism of Water Tubes is clearly a service offering that will be highlighted as
well as trim quality which is the part of plumbing that is visible to the customer.

Market Analysis Summary 

Water Tubes  will be focusing on a specific niche in the plumbing market, new homes. 
The company will target both volume builders of new homes as well as customer
builders.

Through a combination of networking activities and advertisements, Water Tubes will

increase their visibility among home builders allowing them to gain market share.

4.1 Market Segmentation

Water Tubes will target two distinct segments in the plumbing market:

1. Volume residential home builders. These builders are creating many

different homes, often at the same time, often on the same plot of land.  These
builders are in need of a professional, well priced, reliable plumber for all of their
residential new builds.  This is an attractive market niche because the plumbing
jobs are clean, numerous, and reasonably easy to do.  Once a builder has found
a plumbing company that they are happy with, a long-term relationship is often
established, ensuring a constant flow of future jobs.
2. Custom home builders. These builders are in need of a plumbing company for
their custom projects.  This segment is attractive because the margins are better
than typical build jobs and the projects can be fun to do because it requires
 creativity and thoughtfulness to accomplish the task within the established
designed constraints.  This target market makes up a smaller percentage of
Water Tubes forecasted sales.

Market Analysis
Potential Customers Growth CAGR
Volume home builder 7% 120 128 137 147 157 6.95%
Custom home builder 7% 45 48 51 55 59 7.01%
Total 6.97% 165 176 188 202 216 6.97%
4.2 Target Market Segment Strategy

The plumbing market (excluding direct to the consumer jobs) is a highly networked
industry where everyone knows everyone and jobs are won or loss by who you know. 
With this in mind, Don will work hard to establish himself as an experienced,
professional plumber who is concentrating on the residential new builds market.  This
will be done in part through networking with all home builders.  The networking will be
an important method to increase visibility of Water Tubes because most home builders
are always looking for professional, high-quality plumbers.  It is advantageous for
Water Tubes to position themselves as solely working with the residental new build
market because it is attractive to builders to form a relationship with a plumber that is
specializing on the new build market and not trying to do a little of everything. Water
Tubes will be marketing themselves with an advertising campaign in the local home
builders journal. 

4.3 Service Business Analysis

The plumbing industry is state regulated.  The state regulates the industry through a
licensing process based upon the Universal Building Code.  The code is state specific
and is a comprehensive code for all building issues.  There are three skill levels of
plumbers.  The first is the apprentice who is basically a skilled laborer.  In Akure,
apprentices earn from N8-N12 an hour depending on experience level.  The next level is
a journeymen.  To achieve the journeymen license you must past the state journeymen
test.  Journeymen in Akure typically earn from approximately N18 an hour.  The last
step in the plumbing hierarchy is a master plumber.  A master plumber is a journeymen
with more than 10 years experience and their earning potential is from N35-N50 per
hour. 

In order to do work in the state, it is required that a deposit is made into the workers
compensation fund of N4,000 during the first year.  This is only for new companies that
have no record of revenue, and no record of worker compensation history.  After one
year of no claims, N1,000 is refunded per year and after five years the entire amount is
refunded.  In essence, this is acting as a bond for newly formed companies.

The timetable for work in this niche is as follows:

 Two people, one full day, rough-in (plumbing in the floors and concrete).
 Two people, one full day, top-out (plumbing in the walls).
 One person, one full day trim (sections visible to the end-user).

Please note that within the industry ratios’ the gross margin for the industry is
significantly lower than what is forecasted for Water Tubes.  The variance can be
explained by the fact that the industry ratios are for repair plumbing as well as new
construction.  The repair work is more parts intensive and has skewed the gross margin
ratio.

4.3.1 Competition and Buying Patterns

The plumbing market is quite competitive, and consequently in order to reap decent
profits, large quantity of work must be done.  Competitors can be broken down into
three groups:

1. Chains: these plumbing companies are a franchise or a division of a larger

chain.  The chains typically do repair work instead of new building construction,
but sometimes they do work with new builds.
2. Private companies: these companies are typically local.  In order to generate
sufficient revenue, they will offer a wide range of services.
3. Large commercial & residential companies: these are the local Starbucks of
the plumbing world and will bid on any type of plumbing project, whether
commercial or residential, repair or new builds.  The majority of jobs that this
competitor will work on is the larger commercial projects, but a getting a
contract with a volume home builder would be attractive.

The buying habits of the target segments is based primarily on networking.  Once a
relationship is established, the builder will typically give the plumber one to two jobs to
display their work before any type of long-term contract/relationship is developed.

Strategy and Implementation Summary

Water Tubes will first increase visibility through networking activities.  Don will leverage
his years as a local plumber working for a larger company.  Once Water Tubes has
developed visibility, they will highlight their competitive advantages of professionalism
and trim quality with a test project for the builder.  Generally, Water Tubes will be able
to win over contracts after their initial display of workmanship.

5.1 Competitive Edge

Water Tubes has two competitive advantages that they will leverage to gain market
share:
  Professionalism. Fortunately for Water Tubes, professionalism seems to be
absent among many plumbers skill sets.  Water Tubes will exhibit their
professionalism in all aspects of customer interaction as well as job
performance.  It is very common for plumbers to bid out for more items that
they can handle at once.  This is done because the assumption is that they will
not get all the jobs they bid for so it is likely that their job load will be balanced
out in the long run.  Some times this works, other times it fails.  This is a
common source of unprofessionalism that will not happen at Water Tubes. 
Additionally, all employees will be indoctrinated into this customer-centric
culture, ensuring that all interactions with anyone from Water Tubes will be a
positive experience.
 Trim Quality. This is the part of the job that is visible to the customer as
opposed to the bulk of the work that is hidden behind cabinets and walls.  There
are not a lot of plumbing companies that have consistently good trim quality.  
This is one way that Water Tubes can easily stand out relative to the
competitors.  Having high trim quality is also an easy way to impress home
builders since they will have to fix any issues that are unsatisfying to home-
buyers, so sloppy trim work will usually have to be remedied at some point,
usually when it is inconvenient.

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5.2 Marketing Strategy

As mentioned earlier in the Target Market Segment Strategy, Water Tubes marketing
campaign will be based on both networking as well as advertising.

 Networking. This will consist of meeting with builders that Don had worked
with in the past, as well as others in the industry.  Don will chat with them and
let them know about his current venture and request a trial build to prove
himself.  Because the industry is so closely networked, whenever he runs into
someone he will mention his new company.  This will spread the word rather fast
as contractors tend to bump into each other all over town, both socially as well
as professionally.
 Advertising. Don will be running advertisements in the local home builders
journal.  This publication is a printed resource that home builders will typically
consult when they are in need of a contractor for a specific service in the
construction of their house.  Because the readership is targeted and so closely
interconnected, advertisements will be quite effective.  Don will also put an
advertisement in the Yellow Pages, however Don believes that the
advertisements in the trade journal will be more effective due to the closer
demographics and behavior factors of the readership group.

5.3 Sales Strategy

Water Tubes sales strategy will be to get at least one job with the new builder to
provide them with an example of Water Tubes work.  Based on the current competition,
a display of Water Tubes competitive edges of professionalism and trim quality will
likely be more than sufficient to turn a prospective customer into a long-term
relationship.

5.3.1 Sales Forecast

The first month will be used to set up the business.  The second month will be used to
train an employee as well as to undertake several jobs.  The third month will be used to
train two more employees as well as do a few other jobs.  By the fourth month it is
forecasted that Water Tubes will have a volume relationship with one builder.  Month
four will also see a custom home built.  Month six will mark the development of another
volume builder.  From month six on there should be a steady increase in sales activity.

Sales Forecast
Sales
Non-custom homes N104,858 N151,987 N165,454
Custom homes N29,000 N38,765 N49,876
Total Sales N133,858 N190,752 N215,330
Direct Cost of Sales Year 1 Year 2 Year 3
Non-custom homes N10,486 N15,199 N16,545
Custom homes N2,900 N3,877 N4,988
Subtotal Direct Cost of Sales N13,386 N19,075 N21,533

5.4 Milestones

Water Tubes will have several milestones:

1. Business plan completion.

2. Office set-up.
3. Training of all employees.
4. The establishment of the second volume home builder.
5. Profitability.

Milestones
Milestone Start End Budget Manage Department
Date Date r
Business plan completion 1/1/2001 2/1/200 N0 ABC Marketing
1
Office set-up 1/1/2001 2/1/200 N0 ABC Department
1
Training of all employees 1/1/2001 4/1/200 N0 ABC Department
1
The establishment of the second 1/1/2001 7/1/200 N0 ABC Department
volume home builder 1
Profitability 1/1/2001 9/1/200 N0 ABC Department
1
Totals N0

Management Summary 

Saka Kehinde received his National Diploma from the Federal Polytechnic Ado Ekiti. 
After college, Kehinde decided to learn more about plumbing, one of the odd jobs that
he did in college.  After six months of inconsistent work Don landed a job with a larger
plumbing company that did both residential and commercial work.  Kehinde started as
an apprentice, but within four months had passed his journeymen exam.  Don
continued to work for this company for ten years, receiving his master plumbing
designation right at the ten year mark.  At this point Kehinde decided that he wanted to
try operating his own company, leveraging skills learned in college as well as providing
him the flexibility of being his own boss.  It was at this point that he started writing the
business plan for Water Tubes and eventually quit his job.

6.1 Personnel Plan

Don will be the only employee for the first month.  Don will bring on board a second
employee during month two, and two more employees on the third month.  It is
forecasted that Water Tubes will stay at four employees for the foreseeable future.

Personnel Plan
Don N36,000 N40,000 N50,000
Journeymen employee N28,800 N34,560 N34,560
Apprentice employee N17,600 N19,200 N19,200
Apprentice employee N16,000 N19,200 N19,200
Total People 4 4 4
Total Payroll N98,400 N112,960 N122,960

Financial Plan 

The following sections will outline important financial information.

7.1 Important Assumptions

The following table details important financial assumptions.

General Assumptions
Plan Month 1 2 3
Current Interest Rate 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0
7.2 Break-even Analysis

The Break-even Analysis indicates what will be needed in monthly revenue to reach the
break-even point.

Break-even Analysis
Monthly Revenue Break-even N11,520
Assumptions:
Average Percent Variable Cost 10%
Estimated Monthly Fixed Cost N10,368
7.3 Projected Profit and Loss

The following table and charts present the projected profit and loss.

Pro Forma Profit and Loss

Sales N133,858 N190,752 N215,330
Direct Cost of Sales N13,386 N19,075 N21,533
Other Production Expenses N0 N0 N0
Total Cost of Sales N13,386 N19,075 N21,533
Gross Margin N120,472 N171,677 N193,797
Gross Margin % 90.00% 90.00% 90.00%
Expenses
Payroll N98,400 N112,960 N122,960
Sales and Marketing and Other Expenses N1,800 N1,800 N1,800
Depreciation N3,456 N3,456 N3,456
Insurance/ License/ Bonds N6,000 N5,000 N4,000
Rent N0 N0 N0
Payroll Taxes N14,760 N16,944 N18,444
Other N0 N0 N0
Total Operating Expenses N124,416 N140,160 N150,660
Profit Before Interest and Taxes (N3,944) N31,517 N43,137
EBITDA (N488) N34,973 N46,593
Interest Expense N0 N0 N0
Taxes Incurred N0 N9,455 N12,941
Net Profit (N3,944) N22,062 N30,196
Net Profit/Sales -2.95% 11.57% 14.02%
7.4 Projected Cash Flow

The following chart and table display the projected cash flow.

Pro Forma Cash Flow

Cash Received
Cash from Operations
Cash Sales N133,858 N190,752 N215,330
Subtotal Cash from Operations N133,858 N190,752 N215,330
Additional Cash Received
Sales Tax, VAT, HST/GST Received N0 N0 N0
New Current Borrowing N0 N0 N0
New Other Liabilities (interest-free) N0 N0 N0
New Long-term Liabilities N0 N0 N0
Sales of Other Current Assets N0 N0 N0
Sales of Long-term Assets N0 N0 N0
New Investment Received N0 N0 N0
Subtotal Cash Received N133,858 N190,752 N215,330
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending N98,400 N112,960 N122,960
Bill Payments N32,139 N51,785 N58,188
Subtotal Spent on Operations N130,539 N164,745 N181,148
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out N0 N0 N0
Principal Repayment of Current Borrowing N0 N0 N0
Other Liabilities Principal Repayment N0 N0 N0
Long-term Liabilities Principal Repayment N0 N0 N0
Purchase Other Current Assets N0 N0 N0
Purchase Long-term Assets N0 N0 N0
Dividends N0 N0 N0
Subtotal Cash Spent N130,539 N164,745 N181,148
Net Cash Flow N3,319 N26,007 N34,182
Cash Balance N22,969 N48,976 N83,158
7.5 Projected Balance Sheet

The following table shows the projected balance sheet.

Pro Forma Balance Sheet

Assets
Current Assets
Cash N22,969 N48,976 N83,158
Other Current Assets N0 N0 N0
Total Current Assets N22,969 N48,976 N83,158
Long-term Assets
Long-term Assets N24,000 N24,000 N24,000
Accumulated Depreciation N3,456 N6,912 N10,368
Total Long-term Assets N20,544 N17,088 N13,632
Total Assets N43,513 N66,064 N96,790
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable N3,807 N4,297 N4,826
Current Borrowing N0 N0 N0
Other Current Liabilities N0 N0 N0
Subtotal Current Liabilities N3,807 N4,297 N4,826
Long-term Liabilities N0 N0 N0
Total Liabilities N3,807 N4,297 N4,826
Paid-in Capital N44,000 N44,000 N44,000
Retained Earnings (N350) (N4,294) N17,768
Earnings (N3,944) N22,062 N30,196
Total Capital N39,706 N61,768 N91,964
Total Liabilities and Capital N43,513 N66,064 N96,790
Net Worth N39,706 N61,768 N91,964
7.6 Business Ratios

The company’s projected business ratios are provided in the table below.  The final
column, Industry Profile, shows significant ratios for the Plumbing, Heating, Air-
conditioning industry, as determined by the Standard Industry Classification (SIC) Index
code 1711.

Ratio Analysis
Sales Growth 0.00% 42.50% 12.88% 6.60%
Percent of Total Assets
Other Current Assets 0.00% 0.00% 0.00% 29.30%
Total Current Assets 52.79% 74.13% 85.92% 84.40%
Long-term Assets 47.21% 25.87% 14.08% 15.60%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 8.75% 6.50% 4.99% 47.20%
Long-term Liabilities 0.00% 0.00% 0.00% 9.10%
Total Liabilities 8.75% 6.50% 4.99% 56.30%
Net Worth 91.25% 93.50% 95.01% 43.70%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 90.00% 90.00% 90.00% 26.50%
Selling, General & Administrative Expenses 92.95% 78.43% 75.98% 14.60%
Advertising Expenses 0.45% 0.31% 0.28% 0.40%
Profit Before Interest and Taxes -2.95% 16.52% 20.03% 2.20%
Main Ratios
Current 6.03 11.40 17.23 1.87
Quick 6.03 11.40 17.23 1.47
Total Debt to Total Assets 8.75% 6.50% 4.99% 56.30%
Pre-tax Return on Net Worth -9.93% 51.02% 46.91% 6.80%
Pre-tax Return on Assets -9.06% 47.71% 44.57% 15.50%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -2.95% 11.57% 14.02% n.a
Return on Equity -9.93% 35.72% 32.83% n.a
Activity Ratios
Accounts Payable Turnover 9.44 12.17 12.17 n.a
Payment Days 27 28 28 n.a
Total Asset Turnover 3.08 2.89 2.22 n.a
Debt Ratios
Debt to Net Worth 0.10 0.07 0.05 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital N19,162 N44,680 N78,332 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.33 0.35 0.45 n.a
Current Debt/Total Assets 9% 7% 5% n.a
Acid Test 6.03 11.40 17.23 n.a
Sales/Net Worth 3.37 3.09 2.34 n.a
Dividend Payout 0.00 0.00 0.00 n.a