TITLE : BUSINESS PLAN

BUSINESS NAME : AMOS CONSRTUCTION COMPANY

ADDRESS : P.O BOX, 532-NYERI
TELEPHONE : 0728583966
EMAIL : AMOS @g mail .com

PRESENTER : AMOS KIOGORA GEORGE

INDEX NO : 15304101204
COURSE : DIPLOMA IN ELECTRICAL & ELECTRONICS
INSTITUTION : MERU TECHNICAL TRAINING INSTITUTE
PRESENTED TO : KENYA NATIONAL EXAMINATION COUNCIL

SERIES : OCT/NOV 2015

©2015

i
Contents
1.0 BUSINESS DESCRIPTION.....................................................................................................................................1
1.1 BUSINESS NAME..................................................................................................................................................1
1.2 BUSINESS LOCATION AND ADRESS......................................................................................................................1
1.3 SKETCH OF THE BUSINESS LOCATION..................................................................................................................3
1.4 FORM OF OWNERSHIP........................................................................................................................................4
1.5 TYPE OF BUSINESS...............................................................................................................................................4
1.6 PRODUCT SERVICES.............................................................................................................................................4
1.7 JUSTIFICATION OF OPPORTUNITY.......................................................................................................................5
1.8 INDUSTRY............................................................................................................................................................5
1.9 BUSINESS GAOLS AND OBJECTIVES.....................................................................................................................5
1.10 ENTRY AND GROWTH STARTEGY.......................................................................................................................5
2.0 MARKETING PLAN.............................................................................................................................................6
2.1 INTRODUCTION...................................................................................................................................................6
2.2 CUSTOMERS........................................................................................................................................................6
2.2 MARKET SHARE...................................................................................................................................................6
2.3 COMPETITION.....................................................................................................................................................6
2.4 COMPETATION ANALYSIS....................................................................................................................................7
2.6PRICING POLICY....................................................................................................................................................8
2.7 SALES TACTICS.....................................................................................................................................................8
2.8 SALES POLICY ON PRODUCTS..............................................................................................................................8
2.9 DISTRIBUTION POLICY.........................................................................................................................................8
3.0 ORGANIZATION AND MANAGEMENT................................................................................................................9
3.1 BUSINESS MANAGER...........................................................................................................................................9
3.2 OTHER PERSONELL..............................................................................................................................................9
3.3 RECRUITMENT TRAINIG AND PROMOTION.......................................................................................................10
3.4 REMUNERATION AND INCENTIVES....................................................................................................................10
3.5 EXTERNAL SUPPORT SERVICES..........................................................................................................................10
3.6 GENERAL ORGANIZATION.................................................................................................................................11
3.7 ORGANISATION STRUCTURE.............................................................................................................................11
4.0 OPERATION./PRODUCTION PLAN....................................................................................................................12
4.1 PRODUCTION FACILITIES AND CAPACITIES........................................................................................................12
4.2 PRODUCTON STRATEGY....................................................................................................................................13
4.3 SUMMARY FOR TABLE FOR TOTAL SALES PER MONTH.....................................................................................14

ii
 4.4 PRODCUTION PROCESS.....................................................................................................................................15
PLANT LAYOUT........................................................................................................................................................15
AFFECTING OPERATION...........................................................................................................................................15
5.0 FINANCIAL PLAN..............................................................................................................................................16
5.1 BOOKS OF ACCOUNTS.......................................................................................................................................16
5.2 PREOPERATIONAL COST....................................................................................................................................16
5.3 ESTIMATION OF WORKING CAPITAL.................................................................................................................16
5.4 ESTIMATIION OF THE FIXED ASSETS..................................................................................................................16
5.6.2 SUMMARY OF INCOME STATEMENT YEAR TWO............................................................................................21
5.6.3 SUMMARY OF INCOME STATEMENT YEAR THREE..........................................................................................22
5.7 BALANCE SHEET.................................................................................................................................................22
5.7.1 PROFORMA BALANCE SHEET FOR YEAR 1 FOR AMOS CONSTRUCCTION COMPANY LTD AS AT
31STDECENBER 2013...........................................................................................................................................23
5.7.2 PROFORMA BALANCE SHEET FOR YEAR 2 FOR AMOS CONSTRUCCTION COMPANY LTD AS AT
31STDECENBER 2013...........................................................................................................................................23
5.7.3 PROFORMA BALANCE SHEET FOR YEAR 2 FOR AMOS CONSTRUCTION COMPANY LTD AS AT
31STDECENBER 2013...........................................................................................................................................24
5.8.0 AMOS CONSTRUCTION COMPANY LTD BREAK EVEN POINT YEAR ONE....................................................24
5.8.1 AMOS CONSTRUCTION COMPANY LTD BREAK EVEN POINT YEAR ONE TWO............................................25
5.8.2 AMOS CONSTRUCTION COMPANY LTD BREAK EVEN POINT YEAR ONE TWO............................................26
5.8.3 BREAK EVEN POINT SUMMARY FOR YEAR THREE......................................................................................26
5.9 PROFITABILITY RATIOS......................................................................................................................................26
5.9.1 GROSS PROFIT MARGIN YEAR ONE.............................................................................................................26
5.10 RETURN ION EQUITY.......................................................................................................................................27
5.10.1 RETURN ION EQUITY YEAR ONE...............................................................................................................27
5.11 RETURN ON INVESTMENT (ROI)......................................................................................................................27
5.12 SUMMARY OF LOAN INTEREST........................................................................................................................28
5.13 LOAN PAYMENT..............................................................................................................................................28

iii
DECLARATION

I declare that this business plan is my original work and that it has never been presented to the Kenya
national examination cancel or any other examining body for the work of diploma certificate.

Name: ……………………………………

Index………………………………….

Signature…………………………… date……………………………….

This business plan has been submitted to the Kenya national examination cancel through my approval as

Supervisor Name: ……………………………………

Signature ……………………………… date……………………………..

iv
DEDICATION

This business plan is dedicated to my beloved parents and my school mate for helping me to write this
business plan.

v
ACKNOWLEDGEMENT

I am greatly indebted to My God for the inspiration He gave me through my life and especially throughout
the writing of this business plan. I acknowledge the efforts of my supervisor for wonderful devotion,
commitment and tireless support and guidance he offered in the course of writing and completing this
business plan.

I also pass my heartfelt gratitude to my dear loving mum and brothers and all my relatives for their moral
and financial support throughout my college life. Finally I cannot forget to express special gratitude to all.

vi
 CHAPTER ONE

1.0 BUSINESS DESCRIPTION

The business will be opened under the name ‘AMOS CONSTRUCTION COMPANY LIMITED.’

The business will entail crushing of big rocks and produce ballast of different grades. It will be a sole
proprietorship business located at Kiganjo, Nyeri. According to the survey carried out the business will
perform because the area is sparsely populated and presence of appropriate rocks to be crushed. The
business will be advertised through media and posters for customers.

1.1 BUSINESS NAME

The business name AMOS CONSTRUCTION COMPANY LIMITED was derived from three letters of
the owner’s name. The business is intended to start operating on the month of January next year 2016

The business idea came about during my three year course in civil engineering research that has been
carried out for two year.

The business will operate under a clear license from trade licensing board under cap 497.

The business slogan is “GROWING NATION”

1.2 BUSINESS LOCATION AND ADRESS

The business will be located at Kiganjo twelve kilometers from Nyeri town.

The business address will be: _

AMOS CONSTRUCTION COMPANY,

P.O. BOX 523

NYERI

TELEPHONE 0707357160

FAX 24053

EMAIL AMOS @g mail .com

The area lies on small hills and plains with few rivers. This makes most of the people to depend on
boreholes.

The area is just near the Kenya Police training College hence security is high; raw materials also are just
within. There is good accessibility and communication. The infrastructure is also favorable.

The business trade areas will be Nyeri town, Chaka, Kiganjo, Othaya, Karatina, Nanyuki, and other areas.

The infrastructure in the area has in the area has improved greatly due to business activities in the area and
construction companies have improved road network to enhance transportation of products.

1
The people on the area like being given first priority in employment.

BUSINESS LOGO

2
1.3 SKETCH OF THE BUSINESS LOCATION

AMOS
CONSTRUCTION
COMPANY TO NANYUKI

TO KIMATHI UNIVERSITY

CHAKA
MARKET

MAIZE FLOOR LIMITED

KENYA POLICE
TRAINING COLLEGE

TO NYERI

KENYA POLICE TO
TRAINING COLLEGE KARATINA

3
1.4 FORM OF OWNERSHIP

The proposed business will be a sole proprietorship form of business where the owner will be the managing
director. Others will be employed like a contractor and human resource personnel. The managing director
will also be the overall manager of all the sections, and then the human resource personnel will also be
dealing with employment e.g. other workers. The contractor will be in charge of quality products from
grinding machines. The business sponsors will be sponsored by many bodies namely family and friends,
NGO and equity financing.

The addresses

Family and friends

Box 927

Nyeri

And they promised to give 1.6m

Nongovernmental organization

Box 50435

Nairobi

And they promised to give 2.8m

The reason why for selected kind of business are:-

i. All profits made by the business will be kept by the owner.

ii. There will be fast decision making.

1.5 TYPE OF BUSINESS

The business will be offering products from machines which will be grinding stones become ballast into
three grades i.e. large size, medium size and small size. In the area there are also silver stones which will be
extracted and also sold to companies which deal with jewelry. The ballast will be sold to the customer who
soil layout and construction activities. The scope e.g. trade in the area is good because of good
infrastructure, security, communication availability of raw materials in the area and availability of labour.
The products will be sold to different towns I.e. Nyeri, Narumoru, Nanyuki, Othaya, Karatina, and other
surrounding arrears.

1.6 PRODUCT SERVICES

The business will entail in grinding stones which are very hard to produce ballast. It will involve digging
and breaking them to small sizes. There is a silver stone which will be dug and broken into small sizes and
sold to companies which produce jewelry.

4
1.7 JUSTIFICATION OF OPPORTUNITY

The business has a chance to succeed because of low competition in the business. This will enhance many
customers as possible. The other thing which will contribute towards the success of the business is
availability of free raw materials which will be loaded in Lorries by the e extractor and then taken to the
grinding machine.

1.8 INDUSTRY

The purpose business falls under engineering industry. It requires high technologies and high capital
investment which is simple and will be able to cater for the work area. High quality machines will also be
required i.e. grinders, extractors, industrial tractors and computers. More qualified employees will be
employed to achieve the main objectives set.

1.9 BUSINESS GAOLS AND OBJECTIVES

SHORTER TERM GOALS

- The business goals will be operating even at night.

- Employ more worker s as business progress with increase of customers.

LONG TERM GOALS

- Introduction of building blocks, stones in the period of 2-4 years.

- Diversifying to offer services like earthworks.

1.10 ENTRY AND GROWTH STARTEGY

I. ENTRY STARTEGY

AMOS Construction Company Limited will star operating from January 2017. The business will be
advertised through posters and media and printing calendars under the business name. The business intends
to increase the volume by offering discount and affordable prices to the customers.

GROWTH STRATEGIES

In the course of operation, profits will be maximized to maintain the potential customers. This will help the
business to have more sales which will make it possible to branch to other arrears like Nanyuki and
Murang’a.

5
 CHAPTER TWO

2.0 MARKETING PLAN

2.1 INTRODUCTION

Since the business is located near towns, posters will be printed and hanged into places of public
institutions, market places, churches etc. As a new business it will be able to make a profit of 40% in the
first year and later 3rd and 5th year of the establishment it attains a profit of about 55%. The area covers a
population of 60000 people and the business is intending to meet at least 24000 people and serve them
properly.

2.2 CUSTOMERS.

My customers will be individual customers and groups who shall be holding construction works in order to
buy products. There will be no limit of age sex or tribe. Quick services will be offered in the company and
hence attract more customers. The customers are expected to purchase from 7:00 am to 6:00pm. Customers
will get the quality products and services. Large number of customers is expected in the morning and less
in the evening. The mode of delivery will be cash on delivery.

2.2 MARKET SHARE

The geographical area to be covered has a population of 60000 and potential customers are 24000 people.

Volume taken by the business in relation to total sale in the market is

24000 X 100 = 40%

60000
The area has great potential customers due to well paying jobs help people to invest in building of houses
to rent. The peak sales will be at morning. Changes expected in a period of 3-5 years are improvement of
standard of living. Stone block building, tarmac road on all market places.
2.3 COMPETITION.

The major competitors are:-

i) KEEN CONSTRUCTION COMPANY
BOX 315 25%
NYERI
ii) PATWAT CONSTRUCTION COMPANY
BOX 481 20%
NYERI
iii) ABARDARE CONSTRUCTION COMPANY
BOX 481 23%
OTHAYA

6
 Competitors sell in the same market. Each competitor has a market share.

MARKET SHARE
23 AMOS CONSTRUCTION
CAMPANY 40
40
PAT WAT CONSTRUCTION
COMPANY
KEEN CONSTRUCTION
COMPANY
25 ABARDARE CONSTRUCTION
COMPANY
20

2.4 COMPETATION ANALYSIS

COMPETITO LOCATION PERCENTAGE STRENGTH WEAKNESS STRATEGIES TO

R % COMPETE
Keen Nyeri Near 25% Keep records Poor Pricing
construction Kagumo Good infrastructure Good advertising
teacher management Poor Offer after sale
college. High quality advertising services.
goods method.
High Low salaries
technology to the
Good workers.
customer High pricing
relation of the
Good outlook products
in term of Don’t offer
cleanliness. sales
products.
Pay way Nyeri 20% Offering poor Improve
construction co. discounts customer r technology
Offering after elation Have good
sales poor customer relations
services. infrastructure Good
High quality low infrastructure.
production technology
Good
advertising.
Aberdare Othaya 23% Good Poor High quality
construction co. advertisement technology technology
Good pricing Poor Offer after sale
High quality customer services
goods. relation Have good
Offered Don’t offer customer relations

7
2.5 METHODS OF PROMOTION AND ADVERTISEMNT

The business is located in an area with improved infrastructure therefore it will be able to attract more
customers. The business also offers high quality products, good customer relation, offer after sale services,
high quality technology and painting f the premises. The method mentioned above will be used per month
and trail cost per month will be Kshs 3000 through newspapers and Ksh 1250 through posters. The method
of choosing the above methods is they are cheap and a can be offered at any time.

2.6PRICING POLICY

The pricing policy will be Ksh 9000 per every 14 tones of ballast

Production cost

Labour – 320000

Bill – 20000

Advertisement - 4000petrol and diesel – 960000

Price = cost + markup

2.7 SALES TACTICS.

To reach the business resigned objects, the business focus on personal selling that is be weighing and
collecting money. This will minimize loss since the manager will be the owner of the business.

2.8 SALES POLICY ON PRODUCTS

Discounts will be for the customers who will buy large quantities of the products. No credit will be offered
for smooth running of the business.

The prices will be fixed but not negotiable.

2.9 DISTRIBUTION POLICY

The firm will undertake direct selling. I.e. the company will be producing products and selling them
directly to consumers. Road will be the means of transport because it is readily available, economical,
convenient, efficient and can go up to the door step of the buyer.

Tonnage will be determined by the number of trips made, quantity transported and miles covered.

Problems that are likely to occur are seasonal changes in relation to infrastructure hindering transportation
of the products.

ii) Competition from already established firms

iii.) Government policy

iv.) Low sale s due to low demand

8
 CHAPTER THREE

3.0 ORGANIZATION AND MANAGEMENT

The business will be organized and managed by the managing director (MD) who will be acting as the
overall manager then there will be a human resource manager and he shall be dealing with recruitment of
employees. He should have an experience of not less than three years. The manager must have a degree in
the related course and should be computer literate and honest.

3.1 BUSINESS MANAGER

The manager of the business will be the owner of the business. His name is EdwinMr. Maina aged 23
years. By the time the business starts he will have acquired a diploma in civil engineering. He has a three
months experience acquired during the industrial attachment.

EDWINMAINA

P.O. BOX 923

OTHAYA

His duties will be

- Finance and marketing

- Decision making
- Buying of machines and spare parts.

3.2 OTHER PERSONELL

There will be total of 15 employees in the company. These include two operators, three drivers, three
mechanical engineers, one water engineer, one electric engineer, one contractor, one human resource
manager, one managing director, two watchmen and one cashier. Human resource manager will be
responsible for recruiting of employees. He should be computer literate honest and have a degree in related
course. His proposed salary will be 50000 per month. Incentives are transport allowances of 10000 per
month, house allowance of about 14000 per month, insurance cover of 20000per month. Water engineer,
his work will be to operate all eater systems. Should be a diploma holder in related course, should be able
to work for long hours and honest. He will be given an allowance of 20000 and house allowance of 50000
and free medical service.

There shall be three drivers who will be driving Lorries. They should be honest and an experience of three
years. There will be free medical services and salary of 12000 per month.

There shall be a watchman who will be keeping security in the company. Should have done O level. The
salary will be 8000 per month each. Free medical services will be offered.

There shall be a cashier who will be handling money and should have done accounts. Should be a computer
literate and honest. The proposed salary will be 15000 per month and house allowance of 45000 per month
and free medical care.

9
Employees will be added salaries and incentives.

SUMMARY

PERSONELL NUMBER QUALIFICATIO DUTIES AND SALARY

N RESPONSIBILITIES
Managing 1 A degree in Making decisions 120,000
director management Act as overall boss
Planning and
coordinating
Human resource 1 A degree holder Recruiting workers 50,000
manager
Mechanical 2 Diploma holder To repair machines 80,000
engineer
A contractor 1 Diploma Look for orders 30,000
Water engineer 1 Diploma Repair water systems 20,000
Electrician 1 Diploma Repair lighting 20,000
systems
Operator 2 O level Operating machines 91,000
Cashier 1 C.P.A. Collecting money 12,000
Watchman 2 O level Keeping security 16,000

3.3 RECRUITMENT TRAINIG AND PROMOTION

I) RECRUITMENT
- Vacant position will be advertised through posters and news papers.
- Receiving application test.
- Short listing of qualified personnel
II) TRAINING

There shall be computer lessons for all staff members within the company. There shall be tours for staff
members. This will help to get new ideas from various companies and hence improve productivity.

III) PROMOTION

The employees will be promoted through presentation of curriculum advertisement. Experience and
academic qualification will be considered in promoting workers. Promotion will be on policy.

3.4 REMUNERATION AND INCENTIVES

The business will be motivating its employees by paying them allowances and incentives. Salaries will be
paid in good time.

3.5 EXTERNAL SUPPORT SERVICES

The business will be insured by United Insurance Company limited, Nyeri branch against risk of fire and
theft.

UNITED INSURANCE
10
 P.O. BOX 32

NYERI

KENYA POWER AND LIGHTING COMPANY

P.O. BOX 93

NYERI

Also the company will have an account where it will be saving its income eat cooperative bank Thika
branch.

COOPERATIVE BANK

P.O. BOX 215

NYERI

3.6 GENERAL ORGANIZATION

The business will be organized in four departments. The managing director will be making decisions and
control finance. Cash will be handled by the cashier who will be a diploma graduate in the related field.
The business will be holding meetings after a period of four weeks that is every month.

3.7 ORGANISATION STRUCTURE

MANAGING DIRECTOR

HUMAN RESOURCE MANAGER

CONTRACTOR

MECHANICAL ENGENEER WATER ENGENEER CASHIER ELECTRICIAN

OPERATORS DRIVERS SECUROCOR OFFICERS

11
 CHAPTER FOUR

4.0 OPERATION./PRODUCTION PLAN

The business operating will be effective as it will have the following machines: - Grinder, an extractor,
tractor, four computers and Lorries. The production shall be starting from 7:00 am to 10:00am. After there
then there will be a break of 35 minutes. The second operation shall be ending at 1:30pm for lunch break.

The third operation will start at 2:15pm and end at 5:15pm. The third production will be done throughout
the week except Sundays.

4.1 PRODUCTION FACILITIES AND CAPACITIES.

I) PRODUCTION FACILITIES

The business will require the following facilities for its effective running. Grinder, excavator, tractor,
computers, lorries. Some of these materials will be outright bought and others hired.

ITEM QUANTITY USE COST @ TOTAL

COST
Grinder 1 For grinding stones 2,100,000 2,100,000
Excavator 1 For excavating stones 2,200,000 2,200,000
Tractor 1 1,000,000 1,000,000
Computers 4 To keep records 50,000 200,000
Welding 1 For welding 98,000 98,000
machine 1(NO 14) For repairing machines 350 350
Pipe wedge 1 For greasing and lubricating machines 250 250
Greasing gun
TOTAL 5,598,600
All the tools, equipment, machine, and fixtures, will deprive at a rate of 5% on straight line basis. The
economic lifespan will be minimum of twenty years.

The machines that will be hired include excavator and welding machines. Those which will be bought as
second hand are computers and grinders.

II) BUSINESS PREMISES/WORKSHOP

The premise will be permanent bought by the owner. The business will install all the facilities, water,
telephone, electricity. The business shall have two gates, one for entrance the other for exit.

III) MATERIALS FOR PRODUCTION

The raw materials needed are cement, sand, hard rocks, diesel, engine oil, brake fluid, and grease.

ITEMS QUANTITY SUPPLIER COST @ TOTAL

Grease 20kg Kenol kobil 50 50
Engine oil 1 drum (120 Kenol kobil 1000 1020
liters)
Brake fluid 50ltrs Kenol kobil 600 600
Diesel 120ltrs Kenol kobil 1400 14000

12
Cement 2500kgs Samba cement 500 1250000
Sand 1500kgs Chinga 7 10500
transporters
Hard rock 100000 tones Surrounding 600 60000
area.
Total 60276150
Other materials needed will be receipt books, stationery, workshop detergents etc.

The materials will be readily available throughout the year.

IV) UTILITIES FOR PRODCUTION

The utilities for production will include water, electricity, firewood to burn bricks and telephone.

ITEM SUPPLIER QUANTITY COST TOTAL COST

PER MONTH
Water NYEWASCO 10000ltrs 2 20000
Electricity KPLC Nyeri 500watts 100 50000
Firewood Kim suppliers 20barrels 100 200
Telephone Kencom Post paid 1000 1000
73000
Total cost for utilities of production is 73,000.

4.2 PRODUCTON STRATEGY

I) PRODCUTION CONTROL

The overall controller will be the manager who will be the owner of the business. Human resource manager
will ensure that skilled workers are employed for better working control. Technology changes will be
implemented in the business.

The grinder operator shall be making sure the machine runs without stopping unless mechanical problem
occurs. He also should be time conscious for better quality control.

Mechanical engineers should be repairing machines immediately after breakdown to avoid delay.

Contractor should be looking for orders for various sites to increase production.

II) QAULITY CONTROL

Through the industry, each and every person should be working towards the best quality products.

Grinder operator should be instructing on the type of rock to grind.

High quality spare parts should be used when repairing the machines by mechanical engineer.

The managing director shall be inspecting the materials before work commences.

Tolls and machinery will be sharpened and lubricated regularly.

III) LABOURR CONTROL UTILISATION

13
Labour utilization should be controlled by the technicians and the overall controller will be the managing
director. Mechanical engineer shall be expected to control all the labour in that department for the labour to
be utilized maximally.

IV) TME CNTROL (WORKING SCHEDULE)

Normal working hours will be 7:00 am and continues for three hours nonstop up to 10:00am. After then
there will be a break of 35 minutes. Then the second operation will start at 10:36 am and end at 1:30pm for
lunch break. The third operation will begin at 2:15 pm.

The production will be throughout the week except on Sundays only.

WORK SCHEDULE

6:45 – 7:00 7:00- 10:00- 10:35- 1:00PM- 2:00 – 5:00

AM 10:00AM 10:35AM 1:00PM 2:00PM PM
Reporting Work Tea break Work Lunch break Work
time

V) PRODCUTRION COSTING

PRODCUTIONS QUANTITY COST TOTAL

Large size ballast 1 ton 5800 5800
Medium size ballast 1 ton 6200 6200
Small size ballast 1 ton 5100 5100
Dust 1 ton 4500 4500
TOTAL 21600

Total production cost per month = Kshs 21600

4.3 SUMMARY FOR TABLE FOR TOTAL SALES PER MONTH

PRODUCTION QAUNTITY COST TOTAL

Large ballast 10920 tons 6,333,600 6,33,600
Medium size ballast 109207 tons 6,770,400 6,770,440
Small size ballast 10927 5,569,200 5,569,200
Dust 10927 4,914,000 4,914,000
TOTAL 23,587,200

VI) PURCHASING POLICY

The policy shall be that no customer will be allowed to [purchase the product with the credit form. All the
vehicles to carry the product must be weighed to know the capacity in tones.

The supplier of cement will be samba cement and purchase records will be kept by the manager.

14
To control stock the enterprise will make sure it carries out stock on quarterly basis and maintain a
minimum of Kshs 200000 stocks.

VII) INVENTORY CONTROL

The business will maintain a stock of raw materials by transporting them from various areas. They include
hard rocks and silver stones.

Crushed stones i.e. ballast will be the ready products for sale.

To control stock the enterprise will make sure it carries out stock but stock taking on quarterly basis and
maintain a minimum of Kshs 200000 stocks.

4.4 PRODCUTION PROCESS

The first step will be verifying rocks for grinding. The excavator will load them to Lorries. The lorries will
be taking them to the grinder for grinding. The grinder will grind them into various sizes for instance large
size ballast, small size ballast, medium size ballast and dust. They will be heaped into different arrears
according to their sizes.

PLANT LAYOUT

PETROL GRINDING
STATION AREA
OFFICE

FINISHED PRODUCTS
STORE

INLET GATE EXIT GATE

AFFECTING OPERATION

i) All machine operators should wear protective clothing.

ii) No one should be late for work.

15
 CHAPTER FIVE

5.0 FINANCIAL PLAN

This deals with financial analysis of the business. It shows what is to be invested in financial operations
and what is expected from the investment.

5.1 BOOKS OF ACCOUNTS

The business will operate under the following book of accounts

– Cash book for entering cash money

- Journal – this is daily activities in the business.

- Ledgers – this are the expenses in the business.
- Purchase ledger – this will show the amount of materials and equipment purchased at a given time.

5.2 PREOPERATIONAL COST

These are cost incurred by the business before starting it fully operations.

The table below show the cost met by AMOS Construction Company before commencing its operations.
ITEM COST
Trade license 4000
Electricity 10000
Bank account opening 500
Travelling cost 5000
Office consumptions 200000
Purchase of machine 5550000
Purchase of land 10000
Loan processing fee 20000
TOTAL 5979500
The total preoperational cost is Kshs 5979500

5.3 ESTIMATION OF WORKING CAPITAL

SUMMARY OF THE WORKING CAPITAL

ITEM COST
Opening stock 21065500
Salaries 474500
Rent 59000
200000Electricity bill 200000
Loan payment 3500000
Stationery 15000
Mobile credit 21000
Miscellaneous 8000
Promotion advertisement 48000
Total 25418500
Total working capital Kshs 25418500

5.4 ESTIMATIION OF THE FIXED ASSETS

SUMMARY OF FIXED ASSETS

16
ITEM AMOUNT
Machine 5500000
Furniture 25000
Land 100000
Calculators 1500
Fires 1500
TOTAL 5628000

Total fixed asset is Kshs 5628000

17
5.5 CAHFLOW PROJECTION

SUMMARY PROJECTION CASHFLOW STATEMENT FOR AMOS CONSTRUCTION COMPANY YEAR 1

MONT
ITEM HS
TOTA
CASH INFLOWS JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC L
16640 14560 12480 166412 18720 166400 12480 14560 12480 14560 187200 172640
CASH SALES 00 00 00 1872000 48 00 0 00 00 00 00 0 00
10000 10000 10000 100000 10000 100000 10000 10000 10000 10000 100000 120000
DEBTORS 00 00 00 1000000 0 00 0 00 00 00 00 0 00
26640 24560 22480 245600 26640 225600 28720 26680 22480 25600 287300 292640
TOTAL CASH 00 00 00 2879000 0 00 00 00 00 00 00 0 00
CASH OUT FLOWS
116666
LOAN PAYMENT 97222 97222 97222 97222 97222 97222 97222 97222 97222 97222 97222 97222 4
47450 47450 47450 47450 47450 47450 47450 47450 569400
SALARIES 0 0 0 474500 474500 0 474500 0 0 0 0 474500 0
AIR TIME 1750 1750 1750 1750 1750 1750 1750 1750 1750 1750 1750 1750 21000
ELECTRICITY BILL 60000 50000 35000 70000 50000 60000 35000 70000 60000 35000 50000 70000 645000
LICENSE 4000 4000
TRANSPORT 1200 2500 1200 3100 2500 2100 1200 1100 2500 2500 1200 2500 23000
96000 96000 96000 95000 99500 85000 96000 85000 112750
PURCHASE 0 0 0 960500 900000 0 960000 0 0 0 0 970000 00
96000 96000 96000 96000 96000 96000 96000 96000
RENT 0 0 0 960000 960000 0 960000 0 0 0 0 960000 708000
CONTINGENCIES 17000 13000 40000 54000 70000 22000 30000 60000 50000 45000 28000 35000 465000
PROMOTION AND
ADVERTISEMENT 16000 16000 16000 48000
STATIONERY 15000 15000
17056 16576 16686 165497 16825 165867 17585 15949 16749 15616 172597 117496
TOTAL CASH OUT FLOW 72 72 72 1721072 2 72 2 72 72 72 72 2 04
NET CASH OUTFLOW 95832 79862 57932 1157928 801028 98142 587328 11134 10730 57302 89832 114702 106782

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 8 8 8 8 28 28 8 8 8 36
95832 17563 23356 429464 52760 587339 69868 80598 86328 95312 106782
CUMMULATIVE CASH FLOW 8 56 84 3493612 0 68 6 24 52 80 08 36

SUMMARY PROJECTION CASHFLOW STATEMENT FOR AMOS CONSTRUCTION COMPANY YEAR 2

MONT
ITEM HS
TOTA
CASH INFLOWS JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC LS
18720 16640 14560 16640 18720 14560 16640 18720 16640 145600 208000 208000
CASH SALES 00 00 00 2080000 00 00 00 00 00 00 0 0 00
10005 10000 10000 10002 10000 10000 20000 50000 10000 600000 100008
DEBTORS 00 00 00 1000000 00 0 00 0 0 00 700000 0 00
28725 26640 24560 26642 28721 24560 18640 13740 26640 215600 308008
TOTAL CASH 00 0 00 3080000 00 00 00 00 00 00 0 268000 00
CASH OUT FLOWS
96000 96000 96000 90020 90070 80000 98000 70000 60000 100216
PURCHASES 0 0 0 960500 0 0 0 0 0 0 600200 700000 00
116666
LOAN PAYMENT 97222 97222 97222 97222 97222 97222 97222 97222 97222 97222 97222 97222 6
47450 47450 47450 47450 47450 47450 47450 47450 47450 569400
SALARIES 0 0 0 474500 0 0 0 0 0 0 474500 474500 0
AIR TIME 2000 2000 1500 2000 1500 2000 1500 2000 2000 1500 2000 1500 23500
ELECTRICITY BILL 60000 50000 35000 70000 50000 60000 35000 70000 60000 35000 50000 70000 645000
LICENSE 4000 4000
TRANSPORT 1500 1100 1300 1000 1200 1700 2000 1900 1800 1600 1540 2500 140640
RENT 59000 59000 59000 59000 59000 59000 59000 59000 59000 59000 59000 59000 708000
CONTINGENCIES 20000 30000 40000 50000 60000 70000 20000 30000 40000 50000 60000 70000 540000
PROMOTION AND 20000 16000 16000 48000

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 ADVERTISEMENT
STATIONERY 13000
17072 16738 17142 16812 14892 17146 14345 13188 13604 147472 188809 188809
TOTAL CASH OUT FLOW 22 22 22 1643222 22 22 22 22 22 62 2 04 04
11652 99017 78747 10205 10205 96677 14937 93747 13451 120527 119198
NET CASH OUTFLOW 78 8 8 1365778 78 78 8 8 8 78 795538 8 96
11652 29429 53292 65202 74870 76364 85739 99190 107146 119198
CUMMULATIVE CASH FLOW 78 2165 34 4308712 90 68 46 24 02 00 18 96

SUMMARY PROJECTION CASHFLOW STATEMENT FOR AMOS CONSTRUCTION COMPANY YEAR 3

MONT
ITEM HS
TOTA
CASH INFLOWS JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC LS
22880 20800 19940 20800 208000 16640 228880 166400 166400 208000 228880 235040
CASH SALES 00 00 00 1664000 00 00 00 0 0 0 0 0 00
12000 12000 11000 12500 96000 122600
DEBTORS 00 00 00 100000 00 100000 0 960000 900000 750000 100000 900000 00
34880 32800 27640 33300 308000 26640 324800 256400 241400 308000 318800 357640
TOTAL CASH 00 00 00 2664000 00 0 00 0 0 0 0 0 00
CASH OUT FLOWS
96000 90000 96000 96000 96000 111600
LOAN PAYMENT 0 0 0 90000 0 900000 0 900000 960000 900000 960000 900000 00
47450 47450 47450 47450 47450 569400
SALARIES 0 0 0 474500 0 474500 0 474500 474500 474500 474500 474500 0
AIR TIME 3000 3000 3000 3000 3000 3000 2000 2000 2000 2000 2000 2000 30000
ELECTRICITY BILL 60000 50000 35000 70000 50000 60000 35000 70000 60000 35000 250000 70000 645000

20
LICENSE 4000 4000
TRANSPORT 1500 1100 1300 1000 1200 1700 2000 1900 1800 1540 2540 2500 140640
RENT 59000 59000 59000 59000 59000 59000 59000 59000 59000 59000 59000 59000 708000
CONTINGENCIES 40000 80000 80000 90000 30000 30000 30000 30000 40000 90000 40000 40000 620000
PROMOTION AND
ADVERTISEMENT 16000 16000 16000 48000
116666
LOAN PAYMENT 97222 97222 97222 97222 97222 97222 97222 97222 97222 97222 97222 97222 66
17722 16648 17100 16254 165972 16397 163462 169452 163932 168426 166122 200948
TOTAL CASH OUT FLOW 22 22 22 1694722 22 2 22 2 2 2 2 2 04
16151 10539 96927 14345 161337 139573 156691
1713778 78 78 8 1639078 78 1004 278 8 869478 869478 754768 8 96
17727 33879 44193 70502 850486 95071 111225 119920 127466 141424 156691
CUMMULATIVE CASH FLOW 78 56 4 5411212 90 8 46 24 02 80 18 96

SUMMARY INCOME FOR THE THREE YEARS.

ITEMS YEAR 1 YEAR 2 YEAR 3

Net cash sh 6,358,000 25,418,500 5,628,000

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5.6 PROFORMA INCOME STATEMENT

This is a statement that summarizes all the activities involving income and expenditure incurred
by businesses on a particular period of time.

It has 5 sections

1. Operation income
Sales cash = credit sales.
2. Cost goods sold
Direct labor and raw materials.
3. Gross profit and operation
Operating income cost of goods sold.
4. Expenses
All overheads cost salaries
5. Net income
Gross profit – expenses.

5.6.1 SUMMARY INCOME STATEMENT YEAR ONE

ITEMS AMOUNT IN KSHS

Cash sales 17267
Debtors 200000
Total revenue 29264000
Less cash prices 1127500
Gross profit 17989000
Expenses
Loan payment
Rent payment
License
Salaries
Electricity bill
Air time

5.6.2 SUMMARY OF INCOME STATEMENT YEAR TWO

ITEMS AMOUNT AMOUNT KSHS

Cash sales 20800000
Debtors 10000800
Total revenue 2000000 30800800
Less cash purchases
Gross profits 10021600 20779200
Expenses
Loan payment

22
Rent payment 708000
License 4000
Salaries 5694000
Electricity bills 645000
Air time 23000
Advertisement and promotion 48000
Transport expenses 140640
Stationery 16000
Contingences 540000
Total expenses 8985805
Net profit before tax 11919894
Tax at 16% 16%(11919896)
Net profit after tax 10012712.84

5.6.3 SUMMARY OF INCOME STATEMENT YEAR THREE

ITEMS AMOUNT AMOUNT KSHS

Cash sales 23504000
Debtors 12260000
Total revenue 35764000
Less cash purchases 11160000
Gross profits 24604000
Expenses
Rent payment 708000
License 4000
Salaries 5690000
Electricity bills 645000
Air time 30000
Advertisement and promotion 48000
Transport expenses 140640
Stationery
Contingences 620000
Total expenses 7885640
Net profit before tax 15669196
Tax at 16% 16%(15669196)
Net profit after tax 13162124.64

5.7 BALANCE SHEET

This shows the financial position of a business of a particular time.

It consist of

i) Assets - current assets

23
 -fixed assets
ii) liabilities – current liabilities
- Long term liabilities.

5.7.1 PROFORMA BALANCE SHEET FOR YEAR 1 FOR AMOS CONSTRUCCTION

COMPANY LTD AS AT 31STDECENBER 2013

ASSETS AMOUNT TOTAL LIABILITIES AMOUNT IN TOTAL

AMOUNT KSHS AMOUNT
Current assets Current liability
Stock 17264000 Bank loan 3500000
Cash in hand 1100000 Salary 5694000
Cash in bank 3500000 Electricity 645000
Debtors 2000000 arrears 23000
Total 23864000 Transport arrears 708000
Rent 7105000
Fixed assets Total liability
Furniture 15000
Mobile phone 21000
Machines 5500000
Calculators 1500
Files 1500
Land 100000
Total fixed 5639000 Net worth 10678236
assets 29503000 Total 1778323
Grand total

5.7.2 PROFORMA BALANCE SHEET FOR YEAR 2 FOR AMOS CONSTRUCCTION

COMPANY LTD AS AT 31STDECENBER 2013

ASSETS AMOUNT TOTAL LIABILITIES AMOUNT IN TOTAL

AMOUNT KSHS AMOUNT
Current assets Current liability
Stock 17264000 Salary 5694000
Cash in hand 1100000 Electricity 645000
Cash in bank 3500000 arrears 23000

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Debtors 2000000 Transport arrears 708000
Total 31864000 Rent
Total liability 7070000
Fixed assets
Furniture 15000
Mobile phone 235000
Machines 500000
Calculators 1000

Total fixed 5639500 Net worth 1199896

assets 32403500 Total 18889896
Grand total
5.7.3 PROFORMA BALANCE SHEET FOR YEAR 2 FOR AMOS CONSTRUCTION
COMPANY LTD AS AT 31STDECENBER 2013
ASSETS AMOUNT TOTAL LIABILITIES AMOUNT IN TOTAL
AMOUNT KSHS AMOUNT
Current assets Current liability
Stock 35764000 Salary 5694000
Cash in hand 1100000 Electricity 645000
Cash in bank 3500000 arrears 140640
Debtors 12260000 Transport arrears 708000
Total 52624000 Rent
Total liability 7187640
Fixed assets
Furniture 5000
Mobile phone 30000
Machines 450000
Calculators 9000

Total fixed 4859000 Net worth 15669196

assets 53109900 Total 22856836
Grand total

5.8.0 AMOS CONSTRUCTION COMPANY LTD BREAK EVEN POINT YEAR ONE

VARIABLE AMOUNT KSHS FIXED EXPENSES AMOUNT KSHS

EXPENSES
Electricity 645000 License 4000
Airtime 21000 Salary 5694000
Contingency 465000 Rent 708000
Transport cost 23000 Loan repayment 1166666
Stationery 15000 License 4919334
Promotion and 48000
advertisement
Purchase 11275000
12492000 Total 12493000

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Annual sales = 2926400

Gross margin sales = annual sales – variable cost

= 29264000-12492000

= 16772000

Gross margin percentage = annual sales – variable expenses X 100

Annual sales
29264000 – 12492000 X 100
29264000
= 57.31%
Breakeven point = total fixed expenses
Gross margin percentage
= 12,492000
0.5731
= 21797243.06
5.8.1 AMOS CONSTRUCTION COMPANY LTD BREAK EVEN POINT YEAR ONE
TWO
VARIABLE AMOUNT KSHS FIXED AMOUNT KSHS
EXPENSES EXPENSES
Electricity 645000 License 4000
Airtime 23500 Salary 5694000
Contingency 540000 Rent 708000
Transport cost 140640 License 5025740
Stationery 13000
Promotion and 48000
advertisement
Purchase 10021600
12492000 Total 11431740
Annual sales = 30800800

Gross margin sales = annual sales – variable cost x 100

Annual sales
= 308000800-11431740 X 100
30800000

= 62.9%

Breakeven point = total fixed expenses

Gross margin percentage
= 11431740
0.629
= 18174467.41

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5.8.2 AMOS CONSTRUCTION COMPANY LTD BREAK EVEN POINT YEAR ONE
TWO

VARIABLE AMOUNT KSHS FIXED AMOUNT KSHS

EXPENSES EXPENSES
Electricity 645000 License 4000
Airtime 30000 Salary 5694000
Contingency 620000 Rent 708000
Transport cost 140640 License 6237640
Stationery
Promotion and 48000
advertisement
Purchase 11160000
12643640 Total 12643640

Annual sales = 35764000

Gross margin sales = annual sales – variable cost x 100

Annual sales
= 35764000 - 12643640 X 100
35764000

= 64.65%

Breakeven point = total fixed expenses

Gross margin percentage
= 12643640
0.6465
= 19557061.11
5.8.3 BREAK EVEN POINT SUMMARY FOR YEAR THREE

ITEM YEAR 1 YEAR 2 YEAR 3

BEP 21797243.06 18174467.41 19557061
SALES 29264000 308000800 35764000
PROFIT 51061243.06 48925267.41 231321061

5.9 PROFITABILITY RATIOS

5.9.1 GROSS PROFIT MARGIN YEAR ONE

YEAR ONE
Gross profit X 100
Sales

27
5989000 X 100 = 20.5%
29264000

YEAR TWO
Gross profit X 100
Sales
10778400 X 100 = 34.9%
30800800

YEAR THREE
Gross profit X 100
Sales
12544000 X 100 = 34.5%
35764000

5.10 RETURN ION EQUITY

5.10.1 RETURN ION EQUITY YEAR ONE

YEAR ONE
R.O.E. = net profit after tax 100
Owner’s equity
= 8969718.24 X 100 =60.9%
14707000

YEAR TWO
R.O.E. = net profit after tax 100
Owner’s equity
= 10012715.64 X 100 =68%
14707000

YEAR THREE
R.O.E. = net profit after tax 100
Owner’s equity
= 13162124.64 X 100 =89.5%
14707000

5.11 RETURN ON INVESTMENT (ROI)

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TOTAL CAPITAL INVESTMENT
Preoperational cost 7105000
Preoperational cost 564000
Working capital cost 5629000
Fixed assets 5629000
Totals 5639000

R.O.I. = net profit after tax X 100

Total investment
Year one 8969718.24 X 100 = 60.9%
14707000
Year two 1002712.64 X 100 = 68%
14707000
Year three 13162124.64 X 100 = 89.5%
1470700
YEAR 1 YEAR 2 YEAR 3
R.O.I 60.9% 68% 89.5%

PROPOSED CAPITALISATION
ITEM AMOUNT REMARKS
Owners equity 1100000 Cash
Parents contribution 1500000 Cash
Loan from equity bank 3500000 Bank

5.12 SUMMARY OF LOAN INTEREST

FUNDING Principal Rate of interest Repayment Total

SOURCE amount period
INTERNATIONAL 3 3500000
BANK

5.13 LOAN PAYMENT

YEAR Funding Total amount Total pay per Total pay per Loan balance
source month year
2013 International 3500000 97222 11666666 nil

29