BUSINESS PLAN

ON
URBAN LEVEL
HIGH QUALITY
CASSAVA FLOUR
PRODUCING
ENTERPRISE
 TABLE OF CONTENT

EXECUTIVE SUMMARY PAGE

1.0 INTRODUCTION

2.0 BUSINESS BACKGROUND

3.0 FINANCING PLAN

4.0 MARKET ANALYSIS

5.0 WORK PLAN

6.0 MANAGEMENT

7.0 RESOURCES ANALYSIS

8.0 ASSUMPTIONS

9.0 FINANCIAL ANALYSIS

10.0 RECOMMENDATIONS

APPENDICES
 EXECUTIVE SUMMARY

NAME OF ENTERPRISE: Cassava Flour Producing Enterprise

LOCATION OF BUSINESS: Urban Settlement near Cassava Growing Area

BUSINESS ACTIVITY: Processing of High Quality Cassava Flour

FINANCING PLAN:
Owners Contribution: 76,174,000
Loan Request: 100,000,000

PROPOSED LOAN TERMS:

(i) The loan shall be repaid in 3 years and shall attract an interest of 20%
per annum.
(ii) Moratorium shall be six (6) months.

RECOMMENDATIONS:

The projected cash flow analysis shows a net cash inflow of 34.4m, 54.4m,
112.2m, 134.7m respectively have been projected over the 5-year period.

It is recommended that the business should be supported with a loan of 100

million to be used as working capital to buy raw materials to process High
Quality Cassava Flour in the urban area.

The recommendation is based on:

(i) The Return on Investment is averaged at 50% over the 5-year period.
(ii) The Net Present Value is discounted at 20% and 45% for the 5-year
period are positive at 1,431,000 and negative - 83,974,000
respectively.
 BUSINESS PLAN

1.0 INTRODUCTION

Cassava is the most important root crop in Ghana. Apart from being a staple
crop in both rural and urban households cassava is a major source of income to
cassava farmers and processors in the rural areas. Cassava alone contributes
about 22% of agricultural GDP in Ghana for food or domestic purposes but its
industrial processing and utilisation has been very limited. Currently there is a
national programme to boost the present level of cassava production in Ghana.
Under the Roots and Tubers Improvement Programme (RTIP) farmers are being
supplied with high yielding cassava sticks to increase cassava production.
Present levels of cassava production will be greatly increased. This will enhance
processing of the increased cassava into High Quality Cassava Flour (HQCF) for
industrial purposes, such as the bakery and paper plywood manufacturing.

It has been established through research carried out by the Food Research
Institute (FRI) and Forest Research Institute of Ghana (FORIG) that High Quality
Cassava Flour can be substituted or added in bakery, paperboard and plywood
manufacturing activities.

This business plan is to examine the financial viability or otherwise of

establishing High Quality Cassava Flour production in urban areas using as basic
raw material cassava chips procured from the cassava producing rural areas.

2.0 BUSINESS BACKGROUND

2.1 Type of Business:

The enterprise is sole proprietorship engaged in the production of High Quality
Cassava Flour (HQCF) for use at the bakery, paper board and plywood industries.

2.2 Location of Business:

The business is located in an urban area close to cassava growing area.

2.3 Access to Utilities and Other Facilities:

The enterprise has access to reliable electricity. There is a good network of
roads connecting the raw material producing area and to the marketing centre.

2.4 Aims/Objectives of the Business:

The objective of the enterprise is to process the increased output of fresh
cassava into High Quality Cassava Flour for industrial purposes. High quality
cassava chips will be procured from the rural cassava growing areas and milled
into flour.
The production of HQCF will give cassava farmers ready-market for their excess
production hence improved incomes. The business will help reduce post-harvest
losses and encourage primary processing of fresh cassava into chips at the
village level. Jobs will also be created at both the village and urban levels.

3.0 PROJECTED FINANCE

The business requires an amount of 176,174,000 for both financial assets and
working capital. The financial needs of the business are as follows:

(a) ASSETS

1. Structure for the mill 40,000,000

2 Machinery and equipment 10,000,00
Sub Total 50,000,000

(b) WORKING CAPITAL

1. Raw materials of cassava chips 120,000,000

2. Labour costs 3,562,500
3. Utilities 480,000
4. Other costs 2,131,668
Sub-total 126,174,168

GRAND TOTAL 176,174,168

4.0 MARKET ANALYSIS

4.1 Assessment of Demand

Research studies carried out by the Food Research Institute (FRI), Forest
Research Institute of Ghana (FORIG), Ministry of Food and Agriculture and the
Natural Resources Institute of UK have shown that there is a great market
potential for HQCF in the plywood, paperboard and bakery industries. HQCF is
an attractive alternative to imported wheat, which is used in these industries.
Three awareness seminars were held on Expanded Markets for Locally Produced
Flours and Cassava in Ghana in Takoradi, Kumasi and Accra between January
and May 2001 for industrialists in plywood and paperboard, potential
entrepreneurs, bakers, scientists and policy makers. The outcomes of the
information seminars showed that there is a great potential or unmet demand for
HQCF by the plywood and paperboard manufacturers and bakers who took part.
4.2 Competition

The alternative of HQCF is imported wheat flour. Studies have shown that the
price of imported four is ever increasing due to high foreign exchange rate and
inflation. Also the cost of imported starches of glues for the paperboard
industries is very high and starch derived from HQCF is a cheaper alternative.
From the above it can be stated that HQCF is a cheaper alternative.

The ready availability of HQCF locally as opposed to imported wheat flour with its
attendant is ever rising foreign exchange costs will make HQCF a preference for
plywood, paperboard and bakery producers.

4.3 Marketing Plans and Strategies

The business as a policy will sell its products on cash down basis. However,
customers who buy in large quantities will be considered for one months credit
on their own merit.

5.0 WORKPLAN

5.1 Production Process

(a) Mill finely high quality cassava chips

(b) Sieve milled product
(c) Bag and seal in polyester bags.

5.2 Type and Quality of Material, Machines and Manpower

The raw materials to be used are high quality cassava chips. The chips will be
obtained from cassava growers in the rural growing areas and transported to this
central processing plant based in the urban area. The chips will be processed
into High Quality Cassava Flour (HQCF).

The estimated monthly production:

Forty (40) tons of chips (equivalent of about 220 tons of fresh cassava converted
at the estimated rate of 18% yield into chips).
Production will be ten months in one year. The annual production of HQCF will
be: 10 x 40 tons = 400 tons.
Appendix 1 shows the type and quality of raw materials and their cost.
The fixed assets to be procured are listed in Appendix 1.
The business shall have a work force of seven (7) made up of the following:

1. Owner/Manager 1
 2. Procurement officer 1
3. Accounts Officer 1
4. Machine Operators 1
5. Labourers 3
Total 7

(Appendix 7 shows the labour schedule and cost).

6.0 MANAGEMENT

The enterprise will be managed by the owner/manager who will have

considerable experience in food processing. A Procurement Officer who will
procure high quality cassava chips from cassava chips processing outfits in the
nearby cassava growing areas will assist the owner. An accounts officer will
handle the accounts of the business.

7.0 GENERAL ASSUMPTIONS:

The financial evaluation of the business covers a 5-year period. The calculations
on production and finances in the report are based on the general assumptions
stated below:
- Production will be 10 months in a year.
- Constant level of production for the 5-year period
- Revenue, raw material costs, transport, labour costs, packaging material
costs and utilities are projected over the years by 20%.
- Other costs are projected at 15% annually.
- Normal losses of 1% are assumed for high quality cassava chips
- Marketing/Distribution expenses are equivalent to 2% of sales.
- Interest on loan is at the rate of 20% per annum.
- Insurance is equivalent of 2% of cost of fixed assets.
- The project will attract a tax of 25%
- Depreciation is on straight-line basis.

8.0 FINANCING ANALYSIS

8.1 Total Investment

The promoters business plan requires an amount of 176,170,000 made up of

76,174,000 equity and a loan of 100,000,000 from a financial institution or
government/private promotion agency. The loan will be used as working capital
to procure raw materials (see Appendices 1&3).

8.2 Profit and Loss

Projection shows that net profit of 46.8m, 64.4m, 85.4, 109.2 m, and
131.7m for the respective years over the 5-year period. These are based on
the assumptions at section 7.0 above.

8.3 Cash Flow Analysis

Over the 5-year period positive net cash inflow of 16.8m, 34.4m, 54.4m,
112.2m and 134.7m have been projected. (See Appendix 11).

9.0 RECOMMENDATIONS

The report shows that production of High Quality Cassava Flour (HQCF) in the
urban centres from cassava chips processed in the rural cassava growing areas is
viable and worth promoting. The setting up urban-located cassava flour
processing outfit will help reduce post-harvest losses among cassava growing
farmers in the rural areas and also improve their incomes by the sale of high
quality cassava chips.
(a) A loan of 100 million be granted the promoter to be used as working
capital.
(b) The loan shall be secured with landed property and lien on fixed assets.
(c) The interest on the loan shall be 20%.
(d) The loan shall be repaid in three (3) years with six (6) months
moratorium.
 APPENDIX 1

INVESTMENT SCHEDULE (000)

A. FIXED ASSETS:

Item Quantity Value

(a) Building 1 40,000
(b) Hammer mill/plate attrition 1 3,500
(c) Sifter 1 3,500
(d) Bagging machine 1 3,000
Sub Total 50,000

B. Working Capital

Raw materials, labour, utilities, etc. 126,174

GRAND TOTAL 176,174

 APPENDIX 2

WORKING CAPITAL (DETAILS) MONTH

Item Total
Cost/Month
()
Raw Materials 120,000,000
Labour 3,562,500
Administrative Expenses 40,000
Utilities 480,000
Transport 800,000
Packaging Material 1,000,000
Insurance 83,334
Repair and Maintenance 208,334

TOTAL 126,174,168
 APPENDIX 3

TOTAL PROJECT COST (000)

ITEM EQUITY LOAN TOTAL

Fixed Assets 50,000 - 50,000

Working Capital 26,174 100,000 126,174

Total 76,174 100,000 176,174

Contribution 43% 57% 100%

APPENDIX 4

PRODUCTION CAPACITY
Item Quantity per Quantity per
Month Year

High Quality Cassava 40 tonnes 400 tonnes

Flour

Production is 10 months per year

 APPENDIX 5

RAW MATERIAL USAGE SCHEDULE

Raw Material Estimated Unit Cost/Ton Total

Quantity per Cost/Month
Month

High Quality 40 tons 3,000,000 120,000,000

Cassava Chips

Cost of Raw Materials for a year (10 months)

120,000,000 x 10 = 1,200,000,000

APPENDIX 6

ESTIMATED REVENUE

Item Unit Quantity/ Monthly

Price/ Month Revenue
Ton
High Quality Cassava Flour 3,500,000 40 tons 140,000,000

Sub Total 140,000,000

Less 2% Sales Expenses 2,800,000

Less 1% Flour Losses 1,400,000

Net Monthly Revenue 135,800,000

Net Yearly Revenue = 135,800,000 x 10 = 1,358,000,000

 APPENDIX 7

LABOUR COST

Personnel No. Salary per Total per Total per

Month Month Year
(i) Owner/Manager 1 800,000 800,000 9,600,000

(ii) Procurement Officer 1 500,000 500,000 6,000,000

(iii) Machine Operator 1 300,000 300,000 3,600,000

(iv) Accounts Officer 1 500,000 500,000 6,000,000

(v) Labourers 3 250,000 750,000 9,000,000

Sub Total - 2,850,000 34,200,000

Add 25% for Medical

Expenses, Social Security
and other Expenses - 712,500 8,550,000

GRAND TOTAL 3,562,500 42,750,000

 APPENDIX 8

UTILITIES

Item Cost per Month Cost/Year

Electricity (604 440,000 5,280,000
kilowats/month)
Water 40,000 480,000
TOTAL 480,000 5,760,000

APPENDIX 9

OTHER COSTS

Item Cost/Month Total Cost/Year

1. Transportation of fresh cassava to site 800,000 8,000,000
at 20,000/ton (40 tons/month)

2. Administrative cost 40,000 480,000

3. Insurance (2% 0n Fixed Assets) 833,334 1,000,000

0.02 x 50,000

4. Repairs and Maintenance

(5% on Fixed Assets)
0.05 x 50,000,000 208,334 2,500,000

5. Depreciation

(a) 10% on equipment and machinery

0.1 x 10,000,000
(b) 5% on Building structure
0.05 x 40,000,000 166,667 3,000,000

TOTAL

6. Packaging Materials Costs

400 tons of HQCF per year 12,000,000
(30,000 per tonne)
 APPENDIX 10

PROFORMA OPERATING STATEMENT (000)

Item Year 1 Year 2 Year 3 Year 4 Year 5

Revenue 1,358,000 1,629,000 1,955,520 2,346,624 2,815,949

Costs

Raw materials 1,200,000 1,440,000 1,728,000 2,073,600 2,488,320

Labour 42,750 51,300 61,560 73,872 88,646
Administrative 480 552 635 730 840
Expenses 5,760 6,912 8,294 9,953 11,944
Utilities 8,000 9,600 11,520 13,824 16,589
Transport 1,000 1,150 1,323 1,521 1,749
Insurance 2,500 2,875 3,306 3,802 4,373
Repair and 12,000 14,400 17,280 20,736 24,883
Maintenance 3,000 3,000 3,000 3,000 3,000
Packaging Materials 20,000 14,000 6,800 - -
Depreciation
Interest on loan 1,295,490 1,543,789 1,841,718 2,201,038 2,640,344
(20%)

Total Costs 62,510 85,811 113,802 145,586 175,605

Gross Profit
15,628 21,453 28,451 36,397 43,901
Provision for Tax
(25%)
46,882 64,358 85,351 109,189 131,704
Net Profit

Assumptions (See Section 7.0)

 APPENDIX 11

CASH FLOW ANALYSIS (000)

A. CASH YEAR O YEAR YEAR YEAR 3 YEAR 4 YEAR 5

INFLOW 1 2
Equity 76,174 - - 85,351 109,189 131,704

Loan 100,000 - - - - -

Net Profit - 46,882 64,358 - -

Depreciation - 3,000 3,000 3,000 3,000 3,000

Total Cash 176,174 49,882 67,358 88,351 112,189 134,704

Inflow

B. CASH
OUTFLOW
Principal Loan
payment (one
month salary as 33,000 33,000 34,000 - -
bonus)

Total Outflow 33,000 33,000 34,000 - -

Net Cash
Inflow 16,882 34,358 54,351 112,189 134,704

Cumulative
Cash Inflow 16,882 51,240 105,591 217,780 352,484
 APPENDIX 12

NET PRESENT VALUE (NPV)

Year Net Cash Discounted Net Discounted Net

Inflow factor Present Factor Present
(000) 20% Value (45%) Value
(000) (000)
0 (176,174) 1 (176,174) 1 (176,174)

1 16,884 0.833 14,064 0.690 11,650

2 34,358 0.694 23,844 0.476 16,354

3 54,351 0.579 31,469 0.328 17,827

4 112,189 0.482 54,075 0.226 25,355

5 134,708 0.402 54,153 0.156 21,014

Accumulated
Total 1,431 (83,974)

NPV at 20% is positive i.e. 1,431,000

NPV at 45% is negative i.e. - 83,974,000
NPV does not take into consideration the salvage value of machinery and
equipment.
 APPENDIX 13

RETURN ON INVESTMENT (ROI)

By Definition - Net Profit x 100

Total Investment

Year 1 2 3 4 5
Net Profit 46,882,000 64,358,000 85,351,000 109,189,00 131,704,00

0 0

Investmen 176,174,00 176,174,00 176,174,00 176,174,00 176,174,00

t 0 0 0 0 0

ROI 27% 37% 59% 62% 75%

Average ROI = 50%

 APPENDIX 14

PAY BACK PERIOD

By Definition = Total Investment

Net Cash Receipts

Year 1 2 3 4 5
Total 176,174,000 176,174,000 176,174,000 176,174,000 176,174,000
Investment
Net Cash
Receipts

Depreciation 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000

Net Profit 46,882,000 64,358,000 85,351,000 109,189,000 131,704,000

Interest on 20,000 14,000,000 6,800,000 - -

loan

Net Cash 69,882,000 81,358,000 95,151,000 112,189,000 134,704,000

Receipts

Payback 2.52 yrs 2.17 yrs 1.85 yrs 1.57 yrs 1.31 yr
period

Average = 1.884 yrs or 23 months

In the middle of