JOSPURY MWINGI HARDWARE

Document : Business Plan

Index Number : 4071010587

Paper Code : 2509/306A

Author/Presenter : MUNYOKI KIOKO

College : NYS Engineering Institute

Course : Construction Plant Engineering

Presented to the Kenya National Examination Council in partial fulfillment for award
of Diploma in Mechanical Engineering (Construction Plant Option)

Date of Presentation:

Candidates : MUNYOKI KIOKO

ID No : 32866263

Signature :

Date :

Name of the Supervisor : Mr. Pius Gichini

Signature :

Approval Date :
 Declaration
I declare that this is my original work and has never been published or presented for award of
any certificate whatsoever in any institution.

NAME: MUNYOKI KIOKO

SIGNATURE:____________________________

SUPERVISOR: MR. PIUS GICHINI

SIGNATURE:____________________________

DATE:____________________________________

ii
 Dedication
I dedicate this business plan to my parents Mr. Daniel Munyoki Nyili and Mrs. Jane Kamene
Munyoki who have been there for me in all aspects of my life.

I also dedicate it to my brothers and sisters for the moral support and encouragement in my
studies.

iii
 Acknowledgment
I wish to express my most heartfelt gratitude to my supervisor Mr. Pius Gichovi, the school
librarian Mrs. Rosemary Gichovi and my fellow schoolmates who played a role in guiding
me through my process of collecting ideas on how to write my business plan.

My appreciation also goes to my parents, brothers, sisters and friends who gave me financial,
moral and spiritual support throughout my study period.

May almighty God bless you.

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 EXECUTIVE SUMMARY
Business Description

The name of the business will be JOSPURY MWINGI HARDWARE. It will be located at
Mwingi Town and the name of the owner will be JOSPHAT KIOKO.

Marketing Plan

The business will sell its products within Mwingi and its outskirts. Other markets will be
local schools and farm plantations. The markets share will highly depend on its availability
of customers and services rendered by the competitors.

Organization and management

The owner will be the manager in-charge of recruiting, discharging duties and
responsibilities and accessing employees’ performance.

Production/operational Plan

The business will purchase most of its products and sell them locally.

Financial Plan

The business will have a starting amount of Ksh. 1,500,000. The owner will also obtain
capital from his own saving, bank loan and from friends and relatives.

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 Table of Contents

Declaration ................................................................................................................................ ii
Dedication ................................................................................................................................ iii
Acknowledgment ..................................................................................................................... iv
EXECUTIVE SUMMARY ...................................................................................................... v
Table of Contents ..................................................................................................................... vi
BUSINESS DESCRIPTION ..................................................................................................... 1
1.1 Mission statement ........................................................................................................... 1
1.2 Business Name and Logo................................................................................................ 1
1.3 Business Location and Address ...................................................................................... 2
1.4 Form of Ownership ......................................................................................................... 2
1.5 Types of Business ........................................................................................................... 3
1.6 Products /services............................................................................................................ 3
1.7 Justification of the Opportunity ...................................................................................... 3
1.8 Industry ........................................................................................................................... 3
1.9 Business Goals and Objectives ....................................................................................... 3
1.10 Entry and Growth Strategy. .......................................................................................... 4
1.11 SW0T Analysis ............................................................................................................. 4
Chapter Two.............................................................................................................................. 5
MARKET PLAN ...................................................................................................................... 5
2.0 Introduction ..................................................................................................................... 5
2.1 Identification of Customers............................................................................................. 5
2.2 Competitor Analysis ....................................................................................................... 6
2.3 Market Share ................................................................................................................... 7
2.4 Promotion and Advertisement. ....................................................................................... 8
2.5 Pricing Strategy. .............................................................................................................. 8
2.6 Sales Tactics.................................................................................................................... 9
2.7 Sales Target ..................................................................................................................... 9
2.8 Distribution Strategy ..................................................................................................... 10
2.9 Customer Services ........................................................................................................ 11
Chapter Three.......................................................................................................................... 12

vi
ORGANIZATION AND MANAGEMENT PLAN ............................................................... 12
3.0 Introduction ................................................................................................................... 12
3.1 Organization Structure .................................................................................................. 12
3.2 Management Team........................................................................................................ 13
3.3 Other Business Personnel ............................................................................................. 13
3.4 Recruitment, Training and Promotion .......................................................................... 15
3.5 Remuneration and Incentives ........................................................................................ 16
3.5.1 Remuneration ......................................................................................................... 16
3.5.2 Incentives. .............................................................................................................. 16
3.6 Licenses, Permits and Other Requirements .................................................................. 16
3.6.1 Licenses and permits .............................................................................................. 16
3.6.2 Other requirement. ................................................................................................. 17
3.7 Supporting Services ...................................................................................................... 17
Chapter Four ........................................................................................................................... 19
PRODUCTION/OPERATION PLAN.................................................................................... 19
4.0 Introduction ................................................................................................................... 19
4.1 Production Facilities ..................................................................................................... 19
4.2 Production and Operation strategies ............................................................................. 20
4.2.1 Future plans. ........................................................................................................... 20
4.3 Production process. ....................................................................................................... 20
4.3.1: Order ..................................................................................................................... 20
4.3.2: Planning ................................................................................................................ 21
4.3.3: Issuing ................................................................................................................... 21
4.3.4: Payments ............................................................................................................... 21
4.4 Regulations affecting operation .................................................................................... 21
Chapter Five ............................................................................................................................ 22
FINANCIAL PLAN................................................................................................................ 22
5.0 Introduction ................................................................................................................... 22
5.1 Pre-operational plan ...................................................................................................... 22
5.3 Loan and interest repayment ......................................................................................... 23
5.4 Projected cash flow for the first three years.................................................................. 24
5.5: Projected trading and loss account............................................................................... 27
5.6: Preference balance sheet for Jospury Hardware. ......................................................... 27
5.7: Break-even analysis. .................................................................................................... 27
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5.8: Profitability ratio .......................................................................................................... 28
5.9: Desired financing ......................................................................................................... 28
5.10: Proposed Capitalization ............................................................................................. 28
5.11: Potential risks............................................................................................................. 29

viii
 Chapter One

BUSINESS DESCRIPTION
1.0 Introduction

The proposed business enterprise is a hardware that deals with farm tools and building
equipment. These equipment’s and tools include iron sheets, nails, pangas, files, hammers,
wheelbarrows, hacksaws, windowpanes and many others.

1.1 Mission statement

The aim of the business is to provide building equipment and farm tools in the area. This will
help them in easy construction of building and farming activities will be improved. 5

1.2 Business Name and Logo

The name of the business will be JOSPURY MWINGI HARDWARE. The name is
significant because the name is not common in the area and therefore it will attract more
customers.

1
 1.3 Business Location and Address
The business will be located within Nairobi – Garissa Highway in Mwingi town near Java
supermarket opposite Musila Gardens.

The business addresses are;

JOSPURY MWINGI HARDWARE,

P.O.BOX 521-90200,

MWINGI

JOSPURY MWINGI
HARDWARE

Java Supermarket
To Kitui

Round about
From Nairobi
To Garissa
To Musila Garden

1.4 Form of Ownership

The bussiness wil be sole priopriator.this is because of the following advantages;

 Owner enjoys all the profit

 Easy decision making
2
  Owner is the own boss
 Owner is the decision make

1.5 Types of Business

The business will be retail due to the following reasons;

 Easy management
 The starting capital is low
 Can be operate by one person
 The risks are low

1.6 Products /services

The main products are hacksaws, rakes, wheelbarrows, pangas, hammers, jembes, iron
sheets, nails, cement and many other tools and equipment.

1.7 Justification of the Opportunity

There exist business opportunity within the location of the venture due to the following
factors;

 Low competition – in this area there is no a strong hold type of this business.
 High demand _People living in the are large scale farmers and there are construction
of buildings hence there is high demand
 Security – the chosen location have adequate security due nearby police station. The
owner will also provide security by employing guards.
 Low competition there is no nearby hardware’s in the area.

1.8 Industry
The proposed business will fall under hardware industry .The three firm s existing are small
scale, medium scale and large scale. I will apply all modern technologies in the hardware
industry to ensure that it provides high quality goods and services that satisfy customer n
needs.

Hardware industry has been existing since 1960s .It started as a small scale business in
Nairobi. It has been growing up to large scale business across the whole country. It has been
offering services like transport to customers who are far.The prices are fair and also
discounts are given.

The industry has the plan to expand across all over the world to reach more customers in
different countries. This will enable the industry to reach more customers and offer their
services and products to the customers across the world.

1.9 Business Goals and Objectives

The business goals are grouped in to 3 groups;

1. Short-term goals

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  To provide high quality goods and services to customers at standard price.
 To make profit.
 Employment of skilled and qualified staff.
 Improve farming and building style.

2. Medium-term goals
 To attract more customers.
 To create employment opportunities to the people in the community
 To expand in the near future

3. Long-term goals
 Open a new branch in another strategic place after one year of operation.
 To develop a high quality business enterprise that provides high quality goods
and services.
 To explore other markets in the same line of business.
 Sponsoring the needy or orphans.

1.10 Entry and Growth Strategy.

Entry Strategy.

The owner will use advertising methods which will create awareness of his business to the
public. Adverts and business cards will be used to advertise the business. On the business
cards and adverts, the quality and the price of goods and services are specified.

Growth Strategy

Loans received from bank and savings will be used in the expansion. For growth of business
the owner will conduct frequent market surveys to identify the market needs.

1.11 SW0T Analysis

a. Strength
Efficient delivery of goods to customers
High skilled workers
High quality products and services
Well trained workers
b. Weakness
Unfaithful suppliers
Taxation by the government
Fluctuation of goods and services
Problem in importation of goods
c. Opportunities
Political stability
Favorable government polices
Good infrastructure
Fewer legal requirements
4
 d. Threats
 Substitute goods by the competitors
 High competition from other customers
 Losses due to enterprise failure
 Fluctuation of prices of goods

Chapter Two

MARKET PLAN

2.0 Introduction
This chapter mainly deals with market plan of the enterprise. It entails customers available ,
competition in the market , market share, promotion and advertisement

2.1 Identification of Customers

The potential customers will include the following depending on modes of purchase and
payment.

Residents of Mwingi

These are customers within the business circumference who will offer to buy the products on
regular basis. This customers most of them have personal plantations therefore they will be
using tools like jembes, pangas among others.

Amos building company

it is a company within kitui county which deals mainly with construction of houses and
repair of the houses. Therefore this company will always be buying cement and other
contruction materials.

Stable income farm plantation

These is a farm located 5 km away from the business. The farm have a budgeted income
throughout the year. Therefore they always use farm tools like jembes , pangas,
wheelbarrows, among others. No other hardware near this farm.

5
 2.2 Competitor Analysis
The following will be my competitors including their strengths and weaknesses.

I Competitor Strength Weakness

 Provide discounts  Poor relationship with customers
 Old in business  Low quality products
MUNENE HARDWARE  The firm is well established  Expensive products
 Business firm is accessible to  Poor means of transport
many customers

 Selling new products  Shortage of products

 High quality products  New in business
MWENGE AUTO-  Offer discount to customer  Sell products at unreasonable prices
SPARES

 Provide discount to customers  Expensive products

 Sales services provided  Low quality products
MUTUKU GARAGE  Located at busy roads  Poor transport
AND AUTO-SPARE

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My hardware shop will experience the following strengths and weaknesses

strengths
 Paying workers well
 Good customers, suppliers and
workers relationship.
 Well established business.
 Large and various varieties of
product.
 Giving customers discounts.
 Offering transport to customers.
Weaknesses
 Business will not operate full time.
 Low technology grounds.
 Offer only few products.
 Poor road transportation.
 Heavy rain every time.

2.3 Market Share

The business will have the following share in the market. There will be an approximation of
three thousand customers in that locality.

(i) Institutional customers – 1200

(ii) Area residents – 1500
(iii)Government agencies – 200
(iv) Large scale customers – 100

The following will be my competitors and their customer share:

1. Munene Hardware – 300

300
× 100% = 10%
3000

2. Mwenge Auto - Spare – 1500

1500
× 100% = 50%
3000

3. Mutuku Garage and Auto-spare parts

1200
× 100% = 40%
3000

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 Sales

4th Qtr
9%
3rd Qtr
10%

2nd Qtr 1st Qtr

23% 58%

2.4 Promotion and Advertisement.

The business will use the following forms of promotion and advertisement to grow the
business

1. Sales promotion –it will be offering discounts in the month of January and December
example of the offer to be given (buy two and get one free)
2. Public relation – I will be using some roan shows to promote and advertise my
business. This will attract more customers
3. Personal selling – the business will offer quality products to the customers according
to their needs. Also will keep g00d relationship with my customers.
4. Advertisement – I will also be using social media like television, radio and magazines
to access to my business.
5. Personal contact – I myself will also be serving my customers as I hear their views.
These will area good contact with customers.

2.5 Pricing Strategy.

The price for products will be determined by factors like competitors price , how much
customers are willing to buy , economic empowerment, demand, cost of new materials.

PRODUCT / SERVICE PRICE

HAMMER 5000
CEMENT 7000
PIPES 4000
RAKES 9000
WHEELBARROW 7000
JEMBE 4500
PANGA 1000
NAILS 1500
HACKSAW 1700

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 2.6 Sales Tactics
The business will employ the following tactics in the firm

Tactic Benefit
Offering discounts  This will motivate customers.
 Will lead to maximum sales
 Create good relationships among customers.
 This will enlarge the business
Giving warrant to customers.  Will lead to improvement of sales.
 Creating assurance to the customers.
 Enlargement of market.
 Attraction of more customers.
Raising views  Create more awareness among customers
 Motivate customers.
 Create good relation among customers.
 Create good trust.

 Good relationship towards suppliers,

Serving customers. customers and workers.
 Lead to maximum sales.
 Lead to more trust from customers.
 Promote my business.
 Business will run smooth in a conducive
Personal turnout. environment.
 Because of quality products, will be assured
of targeted customers.
 Linkage market.
 Maximum sales.

2.7 Sales Target

The business focuses to have the following in the first three years

I. Sales target for the first year 2020

Products/Servic
es JA FE MARC AP MA JUN JUL AU SEP OC NO DE
N B H R Y E Y G T T V C

Wheelbarrow 2 3 1 2 2 4 5 3 2 4 5 4
Jembe 7 10 20 21 22 29 30 31 29 28 27 26
Hacksaw 5 11 2 0 1 5 10 15 18 17 6 2
Iron sheet 10 11 10 20 19 16 17 10 11 1 3 4
Panga 4 10 15 16 18 20 25 21 22 23 14 15
Hammer 4 5 3 7 8 10 15 11 12 16 17 19
Pipes 10 11 2 3 1 4 6 7 8 2 3 1
Rakes 5 0 1 6 7 10 9 7 10 11 15 8
Nails 6 7 10 14 18 20 19 16 25 24 13 10

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 II. Sales target for the second year 2021

Products/Services
JAN FEB MARCH APR MAY JUNE JULY AUG SEPT OCT NOV DEC

Wheelbarrow 10 12 13 15 14 16 18 20 17 19 21 22
Jembe 12 10 15 16 18 20 21 23 24 25 27 30
Hacksaw 16 19 14 10 9 12 15 15 16 20 21 21
Iron sheet 21 20 19 18 21 20 19 18 20 21 22 24
Panga 29 28 27 26 22 24 25 21 20 26 28 18
Hammer 19 20 21 19 22 23 24 25 26 29 27 30
Pipes 21 20 19 18 20 21 22 23 19 20 21 22
Rakes 21 20 22 23 18 19 16 17 20 25 26 27
Nails 20 17 18 15 16 17 20 21 22 23 24 25

III. Sales target for third year 2022

Products/Servic
es JA FE MARC AP MA JUN JUL AU SEP OC NO DE
N B H R Y E Y G T T V C

Wheelbarrow 21 22 25 26 27 28 30 31 28 26 27 30
Jembe 29 26 25 23 20 29 26 27 25 23 20 29
Hacksaw 20 23 25 26 27 29 30 33 32 31 29 30
Iron sheet 21 23 21 21 21 22 23 24 25 26 27 28
Panga 25 22 23 25 25 15 20 19 28 30 32 33
Hammer 29 30 32 29 26 25 23 29 30 30 30 30
Pipes 25 22 25 25 23 23 21 21 20 22 20 21
Rakes 20 31 22 23 24 25 26 27 31 32 33 34
Nails 29 20 18 19 16 17 20 20 20 30 20 29

2.8 Distribution Strategy

The customer will be able to access my business through the following strategies;

My business will allow customers to pay money in installments until he need his own goods;
when situation is good.

Through ordering goods online where goods are offered to customers who are far. .It will
have mobile vehicle which move from one place to another hence reaching all customers.

Delivering goods to the customers. This will enable the customers who have problems in
accessing the business to get products.

Buying over the counter. Customers will get the products will buy the products over the
counter. Goods will be delivered hand in hand.

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2.9 Customer Services
I will use the following means to keep and maintain my customers whenever they come for
the products.

Self-service - I will allow every customer to select product which he or she is going to buy.

Mode of payment - My customers will use either cash or M.PESA or any other means of
payment.

Quality assurance - I will bring new and quality products to the business and customers will
afford the products.

Customer relationship - I will create good customer relationship. E.g. By knowing where
they come from.

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 Chapter Three

ORGANIZATION AND MANAGEMENT PLAN

3.0 Introduction

The business will consist of management crew of seven persons who will work together and
ensure effective running of the business. They include: manager (owner) , secretary,
technician, salesman , storekeeper , customer attendant and watchman.

3.1 Organization Structure

manager

secretary

security workers

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3.2 Management Team

A. MANAGER

Qualifications:

 Diploma in Construction Plant Engineering.

 Computer literate.
 He/she will be a Kenyan citizen.
 Must have managerial qualities.

Duties and responsibilities

 Recruiting and firing of employees.

 Supervisor of the whole business.
 Determines the pay of employees.
 Maintains all the business transactions.
 Serves as the final authority.

3.3 Other Business Personnel

A. SECRETARY

Qualification

 Diploma in supplies management.

 Fluent in both English and Kiswahili.
 Good handwriting.
 Computer literate.

Duties and responsibilities

 Balancing of the books of account.

 Advice the manager on financial matters.
 Receive cash sales
 Make comprehensive payment.
 Checking the journal entries.

B. Supervisor

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Qualification

 Should have skills in the field of mechanical production

 Kenyan citizen
 Holder of certificate in sales and marketing.
 Aged between 20 and 30 years

Duties and responsibilities

 Maintaining the store.

 Will carry tests on components.
 Will advise the customers.
 Will offer maintenance.

C. Security

Qualification

 Must be able to communicate in English and Kiswahili

 Must have good conduct
 Kenyan citizen by birth
 Have height of 5.8 and physically fit

Duties and responsibilities

 Ensure order within and around the business.

 Protect the business against theft.
 Keep record of visitors upon arrival and departure.
 Should inspect incoming and outgoing luggage.

D. General workers

Qualifications

 Kenyan citizen
 Literate and holders in construction plant
 Hardworking, honesty and ready to work
 Aged between 20 to 40 years

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Duties and responsibilities

 Cleaning and maintaining the business premises.

 Submit daily sales to the supervisor.
 Receive payment and issue receipts.
 Attend to the customers’ needs


3.4 Recruitment, Training and Promotion

Recruitment

The procedure of recruitment will be as follows:

1) Job Advertisement

This will be achieved by placing posters indicating the personnel required and the
qualifications.

2) Receiving Application

The personnel will be required to send their applications within the specified time.

3) Shortlisting

Sorting of the applications will be done and those will qualify will be called for an interview.

4) Interview

The interview will be conducted by the manager; those who will succeed will be given
appointment paper.

5) Contact successful applicants

The qualified applicants will be issued with business card and reporting date with some rules
and regulations

TRAINING

The training will be offered to the qualified employees offered the employment.

PROMOTION

This will be based on specific qualification of performance of an individual. An output of

employee will campaign for his or her promotion.

15
3.5 Remuneration and Incentives

The remuneration and incentives will be given just to motivate and boost the morale of the
employees.

3.5.1 Remuneration
Personnel Monthly payment
Manager 30,000
Supervisor 15,000
Secretary 10,000
Security 12,000
General workers 10,000
Total payments 77,000

3.5.2 Incentives.

The business will offer incentives such as;

1) Allowances
2) Overtime payment
3) Public holidays
4) Aprons and safety boots
5) Promotions

3.6 Licenses, Permits and Other Requirements

3.6.1 Licenses and permits

Licenses acquired from E-citizen through online application. Business registration from
the county government.

The business will use the following to get licenses and permits to allow smooth operations
of the business:-

i. Municipal council.
ii. City council.
iii. E-citizen.

The business will need special permits as follows:-

i. Transport permit.
ii. Hospital permit.
16
 iii. Trade permit.

3.6.2 Other requirement.

i. The business will pay tax to Kenya Revenue Authority (K.R.A).

ii. Land rates.
iii. Hospital insurance.
iv. Business will have registration letter from City council

3.7 Supporting Services

The business will use the following services to help boosting the business and ensure smooth
running and operation

1) Banking services

The business will open bank account at National Bank Mwingi branch.

Purposely to save money and pay workers

Jospury Hardware

National Bank

P.O BOX 412-9200

MWINGI

2) Legal services

The business will contact the following law firm for legal services

Valany and Jemmo Advocates

P.O.BOX 59-9200

MWINGI

3) Postal services

The business will operate with Nyeri posters

Kioko Jospury Hardware

P.O BOX 412-9200

MWINGI
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 4) Electricity

The business will contact Kenya power and lighting for electricity supply at Mwingi

KPLC supply

P.O BOX 292-9200

MWINGI

5) Medical services

The will get medical services from Mwingi General Hospital

Mwingi General Hospital

P.O.BOX 292-9200

MWINGI

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 Chapter Four

PRODUCTION/OPERATION PLAN

4.0 Introduction

The proposed business will be offering products and selling tools and equipment which will
facilitate production to meet customers’ needs. Production will be modern and easy due to
the current technology.

4.1 Production Facilities

Products offered by JOSPURY HARDWARE will be efficient, effective and competitive.

The business will consider the following factors to buy the equipment.

 Size of equipment in relation to flour construction

 Capacity
 Maintenance
 Function of the equipment

a) A tools and equipment.

Item Unit cost Quantity Total cost Suppliers

Description
Speedometer 300 20 6,000
wheelbarrow 200 20 4,000
Lubricants 250 15 3,750
Cement 3,000 10 30,000
Calculators 800 3 2,400
Paper punch 500 3 1,500
Stapler 500 3 1,500
Office chair 2,000 4 8,000
Office desk 2,000 4 8,000
Iron sheets 800 30 24,000
86,750

19
b) Raw materials.

Item description Unit cost (Kshs) Quantity Total cost (Kshs)

Carbon box 500 10 5000

Receipts 100 50 5000

Pens and books 100 20 2000

4.2 Production and Operation strategies

The business will use the following strategies in its management.

 Quality control
 Maintain and train staff
 Vending of high quality equipment
 Training of staff

4.2.1 Future plans.

The business will have the following plans in future:

i. Operate new equipment.

ii. Train staff on how to use new equipment.
iii. Opening of more branches.
iv. Recruitment of more skilled workers.
v. Vending high quality equipment.

4.3 Production process.

Product will undergo some processes within the premises and have the following steps:

Order Planning Issuing Payment.

4.3.1: Order

Customers will make an order on a certain products using phones, online or accessing
him/her to the business premises.

20
4.3.2: Planning

Employees will make a plan on how to get the products odered by customers i.e. from the
business stores or other shops.

4.3.3: Issuing

Customers will be able to confirm the products to ensure that they are the correct ones.

4.3.4: Payments

Customers now make payments on agreed amount.

4.4 Regulations affecting operation

The owner of the business will adhere to government rules and regulations in the country.

The owner will consider the following approval:

1. Public health and health act. The business will offer and enquire health certificate.
2. Employment act. Workers will be treated equally and will be disciplined to attain
goals and objectives of the business.
3. Sex discrimination act. The manager will not consider sex gender to employ or favor
the workers as per their gender.
4. Sales of good act. The manager will consider rules on how to sell, where and when to
sell.

The business will open at 8:00am and close at 6:00pm.

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 Chapter Five

FINANCIAL PLAN

5.0 Introduction

 The business will rely on the following sources of capital.

 Personal savings- the proprietor will provide capital savings of Kshs. 750 000.
 Bank loan- The owner will seek loan from KCB bank of Kshs. 500 000 repayable at a
period of 24 months.
 Family contribution- The members of the family will provide the owner with Kshs.
550 000.

5.1 Pre-operational plan

The cost that the business will incur before its operation will be,

Details Amount
Licenses 5000
Advertisements 5000
Insurance 4000
Bills 8000
Buildings 20000
Transport 5000
Uniforms 4000
Raw material 250000
Equipment 1200000
Miscellaneous expenses 5000
Total 1504000

5.2 Estimation of the Working Capital.

 It is the difference between the current liabilities and current assets.

DETAILS First year Second year Third year
Current assets
Stock 1450000 1524000 1678300
Debtors 20000 150000 200000
Cash at bank 300000 400000 200000
Cash in hand 20000 20000 20000
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 Total 1800000 2094000 2098300
Liabilities
Creditors 30000 20000 20000
Bank loan 500000 280000
Total 503300 1794000 1998300

5.3 Loan and interest repayment

The business will borrow Ksh. 500000 from K.C.B bank at an interest rate of
12% p.a, with a grace period of 4 months.

Month Principal amount Monthly Balance

3 500000 26670 560000
4 560000 26670 533330
5 533330 26670 506660
6 506660 26670 499990
7 479990 26670 453320
8 453320 26670 426650
9 426650 26670 453320
10 399980 26670 426650
11 373310 26670 346640
12 346640 26670 319970
13 319970 26670 293300
14 293300 26670 266630
15 266630 26670 239960
16 239960 26670 213290
17 213290 26670 186620
18 186620 26670 159950
19 159950 26670 133280
20 133280 26670 106610
21 106610 26670 79940
22 79940 26670 53270
23 53270 26670 26600
24 26600 26670 0

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5.4 Projected cash flow for the first three years.

Details Jan Feb March April May June July Aug Sep Oct Nov Dec Total
Cash in
flow
Beginning
600, 000 724, 500 698, 100 517, 300 471, 130 493, 460 438, 790 394, 120 425, 850 465, 180 509, 110 618, 510 6, 356050
cash
Sales 221, 500 163, 600 110, 200 169, 500 188, 000 161, 000 172, 500 152, 900 159, 000 154, 600 209, 400 158, 500 2, 020, 700
T-cash in
821, 500 888, 100 808, 300 686, 800 659, 130 654, 460 611, 290 547, 020 668, 110 610, 780 718, 510 777, 010 8, 451, 010
flow
Cash out
_ _ _ _ _ _ _ _ _ _ _ _ _
of flow
Purchases 247, 500 100, 000 200, 000 100, 000 50, 000 100, 000 100, 000 _ _ _ 100, 000 200, 000 1, 197, 500
Bank
_ _ _ 26, 670 26, 670 26, 670 26, 670 26, 670 26, 670 26, 670 26, 670 26, 670 240, 030
loan
Rent 20, 000 _ _ _ _ _ _ _ _ _ _ _ 20, 000
Insurance 4, 000 4, 000 4, 000 4, 000 4, 000 4, 000 4, 000 4, 000 4, 000 4, 000 4, 000 4, 000 48, 000
Salaries 78, 000 78, 000 78, 000 78, 000 78, 000 78, 000 78, 000 78, 000 78, 000 78, 000 78, 000 78, 000 936, 000
Bills 8, 000 6, 000 6, 000 7, 000 7, 000 7, 000 8, 500 8, 500 8, 000 8, 000 8, 000 8, 500 85, 000
M.
5, 000 2, 000 3, 000 _ _ _ _ 4, 000 3, 000 _ 2, 000 2, 000 21, 000
Expenses
T. cash
out of 97, 000 190, 000 291, 000 115, 670 115, 670 115, 670 117, 170 121, 170 119, 670 110, 670 109, 170 109, 170 1, 312, 030
flow
Net cash
724, 500 698, 100 515, 300 493, 460 438, 790 394, 120 425, 850 465, 180 509, 110 618, 510 467, 510 467, 840 6, 223, 890
flow

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Details Jan Feb March April May June July Aug Sep Oct Nov Dec Total
Cash in
flow
Beginning
467, 840 423, 170 426, 500 463, 830 457, 360 507, 290 565, 820 612, 150 531, 080 611, 410 753, 740 803, 370 6, 467, 840
cash
Sales 180, 000 178, 000 263, 000 224, 600 218, 200 233, 200 276, 000 243, 600 210, 000 272, 000 284, 300 267, 200 2, 849, 100
T-cash in
647, 840 601, 170 682, 500 682, 030 681, 960 740, 490 841, 842 855, 750 741, 080 883, 410 103, 840 107, 557 3, 316, 940
flow
Cash out
_ _ _ _ _ _ _ _ _ _ _ _ _
of flow
Purchases 100, 000 50, 000 100, 000 100, 000 50, 000 50, 000 100, 000 200, 000 _ _ 100, 000 _ 950, 000
Bank
26, 670 26, 670 26, 670 26, 670 26, 670 26, 670 26, 670 26, 670 26, 670 26, 670 26, 670 26, 670 320, 040
loan
Insurance 5, 000 5, 000 5, 000 5, 000 5, 000 5, 000 5, 000 5, 000 5, 000 5, 000 5, 000 5, 000 60, 000
Salaries 85, 000 85, 000 85, 000 85, 000 85, 000 85, 000 90, 000 90, 000 90, 000 90, 000 90, 000 90, 000 1, 050, 000
Bills 8, 000 8, 000 8, 000 8, 000 8, 000 8, 000 8, 000 8, 000 8, 000 8, 000 8, 000 8, 000 96, 000
M.
_ _ _ - _ _ _ _ _ _ _ _ _
Expenses
T. cash
out of 224, 670 174, 670 224, 670 224, 670 174, 670 174, 670 224, 670 324, 670 129, 670 129, 670 229, 670 129, 670 2, 021, 703
flow
Net cash
423, 170 426, 500 463, 830 457, 360 507, 290 565, 820 612, 150 531, 080 611, 410 753, 440 808, 370 946, 070 12, 952, 240
flow

25
Details Jan Feb March April May June July Aug Sep Oct Nov Dec Total
Cash in
flow
Beginning
946, 070 929, 070 873, 970 840, 670 800, 270 791, 770 763, 670 750, 170 718, 470 740, 070 780, 970 828, 470
cash
Sales 188, 000 149, 900 171, 700 164, 600 196, 500 156, 900 171, 500 153, 300 204, 600 191, 900 232, 500 191, 600
T-cash in
1134070 1078970 1045670 1005270 996770 948670 935170 903470 959070 935170 965970 1013470
flow
Cash out
_ _ _ _ _ _ _ _ _ _ _ _ _
of flow
Purchases 100000 100000 100000 100000 100000 80000 80000 80000 80000 80000 80000 80000
Bank
_ _ _ _ _ _ _ _ _ _ _ _ _
loan
Insurance 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 60000
Salaries 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000 90000
Bills 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000 120000
M.
_ _ _ _ _ _ _ _ _ _ _ _ _
Expenses
T. cash
out of 205000 205000 205000 205000 205000 185000 185000 185000 185000 185000 185000 185000
flow
Net cash
929070 873970 840670 800270 791770 763770 750170 718470 740070 780970 780970 828470
flow

26
5.5: Projected trading and loss account.
Item Year 1 Year 2 Year 3
Sales 2020700 2849100 2173000
Purchase 1197500 950000 1060000
G. profit 1823200 1899100 1113000
Expenses
Rent 20000
Loans 240030 320040
License 60000 60000 60000
Advertisement 60000 90000 100000
Total 380030 470040 160000
Net profit 1443170 1429060 953000

5.6: Preference balance sheet for Jospury Hardware.

Fixed assets
First year Second year Third year
Equipment 1200000 1200000 1500000
Current assets
Stock 245000 325000 478300
Debtors 20000 150000 180000
Cash at bank 300000 400000 200000
Cash in hand 30000 20000 20000
Total 1800000 209500 2378300
Liberties
Creditors 30000 20000 100000
Bank loan 560000 319970
Total liberties 590000 339970 100000
Working capital 1210000 1755030 2278300

5.7: Break-even analysis.

It is a technique used to determine the expected product profitability.

Details First year Second year Third year

Fixed cost
Rent 20000
Bills 96000 120000
Loan 240030 320040
Insurance 48000 48000 48000
Salaries 936000 1200000 1200000
Total 1244030 1664040 1800000
Variable cost
Advertisements 60000 90000 100000
M. expenses 21000
Bills 85000
Total expenses 176000 90000 100000
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 1. Contribution margin for the first year
Sales – total variables
(2020700 – 176000) = Kshs. 1844700
Contribution margin for the second year
(2849100 – 90000) = Kshs. 2759100
Contribution margin for the third year
(2173000 – 100000) = Kshs. 2073000
2. Break-even analysis %.
 Break-even point for the first year
(Fixed cost/c margin)100%
(91244030/1844700)100% = 67.43%
 Break-even for the second year
(1664040/2759100)100% = 60.3%
 Break-even for the third year
(1800000/2073000)100% = 86.8%

5.8: Profitability ratio

P.R = (Net profit/sale) 100%

 P.R for the first year = (1443170/2020700) 100% = 71.4%
 P.R for the second year = (1429060/2849100) 100% = 50.13%
 P.R for the third year = (953000/2173000) 100% = 43.86%

2 – Return on capital = (Net profit/capital) 100%

First year = (1443170/1307000) 100% = 110.4%
Second year = (1429060/1307000) 100% = 109.3%
Third year = (95300/130700) 100% = 72.9%

5.9: Desired financing

The business will require Kshs. 1, 800, 000 to operate.

5.10: Proposed Capitalization

The sources of capital will be from

Item Amount
Bank loan 500000
Personal savings 750000
Relative contribution 550000

28
5.11: Potential risks

 Fire – the business will be installed with fire-fighting equipment that would be used to
overcome fire in case it arises.
 Debts – the business will be avoiding huge debts to its customers.
 Low sales – the business will have to make more advertisements to avoid risks of low sales.
 Theft – the business will employ security guards to minimize the risk of theft.

29