Opportunity And Entry Strategy

Published Date: 02 Nov 2017

TABLE OF CONTENTS 1

EXECUTIVE SUMMARY 2

CHAPTER I 4

BUSINESS DESCRIPTION 4

CHAPTER II 9

MARKETING PLAN 9

CHAPTER III 16

ORGANISATION AND MANAGEMENT 16

20

CHAPTER IV 20

OPERATIONAL /PRODUCTION PLAN 20

CHAPTER V 24

FINANCIAL PLAN 24

CHAPTER VI 39

POTENTIAL RISKS: 39

REFERENCES 43

EXECUTIVE SUMMARY

1.1 Business description

Continental Hardware Fabricators will be jointly owned by Austin O. Onyango and Phyllis Auma. The business will be located at Kitengela Township, some 20 kilometers from the city centre.

1.2.0 Opportunity and Entry Strategy

Entry into the market is not expected to be a serious problem. The showroom in Kitengela has high visibility with heavy foot traffic all day long around the city centre. Individual home builders and building contractors, as well as building hardware dealers always support new company factory and the home builders do not have fixed preferences. In addition, Ksh.250, 000 has been budgeted for a pre-opening advertising and public relations campaign. Besides the township is in the vicinity of upcoming residential housing and industrial class suburbs which will provide a rich market.

1.3.0 The Market plan

The company aims at winning 30% of the market share of fencing business in Kitengela area in the first 12 months and 10% of the market share in the business Athi-River, Syokimau and Katani areas in the next five years. This will be ensuring competitive advantage of services/products. First the proprietors will employ qualified employees, quality services will be guaranteed. Also quality building materials will be manufactured. Secondly, since the employees will be qualified trained they will give sales and after sales service which will satisfy his customers. Other measures to ensure success in winning this market share will include: good management managerial skills shall be required in the business. Secondly, the relationship between employees and customers the employees will be expected to maintain high standard of relation to customers. Thirdly, the employees will be urged to be honesty, loyal, know how to communicate well to customers. This will enable more and more customers be persuaded to buy more and more products. Finally, lower prices compared to other business, discounts, free sample these shall improve sales and get many customers.

1.4.0 People Plan

The business will recruit a manager who has experience in construction industry and holder of at least a diploma in structural engineering. He or she will therefore be well equipped with managerial skills and the qualities of a good manager. The manager will report to the two directors while the rest of staff will report to him or her. The manager’s duties and responsibilities are going to include the following: maintaining the business book of accounts, administration of statutory deductions [PAYE, NSSF]; general administration; Handling disciplinary matters; and approving requisitions made by the employees. The management will also recruit other staff who are qualified to the positions of production manager, sales manager, production assistants as well as supervisors.

1.5.0 Operation plan

The production plan will be guided by the following objectives such as ensuring efficient production using appropriate equipments , expanding the business further by opening sales outlets in 4 other towns, residential suburbs, and finally producing quality handware to suit various construction needs. customer requirements

There are a number of factors that influence production process. These include the availability of raw materials which are limestone, waste paper and plastics, electricity and water in the premises. The business also requires appropriate premises. The above factors made the entrepreneurs choose to purchase land and put up their own factory at Kitengela where land is cheap. This is because renting a building will cost them a lot of money. Therefore the entrepreneur will not be paying rent.

The Continental Hardware Fabricators will require 2 acres of land and a 3600 Square metres of building. Already we have identified a piece of land on which we can put up a factory. The title deed for this land is order.

1.6.0 Financial plan

The financial plan will be guided by the following objectives: to develop the business to make a gross profit of 5,000,000/= with the first 2 years of operation and to maximize profits by prudent financial control. In terms capitalization, the business will use various forms financing to start and expand their businesses. The owners plan to use from personal saving for the proposed business. As indicated projected financial requirements in the table below, the proprietor plans to borrow from other sources in order to meet the required financial level. The management will strive to ensure prudent financial management through proper accounting procedures. Notably the business will prepare a number of financial documents to assist in making decisions. These will include balance sheets, cash flow, and income statement. From time to time performance ratios will be used such as profitability ratio.

CHAPTER I

BUSINESS DESCRIPTION

The mission statement

The Company’s goal is that of a multi-faceted success. Our first responsibility is to the financial well-being of the business owners, the business and its stakeholders. We will meet this goal while trying to consider; 1) the effect of our products on the health and well being of our customers (and our staff), 2) the impact that our business practices and choices will have on the environment, and 3) the high quality of attitude, fairness, understanding, and generosity between management, staff, customers, and vendors. Awareness of all these factors and the responsible actions that result will give our efforts a sense of purpose and meaning beyond our basic financial goals.

Business name and logo

The name of the business will be Continental Hardware Fabricators Ltd . This is a small size factory to produce selected types of building materials. These include fencing posts, walling blocks and decoration pannels

The following is the business logo

Continental Hardware Fabricators LTD

The Manufacturers of Environmentally Friendly Construction Materials

 

 

 

 

Business location, premises and address

The Business will be located on the 20 km from Nairobi along Magadi Road, at Kitengela Township. The Postal address of the business is:

P.O BOX 62157-00200, NAIROBI

Telephone

Website: www.Continentalfabricators.co.ke

PHYSICAL ADDRESS

Kitengela Road, Kitengela Shopping Centre

Form of ownership

The business will take partnership form of ownership. This is advantageous because:

Partners can raise more capital by pooling their financial resources together

The work is divided among partners. This on the one hand reduces the load for each partner and on the other hand helps them specialize in a particular field

The partnership will help them combine different talents. For example in one partner was good market and customer relations while the other has an accounting background which is working well for the business.

The partners are able to share liability which although it does not rule out the possibility of a calamity, it certainly reduces its chances and effects

Business will easily expand because of combined effort. The partners are able to easily accommodate, cope with, or for the purpose of expansion

In the event of difficulty, mutual discussions among partners are likely to come up with a solution

Type of business industry

The proposed business belongs to the construction industry. The company will manufacture and sell quality building materials. Although the building industry is very competitive, the lifestyle changes more and more people are environmentally conscious and are likely to select and use building materials that are friendly to the environment. This trend is very important and Continental Hardware Fabricators is well positioned for the current interest in environmental conservation in Kenya.

Business goals

In line with our mission statement, our business is guided by the following goals:

To provide our customers with environmentally friendly and quality building materials

To expand the business to a major player in the manufacturing industry

To maximize profits for the owners of the business

To manufacture products that support sustainable environment and well being of our customers (and our staff),

To foster high quality of attitude, fairness, understanding, and generosity between management, staff, customers, and vendors.

Products and Related Services

The company will manufacture building products with distinctive quality. This will made from recycled plastics. They will include fencing posts, walling materials, and decoration panels. They will be of varied colours, sizes to suit different building needs. There has been an increased awareness of the need to conserve the environment and reduce pollution. Especially plastics in form paper bags, and containers have been a serious menace throughout the country and in every town. We will recycle this and manufacture several products including the above mentioned. Kenyans are likely to support quality products which are we fairly moderately priced. In the manufacture of these products, there will be strict adherence to existing quality standards.

Justification of opportunity

Although the construction and building industry is very competitive, the lifestyle changes created by improving national economic performance continue to fuel its steady growth. More and more people are preferring to live in their own rather than rented houses. This has created a booming market for construction and building materials. There is also increased environmental awareness and preference for products that environment friendly. Continental Hardware Fabricators Ltd is well positioned for these current interests and by offering quality products and at moderate to low prices will be able to exploit the market.

As already mention there is a movement towards self-owned houses and many residential suburbs are emerging in Nairobi, especially in suburbs like Athi-River, and Thika. There is also increasing demand for office space with more office being built up in Nairobi and the surrounding towns. This has generated the need for partitioning of existing office space already available. The location of our factory in Kitengela, not far from the main highway from Nairobi to Mombasa, and close to a rapidly developing areas means that we are near the target market. New outlets for construction materials are being opened all over these regions and even areas such as Ongata-Rongai, Ruai, Githurai, and Ruiru. There are also outlets in surrounding towns such as Machakos, Mlolongo, Athi-River, Tala, Kangundo, and Kyumbi. We will endevour to talk to the owners of these building materials outlets so that they can stock our products.

Therefore the market covers a large geographical area. This location is therefore very ideal in relation to the marketing function. For example there is a great potential for a large customer base given the large and demographically varied population. The location enjoys good accessibility because of the well built roads everywhere.

Entry and growth strategy

Entry into the market should not be a problem. The company will ensure high visibility for its products. With so many hand ware shops being opened up in the areas mentioned above, they will be highly accessible to consumers. In addition, Ksh.150, 000 has been budgeted for a pre-opening advertising and public relations campaign.

For the first month, the entrepreneur shall employ promotional services like demonstrations, free samples, and discounts, games for purchase of building materials such as fencing posts and walling materials. We will also use posters to inform the general public and prospective customers of the existence of the business in the areas unlike the competitors who has been using brochures which has been ineffective and very expensive.

The entrepreneurs will set good prices and offer quality services. This will earn our company high profit which will enable them to expand their business. We shall motivate his employees by giving them good salaries and in time and also awarding the best employee annually. This will enable them to work hard and improve his business to higher standards. The entrepreneurs have very high expectancy that they will expand this business and open as many company-owned outlets as possible.

CHAPTER II

MARKETING PLAN

2.1 Objectives

The marketing plan will be guided by the following objectives:

To win a 30% of the market share of fencing business in Kitengela and surrounding areas in the first 12 months and 40% of the market share in the business in the next five years.

To increase the annual turnover of the business to Ksh. 5,000,000 within the first five (5) years of operation,

To successfully communicate new products though advertising aimed at increasing product or brand awareness, making consumers’ attitudes more favourable, or increasing consumers’ knowledge of a product’s features.

To improve the competitiveness of our products aimed at combating or neutralizing the effects of competitors’ advertising.

2.2 Customers

The customer base for the Continental Hardware Fabricators will come from two major segments;

Local population: The suburbs of Kitengela, has over 345,000 undeveloped plots that are located at the southern edge the sprawling Nairobi South-eastern lands 15 minutes drive of over 10 major Nairobi suburbs, such as Athi-River, Syokimau, Embakasi. This land is meant to be developed in the next 20 years

Local businesses – There are several trading centres and townships with 10 km radius around Kitengela. In these townships there hundreds of hardware outlets which can stock our products.

Market Share

The company factory aims at winning 30% of the market share of company factory business in Kitengela in the first 12 months and 40% of the market share in the business around the surrounding areas in Kitengela in the next five years. This will be ensuring competitive advantage of services/products. First the proprietors will employ qualified employees, quality services will be guaranteed. Also quality building products will be manufactured. Secondly, since the employees will be qualified trained they will give quality services which will satisfy his customers.

Other measures to ensure success in winning this market share will include:

Good management managerial skills shall be required in the business

The relationship between employees and customers the employees will be expected to maintain high standard of relation to customers.

The employees will be urged to be honesty, loyal, know how to communicate well to customers. This will enable more and more customers be persuaded to buy more and more products.

Lower prices compared to other business, discounts, free sample these shall improve sales and get many customers.

2.4 Competition

There are no manufacturers for the kind of materials that the kind that this company will engage in. However, our plastic products will face competition from wooden and concrete fencing posts. In the case of the wooden fencing posts what we have are hardware stores who bring in these posts from as far as the Rift Valley and Meru. These do not pose a serious threat. In the case of concrete posts there several small scale makers of concrete fencing posts among other items. However the entrepreneurs have singled two medium size companies who manufacture and sell concrete posts and walling materials at similar prices. Although this presents an obvious challenge in terms of market share, it also indicates the presence of a large, strong potential.

The Continental Converter will make successful entry based on an innovative concept or novelty. It will offer an innovative product in a familiar style at a competitive price. Our aggressive plans of marketing and product quality will also give us an advantage to create a good market share before the competition can adjust or similar concepts appear.

The main competitors to the Continental Converter are:

The Athi River Concrete Works

Syokimao Tiles Ltd

Athi River Concrete Works

Syokimao Tiles Ltd

Continental Hardware Fabricators

Parameters

Strength

Weakness

Strength

Weakness

Strength

weakness

Location

_______

Far from the main road

------------

Far from the main road

On the main road

_______

Price

________

High prices

High prices

________

Medium prices

_______

Promotion

________

Promotion not done

_______

Promotion not done

Promotion done

__________

Distribution Channels

No office delivery

House delivery

_______

_________

No house delivery

Number of outlets

___________

Have not outlets

_______

No outlets

Will engage several hardware shops as outlets

_______

Product distinction

__________

No emphasis on environmental conservation

_________

No emphasis on environmental conservation

Strong emphasis environmental conservation

_________

The competition grid above demonstrates areas where the Continental Hardware Fabricators Ltd will face competition from similar businesses. Both Athi River Concrete Works and Syokimao Tiles compete with Continental Hardware Fabricators in the manufacture and sell of fencing posts. On the other hand Continental Hardware Fabricators are confident to have an edge because they will make unique products and will be able to give very competitive prices and there capture the market target population

Continental Hardware Fabricators will seek competitive advantage through efficiency, better management, promotion, unique and of higher quality services compared to its competitors. Specifically, there are three major ways in which we will create an advantage over our competitors;

Product identity, quality, and novelty

High employee motivation and good sales attitude

Innovative and aggressive service options.

Competitive prices

2.6 Location /Premises vs. marketing

The Business will be located on the 20 km from Nairobi along Momasa Road, near Kitengela Shopping Centre. This is a suitable site for the first factory and was found a few months ago and purchase negotiations are in the final stages. The location is on the main highway from Nairobi to Namanga just 20 kilometres from the Nairobi City Centre and close to upcoming residential areas. These include: Embakasi, Kitengela, Syokimao, Kyumbi, Katani, Ruai. There is also plenty of market in other suburbs of Nairobi such as Ongata-Rongai, Githurai. Therefore the area covers a large area of upcoming residential areas which will need fencing materials.

Therefore this location is very ideal in relation to the marketing function. For example there is a great potential for a large customer base given the expanding construction work of residential homes in this area. The location enjoys good accessibility because of the well built roads everywhere.

2.7 Products/services strategy

The Continental Hardware Fabricators will manufacture and sell building products which include fencing posts, walling materials, and decoration pannel. Fencing materials are useful in fencing off plots, and will come in all sizes and colours. They can also be used in fencing flower beds, demarcation of land and fields. Walling materials are useful in partitioning of room spaces in building, especially in office blocks. Decoration pannels are useful in beautifying rooms and halls. The flagship of our products will be the fencing posts The main customers are are private plot and residential owners, people involved in land demarcation who use metal bars and can now use plastic becons. There will also market among construction contractors. The second class of customers are retailers of bulding materials such as hardware shops which very common in peri-urban townships around Nairobi. Due to the increasing population of Nairobi, there is high construction work going owners hence a big market which the company will tap by providing alternatives to wooden building materials.

The company will adopt a service strategy geared towards market penetration and mastery of a sizable market share. The key strategies include: good management, managerial skills shall be required in the business; cordial relationship between employees and customers the employees will be expected to maintain high standard of relation to customers; employee virtues of honesty, loyalty, and good communication, with customers. This will enable more and more customers be persuaded to buy the products. The company will also aim at the following in its service delivery:

Product identity, quality, and novelty

High employee motivation and good sales attitude

Innovative and aggressive service options.

Competitive prices

2.8 Pricing Strategy

One guiding principle in the pricing strategy is to maintain lower prices compared to other business. Discounts, demonstrations and free sample shall improve sales and get many customers At the same time the selling price is going to cover both indirect and direct cost and a percentage is going to be added to the total cost in order to realize a profit. The following formula will determine the selling price

Direct cost + indirect cost + profit = selling price

The key factor to be considered in setting prices is going to be demand driven the competitors selling price. The selling price is going to be fixed because on the supply of used plastics there is normally no bargaining when agricultural supplies are plentiful the business is going to extend concession on its customers. By offering a discount on products, entrepreneurs will seek to attract more and more customers. The discount is going to depend on the cost of processing the raw materials and manufacturing products.

2.9 Promotion/advertising strategy

The Continental Hardware Fabricators will use a variety of media to advertise. However key among these are newspapers and directories to advertise. Newspapers are seen as reaching a wide geographical areas and therefore wider audience. They are also timely in terms of immediately informing customers and potential customers of new offerings. They are relatively low cost especially in the Kenya and can lead to prompt responses.

The television and radio will also be favoured especially whenever the company factory wants to introduce new products and services. This is because television has a special visual advantage likely to attract the attention of many people. It is also flexible in that messages can be adapted to the changing services offered by the business. The company will ensure it has an entry in directories such as the postal office and the business directories. Directories provide focused information and are likely to be used by customers looking for particular services. Therefore the company will be found yellow pages of various directories.

Finally, the business will use direct mail especially the use fliers, calendars and brochures. These are selective as they are given to potential customers, are attractive in the sense of being easy to read and therefore to provide reader attraction. This will include distributing fliers at strategic points in Kitengela Township, and in major residential suburbs of Nairobi. For the first month of entry to the market, the entrepreneur will employ promotional activities such as, discounts, free sample after purchase of products in the company factory.

2.10 Sales Tactics

The business will recruit marketing staff who will be the key agents for sales. These include the marketing manager and three sales people. The staff will have the primary duty of ensuring that all customers are efficiently supplied with quality services. The marketing manager will initially go round talking to the hardware owners and convince them to stock our products. Later the sales people will go round collecting new orders from the hardware.

2.11 Distribution Strategy

There will be three ways through which the products will be sold to customers. Retailers can purchase these products from our factory. Alternative we can deliver them to their retail outlets. These are the owners of hardware shops. Retail customers can purchase our products from hardware shops that are scattered all around the townships.

2.12 Evaluation mechanisms

The businesses will engage in measuring the effectiveness of their advertising activities. This is important in deciding whether some of the proposed advertising should be used and, if it will be, how it might be made better. Such measurement is important in finding out whether some advertisements should be continued, modified or stopped.

To be able to measure the effectiveness of any advertising, we shall carry out pretests and post-tests. Post-tests are particularly useful in providing information for the development of future advertising. Pretests provide will us with the information about the likelihood of an advertisement’s success.

2.13 Action plan

A number of activities will be carried out to ensure hat the following marketing are met:

To win a 30% of the market share of company factory business in Kitengela in the first 12 months and 40% of the market share in the business in the next five years.

To increase the annual turnover of the business to Ksh. 5,000,000 within the first years of operation,

To successfully communicate new products through advertising aimed at increasing product or brand awareness, making consumers’ attitudes more favourable, or increasing consumers’ knowledge of a product’s features.

To improve the competitiveness of our products aimed at combating or neutralizing the effects of competitors’ advertising.

The table below shows the action plan towards the achievement of the above objectives.

Activity

Action

Who will perform the action

By when it should be done

1.

Advertising

Promoting the products

Marketing Manager

Continous

2.

Pricing

Determing price

Directors and Marketing Manager

The first one week with continous review

3.

Customer satisfaction

sales

Marketing manager, sales people, Directors

Througoutt

4

Employee training

Ensuring postive attitudes by employees

Directors and managers

Continuous

CHAPTER III

ORGANISATION AND MANAGEMENT

Objectives

The people plan will be guided by the following objectives:

To ensure recruitment drive and selection of the qualified personnel’s necessary to boost production.

To ensure that employees are obtained are trained on the job to do immediately before engaging them

To ensure a highly motivated staff who will provide quality services to customers

To ensure regular staff appraisal maintain efficiency performance

Management team and their qualifications

Austin O. Onyango and Phyllis Auma are the owners and Directors of the business. They will recruit a manager for the Company factory. Mr.Onyango is a Senior Accountant with a reputable firm in Nairobi. He also has a wide experience in finance and management. Ms Phyllis Auma is an experienced market having worked with leading marketing firms in Nairobi.

The manager to be recruited for the proposed business will have experience in hotel industry and holder of at least a diploma in Hotel management. He or she will therefore be well equipped with managerial skills and the qualities of a good manager. The manager will report to the two directors while the rest of staff will report to him or her.

The manager’s duties and responsibilities are going to include the following

Maintaining the business book of accounts

Administration of statutory deductions [PAYE, NSSF]

General administration

Handling disciplinary matters

Approving requisitions made by the employees

Decision-making

The production manager is going to draw a salary Ksh. 25,000 per month

Personal/staffing (number and duties)

The table below shows the various kinds of staff who will be recruited and their duties

Personnel

No.

Qualification

Duties

Salary

Production Manager

1

Higher Diploma(Production Engineering)

Ensure that the factory has a good supply of raw

Supervision all production activities

Budgeting for purchases

25,000/=

Marketing manager

1

Diploma (Marketing)

Directly supervise marketing

Ensure that customers are provided with efficient service;

Design promotional activities;

Handles customer complaints;

25,000/=

Accountant

1

Diploma (Accounting)

In-charge of all accounting activities

Keep all sales records

25,000/=

Sales Executives

Certificate in sales

Collect orders

Locate new customers

Deliver orders

10,000

Production Attendants

5

At least KSCE

Undertake all the production activities under instructions from production manager

10,000/=

Cleaner

1

Ensure cleanliness of all areas

5,000/=

Security Guard

1

Form IV

Ensure order within the premises

6,000/=

Recruitment and selection

The mangement will recruit staff on the basis of qualification, merit, competence and integrity. Employee recruitment will be performed through the following procedure:

Advertising through the newspapers giving the job descriptions and the qualifications required

Once the applications are received and short listed an interview is conducted to select the qualified people

Selection will take place after interviews have been conducted. Interviews will include practicals so that the prospective employees can demonstrate their skills. The Directors will be expected to endorse the appointments with consultation with the manager.

Retaining and motivation (remuneration and incentives)

The staff are upgraded according to their qualification, devotion and high performance in order for the staff to be promoted the business is going to offer training courses for the employees at different levels and the employees who pass the training will be promoted. The employees who have worked for the business for long and whose records clean are given promotion. The payment increment is done according to one’s hard work and motivation to their work.

Rewarding is done to those employees have proved to be hardworking and also providing quality services. Cash payment, in-service training, provision of certificates are provided to those who excel in work. The compensation are offered to the employees include medical allowance, travelling allowance, house allowance and overtime is paid to those staff who work overtime. This recognition of staff results to good performance and hard work leads to various stages of production many other offers for example sponsorship to abroad for further studies. This is common in the School of Professional Studies.

The management will also offer over time allowances only for the workers after the normal working hours as planned by the establishment. Apart from competitive salaries, the workers will be able to claim overtime payment. The general will appraise and evaluate the work performance of all the staffs. By liaising with managing director, hard working and productive employees shall be rewarded accordingly. However, once the business grows hard working staffs shall be given an opportunity for promotions to higher levels.

Appraisal

A continuous staff appraisal shall be conducted once every year. This will involve, rating of work productivity, punctuality, regularity and the overall improvement at work. Every staff’s file will be looked at and evaluated accordingly depending on the examinations passed so far and also verbal examinations will be held to determine whether one deserved promotion or not.

Legal requirements (permits, licenses and by-laws)

The following table shows details of the legal requirements that need to be cleared by the management so as to run the business smoothily.

ITEM

REQUIREMENT

DESCRIPTION

WHERE TO OBTAIN

FEES PAYABLE

1

Registration of business

Certificate of Registration

KRA

15,000/=

2

Trade License

Trade License

Local authority

2500/=

3

Tax registration

PIN number

KRA

free

4

Health certficate

Certificte of health

Local authority

4000/=

5.

Insurance

Insurance certicate

Heritage Insurance

100,000/=

Action plan

The following tables shows a breakdown of actions that will need to be undertaken so as achieve the management objectives stated above.

ITEM

ACTIVITY

WHO PERFORMS

WHEN PERFORMED

Recruitment and selection

The manager and

director

The first one month

2.

Rewarding and motivation

The manager and director

Once every year

3

Training and orientation

manager

Each time an employee is recruited

CHAPTER IV

OPERATIONAL /PRODUCTION PLAN

4.1 Objectives

The production plan will be guided by the following objectives

To ensure efficient production using appropriate equipments

To expand the business by negotiating with hardware shops to act as our retail outlets and later opening own outlets in some of the city residential suburbs.

To produce quality products to suit various customer requirements

To utilize the available human resources effectively in order to incur less operating costs

4.2 Production facilities and capacity

There are a number of factors that influence production process. These include the availability of raw materials, electricity and water in the premises. The business also requires an appropriate building. The above factors have made the entrepreneurs to choose to construct their own building for the factory. This is because first, the land in this area is cheap by market prices, and secondly, it will be possible to put up a purpose building which caters for the various activities that have to be undertaken in the factory. Therefore it is cheaper and more convenient for the entrepreneurs to put up their own structure than to rent which will require that they pay exorbitant rent

The following table shows a breakdown of facilities for the efficient running of the business

ITEM NO.

EQUIPMENT

QUANTITY

CAPACITY

PRICE

1

Boiler (Jua kali)

2

200 litres

50,000/=

2

Furnace (Jua kali)

2

Medium

30,000/=

3

Molders

10 (different sizes and shapes

To mould (fabricate) different shapes of posts, panels and walling materials

30,000/=

4

Assorted miscellaneous item e.g. pipes,

Several types

200,000

5

ETR Cash register

2

Medium processing speed

70,000/=

6

Office furniture

Office desks, cabinets & chairs

100,000

7.

Desk Top

Computer

4

High processing speed

75,000/=

4.3 Production strategy (may include product design and development where applicable)

The entrepreneurs will ensure that all raw materials are accumulated in the factory yard and that there is a continuously supplied to the factory. To do the company will engage collectors of waste plastics such as containers, and bottles. These will be thoroughly washed and stored ready for smelting and molding of the products. The entrepreneur will use appropriate technology in the production. This technology includes jua kali furnaces, boilers, and molders. These will be used for smelting the plastics at high temperatures, making mixtures, and molding various products.

4.4 Production process

Full production will be made at the factory. There will be a warehouse to store finished products awaiting delivery to customers. An efficient inventory will be maintained to ensure that at any given time there sufficient quantities in the factory to replenish the outlets. The main workflow in the production process will be as follows

PLANNING

DISTRIBUTION

PRODUCTION

STORING

PURCHASING

RECEIVING

ISSUING

The planning stage involves budgeting for required quantities of raw material required in the form of waste plastics. The purchasing involves all activities required to order these waste plastics from dealers or suppliers. Receiving involves delivery of goods ordered and processing of payment. Storing refers to inventory control activities of recording; cleaning and storing items in respective areas by colours and types. Issuing include related activities of making and processing requisitions from the stores. Preparation includes all activities of producing the different types of products including fencing posts, walling materials and decoration panels of different sizes and colours. This will be achieved through smelting the plastics at high temperatures, creating mixtures of appropriate thickness and molding it into different shapes. Colour will be added during the smelting and mixing process. Finally, Distribution includes all activities related to collecting orders from the retail outlets and making deliveries to satisfy these orders.

The following are stages which will follow in production of production of some of the products.

Fencing post: Collect ingredients nts smelting and mixing Molding into shapes

4.5 Regulations affecting operation (this may include health regulations, trademarks, patents, copyrights safety regulations and environmental regulations)

The business wil require compliance to various regulations in order to operate legally and efficiently. Here we highlight some of the legal documents that will be obtained.

ITEM No.

PERMIT

SOURCES

COSTS

1

Registration certificate

A.G chambers

2000/=

2

Trade License

Min of trade

5000/=

3

Health Certificate

Min of Health

5000/=

4.

Authority license

Local authority

5000

Total

17,000/=

4.6 Performance analysis

A big emphasis is being placed on extensive research into the quality and integrity of our products. They will constantly be tested for our own high standards quality. Products will be tested using practical means to ensure good quality control.

Our marketing efforts will be concentrated on processing and delivery fencing post, which the area of most promising growth. As the market changes, new products may be added to maintain sales.

After the company factory opens, we will keep a close eye on sales and profit. If we are on target at the end of year 1, we will look to expand to a second unit.

With any new venture, there is risk involved. The success of our project hinges on the strength and acceptance of a fairly new product into the market. After year 1, we expect some copycat competition in the form of other independent units.

4.7 Assumptions

The Continental Hardware Fabricators Ltd is an innovative concept that targets the fast growing construction market. We assume that the market will respond, and grow quickly in the next 5 years. Our goals are to create a reputation of quality, consistency and security (environmental safety) that will make us the leader of a recycling of plastics into construction materials.

4.8 Action plan

The following table shows the set of activities that need to be done so as to accomplish the stated operational objectives.

ITEM No.

ACTIVITY

ACTIONS

RESPONSIBILITY

Facility Identification

Construction of buildings

The Directors/Manager

Design layout & installation

Installing machines

Consultant/manager

Purchase

Purchasing/stock control

Directors

Recruitment and training

Recruiting the right staff and training them on the production process

Directors/

Labour control

Preparing a work plan r

The manager/supervisor

Adherence to regulations

Environmental assessment/Health inspection/obtaining gov. certificates

Director/ Gov officers

CHAPTER V

FINANCIAL PLAN

5.1 Objectives

The financial plan will aid the entrepreneur in evaluation of the performance of the business by meeting the aims of the business for future developments. It will also aid him in determining the position of the business in the industry. The financial plan will be guided by the following objectives:

To develop the business to make a gross profit of 5,000,00/= with the first 2 years of operation

To maximize profits by prudent financial control

5.2 Capitalization

The businesses examined in this study used various forms financing to start and expand their businesses. The owner plans to use from personal saving for the proposed business. As indicatedprojected financial requirements in the table below, the proprietor plans to borrow from other sources in order to meet the required financial level

Item

Amount

1.

Owners’ equity

2,000,000

2.

Bank loan(ICDC & SACCO)

200,000

3.

Family contributions

100,000

Total

2,300,00

5.3 Desired financing

The following table shows a breakdown of desired financing for the business expenses

Item

Amount

1.

Pre-operational cost

310,000

2.

Working capital

1,110,000

3.

Fixed costs

300,000

4.

Miscellaneous

100,000

Total

1,910,000

5.4 Pre-operational costs

Pre-operational cost will show the budget that the entrepreneur will prepare before the operation of the business. This will include the following

ITEM No.

ITEM REQUIRED

COST

Purchase of land and cobstruction of buldings

1, 240,000

Equipment installation

130,000

Fittings (cupboards etc)

30,000

Furniture

15,000

Telephone

6,000

Advertisement

2,000

Insurance

40,000

Licence and permits

500

Water connections

500

Total

1,310,000

5.5 Operational costs (working capital)

The following table shows an estimate of the working capital for the next 3 years

ITEM

YEAR I

YEAR II

YEAR III

Stock of raw materials

700,000

800,000

900,000

Stock of work in progress

100,000

200,000

300,000

Debtors

100,000

140,000

200,000

Cash at hand

10,000

20,000

30,000

Cash in the bank

200,000

200,000

300,000

Total working table

1,110,000

1,180,000

1,430,000

5.6 Personal expenses

The directors will for the first one year meet their personal expenses without making claims from the business. This will ensure stability of the financial position of the business. However in the second year when the financial poistion of the company will have improved they will be reimbursed whenver they use personal money during business activity.

5.7 Cash flow statements

The cash flow statement provides information to lenders and investors. It helps creditors and stockholders to know how firms obtained and used their funds during the course of a year. This makes it easier for them to interpret the year to year changes in the firm’s balance sheet and income statement.

5.7.1 Projected Profoma Cash Flow Statement for 2009

(Continental Hardware FabricatorsRestuarant)

Cash Flow Statement

First year by month (2009)

1 2 3 4 5 6 7 8 9 10 11 12

Cash receipts

Sales 0 0 0 37,000 55,000 74,000 74,000 74,000 74,000 74,000 92,000 92,000

Others 75,000 75,000 0 0

Total cash

Receipts 75,000 75,000 0 37,000 55,000 74,000 74,000 74,000 74,000 74,000 92,000 92,000

Less expenses

Salaries

Insurance

R & D

Advertising

Travel

Commisions

Inventory

Total disbursements

Net cash flow

Cummulative cash flow

5.7.2 Cash flow Project for the years 2011 and 2012

Continental Hardware Fabricators

Cash Flow Statement for 2011 and 2012

As of 31st December 2010

CASH FLOWS FROM OPERATING ACTIVITIES

2011

2012

Net profit before taxation

407,837

400,532

Adjustments for:-

Depreciation

Amortization of leasehold land

20,000

10,000

Profit on disposal of village cell banking vans

10,000

5000

Write off of computer software

3000

2000

Operating profit before working capital changer

2000

2000

Other assets

1000

1000

Cash generated from operations

450,000

450,000

Income taxes paid

200,000

200,000

Net cash from operating activities

660,050

760,400

5.8 Proforma Income statements

The proforma income statement is a summary of the projected trading income and expenditure for the accounting period. It shows the way in which the business has traded. This information assists the business owner to determine how much money the owner will need to start up the venture

5.8.1 Projected Proforma Income statements for the year 2009

Continental Hardware FabricatorsRestuarant

INCOME STATEMENT

For the year ending December 31st 2009 by month

1 2 3 4 5 6 7 8 9 10 11 12 total

sales 0 0 0 37,000 55,000 55,500 74,000 74,000 74,000 92,500 92,500 92,500 629,000

less cost

of goods

sold 0 0 0 8,710 13,066 17,421 17,421 17,421 17,421 17,421 21,776 21,776 148,077

Comm. 0 0 0 5,550 8,325 9,325 11,100 11,100 11,100 13,875 13,875 13,875 93,350

Gross prt. 0 0 0 22,740 34,109 34,109 45,479 45,479 45,479 45,479 56,849 56,849 386,573

Operating Expenses

Sal. 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 24,000

Sec. 0 0 0 0 0 1,167 1,167 1,167 1,167 1,167 1,167 1,167 8,169

Insurance 42 42 42 42 42 42 42 42 42 42 42 38 500

Liability 763 1,145 1,145 3,638 3,638 3,638 4,548 4,548 4,548 30,926

R&D 0 0 0 1,819 2,729 2,729 1,526 1,526 1,526 1,526 1,908 1,908 12,973

Ads 417 417 417 417 417 417 417 417 417 417 413 417 5,000

Trvl 625 625 625 625 625 625 625 625 625 625 625 625 7,500

O Exp 850 850 850 850 850 850 850 850 850 850 850 850 10,200

TL OP 3,934 3,934 3,934 6,516 7,807 8,974 10,266 10,266 10,266 10,266 11,553 11,553 99,269

Profit before

Tax 3,934 3,934 3,934 16,223 26,302 25,135 35,214 35,214 35,214 35,214 45,296 45,296 287,304

Taxes 1,574 1,574 1,574 6,489 10,521 10,054 14,085 14,085 14,085 14,085 18,119 18,119 114,922

Net Profit (or

loss) 2,360 2,360 2,360 9,734 15,781 15,081 21,128 21,128 21,128 21,128 27,178 27,178 172,384

5.8.2 Projected Proforma Income statements for the years 2010 and 2011

Continental Hardware FabricatorsRestuarant

INCOME STATEMENT

For the year ending 2010 and 2011

INCOME

2010

2011

Interest income

634,486

947,830

Interest expense

126,647

82,827

Net interest income

507,839

865,503

Commission and other income

863,585

937,237

TOTAL OPERATING INCOME

EXPENSES

Management expenses

855,542

140,274

Depreciation and amortization

279,875

137,658

Provision for bad and doubtful debts

133, 134

124,276

PROFIT BEFORE TAXATION

607,837

500,532

TAXATION

200,000

100,000

PROFIT AFTER TAXATION

407,837

400,532

5.9 Balance sheets

These supply detailed information about the accounting equation factors: assets, liabilities and owner’s equity.

5.9. 1 Profoma Balance Sheet

Continental Hardware Fabricators Ltd

Balance sheet

As of December 31st 2009 (Kshs)

ASSETS

Current Assets

Cash 8,000

Accounts receivable 22,400

Less allowance for bad debts ( 1,000)

21,400

Inventory (valued at cost) 26,000

Total Current Assets 55, 000

Fixed Assets

Fixtures and Equipment 13,000

Truck 3,200

16,200

Less Accumulated Depreciation (3,880)

Total Fixed Assets 12,320

TOTAL ASSETS 67,720

LIABILITIES AND CAPITAL

Current Liabilities

Notes payable within one year 3,500

Accounts payable 25,300

Accrued Expenses 700

Total Current Liabilities 19,500

Long-Term Liabilities

Notes Payable(due after one year) 2,400

TOTAL LIABILITIES 21,900

Capital

Owner’s capital, January 1 45,120

Profit for Period 17,930

Owner’s withdrawal 17,230

Undistributed Earnings 700

Total Capital, December 31, 2001 45,820

TOTAL LIABILITIES AND CAPITAL 67,720

5.9.2 Projected Proforma Balance Sheet for 2010 and 2011

Continental Hardware Fabricators Ltd

Balance Sheet for the years 2010 and 2011

As of 31st December 2011

ITEM

2010

2011

Current costs

Cash

80,000

85,000

Debtors

50,000

50,000

Total Current Assests

130,000

135,00

Fixed Assets

Building

300,000

300,000

Pick up

450,000

450,000

Equipment

200,000

150,000

Land

300,000

400,000

Total fixed assets

1,250,000

1,350,000

Long term liabilities

Ban loan

200,000

150,000

Family loan

50,000

20,000

Owner equity

200,000

150,000

Total liabilities

450,000

320,000

5.10 Performance ratios

Ratio analysis allows the firm manager to determine if the firm is:

Carrying excessive inventory

Experiencing heavy operating expenses

overextending credit

Managing to pay its debts on time, and to,

Answer any other questions relating to the efficient operation of the firm.

Thus, with ratio analysis, firm managers are able to identify problem indications and deal with them before they become crises. Using ratio analysis, business owners can secure loans from banks. In this business there will be reliance on a number of ratios:

Liquidity Ratios.

These are used to tell whether the firm will be able to meet its maturing obligations as they come due. A firm with a solid liquidity is able to pay its bills on time as well as take advantage of attractive business opportunities as they arise. The two common measures of liquidity ratios are: current ratio and the quick ratio.

Particularly the business will rely on the Current Ratio to measures the firm’s solvency (having more money than one owes)by indicating its ability to pay current liabilities from current assets. The current ratio is sometimes called the working capital ratio. The higher the current ratio, the stronger the financial position of the firm. However, this does not necessarily suggest that the firm’s assets are being used appropriately.

Current assets

Current ratio = Current liabilities

Current assets are those that the entrepreneur expects to convert into cash in the ordinary business circle e.g. cash, notes/accounts receivable, inventory and any other short-term marketable securities.

Current liabilities are the short-term obligations that come due within one year e.g. notes/accounts payable, taxes payable and accruals.

For example: a business whose current assets are 686, 985

And the current liabilities are 367,850

Will result in a current ratio of 1.87:1 and the industry median is 1.50:1

This shows this firm’s liquidity is solid. This firm should have no problem in meeting its short-term debts as they come due, since its current ratio is above that of the industry.

Profitability Ratios

These indicate how efficiently a firm is being managed. These ratios provide the entrepreneur with information about the firm’s ability to generate a profit, i.e. they describe how successfully the firm is conducting business. They include: net profit on sales ratio and net profit to equity ratios. In our case we shall use the Net Profit on Sales Ratio

This is also called the profit margin on sales. It measures the firm’s profit per shilling of sales. The computed percentage shows the number of cents of each sales shilling remaining after deducting all expenses and income taxes.

Net income

Net profit on sales ratio = Net sales

E.g. net profit on sales ratio = Ksh. 60,629

Ksh. 1,870,841

= 3.24% against the industry percentage of 7.6%.

This means that after deducting all expenses, 3.24 cents of each shilling sale remains as profit for this firm. This is less than half the industry median. The manager here should check the firm’s gross profit margin and investigate its operating expenses, checking them against the industry standards and looking for those that are out of balance. To evaluate this ratio properly, the owner must consider the firm’s asset value, its inventory and receivables turnover ratios, and its total capitalization.

5.11 Assumptions

The business assumes that:

the economic, social and political climate will continue being stable so that there is a conducive environment for business growth.

There will be qualified manpower for recruitment into the business

Banks will be willing to lent money to the business

An agreeable setllement will be reached with supplies on payment terms

Action plan

The table below shows the breakdown of activities that are aimed at achieving the finacial objec tives listed above

ITEM No

ACTION AREA

ACTIVITY

RESPONSIBILITY

DATE

Payment of rent

Settling month rent dues

manager

Every month end

Purchase

Replenishing supplies

Chief chef

Everyday

Financial records

Keeping financial records

Manager

continuous

CHAPTER VI

POTENTIAL RISKS:

There are various factors that present risks to the success of Continental Hardware Fabricators as a business. These can be classified in terms of economic, industry, local value, business venture, marketing, operations, finance and security

Economy

The economic climate in Kenya continues to suffer instablity due to political reasons. For example in last election many businesses suffered loss and other had to close due to politically instigated tribal clashes. While the things are returning to normal, the situation is still tense. Kitengela area was one of the areas affected by tension. If there is arepeat of such conditions, then the business may not prosper as expected.

Industry

The company factory industry in Kenya is rapidly expanding. There are several new company factorys opening every month around Nairobi and many more needed to keep pace with increasing demand. However, it is not certain how long this trend will be maintained. Given the current political tension in the country, there has been a slump in the number of people willing to invest in new homes. This is risk given that one key market segment of Continental Hardware Fabricators are the home builders.

Location value

Currently, the proposed location of Continental Hardware Fabricators is very ideal, inpite of other simialr businesses in the locality. However, There is a possibility of the location being overcrowded with similar business which pose a serious competition to the business

Business venture

Currently the construction business venture is attractive and indeed is booming.There are many existing and potentially new competitors into this area. Already there are many well establishes restuarants in the Kitengela Township which pose a serious competition to the entry and survival of the Continental Hardware Fabricators. The management plans to adopt a strategy of product and price leadership. It also plans to engage in aggressive advertising so as to attract customers.

Marketing

Although the construction industry is booming, there are many existing and potentially new competitors into this area. Already there are many well establishes restuarants in the Kitengela Township which pose a serious competition to the entry and survival of the Continental Hardware Fabricators. The management plans to adopt a strategy of product and price leadership. It also plans to engage in aggressive advertising so as to attract customers.

Operations

The success of the operations plan of Continental Hardware Fabricatorsrestuarant will depend on there being amenities such as water and electricity. However of late Kenya has experience both power and water rationing on annual basis. If this because a problem, there it will be difficult for the business to operate efficiently and profitably

Financial

The setting up of this business makes the assumption that banks will be willing to lent out to its management. However, there is the risk of commercial loan interest becomin a problem leading to loan default and problems with the bank which may refuse to extend more credit to the business.

Security

There is high level of insecurity in Kitengela Township. Therefore theft is a major security risk. Secondly, there is also the risk of fire which can be serious since there is no fire serving in the area. Thirdly, there are problems related with industrial accidents involving staff. However, the management of the business will take insurance cover for the properties. This will cover various risks such as theft , fire and staff. The management will also engage security guards to keep watch over the property against thieves.

Risk analysis

The following tables presents an risk analysis for the restuarant. It highlights some of the risks that face the business and some of the remedial measures to counteract these risks

ITEM NO.

RISK

RISK LEVEL

REMEDIAL MEASURE

Theft

medium

Insurance, hiring guards

Fire outbreak

medium

Insurance, hiring guards

Competition

Very high

Agressive marketing activity

Financial shortfalla

low

Prudent financial management

Bank loans