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Business PLAN

Social work and community development (Kisumu National Polytechnic)

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BUSINESS PLAN

BUSINESS NAME: EVANS’ MECHANICAL WORKSHOP AND SPARES

COURSE CODE: 2502

CANDIDATE NAME: EVANCE OCHIENG OTIENO

INDEX NO: 7411050501

PRESENTED TO: THE KENYA NATIONAL EXAMINATON COUNCIL (K.N.E.C) IN PARTIAL FULFILMENT
FOR THE AWARD OF DUIPLOMA IN MECHANICAL ENGINEERING PLANT

INSTITUTION: THE KISUMU NATIONAL POLYTECHNIC

SUPERVISOR: MADAM LILIAN

EXAM SERIES: JULY SERIES 2022

DEDICATION
I hereby dedicate this business plan to my parents for their financial support, care and provision towards
completion of this business plan.

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DECLARATION
By students

I hereby declare this business plan is my own work and has never been presented to any exam body in
fulfillment of the award of Diploma in Mechanical Engineering Plant

NAME:

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SIGNATURE:

DATE:

This business plan is submitted to The Kenya National Examination Council under the
supervision of my Lecturer

SUPERVISOR NAME:

SIGN:

DATE:

SUPERVISOR:

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ACKNOWLEDGEMENT
I do channel my sincere gratitude to my project supervisor for diplomatic drive towards
achievements of this business plan. In addition I do send my gratitude to my family and friends
for their massive support and moral perpetuation which enable me successfully to complete
this project.

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Table of Contents
DEDICATION....................................................................................................................................................... 1
DECLARATION.................................................................................................................................................... 2
ACKNOWLEDGEMENT........................................................................................................................................ 3
EXECUTIVE SUMMARY....................................................................................................................................... 7
CHAPTER ONE.................................................................................................................................................. 8
1.0 BUSINESS DESCRIPTION............................................................................................................................... 8
1.1THE SPONSOR............................................................................................................................................... 8
1.2 NATURE OF THE BUSINESS........................................................................................................................... 9
1.2.1 Business Name and address...................................................................................................................... 9
1.2.2 Business purpose...................................................................................................................................... 9
1.2.3 Forms of business ownership.................................................................................................................... 9
1.2.4 Business location....................................................................................................................................... 9
1.3THE INDUSTRY............................................................................................................................................. 10
1.3.1Industry size............................................................................................................................................. 10
1.3.2Industry Characteristics............................................................................................................................ 10
1.3.3Industry trends......................................................................................................................................... 10
1.3.4Industry outlook....................................................................................................................................... 11
1.4PRODUCTS AND SERVICES........................................................................................................................... 11
1.5BESINESSS GOALS/OBJECTIVES................................................................................................................... 11
1.5.1 Short- term goals /objectives.................................................................................................................. 11
1.5.2 Long term goals /objectives.................................................................................................................... 11
1.6 JUSTIFICATION OF BUSINESS OPPORTUNITY.............................................................................................. 12
1.7 ENTRY AND GROWTH STRATEGY................................................................................................................ 12
1.7.1Entry Strategy.......................................................................................................................................... 12
1.7.2 Growth Strategy...................................................................................................................................... 12
CHAPTER TWO................................................................................................................................................. 12
2.0 MARKETING PLAN...................................................................................................................................... 12
2.1 POTENTIAL CUSTOMERS............................................................................................................................. 12
2.2COMPETITION............................................................................................................................................. 13
2.3MARKET SHARE /SIZE.................................................................................................................................. 13
2.4 PRICING STRATEGY AND POLICY................................................................................................................. 15
2.5 SALES TACTICS............................................................................................................................................ 15

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2.6 ADVERTISING AND PROMOTION STRATEGY............................................................................................... 16

2.6.1 Advertising Programs.............................................................................................................................. 16
2.6.2 Promotion program................................................................................................................................. 16
2.7 DISTRIBUTION STRATEGY........................................................................................................................... 16
2.8 CUSTOMER SERVICES................................................................................................................................. 16
CHAPTER THREE............................................................................................................................................... 16
3.0 ORGANIZATION AND MANAGEMENT PLAN................................................................................................ 16
3.1 ORGANIZATION STRUCTURE....................................................................................................................... 16
3.1.1Organizational chart................................................................................................................................. 16
3.2KEY MANAGEMENT PERSONNEL................................................................................................................. 17
3.3 OTHER PERSONNEL.................................................................................................................................... 18
3.4 RECRUITMENT, TRAINING, AND PROMOTION.................................................................................. 20
3.4.1Recruitment policy................................................................................................................................... 20
3.4.2Training policy.......................................................................................................................................... 20
3.4.3 Promotion strategy................................................................................................................................. 20
3.5 REMUNERATION AND INCENTIVES.................................................................................................. 20
3.5.1 Remuneration policy............................................................................................................................... 20
3.5.2Incentives Programme /policy.................................................................................................................. 20
3.6 LEGAL REQUIREMENTS.................................................................................................................... 21
3.6.1 Permit Requirement................................................................................................................................ 21
3.6.2 Compliances i.e. By-laws......................................................................................................................... 21
3.7 SUPPORT SERVICES.................................................................................................................................... 21
CHAPTER FOUR................................................................................................................................................ 21
4.0 PRODUCTION/OPERATION PLAN..................................................................................................... 21
4.1PRODUCTION FACILITIES AND CAPACITY..................................................................................................... 21
4.1.1Machinery, Tools and Equipment............................................................................................................. 21
Total................................................................................................................................................................. 22
280,000............................................................................................................................................................ 22
8500................................................................................................................................................................. 22
288,500............................................................................................................................................................ 22
4.1.2 .Repair and Maintenance........................................................................................................................ 22
4.1.3Layout of business premises.................................................................................................................... 23
4.2 PRODUCT/SERVICE DESIGN AND DEVELOPMENT....................................................................................... 24

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4.2.1 Quality control........................................................................................................................................ 24

4.3 PRODUCTION AND OPERATION STRATEGY................................................................................................. 25
4.3.1 Material requirements............................................................................................................................ 25
4.3.2 Labor recruitments.................................................................................................................................. 25
4.3.3 Production cost....................................................................................................................................... 25
4.4 PRODUCTION PROCESS.............................................................................................................................. 26
4.5 REGULATIONS AFFECTING PRODUCTION/OPERATION................................................................................ 27
CHAPTER FIVE.................................................................................................................................................. 27
5.0 FINANCIAL PLAN........................................................................................................................................ 27
5.1 PRE OPERATIONAL COST............................................................................................................................ 27
5.2 WORKING CAPITAL..................................................................................................................................... 28
5.3 CASH FLOW STATEMENTS........................................................................................................................... 28
5.4 INCOME STATEMENTS................................................................................................................................ 32
5.6 BREAK –EVEN POINT........................................................................................................................ 34
5.7 PROFITABILITY RATION..................................................................................................................... 36
5.8 DESIRED FINANCING.................................................................................................................................. 36
5.9 PROPOSED CAPITALIZATION....................................................................................................................... 37

EXECUTIVE SUMMARY
BUSINESS DESCRIPTION

EVANS MECHANICAL WORKSHOP AND SPARES will be a sole proprietorship form of business owned by
me. The business will start operating in December 2025 in AHERO A LONG KISUMU AWASI ROAD

The location is chosen because it is easily accessible and it is at a strategic location .the business will
offer any repair and maintenance work for almost all Mechanical components.

MARKETING PLAN

I will be targeting local people that lives a round Ahero town and other people that use the nearby road
as a means of transport.

Potential customers will be reached through advertisement, local radio stations and erecting sign boards.

Quality services offered by the business will enable effective competition with the existing business.

ORGANIZATION AND MANAGEMENT

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The management team that will be important to the business will comprise of my assistance managers,
accountant, store keeper, watchman and cleaners.

The total number of subordinates who will help in business operation will be 20 for the start,

Workers’ salaries will be based on qualification and each worker will be entitled to incentive depending
on monthly profit. For smooth operation of the business it will have two telephones for communication.

PRODUCTION PLAN/OPERATION PLAN

Since the business will not be involved in production processes it will only require little machinery like
computers and calculators’.

Most of the capital realized in the business will be used to add modern tools and spares to easen the
work

The business will opera from 7:00am to 5:00pm

FINANCIAL PLAN

For the start of the business and successful running it will require KSH 1000000 .The breakdown of the
proposed finance will be as follows; the preoperational cost estimates will total into KSH 597,800 and
working capital estimates will total into KSH 341250

The business capital will be obtained from;

Bank loans KSH 650,000

Personal Saving KSH 208000

Family and friends KSH 141050

TOTAL KSH 99905046

CHAPTER ONE

1.0 BUSINESS DESCRIPTION

1.1THE SPONSOR
I EVANCE OCHIENG OTIENO will be owner of the proposed business.
NAME: EVANCE OCHIENG OTIENO

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AGE : 25 YEARS
NATIONALITY: KENYAN
RESIDENCY: KISUMU COUNTY
MARITAL STATUS: SINGLE
RELIGION: CHRISTIAN
ID NO: 36980772

EDUCATIONAL BACKGROUND
2006-2012: OJERE PRIMARY SCHOOL (K.C.P.E)
2014-2017: KOCHOGO SECONDARY SCHOOL (K.C.S.E)
2019-2022: THE KISUMU NATIONAL POLYTECHNIC (DIPLOMA IN MECHANICAL ENGINEERING
PLANT)
Since I am being trained to be a Mechanical Technician, I will use my acquired knowledge to
effectively run my business.
I will invest in my business as follows;
ITEMS COST(KSH)
Machinery, tools and equipment 150000
Building Structures and Premises 65000
License acquisition 7000
Spare Parts 100000
TOTAL 322,000

1.2 NATURE OF THE BUSINESS

1.2.1 Business Name and address
The proposed Business will be called EVANS MECHANICAL WORKSHOP AND SPARES
P.O. BOX 44-40101 AHERO
TEL NO: 0748612948/0718339183
EMAIL: [email protected]
WEBSITE: www.evanceworkshop and spares.ac.ke

1.2.2 Business purpose

The proposed business will provide services and repair to any plant component and other allied
machines.in addition it will provide spare parts to the customers.

1.2.3 Forms of business ownership

The proposed business will be a sole proprietorship form of business and will be fully managed
by Evance and his family
I am being influenced to venture into the business due to the following;
The need for self-employment

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Full enjoyment of the profits realized in the business.

Being my own boss i.e. the guarantee to do what you want, whenever you want

1.2.4 Business location

The proposed business will be located in kisumu County, Ahero town
I am being influenced to locate the proposed business in such areas in future because of my
uncle who is growing old and has exposed me to his potential customer and auto mobile
techniques. In addition, he has promise to ample me a space where he has been working for the
location of the business.
Finally the area seem to have numerous number of vehicles I specialized in i.e. heavy
commercial vehicles like ASHOKLEYLAND, FH and FRR

1.3THE INDUSTRY
The proposed business will fall under Mechanical industry

1.3.1Industry size
Field of mechanical is very wide.This is evident as there as there is increased production of
products nation wide .For instance, industry produce and stock more.
The industry faces stiff competitions i.e. competition between sugar companies in order to
satisfy customers expectations.
In addition, the competition among small garages themselves and limited companies and vice
versa.
The industry also expands so fast and employs good number of people nationwide; in addition
the industry contributes to the national income generation through tax payments and revenue
collections both at garages and limited companies, showing its rapid growth.

1.3.2Industry Characteristics
Mechanical workshops industry is highly capital intensive as it requires huge amount of capital
to start and maintain as it can be evident in limited companies such as Toyota Kenya and Isuzu
which allocates much capital to purchase machineries and pay their workers for effective work
outputs.
Small garages also invest much capital to purchase basic tools and equipment, build premises,
acquire license, start and maintain the garages. High cost of maintaining and purchase of
vehicles.
Industry is much profitable both to the nation and to the individuals through tax payment,
revenue collections as well as salary and profits gained by the individual.
The government also takes control of the industry by issuing number plates, imposing taxes on
the imported vehicles and spare parts, provide loan to small garages for expansion.it has also
introduce automotive engineering as a technical course to enable learners acquire technical
skills and venture in automobile businesses.

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1.3.3Industry trends
The industry embraces the use of technology in production and service provision. For example,
limited companies use fault diagnose machine to diagnose the vehicle fault as well as using
machines to replace human labor as some task are nowadays done over computers.
Some industry companies market their products and services online, over television, Radios,
Magazine etc.
Industry productivity increases with increase in demand.
Government regulates the industry trends by imposing high import tax when number of
imported vehicles and spare parts is high in order to reduce the importation and lowers import
tax when the supply of vehicle and spare parts are low

1.3.4Industry outlook
The industry will be technologically developed as compared to now as it encourages the use of
advanced machinery tools and equipment as well as innovation.
The industry also encourages use of different strategies to market their products and services.

1.4PRODUCTS AND SERVICES

Proposed business will offer services such as repair and maintenance, Engine overhaul as well as
selling spare parts to the customers.
The business will employ qualified workers with the required technical skills and knowledge to
satisfy customers’ expectations.
After working as spare parts seller I attained experience and skills on how to identify customers
focus on what they prefer, therefore I will stock the recommended spare parts to attract and
retain customers thereby maximizing on profits.
I will finally use skill, Knowledge and experienced attained in schools to produce products and
services. The business will also ensure that customer’s relation is achieved by creating as many
groups as possible to use to share ideas freely thereby are knowing more of the customers
views, focus and expectations concerning the business hence helping to identify strength and
weaknesses of the business.

1.5BESINESSS GOALS/OBJECTIVES
1.5.1 Short- term goals /objectives
The proposed business will have achieved the following short-term goals within a period of six
months to one year.
Employment of three personnel within one year.
Put up of structural premises within one year to improve physical appearance and
performance efficiency.
Registration of the business with the relevant authority within eight months for legal
authority of performance.

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1.5.2 Long term goals /objectives

The proposed business will have achieved the following long -term goals within a period
exceeding one year
Establishment of at least two network branches within five years
Purchase of modern machinery such as vehicle fault diagnose machine within seven
years of operation.
Establishment of a technical school to produce qualified graduates who can exploit new
technology in modern economy within ten years of operation.

1.6 JUSTIFICATION OF BUSINESS OPPORTUNITY

I am being encouraged to venture into the business due to technical skills and knowledge I am
attaining in school as well as field experienced and exposure I gained during field industrial
attachment with United Millers Ltd and Chemelil Sugar Company.Also favourable government
policy and fair tax on the business.
And also the passion I develop during my early life of being an engineer as well as the need to
protect and enjoy my carrier.
Finally, the need for self-employment, existence of base foundation from my uncle, exposure to
potential customers before the entry of the business into the market and offer for a place to
locate my proposed business, also motivated me to start the business.

1.7 ENTRY AND GROWTH STRATEGY

1.7.1Entry Strategy
People join the industry over different strategies. For instance, some join via self-employment,
company employment.
The entry is also voluntary and employed individuals are entitled to retirement schemes.

1.7.2 Growth Strategy

The industry is rapidly growing as it can employ good percentage of people nationwide; its
production volumes are highly increased.
The growth can also be witnessed as many small workshop emerge; also the existence of huge
number of CNC machines also signifies the rapid growth of the industry.

CHAPTER TWO

2.0 MARKETING PLAN

2.1 POTENTIAL CUSTOMERS

Potential customers of the business will be identified as:

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a) Domestic customers
The residents of Ahero town;
The local people who live around Ahero town and own vehicles will be our first potential
customers as they would give us job opportunities to service, repair, overhaul their vehicles if
there is need.
The travelers
Ahero town is located in such ways that people travelling from Nairobi to Kisumu and vice versa
have to pass through Ahero town. Therefore, this category will provide job opportunity to my
business in term of service delivery and distribution of spare parts.
Other local garages within Ahero town
Small garages which do not stock spare parts would be likely to refer their customers to my
business for acquisition of spare part
Institutional Customers
The students
The learners around Ahero town for example students from The Kisumu National Polytechnic
will be the other category of customer to the business in ten-year time after the establishment
of business technical schools as it would offer attachment service to such students at cost.

2.2COMPETITION
The proposed business will face competition under different categories;
Service delivery competition
These competitors will include any business that offer maintenance services and immediate
competitors would include CAKEFA auto garage and FLORY enterprise.
Product delivery competition
These competitors would include any business that deals in vehicle mechanic spare parts.
Immediate competitors include CAMBRIDGE auto spares, SEVEN ELEVEN auto spares and
NANNAK engineering auto spares.
As the proposed business will deal in similar products and services as the already existing
businesses, it will therefore employ standardized marketing strategy to Market their
products and services.
The strategies will include imposition of fair and justifiable price that are affordable to
customers.
Employ qualified personnel with required skills, knowledge and experience to ensure quality
work output thus attracts and maintain customers.
The business will ensure good relationship between the workers and employers, employer
and customers and also customers and workers, to build honesty within oneself and win
customers courtesy.

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The business will ensure continuous creation of awareness within and outside the business
about their products and services as well as motivating customers thus boosting the sales
and service delivery.
The business will ensure that the expense of its market cover a vast region by establishing
branches nationwide.
The business will provide welfare facilities such as medical funds, benevolent funds to boost
the morale of the employee to work to their best in order to increase quality and quantity of
work output.

2.3MARKET SHARE /SIZE

Since the business will deal with people from different parts of the country in term of products
and service delivery, it will cover the whole nation.
The business in operation has greatly advanced in their provision and has acquire large portions
of customers i.e. the CAKEFA auto garage which has attained about 22% of customers in the
region
The proposed business will stiffly compete the existing businesses in order to attract and retain
customers from them. For instance, the business will be located 500 m from CAMBRIDGE auto
spares, 1km from FLORY enterprise and 700m From NANNAK and SEVEN ELEVEN auto spares.
This location will help the business to divide the Market share with the already existing
businesses upon its entry to the market.
Competitors Market Share
FLORY ENTERPRISE AND SPARES 19% of customers
(19/100*360) =68.4^

CAKEFA AUTO GARAGE AND REPAIR 22% the customers

(22/100*360) =79.2^

CAMBRIDGE MECHANICAL WORKSHOP 11% of the customers

(11/100*360) =39.6^

ONYI WUOD SIAYA MECHANICS

EVANCE MECHANICAL WORKSHOP AND SPARES

26% of the customers

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(26/100*360) =93.6^

2.4 PRICING STRATEGY AND POLICY

The business will employ the following method in pricing its products and services.
Cost oriented pricing such as overhead cost of storage ,transportation and expenses
Demand oriented pricing
Supply oriented pricing
The business will also consider overall cost of production, competition and price control
regulation policies in order to get their products accepted and ensure effective competitions
thereby maximizing on profits
The business will finally offer credit facilities to its customers in order to boost purchasing
power of its customers thus maximizing on sales.

2.5 SALES TACTICS

The business will employ direct method to sell its products as this will ensure effective customer
appealing and demonstration on the usage of the product where necessary
The business will also employ the use of cash sales policy in order to minimize on losses by
preventing unnecessary debts.
In addition the business will offer commission to customers who buy in large quantity. The
business will educate its customers on its products and services delivery
The business will employ qualified personnel with sales knowledge to give appropriate
information on products in order to induce customers to buy.

2.6 ADVERTISING AND PROMOTION STRATEGY

2.6.1 Advertising Programs
The proposed business will advertise its products and services to gain familiarity on the views of
customers, understand their needs and feeling about the business.Advertiserment will be done
through mass media such as TV, newspapers, notices, postures and local radios
The business adverts will majorly target vehicle owners, heavy commercial drivers, motorcyclist
or any other auto mobile sector

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2.6.2 Promotion program

The business will conduct promotion campaign in order to attract and retain customers as well
as expanding its market shares
The campaign will include; free sample, for instance the potential customers like drivers will be
given overalls with business logo and trademarks. The overall will also be given to employees
both at the sales department and mechanical department.
Customer printed calendars will also be an award to the customers

2.7 DISTRIBUTION STRATEGY

The business will offer services directly to its customer; it will also use motor van to transport its
products to customer outside the garage periphery. The business will open up branches in
different towns to maximize on sale and boost distribution of its products to its customers.

2.8 CUSTOMER SERVICES

The business will offer after sale services such as free sample like free overalls offering credit
facilities, giving out business calendars in order to signify caring nature of the business and
secure customers loyalty

CHAPTER THREE

3.0 ORGANIZATION AND MANAGEMENT PLAN

The sponsor of the business will be the manager (sole) of the business

3.1 ORGANIZATION STRUCTURE

The structure of the business will comprise of the manager, assistance manager, secretary,
accountant, salesperson, store keeper security officer and cleaner

3.1.1Organizational chart

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3.2KEY MANAGEMENT PERSONNEL

Personnel Duties Qualifications

Manage(1post) Ensures good relationship Degree holder in business
between working personnel administration
Recruit and select new Computer literate
employees Goods communication skills
Delegate business duties to with many local languages
workers At least four years working
Pay the workers and ensure experience in business
good working condition for administration field
the workers
Final decision maker

Secretary Take minutes during business Diplomas in secretarial

meetings studies
Printing and typing services Good communication skills
to the business Computer literate
Receive calls from customers More than five year of
Produce letters and letter experience
heads to the business
Accountant Making payroll of employees C.P.A holder
Keep up to date of account Computer literate
books At least five year working
Receive cash from customers experience
and bank it in business field
Check invoices, delivery
notes and receipt notes
Estimate employees’ salaries
from time to time

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3.3 OTHER PERSONNEL

Personnel Duties Qualification
Assistant Manager Act in the position of the Diploma holder in business
manager administration
Solve grievances and attend At least five year working
to conflict of the staff experience
Formulate policy on how the Computer literate with
business is run certificate IT
Take records of attendance
of employees in the business

Salesman(2post) Carry out market research Certificate/diploma in

Write sales report automotive engineering
Sell spare parts to the Certificate in sales and
customers marketing
Providing advisory services Effective communication
to the customers
Workers (mechanic) Service automobile Certificate or diploma in
(9post) machines automotive engineering from
Advice customers on any recognized institution.
matters concerning At least two year working
automobile experience in engineering field
Repair and maintenance of Effective communication skills
automobile

Store Keepers ( 1post) Maintaining stock records At least certificate in business

Retrieve goods to customers field
Safeguard business assets in A computer literate
the store Ability to communicate
effectively
Ensures good security within Have undergraduate training as
Watchman (security business premises, property security persons
guard ) (1 post) of the business and its Have o level certificate
customers as a whole. At least 2 years working
Regulate entry and exit of experience
persons within the premises
Cleaners ( 3posts) Keep areas around premises Work without supervisor
tidy Form four leaver with D plain
Clean toilets and office and above

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Personnel Duties Qualification

Beatifying the compound by
watering and weeding
flowers

RECRUITMENT, TRAINING, AND PROMOTION

3.4.1Recruitment policy
The business will involve identification of source of employee selecting a particular source,
training and motivating prospective candidates to apply for the jobs.
The business will use notice board, posters, business Facebook and what sup accounts to
advertise vacancies to the public, after which qualified candidates will be interviewed by the
manager and the documents checked for certainty

3.4.2Training policy
The business will train its employees by sending them to seminars, exhibition and allow part
time training

3.4.3 Promotion strategy

The business will promote employees based on hard work, good behaviors, long serving in the
business and finally the required qualification

REMUNERATION AND INCENTIVES

3.5.1 Remuneration policy
The business will award its employees’ wages and salaries after every month for tasks assigned
to perform as follows;
Job Category Number of staff Monthly salary Wages Net salary
Manager 1 25,000 1,000 26,000
Ass. Manager 1 20,000 900 20,900
Accountant 1 18,000 700 18,700
Secretary 1 16,000 700 16,700
Salesman 2 14,000*2 600*2 29,200
Storekeeper 1 13,500 600 14,100
Mechanics 9 13,000*9 650*9 122,850
Watchman 1 8000 450 8450
Cleaners 3 6000*3 450*3 19350
TOTAL 20 263500 12,750 276250

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3.5.2Incentives Programme /policy

The business will reward its employees in form of payment of non-monetary gifts and presents
to motivate them to increase their performance effort.
The business incentives will include
Workers will be compensated in case of accidents
Workers will be compensated on overtime work done
Workers will be given presents for their good performance

LEGAL REQUIREMENTS
3.6.1 Permit Requirement.
The business will attain trading license from Ahero town county council at a cost of KSH 6000 for
a period of one year. This will give the mandate to carry out activities of the business without
suspicion

3.6.2 Compliances i.e. By-laws

The proposed businesses employ the following by-laws to govern its activities
Legal authorities taxes
Income tax
Labor laws
Collection and disposal of wastes
3.5.3 Permits
The business will incur the following in order to attain business permit registered under the act
License KSH6000
Permits KSH1500
By-Laws KSH1800
TOTAL KSH9300

3.7 SUPPORT SERVICES

The Proposed business will employ the following support services to improve its operation
Telephone services: the business will use phones to coordinate its activities within and
outside its premises
Transportation services; the business will cater for transportation of spare parts that are
purchased in large quantities by customers on the basis of cost sharing.
Auditors; The business will have auditors to help evaluate the business records

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CHAPTER FOUR

PRODUCTION/OPERATION PLAN

4.1PRODUCTION FACILITIES AND CAPACITY

4.1.1Machinery, Tools and Equipment
Lands: This is where all business premises, packing space and storage facilities will be built and
it will cost the business Ksh 150,000
Computers; These will aid processing and storing information, printing and typing purposes
Telephone: This will aid easy, simple and effective communication within the business e.g.
between the customer and the employee, customer and the manager and finally the manager
and the employee
Table and chairs; these will be used by employees while undertaking their duties.
Complete Tool box; these will ensure effective production and service delivery as right tool will
be used for the right job
Full P.P.E Kits; these ensures safety of the worker
Drawers; will be used as storage facilities for valuable items such as money, certificate, business
permits and licenses
ITEMS DATE NUMBER COST INSTALLATIO TOTAL
ACQUIRED REQUIRED N COST
Computers 31/11/2023 3 24000*3 7000 79,000
Telephone 28/12/2023 2 5000*2 1500 11,500

Counters 05/07/2022 2 2000*2 4,000

Drawers 17/09/2023 3 1500*3 4,500
Tables 23/11/2022 3 1500*3 4,500
Chairs 27/11/2023 10 500*10 5,000

Full P.P.E kit 26/122023 1 5000 5,000

Tool box kit 16/5/2023 1 22000 22,000

First Aid kit 20/11/203 2 1500*2 3,000

Piece of land 13/9/2022 Half acre 150000 150,000

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ITEMS DATE NUMBER COST INSTALLATIO TOTAL

ACQUIRED REQUIRED N COST
Total 280,000 8500 288,500

4.1.2 .Repair and Maintenance

The store keepers will be responsible for all repair and equipment, therefore the business will
employ store keeper with workshop technical skills.

4.1.3Layout of business premises

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4.2 PRODUCT/SERVICE DESIGN AND DEVELOPMENT

Product ,design and development (tangible products )
The business will ensure that whatever product (spare part) it is dealing in meets the weight
and measures act, quality and quantity control act of Kenya bureau of standards (KEBS).The
business will also admit spare parts on evaluation basis to ensure that only genuine spare
parts are stocked for customers
The business embraced evaluation technology because it simple, less expensive, effective
and easily available as checking can easily be done over phones when sample spare parts
are captured and shared vas photo between the manager and the supplier before delivery

Service design and development (intangible products)

The business will arrange its premises such that each technical work is assigned different
worker and are allocated in different work station for example puncture repair workstation,
Engine overhaul workstation, vehicle body heavy fabrication work station, panel beating and
spray painting work station to avoid delay in service delivery.

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The business will also employ skilled laborers with required technical skilled for effective
services delivery. The business will also offer training facilities to its employees to enable
them cope with the new technology in order to ensure that service delivery techniques
meets customers satisfaction by promoting quality service delivery

4.2.1 Quality control

The business will employ use of effective technology in service delivery; solicit suggestions from
customers to identify their views and expectations

4.3 PRODUCTION AND OPERATION STRATEGY

4.3.1 Material requirements

ITEMS NO REQUIRED SOURCE QUANTITY UNIT TOTAL COST

COST

Tools and Equipment 1 Supplier Full tool box $ 27,000 27000

PPE kits

First Aid kit 2 Supplier Full 1000*2 3000

Spare parts supplier 300000

TOTAL 339000
4.3.2 Labor recruitments

Labor recruitment = no of worker*cost per hour* no of hours/month

Position No of workers Cost per hour No of hours per Labor recruitment

month

Manager 1 104.17 240 25,000

ASS. Manager 1 83.33 240 20,000

Accountant 1 75 240 18000

Secretary 1 66.67 240 16000

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Position No of workers Cost per hour No of hours per Labor recruitment

month

Salesperson 2 58.33 240 14000*2=28,000

Mechanics 9 54.17 240 13000*9=117000

Security officer 1 50 240 12,000

Cleaners 3 50 240 36,000

Storekeeper 1 56.25 240 13,500

TOTAL 20 KSH 285,500

4.3.3 Production cost

The table below shows the expenses that the business will incur in future in delivering its
services

Expenses Cost ( KSH )

Electricity bill 1500

Transportation bill 10,000

Water bills 1000

Advertisement bill 2500

Total 15,000

4.4 PRODUCTION PROCESS

The business will involve the following steps to acquire and dispatch spare parts to its customers

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Making orders; the business will give orders for specific products (spare parts) to the
supplier, giving the description of goods, their quantity and dates of delivery. The follow –
ups will be made to ascertain whether orders have been accepted.

Delivery of goods; The products will either be delivered by suppliers or collect from the
supplier by business personnel

Inspection of goods; on reception of goods they are checked and inspected to ascertain on
quality and quantity ordered.

Storage: Goods are stored safely in the store waiting to be dispatched.

Reception or order from customers; Orders from customers will be received and responses
will be given to customers

Dispatch and collection; Goods are dispatched to customers in accordance with their orders
or customers to collect from the store.

The table below shoes steps that the business will involve in selling its products to its
customers

Marketing order

Receiving of goods

Inspection

Storage

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Reception of order from customers

Dispatch and collection

4.5 REGULATIONS AFFECTING PRODUCTION/OPERATION

Trading license act (Cap 479)

The business will require trading license from Ahero town county council before the
business to begin its operation for smooth and effective operations.

Labor laws such

Trade dispute Act this outlaws guidelines and procedures the business will use to solve
disputes between the employer and employees

Public Health Act ( Cap 242) the business will adopt this act to assure its customers that
products and services offered to them are safe for their utilization

Workers compensation act (Cap 326) the business will adopt workers compensation act
to defend the rights of employees to be compensated in case of injury while undertaking
his/her tasks.

Pension schemes and fringe benefit Act the business will enroll its employees with
institutions like NHIF and NSSF to ensure that their health status is catered for. It will
also ensure that its employees are given pensions after retirements at old age.

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CHAPTER FIVE

5.0 FINANCIAL PLAN

5.1 PRE OPERATIONAL COST

ITEMS COST ( KSH)

Machinery, tools and equipment 138,500

Land and premises 150,000

License and permits 7500

By-laws 1800

Spare parts 300,000

TOTAL 597,800

5.2 WORKING CAPITAL

Working capital at the beginning will be KSH 373,250

Particulars End year 1 End year 2 End year 3

Current assets

Stock /purchases

Cash in hand 200,000 250,000 13,000

Cash at bank 250,000 310,000 300,000

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Particulars End year 1 End year 2 End year 3

Debtors 61,000 130,000 329,000

Total current assets 89,000 7,500 180,000

600,000 697,500 822,000

Current liabilities

Loans

Creditors 489,400 325,700 462,350

Expenses 127,000 355,000 560,800

Total current liabilities 309,850 326,850 327,079

1,053,250 1,007,550 1,350,229

5.3 CASH FLOW STATEMENTS

PARTICULARS JAN FEB MARCH APRIL MAY JUNE JULY AUG SEP OCT NOV

Beginning - 46,000 19600 294450 835000 1102750 113950 85895 8358 71725 7949
Balance 0 0 00 0 0

Cash in Hand 20,000 96,000 103000 200000 70000 50000 90000 11000 7900 15000 2000
0 0 0 0

Amount 233,500 11,000 113000 179500 195000 39000 12000 7000 1300 230004000
receivable 0

Debtors - 125,000 309000 400000 60000 3000 - 900007000

Cash Sales 120,000 140,0900 250000 319000 419000 299000 450000 27000 1300 21000 2900
0 00 0 0

Total Cash 373,500 418,000 794600 1392950 1456000 1490750 175150 12489 1059 11902 1394
Receipt 0 50 800 50 00

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PARTICULARS JAN FEB MARCH APRIL MAY JUNE JULY AUG SEP OCT NOV

CASH PAYMENT -

Purchases - 80,000 200000 249000 20000 39000 500000 80000 2000 300001500
0 0

Creditors - 30000 70000 - - 100001700

Wages and 298,250 298,250 298250 29850 298250 298250 298250 29825 2982 29825 2982
Salaries 0 50 0 0

Water 1,900 1300 700 900 1200 1100 1300 400 700 900 1150

Telephone bills 2,500 1100 400 700 500 900 1100 900 1100 2000
950

Electricity bills 3,600 1500 800 1300 800 3000 1900 1100 1500 1900 2300

Stationary - - 15000 2000

Advertisement 5,000 - 3000

cost

Interest on loan 16,250 16250 7800 2500 6000 20000 - 1900 230001500
17800 0

TOTAL CASH 327,500 398000 500150 557950 353250 351250 892550 41315 3405 34535 5065
PAYMENTS 0 50 0

Ending Cash 46,000 19600 294450 835000 1102750 1139500 858950 83580 7172 79490 8902
Balance 0 50 0 0

Particulars JAN FEB MARCH APRIL MAY JUNE JULY AUG SEP OCT NOV DE

Beginning ball 108340 2099509700 281840 7690 64760 405710156660 58280 24970 130720 840
0

Cash in hand 25000 90000 390000 100000 179000 290000 63000 180000 250000 27000 290000 310

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Particulars JAN FEB MARCH APRIL MAY JUNE JULY AUG SEP OCT NOV DE

0 0

Accounts 29000 11000 23000 5000 30000 60000 4500 60000 90000 10000 119000 130
receivable 0 0

Others 70000 20000 30000 89000 9000 12000 3000 4500 6000 750

Cash Sales 79000 45000 219000 59000 103000 380000 25000 49000 97000 10000 200000 250
0 0

Total Cash 121640 385950711700 465840 349690 754240 507210457660 381420 49947 745120 786
Receipts 0 0 0

Cash payments

Purchases 70000010000 113000 65000 50000 40000 80000 90000 49000 57000 210000 250
0

Creditors 5000 85000 60000 120000 6000 79000

Salaries/wages 298250298250298250 298250 298250 298250 298250298250 298250 29825 298250 298
0 0

Rents

Waters 1200 750 650 900 950 1150 600 800 900 1100 1300 100

Telephone 1600 950 1050 1200 1300 4000 500 1190 1400 1300 1500 200

Electricity 1900 1300 1910 1800 950 1130 1200 800 1900 2200 2000 300

Stationaries 29000

Interest on loan 30000 15000 6000 3000 2000 30000 4900 5300 3500 40000 600

Advertising 3500 4000 700

Sundries

Total Cash 100645 346250429860 458150 414450 348530 350550515940 356750 36935 661050 621
Payments 0 0 0

Ending Cash 2099509700 281840 7690 64760 405750 15666058280 24970 13012 84070 160

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Particulars JAN FEB MARCH APRIL MAY JUNE JULY AUG SEP OCT NOV DE

Balance 0 0

Particulars JAN FEB MARCH APRIL MAY JUNE JULY AUG SEP OCT NOV

Beginning ball 160320 20330 147380 16030 140120 231970 30842 388970 25575 16794 6708
0 1 8

Cash in hand 20000 41000 199000 200000 210000 169000 18900 19850 17000 13000 20000
0 0

Accounts 50000 130000 161000 170000 149000 139500 14200 100000 90000 10000 10100
receivable 0 0 0

Others 7000 8000 9000 10000 12000 11850 13000 90000 70000 89100
0

Cash Sales 70000 90000 120000 129000 130000 133000 12950 89800 99000 70000 12300
0 0

Total Cash 300320 247670 340620 486970 660120 694970 77823 653620 56175 41094 51970
Receipts 0 1 8 8

Cash payments

Purchases 10000 25000 19000 17000 15000 13000 40000 15000 20000 16000 6000

Creditors 60000 30000 20000 19000 17000 5000 9800 10000

Salaries/wages 298250 298250 298250 298250 298250 298250 29825 298250 29825 29825 29825
0 0 0 0

Rents

Waters 900 700 500 700 900 1100 1300 290 750 9000 700

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Particulars JAN FEB MARCH APRIL MAY JUNE JULY AUG SEP OCT NOV

Telephone 1200 400 700 900 1300 1300 1450 590 990 890 2000

Electricity 1100 5700 3700 4000 3700 2900 3300 789 1013 1200 2500

Stationaries 30000

Interest on loan 4000 7000 4500 6000 90000 55000 45000 77950 63000 77000 17900

Advertising 5200 8000 6500

Sundries

Total Cash 320650 397650 356150 346850 428150 396550 38930 397869 39380 40424 37015
Payments 0 3 0 0

Ending Cash 20330 147380 16030 140120 231970 308420 38897 255751 16794 6708 14955
Balance 0 8 6

5.4 INCOME STATEMENTS

Pro forma income statements for the year 1.2.and 3

Particulars 31/12/2024 31/12/2025 31/12/2026

Sales;

Cash

Credit 3,207,000 2606000 2933300

1127000 1305000 1560800

4334000 3911000 4494100

Less count on sales

Advertising

Licenses

Wages and Salaries

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Particulars 31/12/2024 31/12/2025 31/12/2026

Telephone bills

Stationaries

Miscellaneous

Expenses

Net profits

Pro forma balance sheets

Pro forma balance sheet for year 1

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Assets KSH

Current assets

Cash in hand 250000

Cash at bank 61000

Debtors 89000

Stock 200000

Closing stock 80000

Total current assets 680000

Non-current assets

Stationaries 20000

Total Non-Current assets 20000

Total Assets 700000

Liabilities 217600

Capital 127000

Current liabilities 489000

Creditors 127000

Loans 489000

expenses 309000

926250

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Pro-forma Balance sheet for the year two

ASSETS

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Current assets KSH

Cash in hand 3100000

Cash at bank 130000

Debtors 7500

Stocks 250000

Closing stock 130000

TOTAL CURRENT ASSETS 827,500

NON CURRENT ASSETS

Stationaries 29000

TOTAL NON CURRENT ASSETS 29000

TOTAL ASSETS 856500

LIABILITIES

Capital 44,020

CURRENT LIABILITIES

SHORT TERM LIABILITY

1,305,000
Creditors
326850
Expenses

LONG TERM LIABILITIES

289,700
Loans

1,965,570
TOTAL LIABILITY

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Pro- forma balance sheet for the year three

ASSETS KSH

CURRE$NT ASSETS

Cash at hand 300,000

Cash at bank 329000

Debtors 180,000

Stock closings Stock 130000

TOTAL CURRENT ASSETS 939,000

NON_CURRENT ASSETS

Stationaries 30000

TOTAL ASSESTS 969000

Liabilities
346499
Capital

Short term/current liabilities

1560800
Creditors
327077
Expenses

Long term liabilities

172650
Loan from bank
2061726
TOTAL LIABILITIES

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BREAK –EVEN POINT

Break-even point statement year 1

Operational expenses

FIXED cost AMOUNTS

Licenses 6000

Wages and salaries 3,579,000

TOTALS 3,585,000

VARIABLES COSTS

Advertising 14,000

Telephone bill 13,450

Misce3llaneous Expenses 35,550

Stationary Total 35,000

TOTAL 98,000

Total contribution margin (TCM)

T.C.M= (sales-total variable cost)

(3207000-98000)=3109, 000

Contribution margin percentages =( Contribution margin/sales*100%)

(3109000/3207000*100) = 96.94%

Total fixed cost = 3585000

Break-even level of sales in shillings

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= (Fixed cost/Contribution margin percentage)

3585000/96.94

= 36,981.64

Break-even level in units

= (contributions margin/fixed cost)

= (3109000/3585000)

= 0.867

Break-even point statement for the year 2

Operational Expenses

FIXED COST AMOUNTS (KSH)

Licenses 4000

Wages and salaries 3579000

Total 3583000

Variable cost Amount (KSH)

Advertising 14500

Telephone bills 17990

Miscellaneous expenses 31390

Stationary 29000

TOTAL 92,880

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PROFITABILITY RATION

Profitability rations year 2024

Calculate gross profit percentage

Gross profit percentage = (gross profit /sales *100%)

(3,900,600/4,334,000*100) =90%

Calculate return on equity

Return on equity = (Net profit/Owners equity*100)

(217000/180000*100) =12.1%

Calculate return on investment

(Net profit/Total investment*100)

(217000/971050*100)

22.34%

Profitability ratio year 2025

Gross profit percentage = (gross profit/sales*100)

(3519900/3911000*100)

= 90%

Return on Equity =(net profit/Owners equity*100)

(44020/80000*100)

24.46%

Return on investment = (net profit/Total investment *100)

(44020/217600*100)

20.23%

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5.7.3 Profitability ratio year 2026

Gross profit percentage =(gross Profit/Sales *100)

(4044690/4494100*100)

= 90%

Return on equity= (Net profit/Owners equity*100%)

(346499/150000*100)

19.25%

Return on investment =(net profit/Total investment*100%)

346499/44020*100%

78.71%

5.8 DESIRED FINANCING

ITEMS AMOUNT(KSH)

Pre operational cost

Working capital 597800

373250

5.9 PROPOSED CAPITALIZATION

ITEMS AMOUNT(KSH)

Owners contribution(equity) 180000

Family and friends contribution 141050

Bank loans 650000

TOTAL 971050

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Appendix

Location map

BUSINESS LOCATION

AHERO RICE

FACTORY

EVANCE’ WORKSHOP AND SPARES

SITE

AHERO TOWN

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NAIROBI- KISUMU

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