BUSINESS PLAN

TURBO TECHNICAL AND VOCATIONAL COLLEGE

BUSINESS NAME: ANNEX BEAUTY PARLOR

PO BOX []]]]]

PRESENTED BY: BENARD OMONDI

ADMISSION NUMBER:

SUBMITTED TO: KENYA NATIONAL EXAMINATION COUNCIL IN

PARTIAL FULFILMENT FOR THE
AWARD OF (CIVIL ENGINEERING )

EXAM SERIES: JULY 2023

SUPERVISOR: MR MAXWELL
DECLARATION

I declare that the business plan is the original work and has not been submitted to any
institution.

NAME: BENARD OMONDI

SIGNATURE:

DATE: 05-00-2023

This project is submitted with the approval of my supervisor

NAME: MR MAXWELL

SIGNATURE:

DATE: 05-00-2023
DEDICATION

I would like to dedicate this project to my close relatives and friends for the abundant love
and support they showed which contributed a lot to writing this business plan.
ACKNOWLEGMENT

I would like to thank my family and colleagues for being a great help in writing this business
plan. A lot of appreciation also goes to my lecturers.
ANNEX BEAUTY PARLOR

EXECUTIVE SUMMARY

1.1BUSINESS DESCRIPTION

1.1.1 Mission of the business

The mission of the business is to offer modern equipment’s for beauty products and
services.

1.1.2 Vision statement

The vision of business is to be the best business value provider of modern beauty
products, services and equipment to our clients.

The name of the proposed business will be ANNEX BEAUTY PARLOR which will be a sole
proprietorship form of business and will be managed by the owner and assistance of qualified
employees. More so the business is to be registered under Annex Beauty Parlor its address is
to be P.O BOX 123-00007 ELDORET. The business will be located at ELDORET Township,
UASIN GISHU County. The goal of the business is to grow and expand the business into
new bigger opportunities.

1.2 MARKETING PLAN

The potential customers are to be beauty salons, workers from the various institutions within
the area and also people in the Town center. The business venture intends to offer high
standard beauty products, services and beauty equipment.

Also, the proprietor will use the following methods to advertise products. That is use of
pamphlets, brochures, sign boards, banners, social media/online advertising and newspaper.

1.3 ORGANIZATION AND MANAGEMENT PLAN

The organization of the business is to be a line organization. Its authority flows from top to
bottom. The management is to done by the owner with the support of hired qualified
personnel. The business will be headed by the manager who is the owner MR. Benard
Omondi. The employees will all work under the manager.

1.4 PRODUCTION AND OPERATION PLAN

This shows the process which the business will involve to have the best product and service
for the customers. Although the business will be done with high technological skills. The
manager will allocate different duties to the staff to ensure that they get enough skills and
competences which will go a long way in offering the high standard products, services and
equipment.

The business is to acquire most of its beauty products and equipment’s from Nairobi. The
production process is to be carried out effectively and efficiently in order to the achieve
quality products, services and equipment’s which will satisfy customers.

1.5 FINANCIAL PLAN

The financial plan in the business is to help study and analyze the progress of the business.
The financial planning at ANNEX BEAUTY PARLOR will help the manager, know the
growth trend of the business and keep track of the progress of the business. This will help
establish whether it’s operating on profit or loss. In case the business will be in need of
financial support the manager will know what to do. One can tell from business financial plan
whether a business can be able to service a loan, also it can tell which sector of the business
needs improvement.

The starting capital of the business will be atleast kshs. 1,000,000.

TABLE OF CONTENTS

CHAPTER ONE

• BUSINESS DESCRIPTION

• The business name

1.2 Business location and address

1.3 Form of ownership

1.4 Type of business

1.5 Nature of business

1.6 Products and services

1.7 Justifications of opportunities

1.8 Industry analysis

1.9 Goals of business/objective

1.9.1 Goals

1.9.2 Objectives

1.10.1 Entry plan

 1.10.2 Growth plan

2.0 MARKETING RESEARCH AND FEASIBILITY STUDY

2.1 Customer-target market

2.2 Competitors

2.3 Market share

2.4 Methods of advertising and sales promotion

2.5 Pricing strategy

2.6 Sales tactics and forecast

2.7 Distribution strategy

3.0 ORGANIZATION AND MANAGEMENT PLAN

3.1 Business manager

3.2 Key personnel

3.3 Other personnel

3.4 Recruitment, training and promotion

3.5 Remuneration and incentives

3.6 Legal requirements

3.7 Support services

4.0 PRODUCTION AND OPERATIONS PLAN

4.1 Production operations facilities and capacity

4.1.1 Draw the firms’ layout

4.2 Production operation strategy

4.3 Production operation process

 4.4 Rules affecting the business operations

4.4.1 Health regulation

4.4.2 Safety

4.4.3 Environmental regulations

5.0 FINANCIAL PLAN

5.1 Pre-operational costs

5.2 Pro-forma balance sheet

5.3 Working capital

5.4 Cash flow projection

5.5 Pro-forma income statement (trading/profit and loss account)

5.6 Break even analysis

5.7 Desired financing

CHAPTER ONE

1.0 BUSINESS DESCRIPTION

• Business name

The name of the business is Annex Beauty Parlor.

The business logo

Annex Beauty Parlor

1.2BUSINESS LOCATION AND ADDRESS

The business will be located at Eldoret Township, Eusin Gishu County.

The business will be located at Eldoret because the area has none and the business
will provide high standard affordable services and products to attract customers.

The business will be located at the opposites Huduma centre , Off Uganda Road.

MAP OF LOCATION
ELDORET TOWN

UG ROAD
THE ADDRESS OF THE BUSINESS

ANNEX BEAUTY PARLOR

P.O BOX 356-OOOO7

ELDORET

E-MAIL: [email protected]

WEBSITE: WWW.ANNEXBEAUTYPARLOR.COM

• Forms of ownership

The business is a sole proprietorship, because it’s the type of enterprise that is

owned and run by one person, and in which there is no legal distinction between

the owner and the business entity.

ADVANTAGES OF SOLE PROPRIETORSHIP

• You have complete control as the owner

• You keep all the profits

• Startup costs are low

• You have maximum privacy

 • Establishing and operating the enterprise is easy

• The business is easy to change your legal structure later if circumstances

change.

DISADVANTAGES OG SOLE PROPRIETORSHIP

• You have limited liability for debts as there are no legal distinctions between private

and business assets.

• The capacity to raise capital is limited

• All the responsibilities for making day to day business decisions is for business

• It can be hard to take holidays

• You are taxed as a single person

• The life of the business is limited.

1.4 TYPE OF BUSINESS

The business will be a Beauty parlor for beauty care, cosmetic services, cosmetic

products and beauty equipment.

1.5 NATURE OF BUSINESS

The business will start from scratch .The business is franchising because when it starts

from scratch it needs fewer employees, advertising and promotion , limited risks and

liability.

1.6 PRODUCTION AND SERVICES

The main product of our company includes cosmetic services, tanning salon,

manicure and pedicure and transformation of appearance.

Cosmetic Services:

We will offer a large range of modern cosmetic services:

 Visage and consultancy

 Cosmetic treatment by luxury cosmetics

 rejuvenating treatments and masks

 Special care of intolerant skin

 Daily makeup

 Makeup for special occasions (wedding, graduation photo make up etc.)

 Eyelash extensions (full strips, clusters, one-by-one extensions)

 Coloring eyelashes and eyebrows

 Sale of decorative cosmetics

 permanent make up (lips, eyebrows)

 relaxing massage (face, neck, décolleté, eye area)

 Lymphatic drainage

 Body wraps (chocolate, mud, mineral)

 Permanent hair removal

 Hot wax hair removal (also depilation of the beck for men)

 Sale of cosmetic products

1.7 JUSTIFICATION OF OPPORTUNITIES

REASONS FOR CHOOSING THIS KIND OF BUSINESS

• Niche market

The business is the solution to beauty care and therapy. Clients are

attracted to specialists since they specialize in your exact problems.

 Set your business to compete for clients since the only difference

between you and another provider is time, quality and cost. Meet exact

needs to make your business a success that it becomes familiar with the

ins and outs of your niche. You gain expertise with each and every

client you serve.

• Unmet demand

Customers want more from the products and services they purchase

and businesses behind them.

• Technology advancement

Technology advancement enables small businesses to work more

efficiently in a number of different ways. Technology increases the

capacity of business and it enables businesses to reach more customers

in less time than usual. This means they will be able to serve more

customers than before.

• Industry analysis

The business belongs to the Beauty industry. The competition is pretty

stiff since there are other Beauty Salons around. The industry is to

work towards making the world a global village for the beauty care

clients also for the buyers who wish to know the products in the

market.

1.9 GOALS OF BUSINESS / OBJECTIVES

1.9.1 Goals

To grow and expand the business into new opportunities or business

industries this allows focusing on making the business the biggest and

best in its industry.

1.9.2 Objectives

The short term achievement is to build clientele and make profit.

To provide high quality services to the clients.

To improve the standards of living of the employees.

1.10 ENTRY AND GROWTH STRATEGY

A product advertised as new must not be made with a reclaimed

material that is an advertisement must not lure in customers with the

promise of one product only to replace it with another. Selling a

similar item at a lower price can help you undercut your market rivals

and gain new entrants to the market that are using penetration pricing

strategies. Continuous market research is to be carried out at specific

time to determine the customer’s behavior at a given time.

1.10.1 Entry plan

A competitive advantage distinguishes a business from its competitors.

It contributes to higher prices, more customers and brand loyalty.

The business should not rely on taking advantage of the competitors

weaknesses since it could be short lived. Once the competitor realizes

you are gaining an advantage because of its weaknesses, it will focus

on fixing them.
The business should charge the same price and if you want to compete

with others, advertise by stating why its products are better. The

business should identify their ideal client if they want to attract them,

also you should know your business inside and out.

1.10.2 Growth plan

The business can be expanding slowly or rapidly. When the business is

expanding rapidly, you will be restocking your store. Restocking your

business offers clients an opportunity to reflect on the past years.

Exploit the opportunity when you take deliberate action in your project

plan, enhance the opportunity.

The four Ps are: product, price, place, and promotion because they

work together, their order is of no consequence. A product exists to

solve a problem or a need that a consumer has or may realize that he

has.
In marketing, a product is an object made available for customer use. A

small business may also use a market expansion strategy if it finds its

product. A price is the quality of payment or compensation given by

one party to another in return for one unit of goods or services. Price is

one of the first things that a consumer notices about a product and is

one of the deciding factors when it comes to their decision to purchase

it or not. Using competitive pricing, set a price based on what the

competition charges. Set a price based on how much the customer

believes that you’re service or product is worth.

Place is the activities that make the product available to customers.

Due to enhancements in technology, other beauty parlors are coming

up with better services and good ways of management. These

established competitors may be a threat to the business.

As part of the marketing mix, promotion includes all activities that

involve communicating with the customer about the product and its

benefits and features. Once a company has worked on the product and

price elements, it is time to start a conversation with the customer

about the product. This includes raising awareness through different

medium to increase sales, as well as to create and foster brand loyalty.

 Through promotion, the company aims to attract the customer’s

attention and give them enough information about the product to foster

enough interest to motivate them to purchase.

CHAPTER TWO

MARKETING PLAN

2.0 Market research and feasibility study-describe the market area

Target the specific group of people you want to reach with your

marketing message. Those groups of people are the people who are

most likely to buy your products or service and they are united by

some common characteristics like behaviors

Transportation is particularly important in market area analysis

because it impact on the location of economic activities. Additionally,

any activities involving money or the exchange of products or services

are economic activities.

Marketing is important because it allows business to maintain long

lasting and ever present relationships with their audience. Marketing

also helps you sell your products or services. The bottom line of any

business is to make money, and marketing is an essential channel to

reach that end goal. Marketing drives a consumer economy, promoting

goods and services and targeting consumers most likely to become

buyers.

Several characteristics of the community can give clues the degree of

its social cohesion and anticipate problems that may arise. These

characteristics include the history of the community and its relations

with others. Its present social structure, its culture, value and the way

it governs itself.
2.1customers target market

The customers who are targeted or the potential customers are

employees from various companies in the township, business men and

women,

2.2 Competition

Walk-ins’, some internet sources, e.g. internet blogs, which are

preferred by target customers. We can find there their opinions and

other valuable information. If we as a company has sufficient budget,

we can hire a special company, which conduct market research. We

can use also Medias, newspapers and magazines as a source for our

research

The competitors around the business are Victors Salon and Mulley’s

Salon Mulley’s Salon is located opposite Annex Beauty Parlor and

Victor’s Salon is located near Mulley’s Salon. A competitive analysis

allows you to access your competitor’s strength and weaknesses in

your marketplace and implement effective strategies to improve your

competitive advantage.

One way to look at competition is by industry analysis. Competition

drives down rates of return on invested capital. If the rate is

“competitive” it will encourage investment, if not, it will discourage

competition. Marketing competitor analysis is done with relation to

 your competitors. Do the analysis of your competitors firm. In this

competitor analysis, you access the strength and weakness of your

rivals. You try to figure out what situations may provide an

opportunity for them. Find situations which are likely to become a

threat for them as well.

This analysis is a critical part of your own marketing strategy. By

doing the analysis, you can formulate how to say that you are basing

your strategy as a reaction to how your competitor will run his

company. Understanding your position in the industry is important to

any successful business. That’s why it’s critical to ensure that you

know how to do a competitive product analysis. The analysis will help

you to know your stand within your industry and what you need to do

to outperform your competitors.

Learn more about your competitions product and services. Read their sales brochures,
browsing their website .identify the current and potential competition. Once you have
grouped your competitors, you can start to analyze their strategies and identify the areas
where they are most vulnerable. This can be done through an examination of your
competitors’ weaknesses and strength. Pricing below your competitor’s price depends on
your resources. If you can increase the volume without affecting the production cost to a
great extent, then this might be a good strategy for you. However, there is the risk of
diminishing profit margin and you might not be able to recover your sunk cost and eve face
bankruptcy. It’s important that you evaluate each step of your competition while establishing
the price for your product.
 A business can set a price to maximize profitability on each unit sold or on the overall
market share. It can set a price to stop competitors from entering the market, or to
increase its market share, or simply to stay in the market. The price is one of the first
things that a consumer notices about a products and is one of the deciding factors
when it comes to their decision to buy it or not. Every product has a price range, look
at your competitors pricing to find the range for your product. Compare your product
to those of your competitors.

If a manufacturer decides to adopt an exclusive or selective distribution strategy, they

should select reputable intermediaries experienced in distributing similar products and
on intermediary known to the target audience.

COMPETITIVE ADVANTAGE:

In business, a competitive advantage is the attribute that allows an organization to

outperform its competitors’. A competitive advantage may include access to natural
resources such as geographic location access to new technology and highly skilled
labor. Move ahead of the competition by doing things in new different ways can even
place you ahead of the pack and by offering attractive pricing. Branding is likely the
most widely used method to differentiate one company from another. Also do what
you do better than anyone else.

2.3 MARKET SHARE

There is to be a large number of customers who are to come to this business due to the fact
that it offers high quality services. Also the location of the business favors the good market
hence attracts more customers.

The market share analysis

Mulley’s market Caro’s market total

share share
Sales 20000 40000 10000
Market share 20% 40% 100%
Unamend demand results when the brands within the product category are perceived as
ineffective at meeting consumer’s needs.
2.4 Methods of advertising and sales promotion

The proprietor will use the following methods to advertise the product to the public so as to
attract some objectives and goals to customers. Use of word of mouth will be used, the person
will be hired to go around the camp proclaiming that Annex Beauty Parlor is to be opened
and that high quality product and services will be offered not to mention of the skills
personnel available. Sign post are to be placed around the camp billboard will contain writing
such as welcome to Annex Beauty Parlor. The cost of advertising in the business is ksh.10,
000 per month.

Evaluating the advertising effectiveness helps in managerial exercise aimed at relating the
advertising results to the establish standard of performance and objective so as to assess the
real value of advertising performance. The entrepreneur intense to offer free computer
services for the first one week after its launching in the area. This is to raise the morale of the
customers and make them come in large numbers. This mode of the business is to allow the
entrepreneur to penetrate the market. The owner is to employ dedicated trained personnel
with sufficient knowledge and attends to customers. This will in turn make customers prefer
Annex Beauty Parlor in the area hence crating loyalty of the customers to the business.

The owner intends to install air conditioners, constant power supply by bringing in a
generator that will be used in case of black out and also create a conducive environment
where customers are to fee key in a place where they can identify themselves with .
2.5 PRICING STRATEGY

The fact that the business is still a start-up, Annex Beauty Parlor is to consider the following
factors when setting up for the price strategy

a. the owner of the business has to select good pricing method that is affordable.

b .prices based on the services

c. free manicure and pedicure is to be offered to regular customers

d. discount will be given to the regular customers inform of free manicure and pedicure
services.

Annex Beauty Parlor will use value best pricing since where it will be successfully used, it
will improve profitability through generating higher prices without impacting greatly on sales
volume. Competitor’s prices are taken into consideration when setting the price of the same
or similar product. The focus is on the competition driven price rather than production cost
and overheads. Annex Beauty Parlor will use cost based pricing where a certain percentage of
the total cost of the production is added to the cost of the product to determine its selling
price.

Certain deduction will be allowed by Annex Beauty Parlor to the customers in order to
motivate them to pay within a specific time or to pay earlier. Annex Beauty Parlor will offer
after sale service such as free Wi-Fi

2.6 Sales, tactics and forecast

For any business to prosper, it must set a sales tactics. This creates a good relationship and
direct contacts with customers. The following tactics are to be used

• Communication

The owner is to employ polite and courteous staffs who are able to handle customers in
a much pleasant attractive manner as possible.

• Train personnel the owner is to have trained personnel with adequate knowledge that
is ready to impact the customer.
2.7 Distribution strategy

Annex Beauty Parlor will use courier services in order for products to reach the customers.

CHAPTER THREE

ORGANIZATIONAL/ MANAGEMENT PLAN

3.1BUSINESS MANAGER

Annex Beauty Parlor will be managed by the business owner and the business performance is
to be evaluated by the auditor hired in annual basis. The manager must have the following
qualifications.

• Masters in information technology

• Must have at least five year experience

Duties and responsibilities of the manager

• Decision making and choosing between alternatives.

• Ensuring that the services offered to the customers are high standard.

• Maintaining the welfare of the staff.

• Policy making and establishing programs for the procedures.

• Forecasting on the factors that may affect the business environment in the
future.

Organizational chart

3.2 Key personnel

Key personnel Experience/ qualification/ Duties/ responsibilities

skills
1.Human Resource Must have masters in Hiring and firing.
Manager Human Resource Ensuring the company
Management. workforce is following
Experience of at least five code of ethics.
year in relative field. Guiding the workforce
Must be flexible to source towards achieving
new software in the market company objectives.
Maintaining healthy
customer relations.

2. Accounts clerk Must have CPA or KATC Collection of cheques.

final. Preparation of invoices.
Must be of 18-25 years. Preparation of cheques
Must have experience in before they are signed by
money handling. the signature.
 Write receipts.
Should prepare cashbooks.

3. Receptionist Must be aged 18- 25 years. Welcoming clients in the

Must have 2-3 years parlor.
working experience. Keying raw data and
Must have diploma in processing as information
Front office Management. technology read for use.

3.3 Other personnel

Other personnel Qualification/ skills/ Duties/ responsibilities

experience
1.Financial Manager Must have masters in Advising management on
business accounting financial matters.
option. Keep financial records.
Must have a good track of Inspecting the book of
financial matters. accounts.
Must have knowledge to Preparation of salaries and
advice management of the wages for workers.
use of finances.

3.4 Recruitment, training and promotion

To recruit competent employees the firm is to advertise the vacant position in the local daily
newspapers and only candidates with qualification are considered for interview and short
listing. The business is to train the employees by conducting seminars and workshops to
update them on new knowledge. This is to make them work in minimum supervision.

The firm is to promote the employees on merit. Workers are to advance from one rank to
another as a result of performance, which is evaluated by the supervisor. Promotion also is
through merit of work with clean records of duties of normal business operations.

3.5 Remuneration and incentives

Employees are to be awarded a fair remuneration package depending on the qualification as

per the job title. Staffs are to be paid at the middle of the month with advance. This is to
allow them enjoy their job and to avoid workers leaving the work.
REMUNERATION PER MONTH-KSH

JOB TITLE SALARY ALLOWANCES TOTAL

COMMISSIONS
Manager 50,000 4,000 54,000
Human Resource 40,000 2,500 42,500
manager
Finance Manager 40,000 3000 43,000
Receptionist 20,000 1,500 21,500
Accounts clerk 30,000 2000 32,000

TOTALS 180,000 13,000 193,000

3.6 Legal requirements

Licenses

The business is to acquire a permit to show that the firm is legally carrying out its business.
The permit is to be obtained in county council of Eldoret. The business is to incur the expense
of renewal of the permit which is to amounts to ksh. 12,000.

By –laws

The business is to comply with the following by –laws stipulated by the ministry of local
government for it is to operate without any interface. Water by laws- the business is to ensure
that water is available for use by the worker for public services.

3.7 Support services

SUPPORT SERVICE SERVICE NEEDED CONTACTS

Kenya commercial bank Saving money acquisition 0779589908
of loan
Wells Fargo Allow easy receiving and 0720030020
delivery of parcels.
G4S To provide security 0747164519
Eldoret water and To supply water 0719561647
 sanitation

CHAPTER FOUR

PRODUCTION/ OPERATIONS PLAN

4.1Production operations facilities and capacity

The following machines and equipment are to be required for the successful running of the business
operations

• A generator to supplement the electricity provided by the Kenya power and lighting
company.

• Air conditioners to cool the computer when used and also maintain room temperature.

Assets Quantity Source Cost

solarium 1 Superior Beauty 300,000
Store
Cosmetic 1 Superior Beauty 250,000
Equipment Store
Manicure Pedicure 2 Superior Beauty 200,000
Store
Bar code reader 1 Nairobi software 20,000
machine
Stationary 60 Naivas 5,000
supermarket
Laptops 3 Nairobi software 200,000
Total 975, 000
4.1.1 Draw the firms’ layout

ANNEX BEAUTY PARLOR LAYOUT

\

• Production operation strategy

In order for the firm to carry out its operations effectively, the following materials would be
needed; solarium type ergo line 600 ultra-turbo power includes protective eyewear, manicure
and pedicure acquisition includes special washbasin and all tools needed for implementation
of these services. As regards the cosmetic services, the price of special UV lamp, depilator,
epilator, and special wash basin and lashes extensions. By retail sale is meant all cosmetic
products intended for resale. Price of renting of space is per one year and includes energy. To
the price of renovation is included reconstruction and renovation of leased premises, painting
and design of rooms. Other equipment includes primarily the cleaning agents and hygienic
aids. Technological change can bring about advantages and opportunities for businesses.
Obviously, new technology can create new products and services, thereby creating entire new
market for a business. Moreover, improvements in technological product and processes can
increase productivity and reduce costs.

4.2.4 Monthly services operational expenses

For this maximum operation, Annex Beauty Parlor is to incur expenses which are to act as services
support to the whole business. Moreover, the estimate below is to be monthly operational expense of
the cyber. Consequently, the cost of the services delivery is to be summed up by monthly services
provided by the workers and the support operational expenses.

Total production cost in a month

Wages and salaries 193,000

Rent 20,000
Electricity 4,000
Repair and maintenance 10,000
Stationary 5,000
Postage 1,000
Telephone 600
Totals 233,600

• Production operations process

As a result of technology, economic scenario, Annex Beauty Parlor wishes to deliver quality services
to the client to attract customers and market the business in terms of customer’s enrolment. The
following are some of the ways to ensure the services production process.

• Make up

The business is to offer make up classes to customers. With adequate financial resources a company
can more effectively weather internal storms such as updating or replacing faulty machinery or
systems.

Also, having access to the credit market and establishing financing in the form of loans, credit lines,
or bonds before the risks materialize can help companies stay financially solvent during tough times.
Since the company has proper funding, the company will be able to ride out unforeseen risks, such as
political problems.

Rules affecting the business operations

• Health regulation

The business is to operate in an area that is free from hazards that may affect the workers. The
business must be dust free to prevent the workers from containing air borne diseases.

• Safety

The business is to ensure Annex Beauty Parlor is safe to prevent the workers and business from
accidents. The business will offer protective wear to the workers to ensure safety.

Environmental regulations

The owner of the business is to locate the business in an area that is free from pollution, that is, air,
water and land pollution. This is to ensure that the workers’ health is good and well taken care of.
CHAPTER FIVE

FINANCIAL PLAN

5.1 Pre – operational costs

ITEMS COST
Research/ travelling 6,000
Designing 5,000
Licenses 12,000
Advertising 10,000
Recruitment 3,000
Professional fee 4,000
Installation 3,500
 Rent deposit 20,000
Utility 3,000

Water bill 3,000

Electricity 4,000
Wages and salaries 193,000
Total amount
266,500

5.2 Pro- forma balance sheet

A balance sheet is a financial statement that shows the financial position of the business for a
certain period of time (usually one year).

ANNEX BEAUTY PARLOUR

PRO- FORMA BALANCE SHEET

AS AT 31st DEC 2021

Non-current assets. Ksh

Building 30,000

Furniture 60,000

Motor vehicle 50,000

Total non- current assets 140,000

Current assets

Closing inventory 100,000

Debtors 60,000

Prepayment 150,000

Bank balance 200,000

Cash in hand 150,000

Total current assets 660,000

Total assets 800,000

Current liabilities

Creditors 10,000

Accruals 20,000

Bank overdraft 40,000

Financed by:

Capital (opening) 1,000,000

Non-current liability

Bank loan 200,000

Total liability 1,000,000

5.3 Working capital

Working capital is the amount of business will require to its daily operations. It enables it to
realize some profit. It requires working capital to run until when it realizes some return, thus,

Working capital= total current assets- current liabilities

WC= CA- CL

Current assets Ksh

Cash at hand 200,000

Cash at bank 200,000

Debtors 60,000

Stocks 340,000

Total 800,000

Less current liabilities

Creditors 10,000

Bank overdraft 40,000

Accruals 20,000

Total 70,000

Working capital 730,000

5.4 Cash flow projection

Cash flow projection is the financial statement that shows cash in and cash out of the
business. Transactions that generate cash in a business include; sales, payment from debtors,
discount received, and rent received, and loan received. Transactions that may reduce cash in
a business include; purchases, salaries / wages, rent payment to creditors, standing orders and
discount allowed.

PROJECTED CASH FLOW

FOR THE YEAR ENDED

 JA FE MA AP MA JU JUL AU SEP OC NO DE
N B R R Y N Y G (shs T V C
(shs (shs (shs (shs (shs (shs (shs (shs ) (shs (shs (shs
) ) ) ) ) ) ) ) ) ) )
Loan - 240 100 300 150 500 200 200 130 120 200 500
000 000 000 000 00 000 000 000 000 000 00
Sales 200 400 150 400 100 105 300 800 900 800 200 100
000 000 000 000 000 000 00 00 00 00 00 00
Debto - - - 700 - - 100 200 200 - - 600
rs 0 00 00 00 00
Total 200 640 250 347 250 155 240 300 240 200 220 120
payme 000 000 000 000 000 000 000 000 000 000 000 000
nts
Purch 150 100 100 200 100 500 200 500 400 300 150 500
ases 000 00 00 000 000 00 00 00 00 00 000 00
Credit 100 200 - 100 300 - - 150 500 - - 400
ors 0 0 00 00 000 00 0
Salari 200 200 200 200 200 200 200 200 200 200 200 200
es and 00 00 00 00 00 00 00 00 00 00 00 00
wages
Rent 400 400 400 400 400 400 400 400 400 400 400 400
0 0 0 0 0 0 0 0 0 0 0 0
Telep 200 100 300 50 150 250 50 350 100 100 200 150
hone 0
Adver 400 200 100 500 500 150 250 300 400 140 130 150
tising 0 0 0 0 0 0 0 0 0 0 0
Total 179 381 353 239 154 757 465 227 119 555 175 796
200 00 00 050 650 50 50 350 000 00 500 50
Net 208 601 214 109 953 792 193 726 121 144 445 403
cash 00 900 700 950 50 50 450 50 000 500 00 50
flow
(r- p)
Balan 208 208 208 208 208 208 208 208 208 208 208
ce b/f 00 00 00 00 00 00 00 00 00 00 00
Balan 208 622 235 130 116 100 214 934 141 165 653 611
ce c/f 00 700 500 750 150 050 250 50 800 300 00 50

Net cash flow= received – payment

 5.5 Pro- forma income statement (trading, profit and loss account)

Particulars Year 1 Year 2 Year 3

Sales 200,000 100,000 150,000
Less cost 50,000 40,000 100,000
of sales
Gross 150,000 60,000 50,000
profit
Less
expenses
Salaries 39,000 39,000 39,000
and wages
Rent 4,000 4,000 4,000
Advertising 10,000 2,000 1,000
Telephone 600 200 100
Electricity 4,000 1,000 1,500
Total 57,600 46,200 45,600
expenses
Net profit / 92,400 13,800 4,400
loss
Balance b/f 92,400 92,400
Balance c/f 92,400 106,200 96,800

Net profit/ loss =gross profit- total expense

5.6 Break even analysis

Break even analysis is where the total revenue is equal to the total costs. The firm is earning
nominal profit or zero profit. If total revenue> total costs, the firm makes abnormal profits or
super normal profits. If total revenue < total cost the firm will make losses .Break even
analysis is also known as cost volume analysis.

a. B. E. P in units = fixed costs/contribution / unit

Whereby

Contribution= sales - variable cost

Which is?
Contribution= 200,000- 48,000= 152,000

Fixed cost= 20,000

20000/152000=0.1316 units

b. B. E. P in values ( shs)= fixed cost/ contribution/ unit* selling price

Selling price = 800,000

20,000/ 152,000* 800,000= ksh.105, 263

c. Contribution/ sales ratio= contribution/ unit/selling price * 100

152,000/800,000*100= 19.0

d. Number of units for target profits = fixed costs + target profit/contribution/ unit

20,000+800,000/152,000

= 5.3947 units

e. Sales for target profits = fixed costs + target profits ( s.p)/contribution / units

20,000+ 800,000/152,000

= ksh. 5.3947

5.7 Desired financing

Desired financing for Annex Beauty Parlor

Item Amount ( ksh)

 Pre- operational 86,500
cost
Working capital 700,000
Fixed assets 140,000
Total desired 926,500
financing

5.8 Capitalization

Item Amount
Owners 600,000
contribution
Borrowed funds 460,000
Total investment 1,060,000

5.9 Profitability ratios

i. Gross profit ratio= G.P / sales*100

G.P ratio= 150000/200000*100

= 75

ii. Net profit ratio= N.P / sales* 100

N.P= 92400/200000*100

= 46.2

iii. Return on equity= N.P/ owners’ equity* 100

Owners’ equity= (opening capital+ net profit) less drawing

600000+92400= 692400

92400/692400*100=13.34
iv. Assets turn over= sales reverse (total sales)/ assets (CA + FA)

660000+140000= 800000

200000/800000= 0.25

v. Quick ratio= Current asset- stocks (closing stocks)/ Current liability

660000-360000/630000

= 0.4762

vi. Liquidity ratio= current asset/ current liabilities

660000/630000= 1.0476

THE END