BUSINESS PLAN ON URBAN LEVEL HIGH QUALITY CASSAVA FLOUR PRODUCING ENTERPRISE

Transcription

1 BUSINESS PLAN ON URBAN LEVEL HIGH QUALITY CASSAVA FLOUR PRODUCING ENTERPRISE

2 TABLE OF CONTENT EXECUTIVE SUMMARY PAGE.0 INTRODUCTION 2.0 BUSINESS BACKGROUND 3.0 FINANCING PLAN 4.0 MARKET ANALYSIS 5.0 WORK PLAN 6.0 MANAGEMENT 7.0 RESOURCES ANALYSIS 8.0 ASSUMPTIONS 9.0 FINANCIAL ANALYSIS 0.0 RECOMMENDATIONS APPENDICES

3 EXECUTIVE SUMMARY NAME OF ENTERPRISE: LOCATION OF BUSINESS: BUSINESS ACTIVITY: Cassava Flour Producing Enterprise Urban Settlement near Cassava Growing Area Processing of High Quality Cassava Flour FINANCING PLAN: Owners Contribution: 76,74,000 Loan Request: 00,000,000 PROPOSED LOAN TERMS: (i) The loan shall be repaid in 3 years and shall attract an interest of 20% per annum. (ii) Moratorium shall be six (6) months. RECOMMENDATIONS: The projected cash flow analysis shows a net cash inflow of 34.4m, 54.4m, 2.2m, 34.7m respectively have been projected over the 5year period. It is recommended that the business should be supported with a loan of 00 million to be used as working capital to buy raw materials to process High Quality Cassava Flour in the urban area. The recommendation is based on: (i) The Return on Investment is averaged at 50% over the 5year period. (ii) The Net Present Value is discounted at 20% and 45% for the 5year period are positive at,4 and negative 83,974,000 respectively.

4 BUSINESS PLAN.0 INTRODUCTION Cassava is the most important root crop in Ghana. Apart from being a staple crop in both rural and urban households cassava is a major source of income to cassava farmers and processors in the rural areas. Cassava alone contributes about 22% of agricultural GDP in Ghana for food or domestic purposes but its industrial processing and utilisation has been very limited. Currently there is a national programme to boost the present level of cassava production in Ghana. Under the Roots and Tubers Improvement Programme (RTIP) farmers are being supplied with high yielding cassava sticks to increase cassava production. Present levels of cassava production will be greatly increased. This will enhance processing of the increased cassava into High Quality Cassava Flour (HQCF) for industrial purposes, such as the bakery and paper plywood manufacturing. It has been established through research carried out by the Food Research Institute (FRI) and Forest Research Institute of Ghana (FORIG) that High Quality Cassava Flour can be substituted or added in bakery, paperboard and plywood manufacturing activities. This business plan is to examine the financial viability or otherwise of establishing High Quality Cassava Flour production in urban areas using as basic raw material cassava chips procured from the cassava producing rural areas. 2.0 BUSINESS BACKGROUND 2. Type of Business: The enterprise is sole proprietorship engaged in the production of High Quality Cassava Flour (HQCF) for use at the bakery, paper board and plywood industries. 2.2 Location of Business: The business is located in an urban area close to cassava growing area. 2.3 Access to Utilities and Other Facilities: The enterprise has access to reliable electricity. There is a good network of roads connecting the raw material producing area and to the marketing centre. 2.4 Aims/Objectives of the Business: The objective of the enterprise is to process the increased output of fresh cassava into High Quality Cassava Flour for industrial purposes. High quality cassava chips will be procured from the rural cassava growing areas and milled into flour.

5 The production of HQCF will give cassava farmers readymarket for their excess production hence improved incomes. The business will help reduce postharvest losses and encourage primary processing of fresh cassava into chips at the village level. Jobs will also be created at both the village and urban levels. 3.0 PROJECTED FINANCE The business requires an amount of 76,74,000 for both financial assets and working capital. The financial needs of the business are as follows: (a) ASSETS. Structure for the mill 40,000,000 2 Machinery and equipment 0,000,00 Sub Total 50,000,000 (b) WORKING CAPITAL. Raw materials of cassava chips 20,000, Labour costs 3,562, Utilities 480, Other costs 2,3,668 Subtotal 26,74,68 GRAND TOTAL 76,74, MARKET ANALYSIS 4. Assessment of Demand Research studies carried out by the Food Research Institute (FRI), Forest Research Institute of Ghana (FORIG), Ministry of Food and Agriculture and the Natural Resources Institute of UK have shown that there is a great market potential for HQCF in the plywood, paperboard and bakery industries. HQCF is an attractive alternative to imported wheat, which is used in these industries. Three awareness seminars were held on Expanded Markets for Locally Produced Flours and Cassava in Ghana in Takoradi, Kumasi and Accra between January and May 200 for industrialists in plywood and paperboard, potential entrepreneurs, bakers, scientists and policy makers. The outcomes of the information seminars showed that there is a great potential or unmet demand for HQCF by the plywood and paperboard manufacturers and bakers who took part.

6 4.2 Competition The alternative of HQCF is imported wheat flour. Studies have shown that the price of imported four is ever increasing due to high foreign exchange rate and inflation. Also the cost of imported starches of glues for the paperboard industries is very high and starch derived from HQCF is a cheaper alternative. From the above it can be stated that HQCF is a cheaper alternative. The ready availability of HQCF locally as opposed to imported wheat flour with its attendant is ever rising foreign exchange costs will make HQCF a preference for plywood, paperboard and bakery producers. 4.3 Marketing Plans and Strategies The business as a policy will sell its products on cash down basis. However, customers who buy in large quantities will be considered for one month s credit on their own merit. 5.0 WORKPLAN 5. Production Process (a) (b) (c) Mill finely high quality cassava chips Sieve milled product Bag and seal in polyester bags. 5.2 Type and Quality of Material, Machines and Manpower The raw materials to be used are high quality cassava chips. The chips will be obtained from cassava growers in the rural growing areas and transported to this central processing plant based in the urban area. The chips will be processed into High Quality Cassava Flour (HQCF). The estimated monthly production: Forty (40) tons of chips (equivalent of about 220 tons of fresh cassava converted at the estimated rate of 8% yield into chips). Production will be ten months in one year. The annual production of HQCF will be: 0 x 40 tons = 400 tons. Appendix shows the type and quality of raw materials and their cost. The fixed assets to be procured are listed in Appendix. The business shall have a work force of seven (7) made up of the following:. Owner/Manager

7 2. Procurement officer 3. Accounts Officer 4. Machine Operators 5. Labourers 3 Total 7 (Appendix 7 shows the labour schedule and cost). 6.0 MANAGEMENT The enterprise will be managed by the owner/manager who will have considerable experience in food processing. A Procurement Officer who will procure high quality cassava chips from cassava chips processing outfits in the nearby cassava growing areas will assist the owner. An accounts officer will handle the accounts of the business. 7.0 GENERAL ASSUMPTIONS: The financial evaluation of the business covers a 5year period. The calculations on production and finances in the report are based on the general assumptions stated below: Production will be 0 months in a year. Constant level of production for the 5year period Revenue, raw material costs, transport, labour costs, packaging material costs and utilities are projected over the years by 20%. Other costs are projected at 5% annually. Normal losses of % are assumed for high quality cassava chips Marketing/Distribution expenses are equivalent to 2% of sales. Interest on loan is at the rate of 20% per annum. Insurance is equivalent of 2% of cost of fixed assets. The project will attract a tax of 25% Depreciation is on straightline basis. 8.0 FINANCING ANALYSIS 8. Total Investment The promoter s business plan requires an amount of 76,70,000 made up of 76,74,000 equity and a loan of 00,000,000 from a financial institution or government/private promotion agency. The loan will be used as working capital to procure raw materials (see Appendices &3). 8.2 Profit and Loss

8 Projection shows that net profit of 46.8m, 64.4m, 85.4, 09.2 m, and 3.7m for the respective years over the 5year period. These are based on the assumptions at section 7.0 above. 8.3 Cash Flow Analysis Over the 5year period positive net cash inflow of 6.8m, 34.4m, 54.4m, 2.2m and 34.7m have been projected. (See Appendix ). 9.0 RECOMMENDATIONS The report shows that production of High Quality Cassava Flour (HQCF) in the urban centres from cassava chips processed in the rural cassava growing areas is viable and worth promoting. The setting up urbanlocated cassava flour processing outfit will help reduce postharvest losses among cassava growing farmers in the rural areas and also improve their incomes by the sale of high quality cassava chips. (a) A loan of 00 million be granted the promoter to be used as working capital. (b) The loan shall be secured with landed property and lien on fixed assets. (c) The interest on the loan shall be 20%. (d) The loan shall be repaid in three (3) years with six (6) months moratorium.

9 APPENDIX INVESTMENT SCHEDULE ( 000) A. FIXED ASSETS: Item Quantity Value (a) Building (b) Hammer mill/plate attrition (c) Sifter (d) Bagging machine Sub Total 40,000 3,500 3,500 50,000 B. Working Capital Raw materials, labour, utilities, etc. GRAND TOTAL 26,74 76,74

10 APPENDIX 2 WORKING CAPITAL (DETAILS) MONTH Item Raw Materials Labour Administrative Expenses Utilities Transport Packaging Material Insurance Repair and Maintenance TOTAL Total Cost/Month ( ) 20,000,000 3,562,500 40, , ,000,000,000 83, ,334 26,74,68

11 APPENDIX 3 TOTAL PROJECT COST ( 000) ITEM EQUITY LOAN TOTAL Fixed Assets 50,000 50,000 Working Capital 26,74 00,000 26,74 Total 76,74 00,000 76,74 Contribution 43% 57% 00% APPENDIX 4 PRODUCTION CAPACITY Item Quantity per Month Quantity per Year High Quality Cassava Flour 40 tonnes 400 tonnes Production is 0 months per year

12 APPENDIX 5 RAW MATERIAL USAGE SCHEDULE Raw Material Estimated Quantity per Month Unit Cost/Ton Total Cost/Month High Quality Cassava Chips 40 tons,000 20,000,000 Cost of Raw Materials for a year (0 months) 20,000,000 x 0 =,200,000,000 APPENDIX 6 ESTIMATED REVENUE Item High Quality Cassava Flour Sub Total Less 2% Sales Expenses Less % Flour Losses Net Monthly Revenue Unit Price/ Ton Quantity/ Month Monthly Revenue 3,500, tons 40,000,000 40,000,000 2,800,000,400,000 35,800,000 Net Yearly Revenue = 35,800,000 x 0 =,358,000,000

13 APPENDIX 7 LABOUR COST (i) Personnel No. Salary per Month Owner/Manager 800,000 Total per Month 800,000 Total per Year 9,600,000 (ii) Procurement Officer 500, ,000 6,000,000 (iii) Machine Operator 300, ,000 3,600,000 (iv) Accounts Officer 500, ,000 6,000,000 (v) Labourers 3 250, ,000 9,000,000 Sub Total 2,850,000 34,200,000 Add 25% for Medical Expenses, Social Security and other Expenses 72,500 8,550,000 GRAND TOTAL 3,562,500 42,750,000

14 APPENDIX 8 UTILITIES Item Cost per Month Cost/Year Electricity ( ,000 5,280,000 kilowats/month) Water 40, ,000 TOTAL 480,000 5,760,000 OTHER COSTS APPENDIX 9 Item Cost/Month Total Cost/Year. Transportation of fresh cassava to site 800,000 8,000,000 at 20,000/ton (40 tons/month) 2. Administrative cost 3. Insurance (2% 0n Fixed Assets) 0.02 x 50, Repairs and Maintenance (5% on Fixed Assets) 0.05 x 50,000, Depreciation (a) 0% on equipment and machinery 0. x 0,000,000 (b) 5% on Building structure 0.05 x 40,000,000 40, , ,334 66, ,000,000,000 2,500,000,000 TOTAL 6. Packaging Materials Costs 400 tons of HQCF per year ( 30,000 per tonne) 2,000,000

15 APPENDIX 0 PROFORMA OPERATING STATEMENT ( 000) Item Year Year 2 Year 3 Year 4 Year 5 Revenue,358,000,629,000,955,520 2,346,624 2,85,949 Costs Raw materials Labour Administrative Expenses Utilities Transport Insurance Repair and Maintenance Packaging Materials Depreciation Interest on loan (20%),200,000 42, ,760 8,000,000 2,500 2,000 20,000,295,490,440,000 5, ,92 9,600,50 2,875 4,400 4,000,543,789,728,000 6, ,294,520,323 3,306 7,280 6,800,84,78 2,073,600 73, ,953 3,824,52 3,802 20,736 2,20,038 2,488,320 88, ,944 6,589,749 4,373 24,883 2,640,344 Total Costs Gross Profit Provision for Tax (25%) Net Profit 62,50 5,628 46,882 85,8 2,453 64,358 3,802 28,45 85,35 45,586 36,397 09,89 75,605 43,90 3,704 Assumptions (See Section 7.0)

16 APPENDIX CASH FLOW ANALYSIS ( 000) A. CASH INFLOW Equity YEAR O 76,74 YEAR YEAR 2 YEAR 3 YEAR 4 YEAR 5 85,35 09,89 3,704 Loan 00,000 Net Profit 46,882 64,358 Depreciation Total Cash Inflow 76,74 49,882 67,358 88,35 2,89 34,704 B. CASH OUTFLOW Principal Loan payment (one month salary as bonus) ,000 Total Outflow ,000 Net Inflow Cash 6,882 34,358 54,35 2,89 34,704 Cumulative Cash Inflow 6,882 5,240 05,59 27, ,484

17 APPENDIX 2 NET PRESENT VALUE (NPV) Year 0 Net Cash Inflow ( 000) (76,74) Discounted factor 20% Net Present Value ( 000) (76,74) Discounted Factor (45%) Net Present Value ( 000) (76,74) 6, , , , , , , , , , , , , , ,04 Accumulated Total,43 (83,974) NPV at 20% is positive i.e.,4 NPV at 45% is negative i.e. 83,974,000 NPV does not take into consideration the salvage value of machinery and equipment.

18 APPENDIX 3 RETURN ON INVESTMENT (ROI) By Definition Net Profit x 00 Total Investment Year Net Profit 46,882,000 64,358,000 85,35,000 09,89,00 3,704, Investmen 76,74,00 76,74,00 76,74,00 76,74,00 76,74,00 t ROI 27% 37% 59% 62% 75% Average ROI = 50%

19 APPENDIX 4 PAY BACK PERIOD By Definition = Total Investment Net Cash Receipts Year Total 76,74,000 76,74,000 76,74,000 76,74,000 76,74,000 Investment Net Cash Receipts Depreciation,000,000,000,000,000 Net Profit 46,882,000 64,358,000 85,35,000 09,89,000 3,704,000 Interest loan on 20,000 4,000,000 6,800,000 Net Cash Receipts Payback period 69,882,000 8,358,000 95,5,000 2,89,000 34,704, yrs 2.7 yrs.85 yrs.57 yrs.3 yr Average =.884 yrs or 23 months In the middle of