BUSINESS PLAN ON VILLAGE LEVEL CASSAVA CHIP
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BUSINESS PLAN ON
URBAN LEVEL HIGH QUALITY
CASSAVA FLOUR PRODUCING ENTERPRISE
TABLE OF CONTENT EXECUTIVE SUMMARY PAGE 1.0 INTRODUCTION
2.0 BUSINESS BACKGROUND
3.0 FINANCING PLAN
4.0 MARKET ANALYSIS
5.0 WORK PLAN
7.0 RESOURCES ANALYSIS
9.0 FINANCIAL ANALYSIS
NAME OF ENTERPRISE: Cassava Flour Producing Enterprise LOCATION OF BUSINESS: Urban Settlement near Cassava Growing Area BUSINESS ACTIVITY: Processing of High Quality Cassava Flour FINANCING PLAN: Owners Contribution: 76,174,000 Loan Request: 100,000,000 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, 112.2m, 134.7m respectively have been projected over the 5-year period. It is recommended that the business should be supported with a loan of 100 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 5-year period. (ii) The Net Present Value is discounted at 20% and 45% for the 5-year
period are positive at 1,431,000 and negative - 83,974,000 respectively.
1.0 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 2.1 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.
The production of HQCF will give cassava farmers ready-market for their excess production hence improved incomes. The business will help reduce post-harvest 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 176,174,000 for both financial assets and working capital. The financial needs of the business are as follows:
1. Structure for the mill 40,000,000 2 Machinery and equipment 10,000,00 Sub Total 50,000,000
(b) WORKING CAPITAL
1. Raw materials of cassava chips 120,000,000 2. Labour costs 3,562,500 3. Utilities 480,000 4. Other costs 2,131,668 Sub-total 126,174,168 GRAND TOTAL 176,174,168
4.0 MARKET ANALYSIS 4.1 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 2001 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.
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 months credit on their own merit.
5.0 WORKPLAN 5.1 Production Process
(a) Mill finely high quality cassava chips (b) Sieve milled product (c) 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 18% yield into chips). Production will be ten months in one year. The annual production of HQCF will be: 10 x 40 tons = 400 tons. Appendix 1 shows the type and quality of raw materials and their cost. The fixed assets to be procured are listed in Appendix 1. The business shall have a work force of seven (7) made up of the following:
1. Owner/Manager 1
2. Procurement officer 1 3. Accounts Officer 1 4. Machine Operators 1 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 5-year period. The calculations on production and finances in the report are based on the general assumptions stated below: - Production will be 10 months in a year. - Constant level of production for the 5-year 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 15% annually. - Normal losses of 1% 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 straight-line basis.
8.0 FINANCING ANALYSIS 8.1 Total Investment The promoters business plan requires an amount of 176,170,000 made up of 76,174,000 equity and a loan of 100,000,000 from a financial institution or government/private promotion agency. The loan will be used as working capital to procure raw materials (see Appendices 1&3).
8.2 Profit and Loss
Projection shows that net profit of 46.8m, 64.4m, 85.4, 109.2 m, and 131.7m for the respective years over the 5-year period. These are based on the assumptions at section 7.0 above.
8.3 Cash Flow Analysis Over the 5-year period positive net cash inflow of 16.8m, 34.4m, 54.4m, 112.2m and 134.7m have been projected. (See Appendix 11).
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 urban-located cassava flour processing outfit will help reduce post-harvest 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 100 million b