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

6.0 MANAGEMENT

7.0 RESOURCES ANALYSIS

8.0 ASSUMPTIONS

9.0 FINANCIAL ANALYSIS

10.0 RECOMMENDATIONS

APPENDICES

EXECUTIVE SUMMARY

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.

BUSINESS PLAN

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:

(a) ASSETS

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 month’s 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 promoter’s 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 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.

APPENDIX 1 INVESTMENT SCHEDULE (¢’000) A. FIXED ASSETS:

Item Quantity Value (a) Building

(b) Hammer mill/plate attrition

(c) Sifter

(d) Bagging machine

Sub Total

1

1

1

1

¢40,000

3,500

3,500

3,000

50,000

B. Working Capital Raw materials, labour, utilities, etc. GRAND TOTAL

¢126,174

¢176,174

APPENDIX 2

WORKING CAPITAL (DETAILS) MONTH

Item Total Cost/Month

(¢) Raw Materials Labour Administrative Expenses Utilities Transport Packaging Material Insurance Repair and Maintenance TOTAL

¢120,000,000 3,562,500

40,000 480,000 800,000

1,000,000 83,334

208,334

126,174,168

APPENDIX 3

TOTAL PROJECT COST (¢’000)

ITEM EQUITY LOAN TOTAL Fixed Assets

Working Capital

Total

Contribution

50,000

26,174

76,174

43%

-

100,000

100,000

57%

50,000

126,174

176,174

100%

APPENDIX 4

PRODUCTION CAPACITY Item Quantity per

Month Quantity per

Year High Quality Cassava Flour

40 tonnes

400 tonnes

Production is 10 months per year

APPENDIX 5

RAW MATERIAL USAGE SCHEDULE

Raw Material Estimated Quantity per

Month

Unit Cost/Ton

¢

Total Cost/Month

¢ High Quality Cassava Chips

40 tons

3,000,000

120,000,000

Cost of Raw Materials for a year (10 months) – ¢120,000,000 x 10 = ¢1,200,000,000

APPENDIX 6 ESTIMATED REVENUE

Item Unit

Price/ Ton

Quantity/ Month

Monthly Revenue

High Quality Cassava Flour Sub Total Less 2% Sales Expenses Less 1% Flour Losses Net Monthly Revenue

3,500,000 40 tons 140,000,000

140,000,000

2,800,000

1,400,000

135,800,000 Net Yearly Revenue = ¢135,800,000 x 10 = ¢1,358,000,000

APPENDIX 7 LABOUR COST

Personnel No. Salary per Month

Total per Month

Total per Year

(i) Owner/Manager

(ii) Procurement Officer

(iii) Machine Operator

(iv) Accounts Officer

(v) Labourers

Sub Total

Add 25% for Medical Expenses, Social Security and other Expenses

GRAND TOTAL

1

1

1

1

3

-

¢800,000

500,000

300,000

500,000

250,000

-

¢800,000

500,000

300,000

500,000

750,000

2,850,000

712,500

3,562,500

¢9,600,000

6,000,000

3,600,000

6,000,000

9,000,000

34,200,000

8,550,000

42,750,000

APPENDIX 8

UTILITIES

Item Cost per Month Cost/Year Electricity (604 kilowats/month)

¢440,000 ¢5,280,000

Water 40,000 480,000 TOTAL 480,000 5,760,000

APPENDIX 9 OTHER COSTS

Item Cost/Month Total Cost/Year

1. Transportation of fresh cassava to site at ¢20,000/ton (40 tons/month) 2. Administrative cost 3. Insurance (2% 0n Fixed Assets)

0.02 x 50,000 4. Repairs and Maintenance (5% on Fixed Assets) 0.05 x ¢50,000,000 5. Depreciation

(a) 10% on equipment and machinery 0.1 x ¢10,000,000

(b) 5% on Building structure 0.05 x ¢40,000,000

TOTAL

6. Packaging Materials Costs

400 tons of HQCF per year (¢30,000 per tonne)

¢800,000

¢40,000

833,334

208,334

166,667

¢8,000,000

480,000

1,000,000

2,500,000

3,000,000

¢12,000,000

APPENDIX 10

PROFORMA OPERATING STATEMENT (¢’000)

Item Year 1 Year 2 Year 3 Year 4 Year 5 Revenue Costs Raw materials Labour Administrative Expenses Utilities Transport Insurance Repair and Maintenance Packaging Materials Depreciation Interest on loan (20%) Total Costs Gross Profit Provision for Tax (25%) Net Profit

1,358,000

1,200,000 42,750

480 5,760 8,000 1,000 2,500

12,000 3,000

20,000

1,295,490

62,510

15,628

46,882

1,629,000

1,440,00051,300

5526,9129,6001,1502,875

14,4003,000

14,000

1,543,789

85,811

21,453

64,358

1,955,520

1,728,00061,560

6358,294

11,5201,3233,306

17,2803,0006,800

1,841,718

113,802

28,451

85,351

2,346,624

2,073,600 73,872

730 9,953

13,824 1,521 3,802

20,736 3,000

-

2,201,038

145,586

36,397

109,189

2,815,949

2,488,32088,646

84011,94416,5891,7494,373

24,8833,000

-

2,640,344

175,605

43,901

131,704

Assumptions (See Section 7.0)

APPENDIX 11

CASH FLOW ANALYSIS (¢’000)

A. CASH INFLOW

YEAR O YEAR 1

YEAR 2

YEAR 3 YEAR 4 YEAR 5

Equity

Loan

Net Profit

Depreciation

Total Cash Inflow B. CASH OUTFLOW Principal Loan payment (one month salary as bonus) Total Outflow Net Cash Inflow Cumulative Cash Inflow

76,174

100,000

-

-

176,174

-

-

46,882

3,000

49,882

33,000

33,000

16,882

16,882

-

-

64,358

3,000

67,358

33,000

33,000

34,358

51,240

85,351

-

3,000

88,351

34,000

34,000

54,351

105,591

109,189

-

-

3,000

112,189

-

- 112,189

217,780

131,704

-

-

3,000

134,704

-

-

134,704 352,484

APPENDIX 12 NET PRESENT VALUE (NPV) Year Net Cash

Inflow (’000)

Discounted factor 20%

Net Present Value (¢’000)

Discounted Factor (45%)

Net Present Value (¢’000)

0

1

2

3

4

5

Accumulated

Total

(176,174)

16,884

34,358

54,351

112,189

134,708

1

0.833

0.694

0.579

0.482

0.402

(176,174)

14,064

23,844

31,469

54,075

54,153

1,431

1

0.690

0.476

0.328

0.226

0.156

(176,174)

11,650

16,354

17,827

25,355

21,014

(83,974)

NPV at 20% is positive i.e. ¢1,431,000 NPV at 45% is negative i.e. - ¢83,974,000 NPV does not take into consideration the salvage value of machinery and equipment.

APPENDIX 13 RETURN ON INVESTMENT (ROI) By Definition - Net Profit x 100 Total Investment

Year 1 2 3 4 5 Net Profit 46,882,000 64,358,000 85,351,000 109,189,00

0

131,704,00

0

Investmen

t

176,174,00

0

176,174,00

0

176,174,00

0

176,174,00

0

176,174,00

0

ROI 27% 37% 59% 62% 75%

Average ROI = 50%

APPENDIX 14 PAY BACK PERIOD By Definition = Total Investment Net Cash Receipts

Year 1 2 3 4 5 Total Investment

176,174,000 176,174,000 176,174,000 176,174,000 176,174,000

Net Cash Receipts

Depreciation 3,000,000

3,000,000 3,000,000 3,000,000 3,000,000

Net Profit 46,882,000

64,358,000 85,351,000 109,189,000 131,704,000

Interest on loan

20,000 14,000,000 6,800,000 - -

Net Cash Receipts

69,882,000 81,358,000 95,151,000 112,189,000 134,704,000

Payback period

2.52 yrs 2.17 yrs 1.85 yrs 1.57 yrs 1.31 yr

Average = 1.884 yrs or 23 months In the middle of