Anwar, and friends physical fitness, Gymnasium and Recreational

center Partnership/2023

1. Executive Summary

Anwar, and friend’s physical fitness, Gymnasium and Recreational center Partnership Fitness
Centre is a unique fitness and recreation center with a strong focus on holistic healthy lifestyle
enhancements to its members in a safe, clean and enjoyable atmosphere. It provides state-of-the-art
healthcare and body workout services to all segments of customer through the main appealing sports
and fitness facilities; tennis, football, gym, spa, sauna, and swimming pool all in one complex.
While Anwar, and friend’s physical fitness, Gymnasium and Recreational center Partnership
Fitness Centre is still considered a “start-up” the firm’s permanent location in Bati town is currently
being sourced through a number of major realty organizations.
Being a partnership, Anwar, and friend’s physical fitness, Gymnasium and Recreational center
Partnership Fitness Centre ownership is divided between the three founders and initial investors;
Mr. Anwar Abdu, Mr. Khalid Ahmed,Wale, Mr. Nuru Mohammed , Although the owners have
variety business skills in sales, marketing, customer service and management, and dedicated towards
health care services, they have appointed Mr. Anwar Abdu as a general manager due to his
professional background and long experience in Physical fitness Trainer market. He will manage
limited number professional staff members and outsourced when needed, recognizing the need for
smooth coordination between operation, sales, marketing and customer service.
The team of management is working closing with a small board of business advisors including an
attorney to make sure the business is established properly and aligned with accepted operating
standards.
The sports and fitness business is an emerging industry. Very few Traditional fitness clubs have
popped up all over Bati town Administration, varying between small to medium gyms, individually
owned workout facilities, However, Great potential still exists for locally based physical fitness
clubs with flexible and multi-purpose products/services being served in one location in high density
areas.
Anwar, and friend’s physical fitness, Gymnasium and Recreational center Partnership Fitness
Centre is targeting middle to high class people in Bati town that have been segmented into
individuals, corporates and professionals. It offers variety of services, more social and fun
atmosphere, and tailored membership packages with affordable prices.
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This project profile deals with the establishment of physical fitness center, gymnasium and
recreational center in Oromo Nationality zone in Bati towns of Amhara National Regional State. The
objective of the profile is primarily to facilitate potential entrepreneurs in project identification for
investment and in order to serve this objective; the document covers various aspects of the project
concept development, startup, marketing, and finance. The following presents the main findings of
the study.
Demand projection divulges that demand for physical fitness center and gymnasium is substantial
and is increasing with time in the Bati towns of Amhara National Regional State. The planned
project is set to provide service to 410 individuals per month. The total investment cost of the
project including working capital is estimated at Birr 5.1 million and creates 15 jobs and Birr
273,600 of income.
The financial result indicates that the project will generate profit beginning from the first year of
operation. Moreover, the project will break even at 32% of capacity utilization and it wills payback
fully the initial investment less working capital in 2 year and 7 months. The result further shows that
the calculated IRR of the project is 29.6% and the NPV at 18% discount rate is Birr 545,840.77.
In addition to this, the proposed project possesses wide range of economic and social benefits such
as creating healthy citizen, increasing the level of investment, tax revenue, and employment creation.
Generally the project is technically feasible, financially and commercially viable as well as socially
and economically acceptable. Hence the project is worth implementing.
1.1 Goals
Our primary goal is to create a community committed to elite functional fitness. Our monthly
objective is to generate at least 30 new members. This will allow us to become a profitable fitness
business. We aim to open and run a facility at full capacity within the first two years with 320 to 500
members.
1.2 Objectives
 The main objective of Platinum Fitness Centre is to develop a product and service based
company whose goal is to exceed customer’s expectations and increase production.
 Provide initial consultation and screening; enable to know what the health position of the
clients.
 Private or group personal training sessions offered at the Facility.

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 Health and lifestyle advising for the clients

 To fully exploit the sector in terms of quality provided and ensuring all the clients enjoy what
they are offered.
 To reduce cost while improving quality and hygiene.
 To create employment for youths in Bati town of Amhara national Regional state whose
youth face difficulty in accessing employment hence perish in poverty
 To impact entrepreneurial skills on the youth of Bati town of Amhara national regional state ,
and encourage them to make use of the Youth Enterprise Development Fund offered by the
Ethiopian government to generate income thereby improving the standard of living.

1.3. Vision
Anwar, and friend’s physical fitness, Gymnasium and Recreational center Partnership Fitness
center intends to be the largest fitness center in Amhara national regional state in oromo nationality
zone of Bati town, attracting at least 10 to 20 new customers each day and later expand to the other
neighboring cities in the Region.
1.4. Mission
Our main focus will be giving quality service at a great value. Customer satisfaction is paramount.
When approached by a customer with a request, our motto will be, ‘No gimmicks, no excuse just
results" We will strive for broad appeal.
Employee welfare will be equally important to our success. All will be treated fairly with the utmost
respect.
1.5 Keys to Success
The keys to the success of Anwar, and friend’s physical fitness, Gymnasium and Recreational center
Partnership Fitness Centre is:
1. The creation of a unique, innovative, mid-scale atmosphere that will differentiate us from other
competitors.
2. Execution of our primary goal to serve nothing but the highest quality of services to all our
customers.
3. Ensuring costs are low at all time.
4. Making use the residents of Bati town by employing them as employees.

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2. MARKETING STRATEGY

The company shall carry out market research that is inclined to:
2.1 Customer Services and Retention.
Honesty and courtesy to customers.

Use of proper language to all types of customers when serving them, this include customers who pay
in advance and loyal.
Online Survey

Anwar, and friend’s physical fitness, Gymnasium and Recreational center Partnership will be
marketed to all residents at Bati town that have access to our promotional tools. A marketing
research survey will be conducted online, asking questions about their exercise habits and attitudes
surrounding personal fitness training. Respondents to the online survey and the results will be very
important in studying the market. The survey respondent’s will answer whether they agree or
strongly agree that they would use personal training services if they were affordable for Bati town
Residents. The consensus on what is affordable for Bati town residents is less clear. The respondents
would want to spend money on training services, which corresponds to the amount of money paid.
2.1.1 Marketing Activities
Our marketing activities include the following:
 Constant internet support and blogging
 Email advertising to current members and potential leads
 Free park exercises to grow community awareness and new customers
 Sponsorship of local athletes and students in sporting events
 Joining the youth groups, office of sports, Rotary Club and other local groups
 Participation in fitness and charity events

2.1.2 Positioning:
For the gym goers that aren't satisfied with their fitness routine, Anwar, and friend’s physical
fitness, Gymnasium and Recreational center Partnership Fitness Centre provides high intensity
exercise that WORKS! Unlike 24 Hour Fitness or Bally's Total Fitness, Anwar, and friend’s physical

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fitness, Gymnasium and Recreational center Partnership Fitness Centre is fast, fun and extremely
effective.
2.1.3 Promotions:
Anwar, and friend’s physical fitness, Gymnasium and Recreational center Partnership Fitness
Centre promotion strategy consists of word of mouth, email promotions and local advertising
(newspaper, school flyers and non-profit organizations). We will also do regular lead-generating
exercises in local parks.
We will make presentations to athletic directors and coaches of the local high schools and colleges.
Since our background is in public safety, we will also present this program to our local public safety
officers, such as police and fire personnel. We will actively participate in the local Office of sports
and enter our members in local fitness events. Our biggest promotional tool besides word of mouth
comes from our website. Our website is linked to the main fitness website that generates millions of
hits throughout the year. When customers are looking for fitness programs, they will usually find
themselves going through the fitness main page and then searching for a gym near them. If they live
in Bati town or nearby, the site will recommend our website, which gives the customer everything
they need to join our club.
2.2 Marketing Plan
In order for Anwar, and friend’s physical fitness, Gymnasium and Recreational center
Partnership Fitness Centre to succeed, the company will need to keep costs low and so that so
many residents will be attracted. As a business that is targeting members of the residents, it's
essential that the company build a strong reputation.
Anwar, and friend’s physical fitness, Gymnasium and Recreational center Partnership Fitness
Centre will be marketed both physically and online. Initially the business will be marketed via
Facebook and also advertising using flyers. This will help create an initial interest in the new
company. Anwar, and friend’s physical fitness, Gymnasium and Recreational center
Partnership Fitness Centre trainers will also be required to wear their Anwar, and friend’s
physical fitness, Gymnasium and Recreational center Partnership Fitness Centre shirts during
their training sessions, which will hopefully arouse curiosity from fellow gym goers to be attracted
to the facility. These inexpensive means of advertising will minimize costs while creating exposure
for the new company.

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4.3 Strategic Alliances and Competitiveness

The company shall get linked to other small fitness gyms in the Bati town; it shall callable with the
clinics, hospitals and nutritionists in the Bati area who are addressing the lifestyle diseases. While
there are many small fitness alternatives, such as gyms, biking, hiking, organized sports and personal
trainers, Anwar, and friend’s physical fitness, Gymnasium and Recreational center Partnership
Fitness Centre has no direct competitors. We will offer the benefits of private training at a cost
comparable to gym memberships. The company will also be open its doors close to a 24 Hour.
Fitness location with the intention of attracting some of its customers.
2.3 Labor
Anwar, and friend’s physical fitness, Gymnasium and Recreational center Partnership Fitness
Centre will begin by hiring three personal trainers, recruiting them from the residents. These hires
will be made by the owner who will select the trainers based on their exercise experience, their
athleticism, and their performance in a "try-out" staged as an actual personal training session. Some
would call our trainers "jocks" endearingly. They have extensive knowledge of fitness training, have
free time, need money, and would love to get paid to spend time at the gym.
2.4 Organizational Structure
Top Management

TOP MANAGMENT

TRAINER

OFFICE MANAGERS

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2.5 Organizational Plan

The company will begin with Anwar Abdu and his 2 best friends as the owners, and 1 employee who
are knowledgeable in fitness training and available as-needed for part-time work. The owners will
manage the business. As the company grows, it will hire more Trainers. Anwar will be able to
manage a maximum of 2 trainers. If sufficient demand should require more trainers, the company
will hire an assistant to direct scheduling, billing, and other administrative concerns. Anwar will
contract with an accountant for accounting services.
2.6 Management Team
Anwar Abdu, will be the sole manager of the company. He does have an education in business
physical fitness, he has significant business experience that is directly applicable to Anwar, and
friend’s physical fitness, Gymnasium and Recreational center Partnership Fitness Centre and
will qualify him to launch and operate this business.

3.0 SWOT ANALYSIS

Strengths:
 Superior location. Again, because of the locality, Anwar, and friend’s physical fitness,
Gymnasium and Recreational center Partnership Fitness Centre will operate right at the Bati
town, making it as convenient as possible for all t
 Unique business, the fitness will give chance for women to come and be trained by women
trainers.

Weaknesses:
 Anwar, and friend’s physical fitness, Gymnasium and Recreational center Partnership Fitness
Centre face competition from neighboring Super gym.
 A member of owners lacks any experience in the personal training industry and has little
business management experience.

Opportunities:
 There are less personal training companies currently serving residents in Bati town.
 Having women sessions will and enabling to speak out their stress and frustrations will
encourage more to come.

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Threats
• Any physical activity carries with it a high risk of personal injury.
Administrative Plan
Anwar Abdu will be the managers. They will be in charge of all managerial aspects of the company.
They will employ as many personal trainers as is necessary to fill the demand. Personal trainers will
be paid 1000 Birr per Monthly training session completed. Birr 600 of every training session will go
to Anwar, and friend’s physical fitness, Gymnasium and Recreational center Partnership
Fitness Centre. After this revenue covers all the expenses, the remaining profit will be kept as a
cash asset. At the end of the month, the company will pay a salary to its employees.

3.1 Risks
There is a risk that not enough residents are interested in personal training. This is why marketing
and advertising will be essential during the beginning stages of the company as Anwar, and
friend’s physical fitness, Gymnasium and Recreational center Partnership Fitness Centre
builds a name for itself. Once the company is established, the largest risk it faces is litigation.
Physical exercise can easily lead to injury. There is the risk that a personal trainer suggests
something to a client that results in the client becoming injured. Anwar, and friend’s physical
fitness, Gymnasium and Recreational center Partnership Fitness Centre will require a general
waiver of liability from both the trainers and the clients. Even with the waiver though, the FITNESS
CENTRE may incur legal fees if the client still decides to litigate.
4. Background of the Project Location

As aforementioned on the introductory part the envisioned project is intended to be located

in Amhara Region Oromia zone Bati town. Bati city is found in Amhara regional state at
about 418kms away from Addis Ababa, in the eastern Amhara direction . Baati is a town in
north-central Ethiopia. Located in the Oromia Zone of the Amhara Region , east of Dessie
this town has a latitude and longitude of 11°11′N 40°1′E with an elevation of 1502 metres
above sea level. It is the largest town in Baati woreda. Baati is known for its market,
located between the Ethiopian highlands and the Great Rift Valley. According to Philip
Briggs, this market "forms an important cultural crossroads for the Amhara, Oromo and
semi-nomadic, desert-dwelling Afar people. Baati has hosted Ethiopia's largest cattle and
camel market, attracting up to 20,000 people every Monday."[1]

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Based on figures from the Central Statistical Agency in 2005, Baati has an estimated total
population of 24,257 of whom 12,229 are men and 11,958 are women.[2] The 1994 census
reported this town had a total population of 13,965 of whom 6,471 were men and 7,494
were women. The total area of land of the city was estimated over 1928.8 hectares. On the
other hand According to the 2013 ADM, Statistics the total population of Oromia zone for
2013 was estimated to be 596,687 and the Bati town population is also estimated to be
above 42,725.

Bati town is one of the oldest towns in the eastern part of the region and its strategic
location and availability of major infrastructures makes it the main market center for crop
productive and cattle and camel market, and surrounding areas such as south wello zone of
amhara region and zone 5 of Afar Region.
The coverage of basic infrastructure facilities are increasing dramatically in recent years
following free market policy of the Federal Democratic Republic of Ethiopia’s (FDRE) in
general and Regional Government of Amhara in particular. As has been the case in the past,
Government continues its commitment to give an opportunity for its national to invest on
various feasible projects, with positive present value when compared to that of without
project case. The coverage of basic infrastructure facilities are increasing dramatically in
recent years following free market policy of the Federal Democratic Republic of Ethiopia’s
(FDRE) in general and Regional Government of Amhara in particular. With this
understanding and inspired by current fast development of the city, the applicant has
developed strong desire of investing in the town to construct and operates recreation center
Area:
According to the current used master plan, Bati has the total area of 1928.8 hectares.
Information on land zoning of the town shows, 7.2% of the total area of the town is to be
covered by residential buildings, 1.5% by commercial activities, 0.4% by Industrial
activities, 4.7% by social & public services, 0.2% by administrative zone, 4.6% is land
reserved for construction of roads and the proportion of land left for other infrastructures is
about 81.4%.

Ecologically

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Bati Town lies in wet land Ecosystem .It is bounded by wet evergreen mountain forest
land ecosystem. Because of the climatic stability the green coverage of the city, is very
significant and estimated to be about 35% including farmlands & vacant places. In the
city green areas are found long streets, in urban parks, in public & private gardens,
along stream banks and flood plains, in stream and downstream, ridges and hills and
left over spaces.

5. Service Description and Application

Amhara National Regional State is one of the regions in Ethiopia where awareness about health and
importance of regular exercise is minimal. The evidence is indisputable. Lifelong participation in
physical activity has a significant, positive impact on the health and well-being of individuals. The
theme for World Health Day of year 2002 was "Move for Health," which was specifically selected to
emphasize the importance of fitness and a healthy lifestyle. A WHO study on risk factors suggested
that sedentary life style was one of the 10 leading causes of death and disability in the world. The
inactivity also increases the risk of high blood pressure, lipid disorders, colon and breast cancer,
osteoporosis, depression and anxiety. Good health habits are very important at any age and it is
never too late to change habits in ways that will improve health. One of the key factors for
increasing health is exercise where a regular program of exercise can:
Aid in weight management
Lower risk of heart disease and certain types of cancer
Increase life span and quality of life
Help control hypertension and diabetes
Increase and maintain flexibility
Reduce muscles tension
Promote increased circulation
Aids in relaxation, stress reduction
Develop body awareness
The envisaged physical fitness center and gymnasium provide services to its members to improve
their physical condition or appearance through exercise. The proposed center will provide the indoor

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facilities of gymnasium with professional instructors, indoor sports like table tennis, snooker and a
refreshment center etc. to members.

6. Market Study, Plant Capacity and Program

6.1 Market Study
6.1.1 Present Demand and Supply

In Bati towns of the oromo nationalty zone, there are limited fitness centers with very low standards
in terms of capital, machineries, space and facilities. Thus, it can be said that the available il-
equipped centers are not suitable to cater adequate services and hence cannot be considered as close
substitutes of the proposed center. In other words, this implies that very less few numbers of people
have access to health and fitness clubs under qualified instructors/trainers.
Thus, great scope exists in the major urban areas of the Bati towns where life is relatively busy and
people have less physical activity. That is, if standard centers are available in convenient places, a
considerable number of people can be attracted. This can be explained by the existing huge
population size and age compositions of people living in the major towns of the region-Bahir Dar,
Dessie, Gondor and Debre Birhan.
The market for fitness centers in major towns of the region has been developing steadily and Gym
and clubs are being observed though their standard is much below the average in most cases. Thus, a
good potential exists for quality fitness centers and gyms as the urban population of the region is
becoming health conscious. Location and amenities are some of the most vital factors in affecting
demand for the service.
It is normal that customers usually conduct research before choosing a fitness facility because
choosing a fitness facility that is right for them is crucial to their success. Fitness facilities can vary
greatly not only in price but also in size, amenities and programs offered, hours, convenience and
most importantly, motivational atmosphere. Many may join a fitness facility with the greatest of
intentions but may end up discouraged and unmotivated due to bad management.

6.1.2 Projected Demand

Usually this type of service is used by people with in the age group of 15 to 49. The target customers
for the envisaged center are conservatively set to be 5% of the population of major towns of the

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region in age group of 15 to 49 years. The percentage is set at a very low level so as to capture the
middle and upper class of the people that are able to pay for the service. Accordingly table 1 gives
the population number of major towns of the region and the targeted customers for this service.
Table 1: Effective Demand for the Planed Center in Major Towns*

Location Population with age of 15-49 Targeted Customers (3%)

Bahir Dar 100,900 5,045
Dessie 102,013 5,101
Gondor 117,498 5,875
Debre Markos 51,637 2,582
Debre Birhan 40,564 2,028
Source: CSA, annual Report (2008)
*In calculating the population number for each town within the age group of 15-49, the ratio of urban population within
the age group of 15-49 is multiplied with the population of the respective towns.

The above table divulges that there is ample demand in all major towns. If we further conservatively
assume that only half of the targeted customers will be attracted by the envisaged center, then the
number of people will be 2,523 in Bahir Dar, 2,550 in Dessie, 2,937 in Gondor, 1,291 in Debrem
Mrkos and 1,014 in Debre Berehan . It should be noted that as the population number increases in
the future, the targeted population also increases.

6.1.3 Pricing

The main service that will be provided by the envisaged center is fitness and gym activities. In Bati
town the minimum price for a traditional fitness center is about Birr 300 per month per person for 5
training sessions a week. For the envisaged center, the price is set to be Birr 600 per month per
person for 5 training session’s week in the morning session and Birr 1000 for the late afternoon and
evening programs.

6.2 Service Capacity

Given the projected demand for each Bati town, the proposed plant is set to attract 320 individuals
per day where 160 people get the service in the morning and the remaining 160 in late afternoon and
evening. Individuals in a given session get the service three times a week and 20 times a month.
Thus the total number of trainees per month will be about 452 individuals that will fit in the different

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sessions stated in table 2 below. Most of these same individuals are expected to pursue their training
throughout the year provided that the facilities and the management are set at a standard level.

6.3 Service Program

The program is scheduled based on the consideration that the envisaged center is open every day
except for holydays and maintenance and renovation periods. Thus, the proposed center shall give
service for 325 days in a year. The service will be given in 5 sessions as detailed in the table 2
below.
Table 2: Service Program

Customer
Service Program No.
Morning Time
Session 1 6:00 AM. Up to 8:00 AM. 60
Session 2 8:00 AM. Up to 10: 00 AM. 60
Session 3 10:30 AM up to 12:00 PM 60
Late Afternoon Time
Session 4 5:00 PM. up to 6:30 PM. 70
Evening Time
Session 5 7:00 PM up to 8:30 PM 70

During the first year of operation the center will operate at 80 percent of the planned capacity and
then at 90 percent in the 2nd year. The plant operates at 100 percent starting from the 3 rd year. This
consideration is developed based on the assumption that awareness of the consumers already exists
and market and logistics barriers would be eliminated within the first two years of operation.

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7. Raw Materials and Utilities

7.1 Availability and Source of Raw Materials

The planned service does not require raw materials. The necessary utilities are electricity, telephone
and water. A three-phase commercial electricity connection is required. These utilities are available
in Adiss Abeba the capital city of Ethiopia.

7.2 Annual Requirement and Cost of Raw Materials and Utilities

The utility requirement and the associated cost for the envisaged plant is shown in table 3 here
under:-

Table 3: Utility Requirement

Total Cost
Utility L.C. F.C.
Electricity 6,000
Water (7800 m3) 20,670
Total Utility Cost 26,670

The annual requirement of utility is estimated to be Birr 29,670.

8. Location and Site

The appropriate locations for the envisaged project are Bati towns of the Amhara region. The
location of the fitness center in each selected town must be convenient to the targeted customers.

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9. Machinery and Engineering

9.1 Machinery and Equipment

The success of this project depends on the quality of machines. Thus, selection of machinery is the
most important aspect of this project. The exercise equipment is available in various varieties in
major sport shops in Addis Ababa and additional machineries can be imported from abroad through
them. A survey made on some standard clubs in Addis Ababa pointed out that a blend of imported
(which is locally available) and locally produced equipment’s are used, although the majority of the
machines are made abroad. Following is the detail of machinery required for this project.

Table 4: Machinery and Equipment

Machinery and Equipment Quantity

Slimming, warm up and waist exercise equipment 10
Chest exercise equipment 10
Legs and thighs exercise equipment 6
Running Machines 4
Arms exercise equipment 6
Multi stations 2
Back exercise equipment 2
Rods, Dumbbells and Weights including Racks 10 + 35 + 40 = 85

The total cost of machinery and equipment is Birr 3,600,000. Generally these machines require less
maintenance except regular oiling, some instances of break of steel wires and rods, which require
replacement, may take place, however, spare parts are easily available in the market.

Alternatively, some of the equipment’s can be manufactured domestically. This includes rods,
weights and the like. Although this has the advantage of reducing the investment cost, special
attention must be given to the quality of the product as it will have negative impact on the business if
otherwise.

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The following are some of the machineries suppliers’ address for the envisaged project
KHALSA GYMNASTIC WORKS
88/1, S.K. ROAD, NEAR SATI MANDIR,
MEERUT - 250001, UTTAR PRADESH, INDIA
Phone : 91-121-2771111/2767678
Mobile : +919412203943
Fax : 91-121-2764037/2601666/2666925

Speed Ways Sports Co.

Shakati Nagar, Jalandhar-144001, Punjab. India
Tel: 204124/255083

9.2 Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 1000m 2 of which 200m2 is allocated for
the gym, 100m2 for physical fitness, 50m2 for showers and toilets, 75m2 locker room (dressing room)
and 50m2 for office, 100 m2 for swimming pool and 425m2 for Recreational center other facilities.

10. Human Resource and Training Requirement

10.1 Human Resource
The list of required manpower for the envisaged plant is stated in table 5 below.
Table 5: Human Resource Requirement

No.
Require Monthly Total Annual
Position d Salary Salary
Manager 1 10,000 120,000
Gym Instructors 5 6,000 360,000
Fitness Assistant 2 4,000 96,000
Cashier Accountant 1 3,500 42,000
Guards 2 2,000 48,000
Cleaners 4 1000 48,000
Benefit (20%) 714,000
 Total 15 856,800

The envisaged center creates 15 jobs and about Birr 856,800 thousand of income. The professionals
and support staff for the envisaged plant can be recruited from Amhara region .

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10.2 Training Requirement

On the job training will be given to the trainers and support staffs. The training should primarily
focus on service delivery and customer handling management.

11. Financial Analysis

11.1 Underlying Assumption
The financial analysis of the envisaged center is based on the data provided in the preceding sections
and the following assumptions.

A. Construction and Finance

Construction period 2 years

Source of finance 40% equity and 60% loan
Tax holidays 2 years
Bank interest rate 12%
Discount for cash flow 18%
Value of land Based on lease rate of ANRS
Spare Parts, Repair & Maintenance 3% of fixed investment

B. Depreciation

Building 5%
Machinery and equipment 10%
Office furniture 10%
Vehicles 20%
Pre-production (amortization) 20%

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C. Working Capital (Minimum Days of Coverage)

Raw Material-Local 30
Raw Material-Foreign 120
Factory Supplies in Stock 30
Spare Parts in Stock and Maintenance 30
Work in Progress 10
Finished Products 15
Accounts Receivable 30
Cash in Hand 30
Accounts Payable 30

11.2 Investment

The total investment cost of the project including working capital is estimated at Birr 5.1 million as
shown in table 6 below. The Owner shall contribute 40% of the finance in the form of equity while
the remaining 60% is to be financed by bank loan.
Table 6: Total initial investment

Items L.C F.C Total

Land
900 900
Building and civil works
1,000,000 1,000,000
Office equipment
50,000 50,000
Vehicles
0 0
Plant machinery & equipment
1,600,000 2,000,000 3,600,000
Total fixed investment cost
2,650,900 2,000,000 4,650,900
Pre production capital
expenditure* 55,120 55,120
Total initial investment
2,706,020 2,000,000 4,706,020
Working capital at full capacity
400,005 0 400,005
Total 3,106,025 2,000,000 5,106,025
*Pre-production capital expenditure includes - all expenses for pre-investment studies, consultancy fee during
construction and expenses for company‘s establishment, project administration expenses, commission expenses,
preproduction marketing and interest expenses during construction.

The foreign component of the project accounts for 32.9% of the total investment cost.

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11.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 1,408,108 thousand as
detailed in table 7 below.
Table 7: Production Cost

Items Cost
1. Raw materials 0
2. Utilities 26,670
3. Wages and Salaries 856,800
4. Spares and Maintenance 11,024
Factory costs 894,494
5. Depreciation 426,024
6. Financial costs 87,590
  Total Production Cost 1,408,108

11.4 Financial Evaluation

I. Profitability

According to the projected income statement attached in the annex part (see annex 4) the project will
generate profit beginning from the first year of operation. Ratios such as the percentage of net profit
to total sales, return on equity and return on total investment are 21%, 30% and 28% respectively in
the first year and will rise gradually. Furthermore, the income statement and other profitability
indicators show that the project is viable.

II. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 32% of capacity utilization.

III. Payback Period

Investment cost and income statement projections are used in estimating the project payback period.
The project wills payback fully the initial investment less working capital in 2 years and 8 months.

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center Partnership/2023

IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 27.1%.

V. Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the project is 29.3%
and the net present value at 18 % discount is Birr 531,333.45.

VI. Sensitivity Analysis

The envisaged plant is profitable even with considerable cost increment. That is the plant maintains
to be profitable starting from the first year when 10 % cost increment takes place in the sector. This
result is accompanied with payback period of 2 years and 8 months.

12. Economic and Social Benefits and Justification

The envisaged project possesses wide range of benefits that it promotes the socio-economic goals
and objectives stated in the strategic plan of the Amhara National Regional State. It also plays
positive role in diversifying the economic activity by enhancing the service sector of the region. The
other major benefits are listed as follows:

A. Profit Generation

The project is found to be financially viable and earns on average a profit of Birr 2.86 million within
the project life. Such result induces the project promoters to reinvest the profit which, therefore,
increases the investment magnitude in the region.

B. Tax Revenue

In the project life under consideration, the region will collect about Birr 987,500 from corporate tax
payment alone (i.e. excluding income tax, sales tax and VAT). Such result creates additional fund
for the regional government that will be used in expanding social and other basic services in the
region.
A. Awareness Creation

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The advent of the project will create health consciousness and awareness of citizens through time.
B. Employment and Income Generation

The proposed project is expected to create employment opportunity for several citizens of the region.
That is, it will provide permanent employment to 15 professionals as well as support staff.
Consequently the project creates income of Birr 856,800 per year. This would be one of the
commendable accomplishments of the project.
C. Pro-Environment Project

The proposed service is environment friendly.

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center Partnership/2023

ANNEXES

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Annex 1: Total Net Working Capital Requirements (in Birr)

CONSTRUCTIO
N PRODUCTION
Year 1 Year 2 1 2 3 4

Capacity Utilization (%) 0.00 0.00 80% 90% 100% 100%

1. Total Inventory 0.00 0.00 25029.98 28158.73 31287.48 31287.48

Raw Materials in Stock- Total 0.00 0.00 0.00 0.00 0.00 0.00

Raw Material-Local 0.00 0.00 0.00 0.00 0.00 0.00

Raw Material-Foreign 0.00 0.00 0.00 0.00 0.00 0.00

Factory Supplies in Stock 0.00 0.00 297.21 334.36 371.51 371.51

Spare Parts in Stock and Maintenance 0.00 0.00 2442.24 2747.52 3052.80 3052.80

Work in Progress 0.00 0.00 7430.18 8358.95 9287.72 9287.72

Finished Products 0.00 0.00 14860.36 16717.90 18575.45 18575.45

2. Accounts Receivable 0.00 0.00 63387.69 71311.15 79234.62 79234.62

3. Cash in Hand 0.00 0.00 22173.78 24945.51 27717.23 27717.23

110591.4 124415.3 138239.3 138239.3
CURRENT ASSETS 0.00 0.00 6 9 2 2

4. Current Liabilities 0.00 0.00 63387.69 71311.15 79234.62 79234.62

Accounts Payable 0.00 0.00 63387.69 71311.15 79234.62 79234.62

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 47203.77 53104.24 59004.71 59004.71

INCREASE IN NET WORKING CAPITAL 0.00 0.00 47203.77 5900.47 5900.47 0.00

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Annex 1: Total Net Working Capital Requirements (in Birr) (continued)

PRODUCTION
5 6 7 8 9 10

Capacity Utilization (%) 100% 100% 100% 100% 100% 100%

1. Total Inventory 31287.48 31287.48 31287.48 31287.48 31287.48 31287.48

Raw Materials in Stock-Total 0.00 0.00 0.00 0.00 0.00 0.00

Raw Material-Local 0.00 0.00 0.00 0.00 0.00 0.00

Raw Material-Foreign 0.00 0.00 0.00 0.00 0.00 0.00

Factory Supplies in Stock 371.51 371.51 371.51 371.51 371.51 371.51

Spare Parts in Stock and Maintenance 3052.80 3052.80 3052.80 3052.80 3052.80 3052.80

Work in Progress 9287.72 9287.72 9287.72 9287.72 9287.72 9287.72

Finished Products 18575.45 18575.45 18575.45 18575.45 18575.45 18575.45

2. Accounts Receivable 79234.62 79234.62 79234.62 79234.62 79234.62 79234.62

3. Cash in Hand 27717.23 27717.23 27717.23 27717.23 27717.23 27717.23

138239.3 138239.3 138239.3 138239.3 138239.3 138239.3
CURRENT ASSETS 2 2 2 2 2 2

4. Current Liabilities 79234.62 79234.62 79234.62 79234.62 79234.62 79234.62

Accounts Payable 79234.62 79234.62 79234.62 79234.62 79234.62 79234.62

TOTAL NET WORKING CAPITAL REQUIRMENTS 59004.71 59004.71 59004.71 59004.71 59004.71 59004.71

INCREASE IN NET WORKING CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00

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Annex 2: Cash Flow Statement (in Birr)

CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 578760.00 637764.71 750087.69 780460.96 866298.46 858375.00
1. Inflow Funds 578760.00 637764.71 63387.69 7923.46 7923.46 0.00
Total Equity 231504.00 255105.88 0.00 0.00 0.00 0.00
Total Long Term Loan 347256.00 382658.83 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 63387.69 7923.46 7923.46 0.00
2. Inflow Operation 0.00 0.00 686700.00 772537.50 858375.00 858375.00
Sales Revenue 0.00 0.00 686700.00 772537.50 858375.00 858375.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 578760.00 578760.00 562417.29 508382.89 637753.07 613710.33
4. Increase In Fixed Assets 578760.00 578760.00 0.00 0.00 0.00 0.00
Fixed Investments 551200.00 551200.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 27560.00 27560.00 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 110591.46 13823.93 13823.93 0.00
6. Operating Costs 0.00 0.00 254887.24 285316.71 315746.18 315746.18
7. Corporate Tax Paid 0.00 0.00 0.00 0.00 113539.00 117918.49
8. Interest Paid 0.00 0.00 196938.59 87589.78 72991.48 58393.19
9.Loan Repayments 0.00 0.00 0.00 121652.47 121652.47 121652.47
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 0.00 59004.71 187670.40 272078.07 228545.39 244664.67
Cumulative Cash Balance 0.00 59004.71 246675.11 518753.17 747298.57 991963.24

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Annex 2: Cash Flow Statement (in Birr): Continued

PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 858375.00 858375.00 858375.00 858375.00 858375.00 858375.00
1. Inflow Funds 0.00 0.00 0.00 0.00 0.00 0.00
Total Equity 0.00 0.00 0.00 0.00 0.00 0.00
Total Long Term Loan 0.00 0.00 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 0.00 0.00 0.00 0.00
2. Inflow Operation 858375.00 858375.00 858375.00 858375.00 858375.00 858375.00
Sales Revenue 858375.00 858375.00 858375.00 858375.00 858375.00 858375.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 603491.52 596579.91 586361.10 454489.83 454489.83 454489.83
4. Increase In Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00
Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 0.00 0.00 0.00 0.00
6. Operating Costs 315746.18 315746.18 315746.18 315746.18 315746.18 315746.18
7. Corporate Tax Paid 122297.98 129984.67 134364.16 138743.65 138743.65 138743.65
8. Interest Paid 43794.89 29196.59 14598.30 0.00 0.00 0.00
9. Loan Repayments 121652.47 121652.47 121652.47 0.00 0.00 0.00
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 254883.48 261795.09 272013.90 403885.17 403885.17 403885.17
1246846.7 1508641.8 1780655.7 2184540.8 2588426.0 2992311.2
Cumulative Cash Balance 2 1 1 8 5 3

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Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED

CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0.00 0.00 686700.00 772537.50 858375.00 858375.00

1. Inflow Operation 0.00 0.00 686700.00 772537.50 858375.00 858375.00

Sales Revenue 0.00 0.00 686700.00 772537.50 858375.00 858375.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 578760.00 578760.00 302091.01 291217.18 435185.65 433664.67

3. Increase in Fixed Assets 578760.00 578760.00 0.00 0.00 0.00 0.00

Fixed Investments 551200.00 551200.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 27560.00 27560.00 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 47203.77 5900.47 5900.47 0.00

5. Operating Costs 0.00 0.00 254887.24 285316.71 315746.18 315746.18

6. Corporate Tax Paid 0.00 0.00 0.00 0.00 113539.00 117918.49

NET CASH FLOW -578760.00 -578760.00 384608.99 481320.32 423189.35 424710.33

CUMMULATIVE NET CASH FLOW -578760.00 -1157520.00 -772911.01 -291590.69 131598.65 556308.98

Net Present Value (at 18%) -578760.00 -490474.58 276220.19 292946.40 218276.36 185644.80

Cumulative Net present Value -578760.00 -1069234.58 -793014.39 -500067.98 -281791.63 -96146.83

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Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)

PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 858375.00 858375.00 858375.00 858375.00 858375.00 858375.00

1. Inflow Operation 858375.00 858375.00 858375.00 858375.00 858375.00 858375.00

Sales Revenue 858375.00 858375.00 858375.00 858375.00 858375.00 858375.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 438044.16 445730.85 450110.34 454489.83 454489.83 454489.83

3. Increase in Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00

Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 0.00 0.00 0.00 0.00

5. Operating Costs 315746.18 315746.18 315746.18 315746.18 315746.18 315746.18

6. Corporate Tax Paid 122297.98 129984.67 134364.16 138743.65 138743.65 138743.65

NET CASH FLOW 420330.84 412644.15 408264.66 403885.17 403885.17 403885.17

CUMMULATIVE NET CASH FLOW 976639.82 1389283.98 1797548.64 2201433.81 2605318.99 3009204.16

Net Present Value (at 18%) 155703.80 129539.33 108613.98 91058.36 77168.11 65396.70

Cumulative Net present Value 59556.97 189096.30 297710.28 388768.65 465936.75 531333.45

Net Present Value (at 18%) 531,333.45

Internal Rate of Return 29.3%

Annex 4: NET INCOME STATEMENT ( in Birr)

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PRODUCTION
1 2 3 4 5
Capacity Utilization (%) 80% 90% 100% 100% 100%

1. Total Income 686700.00 772537.50 858375.00 858375.00 858375.00

Sales Revenue 686700.00 772537.50 858375.00 858375.00 858375.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 155883.74 175369.21 194854.68 194854.68 194854.68
VARIABLE MARGIN 530816.26 597168.29 663520.32 663520.32 663520.32
(In % of Total Income) 77.30 77.30 77.30 77.30 77.30
3. Less Fixed Costs 190177.50 201121.50 212065.50 212065.50 212065.50
OPERATIONAL MARGIN 340638.76 396046.79 451454.82 451454.82 451454.82
(In % of Total Income) 49.61 51.27 52.59 52.59 52.59
4. Less Cost of Finance 196938.59 87589.78 72991.48 58393.19 43794.89
5. GROSS PROFIT 143700.17 308457.01 378463.34 393061.63 407659.93
6. Income (Corporate) Tax 0.00 0.00 113539.00 117918.49 122297.98
7. NET PROFIT 143700.17 308457.01 264924.34 275143.14 285361.95
RATIOS (%)
Gross Profit/Sales 21% 40% 44% 46% 47%
Net Profit After Tax/Sales 21% 40% 31% 32% 33%
Return on Investment 28% 33% 28% 27% 27%
Return on Equity 30% 63% 54% 57% 59%

Annex 4: NET INCOME STATEMENT (in Birr):Continued

PRODUCTION

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6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%

1. Total Income 858375.00 858375.00 858375.00 858375.00 858375.00

Sales Revenue 858375.00 858375.00 858375.00 858375.00 858375.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 194854.68 194854.68 194854.68 194854.68 194854.68
VARIABLE MARGIN 663520.32 663520.32 663520.32 663520.32 663520.32
(In % of Total Income) 77.30 77.30 77.30 77.30 77.30
3. Less Fixed Costs 201041.50 201041.50 201041.50 201041.50 201041.50
OPERATIONAL MARGIN 462478.82 462478.82 462478.82 462478.82 462478.82
(In % of Total Income) 53.88 53.88 53.88 53.88 53.88
4. Less Cost of Finance 29196.59 14598.30 0.00 0.00 0.00
5. GROSS PROFIT 433282.23 447880.52 462478.82 462478.82 462478.82
6. Income (Corporate) Tax 129984.67 134364.16 138743.65 138743.65 138743.65
7. NET PROFIT 303297.56 313516.37 323735.17 323735.17 323735.17
RATIOS (%)
Gross Profit/Sales 50% 52% 54% 54% 54%
Net Profit After Tax/Sales 35% 37% 38% 38% 38%
Return on Investment 27% 27% 27% 27% 27%
Return on Equity 62% 64% 67% 67% 67%

Annex 5: Projected Balance Sheet (in Birr)

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CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL ASSETS 578760.00 1216524.71 1423612.57 1618340.57 1769535.89 1923026.57
1. Total Current Assets 0.00 59004.71 357266.57 643168.57 885537.89 1130202.57
Inventory on Materials and Supplies 0.00 0.00 2739.45 3081.88 3424.31 3424.31
Work in Progress 0.00 0.00 7430.18 8358.95 9287.72 9287.72
Finished Products in Stock 0.00 0.00 14860.36 16717.90 18575.45 18575.45
Accounts Receivable 0.00 0.00 63387.69 71311.15 79234.62 79234.62
Cash in Hand 0.00 0.00 22173.78 24945.51 27717.23 27717.23
Cash Surplus, Finance Available 0.00 59004.71 246675.11 518753.17 747298.57 991963.24
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 578760.00 1157520.00 1066346.00 975172.00 883998.00 792824.00
Fixed Investment 0.00 551200.00 1102400.00 1102400.00 1102400.00 1102400.00
Construction in Progress 551200.00 551200.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 27560.00 55120.00 55120.00 55120.00 55120.00 55120.00
Less Accumulated Depreciation 0.00 0.00 91174.00 182348.00 273522.00 364696.00
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 578760.00 1216524.71 1423612.57 1618340.57 1769535.89 1923026.57
5. Total Current Liabilities 0.00 0.00 63387.69 71311.15 79234.62 79234.62
Accounts Payable 0.00 0.00 63387.69 71311.15 79234.62 79234.62
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 347256.00 729914.83 729914.83 608262.35 486609.88 364957.41
Loan A 347256.00 729914.83 729914.83 608262.35 486609.88 364957.41
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 231504.00 486609.88 486609.88 486609.88 486609.88 486609.88
Ordinary Capital 231504.00 486609.88 486609.88 486609.88 486609.88 486609.88
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 0.00 0.00 0.00 143700.17 452157.17 717081.51
9.Net Profit After Tax 0.00 0.00 143700.17 308457.01 264924.34 275143.14
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 0.00 0.00 143700.17 308457.01 264924.34 275143.14

Annex 5: Projected Balance Sheet (in Birr): Continued

PRODUCTION

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5 6 7 8 9 10
TOTAL ASSETS 2086736.05 2268381.13 2460245.03 2783980.20 3107715.38 3431450.55
1. Total Current Assets 1385086.05 1646881.13 1918895.03 2322780.20 2726665.38 3130550.55
Inventory on Materials and Supplies 3424.31 3424.31 3424.31 3424.31 3424.31 3424.31
Work in Progress 9287.72 9287.72 9287.72 9287.72 9287.72 9287.72
Finished Products in Stock 18575.45 18575.45 18575.45 18575.45 18575.45 18575.45
Accounts Receivable 79234.62 79234.62 79234.62 79234.62 79234.62 79234.62
Cash in Hand 27717.23 27717.23 27717.23 27717.23 27717.23 27717.23
Cash Surplus, Finance Available 1246846.72 1508641.81 1780655.71 2184540.88 2588426.05 2992311.23
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 701650.00 621500.00 541350.00 461200.00 381050.00 300900.00
Fixed Investment 1102400.00 1102400.00 1102400.00 1102400.00 1102400.00 1102400.00
Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 55120.00 55120.00 55120.00 55120.00 55120.00 55120.00
Less Accumulated Depreciation 455870.00 536020.00 616170.00 696320.00 776470.00 856620.00
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 2086736.05 2268381.13 2460245.03 2783980.20 3107715.38 3431450.55
5. Total Current Liabilities 79234.62 79234.62 79234.62 79234.62 79234.62 79234.62
Accounts Payable 79234.62 79234.62 79234.62 79234.62 79234.62 79234.62
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 243304.94 121652.47 0.00 0.00 0.00 0.00
Loan A 243304.94 121652.47 0.00 0.00 0.00 0.00
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 486609.88 486609.88 486609.88 486609.88 486609.88 486609.88
Ordinary Capital 486609.88 486609.88 486609.88 486609.88 486609.88 486609.88
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 992224.65 1277586.61 1580884.17 1894400.53 2218135.71 2541870.88
9. Net Profit After Tax 285361.95 303297.56 313516.37 323735.17 323735.17 323735.17
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 285361.95 303297.56 313516.37 323735.17 323735.17 323735.17

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