MECI-NUEL NETWORK LIMITED AUTO-MOBILE REPAIR SHOP BUSINESS PLAN Strictly Private & Confidential MECI-NUEL NETWORK LIMITED Lagos. Confidential Statement: This is a confidential document. Its use is restricted to the purpose of evaluation, as detailed within the document. Unauthorised access to or distribution of this document and the information it contains may constitute a trespass on the intellectual property rights of the author. Upon request, this document is to be immediately returned to the author.
Transcript
MECI-NUEL NETWORK LIMITED
AUTO-MOBILE REPAIR SHOPBUSINESS PLAN
Strictly Private & Confidential
MECI-NUEL NETWORK LIMITEDLagos.
Confidential Statement: This is a confidential document. Its use is restricted to the purpose of evaluation, as detailed within the document. Unauthorised access to or distribution of this document and the information it contains may constitute a trespass on the intellectual property rights of the author. Upon request, this document is to be immediately returned to the author.
MECI-NUEL NETWORKS LIMITED
1.0 Executive Summary
This is a business plan proposal for the provision of Auto mobile repair services, which includes a total over-hauling of cars, supply and selling of vehicular spare parts, with particular emphasis on Peugeot and Asian branded cars like Toyota, Honda etc.
With the improving middle class and its attendant increase in the purchase of cars in Nigeria today, there arises the need for skilled labour for the proper maintenance of these cars amongst notable brands like Toyota, Honda and Peugeot vehicles.
The automobile repair sector is highly informal with very few and notable service centers belonging to the major automobile franchise owners which only offer services to vehicles which they imported. Though the market is competitive with a great number of ‘road side’ auto repair workshops, there exist an enormous opportunity in providing a differentiating quality service offering.
The need to exploit this available opportunity gave birth to the proposed starting of a modern auto service centre providing repair, maintenance, painting and other associated services like sale of spare parts and other car accessories, car wash, used (Tokunbo) car testing and certification, anti-theft and car tracking devices. We will also provide other value added services like towing, interim car use and mobile repairs amongst other things.
We are MECI-NUEL NETWORKS LIMITED, a startup company offering to take advantage of the gap within the automobile repair sector occasioned by the expensive after sale service centers of different car franchise owners (who mostly service only their brand) and the roadside mechanic with often reoccurring integrity issues. It has therefore become pertinent that we position the company to take advantage of the great opportunities that are presenting themselves in this industry.
MECI-NUEL NETWORKS LMITED (otherwise to be referred to as ‘M.N.L’ for the purposes of this business plan) will serve the Nigerian market starting with Lagos. Our target customers will include the corporate, individual and private fleet owners.
Private and Confidential. 2
MECI-NUEL NETWORKS LIMITED
Vision Statement
We seek to provide an affordable, one-stop shop for automobile repairs and maintenance with continuous innovation in value creation for all stakeholders.
Mission Statement
To make available consistently, affordable and genuine parts for the maintenance and repairs of vehicles to the delight of customers through exceptional quality, fast turnaround, unparalleled customer service and competitive pricing.
Target/ObjectiveM.N.L will attract and maintain a loyal customer base through a service focused and dedicated work force imbibing the basic tenets of Total Quality Management. We will aim to build a long lasting and trusting bond with customers at a competitive rate and unbeatable service delivery. This is very important, especially in the auto repair sector where trust and honesty are not the image of major repair service providers.
M.N.L will create a competitive edge through efficient service delivery, use of original spare parts, affordable pricing and continuous value addition to increase clientele base to 1,000 vehicles within 12 months of starting operation.
Core Values
Integrity
Quality & Original parts
Accessibility
Availability
Innovation
Continuous Training
Private and Confidential. 3
MECI-NUEL NETWORKS LIMITED
An overview of the company will be thus;
Company Name MECI-NUEL NEWORK LIMITEDAddress, telephone, e-mailType of business and industry
Automobile Repairs
Length of time in business
Above 10 years
Business form Private limited liability companyFounding shareholders and equity shareholding
Mr. Emmanuel Obasuyi (100,000 units)
Management Team Mr. Emmanuel Obasuyi; Managing DirectorMrs. Mercy Obasuyi; General Manager ; Sales Manager ; Workshop Manager
Principal product or service line
The provision of Automobile repair services, maintenance and other value-added services.
Equity N 1,000,000
1. Working capital loan Loan amount: N 20,000,000.00 (Nineteen million naira).
Proposed terms: Tenor, 36 months; Type, line of credit or overdraft.
Timing: Draw-down two months before commencement of operations. Three (3) months Moratorium
Purpose: To finance initial operating costs and improve cash flow.
Security for loan: Accounts receivable, equipments and cash-flow
Financial considerationsThe company’s estimated start-up cost is N 21,000,000 naira. This amount will be distributed in this wise.
a. Baking oven; N 4,500,000b. Location (site); N 7,000,000 (Ikeja/Oshodi)c. Tools; N 4,000,000d. Spare parts initial capital; N 2,000,000e. Erecting of structure; N 3,000,000 (per annum)f. Other running cost inclusive of office equipment (Salaries, utilities, etc);N
500,000
The company M.N.L defines a service unit as one hour of service or one job, depending on the job specifications. This is termed as LABOUR CHARGE.
For actual repairs, the service is defined as thus;- 10% of total cost is labour charge
Private and Confidential. 4
MECI-NUEL NETWORKS LIMITED
- 40% of total cost is for spare parts- 50% of total cost is profit..
Income Heads; Basic servicing of vehicles Car wash Average repairs Spare parts sales Car testing, MOT, Certification.
Please note that total cost is dependent on the required service or repairs to be made..
This plan is documented for the purposes of direction for MECI-NUEL NETWORKS LIMITED and for the interest of intending investors.
Table of Content
Executive Summary
Table of Contents
Private and Confidential. 5
MECI-NUEL NETWORKS LIMITED
Introduction to the Business and its management
Products/Services
The Market
Strategy and Implementation Process
Finance Out-lay
2.0Introduction to the Business and its Management
The Nigerian auto industry is rapidly growing but mainly characterised by the influx of used vehicles and the required skills to carry out maintenance on them.
As the automotive market is strongly counter-cyclical, it is expected that automotive sales will plummet by around 36% to around 24,000 units in 2009 from the 2008 new car imported figures of 31,195 with Asian vehicles leading the pack which includes Toyota, Honda, Nisan, Kia, Hyundai etc. The industry is also expected to make a strong recovery as the economy revives in 2010. This is still a tiny market by global standards, despite the country’s sizeable population. Imported used cars will continue to swamp the market and erode the new car market. By 2011, sales should have rebounded to over 90,000 units as lending rates fall and the naira strengthens, making new cars more affordable to the Nigerian middle-class.
Private and Confidential. 6
MECI-NUEL NETWORKS LIMITED
While it is a fact that used cars dominate the roads with majority of the emerging middle class purchasing them, the standards or state of the vehicles has improved tremendously to more recent models buoyed mainly by the ban on importation of cars that are less than 8 years.
A grave concern to a car owner is the fear of finding competent hands to maintain these vehicles.
2.1 Name of the Business
The Company is referred to as ‘MECI-NUEL AUTO SERVICE CENTRES’.
2.2 Company Management
Directors and Management Team;
A Board of Directors/Investors of both Executive and Non-Executive
Obasuyi has a Higher National Diploma and Post-Graduate Diploma in Electrical Electronics, MSc in Information Technology. He has acquired quite a lot of certifications such as;
Certification in Matrix AUTO TRACK (South Africa) X-men golden dragon after sales certification (China) Member society of auto-mobile engineer - SAE (USA); INTERNATIONAL
CERTIFICATION FOR ENGINE VEHICLES National technical adviser, Peugeot, Nigeria Member Nigeria Society of engineers Vice-president, events; SATELITE PROFESSIONALS INTERNATIONAL
(Nigeria)
He brings to the company 15 years of hands-on experience in the field of Automobile maintenance.
Other positions that will be filled up as the company takes place and un-fold are thus;
General Manager – Operations Head- Administration and Human Resources Head – Finance Head – Sales Head – Workshop
2.3 Current Status of Business
M.N.L is not absolutely new to this market/Industry – the managing director is a seasoned technical expert, being the chief engineer of one of the Auto-repair shops of the brand, Peugeot in Lagos, Nigeria. The pioneer and managing director of this company, drawing from his experience, has decided to set up an Automobile repair shop to meet the needs of this demanding and ever evolving market. M.N.L already has existing clientele and will leverage on this in venturing further into the industry.
Mr. Emmanuel Obasuyi has within the years developed and cultivated profitable business relationships within the industry, in the forms of both car owners,
Private and Confidential. 7
MECI-NUEL NETWORKS LIMITED
manufacturers, and company representatives. These relationships have become invaluable to both parties.
While this peculiar industry seems dominated by a few large companies, our research and work experience shows that there exist gap in the market. This gap exists as such as few or limited after-sales centres, effects of quacks, high cost of repairs, sub-standard spare parts. This gap makes the situation ripe, for a new company with a new approach. We believe that we are that company. With our alliance with a reputable manufacturing company, that will be offering our service, and with a virile work-force put in place and making increase in clientele base, our core expertise; we believe that we are set to make our mark felt.
We believe that it is this emphasis that has won the heart of our present clientele, as they see the competitive benefit that our services offer.
The major challenge that the company is facing right now is that of meeting the increasing needs of her clients and the growing market. The company has its specialty, but the market is evolving, and for the company to be abreast with developments, the company must herself ‘evolve’.
3.0 Products3.1 Service Description.
Our services will be in this wise; Vehicle maintenance (servicing) Vehicle repairs Painting of Cars Car wash Car testing, MOT and Tokunbo car recertification Spare part sale (wholesale & retail)
We will also be providing other value added services like;Mobile repairsCar tracking and vehicle demobilisation facilityVehicle towing servicesRelief vehicleTraining
Private and Confidential. 8
MECI-NUEL NETWORKS LIMITED
Our emphasis is to provide our customers with fast turnaround, exceptional quality,
unparalleled customer service, and competitive pricing.
3.2 Service Management:
M.N.L has the core competencies amongst its large crew to work on all models of Peugeot and Asian brands of vehicles. With service bays at specific locations, and all employees focused on efficiency and superior customer service as standard at M.N.L.
M.N.L will strive to maintain corporate governance, quality, integrity and honesty with customers in terms of quoting cost estimates and repair completion time estimates. M.N.L employees will focus on delivering a total quality management that will permeate the entire organization. This focus on building strong customer relationships based on trust and integrity will be the catalyst in establishing a strong regular customer base.
M.N.L will utilize the highest degree of technology in vehicle diagnosis and managing a full range of auto parts inventory. The goal is never-to-be out of a specific part, while maximizing inventory turnover. Strong vendor relationships are being developed with the most reputable vendors in terms of shipping time of major parts.
M.N.L will put system and structures in place for smooth operating of this business. Arising from the importing of these products is the need of a ware-house. M.N.L has concluded arrangements for warehouses to keep the stock to ensure security and quality.
Obviously, speed, quality, service and price are qualities most of our
competitors will list in their mission statement. However, M.N.L will – from
the beginning – invest in top quality, highly sophisticated machinery as well
as implement innovative operations policies. These steps will ensure our
ability to deliver beyond normal industry standard and surpass our
customers’ expectations saving them time and money.
Quality service delivery is an entire company thinking that will permeate
every department with particular reference to the under listed;
Marketing team Technical team Inventory & Logistic team Administrative & Finance team
3.3 Service Competitive Comparism
Private and Confidential. 9
MECI-NUEL NETWORKS LIMITED
In competitive Comparism of our services side-by-side with the existing market. Ours will differ competitively on the following basis;
Increased number of units services Direct access to the spare parts from the manufacturers Cheaper but yet premium quality Our services will be backed by years of experience by the management team Lots of value added services
We believe that superior marketing, quality assurance and great customer service will give us an edge over existing competition.
Nationwide, similar companies maintain a comprehensive website to market their services and generally have a web/global presence. Our website will be of the highest quality and certainly competitive
3.4 Over-view of Services
Computerized Auto repairs Sales of genuine spare parts and accessories Recertification of Tokunbo cars (warranty) Car testing centre Training Car tracking and demobilization centres/agents Towing services Car wash centre
4.0 THE MARKET
4.1 Market Analysis Summary
M.N.L has a focus on meeting the demand of a regular local resident customer base, as well as top-flight customer vehicles.
The company estimates that about 80% of revenues will come from the services and repairs of these brands of cars through our established clientele base and 20% from other sources. Judging from our existing pedigree, we can comfortably say that are market is wise;
Private and Confidential. 10
MECI-NUEL NETWORKS LIMITED
From the chart above we can clearly see that bulk of the market is owned (for now) by Sub-standard auto repair shops.
From the chart above, we see that there exists a 35% level of opportunity for the company that wants to advance her operations/plans. M.N.L plans to take advantage of this 35%.
4.2 Service Business Analysis
The market of auto repair services and parts sales is very fragmented. The majority of auto shops usually offer either repair services or parts inventory. The niche where M.N.L positions itself represents auto centers that offer both auto services and parts at one convenient location. Middle and upper class customers to whom M.N.L will cater its services are less price sensitive as they value the convenience of quick turnaround (on any model of Peugeot and Toyota brands) and high quality of services.
In approaching our market (both existing and projected) we will emphasize good quality service delivery, offered at competitive prices, so as to build pedigree. We will also give room for benefits attached to a developed referral system that we will develop.
Our definite strategies will be thus;
Focus on market segments that are particular to this area of business. In majoring on these segments, a lot more emphasis is placed on the largest segment – private car owners that are both quality and price sensitive. We will develop incentives within this segment, to further drive home our leadership.
Aggressively pursue strategic partnerships/relationships. We will rapidly develop marketing alliances with prevalent industry leaders, leveraging on their brand, prowess and market acceptability to launch our unique products and services. Such relationships will be with the Automobile section of our economy. As these relationships/partnerships develop and M.N.L gains new market acceptability, we then capitalize on this pedigree in venturing into new market.
Expand our marketing force. We venture gradually into the field of contracting/garages, as we grow our marketing and sales department.
Private and Confidential. 11
MECI-NUEL NETWORKS LIMITED
Foster recurring revenue streams. As we venture into new streams, we will put systems in place to protect our existing streams of income and not just protect it, but also enhance it. One way we will do this, is by engaging ourselves in innovative R&D efforts in the areas we have good pedigree.
4.4 Competition and Buying Patterns
M.N.L faces over 100 auto repair and auto parts competitors in the local area. Only a quarter of these competitors offer both auto repair services and auto parts inventories. Another quarter offers less-technical based services. The remainders are small privately-owned establishments. M.N.L will compete well by focusing on convenience and offering a high level of customer service. Additionally, its honest reputation will be a major factor in repeat business and building a large base of regular, loyal customers.
Primary competitors are engaged principally in the retail sale of automotive parts, tires and accessories, automotive maintenance and service and the installation of parts. Larger competitors have adopted the "super-center" store model, a freestanding, "one-stop" shopping automotive warehouse that features state-of-the-art service bays/points. These "super-centers" carry thousands of stock-keeping units and serve the automotive aftermarket needs of the "do-it-yourself," the "do-it-for-me" (automotive service), tire and "buy-for-resale" customer sectors.
Large competitors' stores typically carry the same basic product line, with variations based on the number and type of cars registered in the different markets. A full complement of inventory at a typical super-center includes an average of approximately 25,000 items.
One major draw back for these super-centers is that there is no absolute specialization on a particular brand or brands.
Automotive product lines usually include:
Tires. Batteries. New and remanufactured parts for domestic and imported cars, including:o Suspension parts.o Ignition parts.o Exhaust systems.o Engines and engine parts.o Oil and air filters, belts, hoses, and air conditioning parts.o Lighting.o Wiper blades.o Brake parts.
Chemicals, including oil, antifreeze, polishes, additives, cleansers and paints.
Private and Confidential. 12
MECI-NUEL NETWORKS LIMITED
Mobile electronics, including sound systems, alarms, and remote vehicle starters.
Car accessories, including seat covers, floor mats, and exterior accessories. Hand tools, including sockets, wrenches, ratchets, paint and body tools, jacks
and lift equipment, automotive specialty tools and test gauges
M.N.L will adopt point-of-sale systems in her stores, which will be used to gather sales and gross profit data by a stock-keeping unit from each store on a daily basis. This information is then used to help formulate pricing, marketing and merchandising strategies. Electronic parts catalogs will be available in our stores along with electronic commercial invoicing systems that offer commercial parts delivery.
Additionally, M.N.L will have electronic work order systems available amongst her various service centers. This type of system creates a service history for each vehicle, provides customers with a comprehensive sales document, and enables the service center to maintain a service customer database.
Takes every brand of car, no emphasis on specialization. No niche carved out
Opportunity to specialize. To create a niche is available
From the above SWOT analysis, we can see that M.N.L is positioned to take advantage of the opportunity this industry presents to her. As such, M.N.L is committed to establishing itself in its immediate community, as a brand that is totally committed quality, as she positions herself to achieve significant market size ownership, which is her goal.
5.0 Strategy and Implementation Process
5.1 Marketing Strategy
M.N.L will succeed by offering its customers high-quality, rapid and convenient auto repair service. Additionally, M.N.L will succeed by ensuring a full range of auto parts inventory and rapid shipping capability of major auto parts.
Private and Confidential. 13
MECI-NUEL NETWORKS LIMITED
5.2 Competitive Edge
M.N.L's competitive edge is the heavy focus on customer convenience by offering unlimited shuttle service, rapid turnaround on auto repair jobs, and a standard, fully technically astute service points/bays.
We will leverage on all our skills acquired through qualifications that we have received in the last 7 years. Such as:
Certification in Matrix AUTO TRACK (South Africa) X-men golden dragon after sales certification (China) Member society of auto-mobile engineer - SAE (USA); INTERNATIONAL
CERTIFICATION FOR ENGINE VEHICLES National technical adviser, Peugeot, Nigeria Member Nigeria Society of engineers Vice-president, events; SATELITE PROFESSIONALS INTERNATIONAL
(Nigeria)
We will also be leveraging on our prowess in the following areas to offer premium service;
Sales and use of genuine spare parts Moderately charged fees Emphasis on training Recertification and Warranty Computerized diagnosis Customer service excellence Continuously innovative value added services
5.3 Sales Strategy
M.N.L will focus its sales strategy on effectively reaching the target customer segment of upper and middle class customers. For this purposes, the company will employ direct sales staff. At the same time, the company will further strengthen its relationships with the Military/Civil service arms of our economy to capture their auto repair needs.
As the chart and table show, M.N.L plans to deliver services worth about N12.M in the first year, about N23M in the second year, and about N37M in the third year of the plan (at a growth rate of 5% per month beginning from the third year)
Private and Confidential. 14
MECI-NUEL NETWORKS LIMITED
This market is very lucrative, owing to the fact that the rate of car purchase has gone up, with the banks assisting individuals/companies through their I-Lease (Mortgage systems) offers particularly in Nigeria and the existing Automobile companies are not meeting the demand for such car services. Also the gap as it regards quality and price makes entering into the market by M.N.L, very strategic.Our findings tell us that if M.N.L will offer better quality service, without errors and delays, offering them at reduced/competitive prices – M.N.L will surely gain an edge in this market.Meci-Nuel Networks Limited plans to use a solid direct sales force, relationship selling, word-of mouth, and compensating referral system to reach its market. These channels are most appropriate because of time to market, reduced capital requirements, and fast access to established distribution channels.
The overall marketing strategy for this company will be based on the following fundamentals;
The segment of the market planned to reach Channels of marketing planned to be used to reach those segments: sales
people, radio, print Share of the market expected to capture over a fixed period of time
As part of our strategy to market the company, we will seek out and solicit opportunities to speak at industry seminars, conferences, etc.
We will be making investments into advertisement of our services. A fixed amount of our revenue will go toward an advertisement campaign. In our advertisements, we will be offering incentives for our customers and would-be customers to remember the company. The company will brand and distribute mugs, t-shirts, pens, etc.
Our services will be made available in a sales brochure. This brochure will portray our services as an attractive functionality.
5.4 Market Segmentation
M.N.L focuses on the middle and upper income markets. This market looks for high quality, rapid service with as much convenience as possible. Most individuals in this market segment are willing to pay an extra premium within the pricing of auto repair services to avoid the common inconveniences of having a vehicle tied up in a repair shop.
Private and Confidential. 15
MECI-NUEL NETWORKS LIMITED
5.5 Target Market Segment Strategy
M.N.L will focus on its target market, the middle and upper class market, and establish a reputable image from that target market's perspective, by offering convenience, expedient auto repair services, and customer service excellence.
Our clients are thus;
- Individual car owners
- Private fleet maintenance
- Company fleet maintenance
- Strategic partnership-relationship with importers of cars
5.6 Market Needs
Between having a high level of commuting traffic, and an equally high level of private-car traffic on local road and federal highways, there is a constant significant demand for auto repair services and auto parts. Convenience is a must for most middle and upper class consumers and travelers.
5.7 Pricing Policy
M.N.L does not operate by having a payment plan for her customers, so pricing is based on prevalent market forces, her cost of labour, servicing and parts used or sold.
Factors supporting affordable pricing include;
- Bulk importation of spare parts, discounts, etc.- Computerized diagnosis and network facility- Retail sales of imported spare parts to cover expenses- Economies of scale arising from multiple tasking personnel
6.0 MANAGEMENT SUMMARY
6.1 Organizational Structure
Private and Confidential. 16
MECI-NUEL NETWORKS LIMITED
The company’s management philosophy will be based on responsibility and mutual respect.
We will inculcate into our personnel the attitude of intrapreneurship in their approach to their work. This will be done side-by side with creating an enabling working environment that encourages productivity and respect for customers and fellow employees.
Private and Confidential.
Board of Investors
Managing Director/Chief Engineer
General Manager
Workshop Manager Sales Manager
Sales and Marketing
Sales Representatives Promotion/Adverts Staff
Drivers/Shuttle Operators
Workshop Technicians Spare parts Store Keeper
17
MECI-NUEL NETWORKS LIMITED
6.2 Organizational Competencies
Our individual core competencies are coined from the following parameters;
Experience in the relevant field Entrepreneurial biases Customer mindedness Team mindedness Prompt delivery mindedness
Our overall competencies are drawn from the skill, experience of our team at Meci-Nuel Network Limited
6.3 SWOT Analysis (Internal & External)
The Internal Strengths & Weaknesses of the company, and the External Opportunities & Threats it faces, can be summarized as follows:
Private and Confidential.
Managing Director/Chief
Engineer
Head; Operations Head; Admin/HR Head; Sales and Marketing
Workshop
Store
Technicians
Customer services Advert and Publicity Sales force
18
MECI-NUEL NETWORKS LIMITED
STRENGTHS OPPORTUNITIES
Adequate technology Professional management Ability to expand services swiftly Good pedigree Strong industry relationships
Growing market sector Undifferentiated rival services New consumers/car owners
entering the market
WEAKNESSES THREATS
New service company entrant Inadequate staff Majoring on particular brand, this
may slow down income initially
Sustained price competition would erode margins
‘Road-side’ mechanics and sub-standard repair shops
influx of sub-standard spare parts that will compete with genuine parts
Our strengths will allow us to exploit the opportunities in the market: Our strong industry relationships and that maintained with the brand companies, allows us to sustain price-promotional activity, and our ability to meet swift demand growth will ensure we will not squander created demand.
We will mitigate against weaknesses and threats: through our low fixed cost base, our partnerships with our manufacturers of spare parts and our technical know-how.
7.0 Financial Plan
7.1 Sources of Funds
The business would be primarily financed by the owner’s contribution of One million Naira (N1,000,000) plus the cash flow surpluses ploughed back. In addition, the
Private and Confidential. 19
MECI-NUEL NETWORKS LIMITED
owners shall source for a working capital loan of Nineteen million Naira (N20,000,000). Hence, sources of funds are as tabulated below:
Sources of funds AmountN
Equity 1,000,000Working capital loan 20,000,000Total funds required 21,000,000
Conditions applicable to the working capital loan Tenor shall be 36 months Interest rate shall be 18% per annum at 1.5%/month to all investments made in
the course of generating the working capital loan of Twenty Million Naira (N 20,000,000)
Repayment of Loan will be made at the end of the agreed period of investment. The loan will be paid in one block payment, and not spread out.
7.2 Projected Sales Projected sales volume is estimated in this wise;
- Auto repairs; 50 cars at N 30,000 each per month over a six (6) month period (considering the fact that the first six months of the year will be used to set up the company, so operations actually begin in the sixth month of that year). This will increase at 1% per month from the third year of operations
- Auto servicing; 150 cars at N 1500 (labour charge) each per month. This will also increase at 1% per month. Estimated cost will be N 10,000.
- Auto parts; N 125,000 per month will go into the use and purchase of parts for cars.
- Others; such painting, shuttle services will bring in N 83,000 per month. All these will increase at 1% per month.
7.3 Projected Cost
The cost of the company’s operations shall be two types: direct cost and indirect cost.
Direct Cost:
The composition of the direct cost is as broken down below:
Cost of Labour Cost of Spare parts (for 50 cars)
Private and Confidential. 20
MECI-NUEL NETWORKS LIMITED
Cost of Repairs (for 50 cars) Freight Advertisement Transportation Warehousing Marketers salaries and commissionsThe sum of the direct cost shall constitute the cost of servicing, repairs and shuttle service for each unit – car. Hence, the estimated cost of service per each car is as broken down below:
Element of cost NCost of labour 1,500Cost of spare parts 2,500Cost of repairs 30,000Freight 1000Advert 1000Transport 1000Warehouse 1000Marketer’s Salaries & Commissions 1000 TOTAL 39,000
Indirect Cost:
The composition of the indirect cost includes fixed asset, staff salary and operational overheads.
1. Fixed Asset
Motor Vehicles
Item Quantity Unit cost CostN N
Car 1 1,300,000 1,300,000Bus 1 1,700,000 1,700,000Total cost 3,000,000
Computer & Accessories Item Quantity Unit cost Cost
Private and Confidential. 21
MECI-NUEL NETWORKS LIMITED
N NComputer system 2 60,000 120,000Printer 2 20,000 40,000Total cost 160,000
2. Staff salaryPreparation of staff salary shall be based on the following assumptions:
Staff Profile
The staff profile shall include:1. Managing Director2. General Manager3. Sales Manager4. Workshop Manager5. Workshop technicians6. Spare parts store keeper7. Sales representatives8. Advert staff9. DriversThe staff size for the 1st year of operation shall be six (9) and It is assumed that this size shall increase by two (2) every year. Going by the nature of business, these two (2) staff shall be sales representatives to ensure widespread marketing of the company’s services. Staff Remuneration Projected staff remuneration for each staff and by implication salaries and wages payable for the first three years of operation are as shown in the table below:
Monthly Staff salary for 1 st year For the purpose of the cash flow projections, monthly staff salary for the 1st year of operations is as tabulated below;
The operational overheads shall basically cover the administrative cost of business operations as detailed below:
Office rent N 200,000 per month; N 2,400,000/annum
Motor Running expenses N 20,000 per month, N240,000 p.a Internet Service Provider N 100, 000 p.a Consultancy fee N 160, 000 p.a Phone Expenses N 15, 000 per month, N180,000 p.a Electricity N 10, 000 per month, N120,000 p.a Travelling & Transportation N 10,000 per month, N120,000 p.a Branded Shirts and Caps (N 1,500 * 12) N 18,000 (one-off) Insurance N 600,000 p.a
Other monthly fixed costs include;- Utilities; N 50,000
Private and Confidential. 23
MECI-NUEL NETWORKS LIMITED
- Adverts; N 100,000Other variable costs include;
- Spare parts; N 700,000- Office Expenses/Office Materials; N 90,000
Tax
The proposed tax rate shall be 30% of profit before tax.
Depreciation
Depreciation charged for the year shall be on a straight-line method. The rates of depreciation for each fixed asset shall be in accordance with the tax laws as follows:
Motor Vehicle 20%Furniture & fitting 10%Computer & Accessories 15%
Depreciation charge shall commence as soon as the asset is acquired. Furthermore, it is assumed that there shall be no additions or disposals to fixed asset in the second and third year of business operations.
7.6 Projected Cash Flow for the First Year of Operations
The projected cash flow for the first twelve months of operations is computed based on the above-mentioned assumption and is contained in appendix 1.
7.7 Projected Income Statement for the First Twelve (12) Months of Operations
The projected income statement by months is also computed based on the above-mentioned assumptions and is contained in appendix 2.
7.8 Projected Three (3) Years Income Statement and Balance Sheet
These are contained in appendices 3 & 4.
7.9 Return on Equity (ROE)
The return on equity for the first three years of operations is computed as:
Year 1 2 3Net profit after tax (N) 2,344,061.95 5,313,483.78 6,516,676.24
Equity (N) 1,000,000 1,000,000 1,000,000
ROE (N) 2.34 5.31 6.52
The ROE as revealed in the above table is progressively increasing, thus showing a sign of good management of the company.
This is also clearly depicted in the chart below:
Private and Confidential. 24
MECI-NUEL NETWORKS LIMITED
Appendix
Cash Flow Projection- First Year by Months Income Statement – First Year by Months Three-Year Projected Income Statement Three-Year Balance Sheet
