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JOY SALON
TABLE OF CONTENTS
CHAPTER ONE: BUSINESS DESCRIPTION......................................................................................................1
1.1 Background of the Proprietor......................................................................................................................................1
1.1.1 Ownership Structure of the Business....................................................................................................................................2
1.2 The Business.......................................................................................................................................................................5
1.2.1 Description........................................................................................................................................................................................ 5
1.2.2 Location Justification.................................................................................................................................................................... 9
1.2.3 Justifying Need for the Business Venture..........................................................................................................................10
1.3 The Industry.....................................................................................................................................................................11
1.3.1 Industry Size.................................................................................................................................................................................. 11
1.3.2 The Key Characteristic of the Industry...............................................................................................................................12
1.3.3 The Industrial Trends & Prospects......................................................................................................................................14
1.4 The Product......................................................................................................................................................................14
1.4.1 Products........................................................................................................................................................................................... 14
1.5 Entry and Growth Strategy..........................................................................................................................................16
1.5.1 Entry Strategy............................................................................................................................................................................... 16
1.5.2 Opportunities for Growth.........................................................................................................................................................17
1.6 Business Goals.................................................................................................................................................................17
1.6.1 Short Term Goals......................................................................................................................................................................... 18
1.6.2 Long term goals............................................................................................................................................................................ 18
CHAPTER TWO: MARKETING PLAN............................................................................................. 19
2.1 Description of the Potential Customers.................................................................................................................19
2.1.2 The Market Size............................................................................................................................................................................ 19
2.2 Potential Competitors...................................................................................................................................................22
2.3 Pricing Strategies...........................................................................................................................................................26
2.4 Sales Tactics.....................................................................................................................................................................27
ii
2.5 Advertising and Promotion Strategies...................................................................................................................27
2.5.1 Advertising Strategy...................................................................................................................................................................27
2.5.2 Promotion Strategies................................................................................................................................................................. 28
2.6 Distribution Strategies.................................................................................................................................................29
2.6.1 Channels of Distribution...........................................................................................................................................................29
2.6.2 Distribution Problems...............................................................................................................................................................29
2.7 Costing and Pricing........................................................................................................................................................30
2.7.1 Labour Costs per Person...........................................................................................................................................................30
2.7.2 Material Costs per Person........................................................................................................................................................31
2.7.3 Total Direct Cost/Person..........................................................................................................................................................31
2.7.4 Indirect/Overheads....................................................................................................................................................................32
2.7.5 Net Profit......................................................................................................................................................................................... 33
2.7.6 Hour Charge for Gross Profit Recovery..............................................................................................................................33
2.7.7 Direct Cost per Hour Service...................................................................................................................................................33
2.7.8 Rate per Hour Service................................................................................................................................................................34
CHAPTER THREE................................................................................................................................ 35
3.0 ORGANIZATION PLAN................................................................................................................ 35
3.1 Organization Chart........................................................................................................................................................35
3.2 The Management Team................................................................................................................................................35
3.3 Other Personnel..............................................................................................................................................................36
3.3.1 Other Personnel Required.......................................................................................................................................................36
3.3.2 Evaluation, Remuneration and Development of Employees....................................................................................37
3.4 Support Services.............................................................................................................................................................39
CHAPTER FOUR.................................................................................................................................. 41
4.0 OPERATIONS PLAN..................................................................................................................... 41
4.1 Product Design and Development............................................................................................................................41
iii
4.2 Production Facilities and Capacity...........................................................................................................................43
4.2.1 Description of the Machinery and Equipments Required for Operations..........................................................43
4.2.2 Plans for Maintenance and Repairs for Machinery & Equipment..........................................................................44
4.2.3 Features of the Proposed Workshop...................................................................................................................................45
4.2.4 Other Equipments Required...................................................................................................................................................46
4.3 Production Strategy.......................................................................................................................................................46
4.3.1 Monthly Material Requirements...........................................................................................................................................46
4.3.2 Monthly Labour Requirement................................................................................................................................................47
4.3.3 Monthly Production Expenses...............................................................................................................................................48
4.3.4 Calculating the Cost of Production.......................................................................................................................................48
4.4 The Service Delivery Process.....................................................................................................................................49
4.5 Government Regulations...................................................................................................................................................................51
iv
CHAPTER ONE
1.0 BUSINESS DESCRIPTION
1.1 Background of the Proprietor
The proposed business venture will be owned by Mrs. Esther Ngata. She was born in 1968 in
Kangema, Murang’a district. Currently, Esther resides in Nairobi’s Harambee Estate off Jogoo
Road, Eastland’s area house number 142. She is currently working as Human Resource Manager
in Barclays Bank of Kenya. She pursued her O’ level education in Mariira Secondary School in
Murang’a District between the year 1984 and 1987 that earned her certificate of secondary
education. She later joined the Kianda College where she pursued a Business Administration
higher diploma in the year 1989. After completion of the course she later joined Ashley’s
college for a certificate course in Hair and Beauty Salon for one year in 1990 that later earned
her an attachment at the Fades Saloon as a beautician with the responsibility of providing quality
hair, nail and skin services. It is here that Esther developed a keen interest in hair and beauty
services. Leaving Fades saloon in the summer of 2002 to join banking at the back of her mind
she had a vision to someday get back to this area again. After joining Barclays Bank of Kenya in
2002, she joined Human Resource as an assistant Manager and this prompted her to seek some
managerial skills and in 2008 she joined Institute of Human Resource Management to pursue a
diploma in Human Resources.
1
1.1.1 Ownership Structure of the Business
The proprietor of the proposed business will be the main contributor of capital with Kshs.
600,000 of the initial capital representing 60% of the total initial. Bank Loan from Barclays Bank
of Kenya, Moi Avenue will constitute Kshs.300, 000, representing 30% of the initial capital.
This will be secured by Safaricom Shares Certificate and the remaining Kshs.100, 000 will be
raised from Friends and family members.
The above information was arrived at as shown hereunder:
Total Contribution = Kshs.1, 000,000.
Owner Contribution 600,000 x 100 = 60%
1,000,000
Friends and relatives Contribution 100,000x100
1,000,000 = 10%
2
Bank Loan 300,000x100 = 30%
1,000,000
The contribution from family and friends will not be repaid since it is a donation.
Figure 1.1 Capital percentage contributions
3
Pie Chart: Percentage Capital Contribution
Proposed Business Loan Repayment
The 30% Bank loan will be paid in a period of thirty six months with an interest of 15% on a
straight line method as computed below;
Total borrowed = Kshs. 300,000/-
Interest amount = 15 x 300,000 = 45,000
100
Total Payable = 300,000 + 45,000
= 345,000
Therefore for 36 months = 345,000
36
Loan amount payable per month = 9,583.3
Annual loan payment = 9,583.33 x 12
= 114,999
4
Monthly interest payment = 45,000
36 months
= 1,250
Annual interest payment = 1,250 x 12
= 15,000
1.2 The Business
1.2.1 Description
The name of the proposed business is Joy Salon. The choice of the name Joy is symbolic of our
vision to achieve exemplary, striking and out of ordinary services that will satisfy the customer’s
needs and make them always leave the doors of Joy Salon a Joyful and satisfied lot. The services
will be of great benefit to the targeted group due to the business strategic location within CBD
and with a high number of the target working class Ladies in the area.
5
The proposed business will be located on 1st floor, Loita House along Loita Street, a few meters
from the junction of Uhuru Highway and Kenyatta Avenue, LR No. 230/4080 within the CBD
which provides good clientele base.
The contact address will be:
Joy Beauty Parlor
Loita House, Loita Street
Opposite Nyati House
P.O. Box 14092 – 00100
NAIROBI
KENYA.
Email: joybeauty@joybeauty.co.ke.
6
LOCATION OF THE PROPOSED BUSINESS
N
Car park
7
LOITA HOUSE
DYER & BLAIR
BARCLAYS PLAZA
ZERO CAR PARK
G.P.O
KENYATTA AVENUEKENYATTA AVENUE
MARKET STREET MARKET STREET
LO
ITA
ST
RE
ET
UH
UR
U H
IGH
WA
Y
Uhuru Park
Uhuru Park
Joy Beauty Parlor will begin operations the 25th day of February 2008. This is aimed at reaping
from the ceremonies such as weddings that take place at this time. In addition the school
holidays in April will provide additional impetus in terms of initial sales by the infant business.
The proposed business will be a sole proprietorship with the following advantages:
Decisions will be made rapidly with immediate implementation
The sponsor will enjoy the whole profit share.
The owner will have direct contact with customer hence will meet the customer to the
point of the needs.
The owner will enjoy tax advantage due to the small size f the business.
It will be simple/cheap to formulate as compared with others forms of business e.g.
limited liability companies and partnership
This proposed business being in the beauty industry and is starting small, will restrict itself to
one service which will involve Hair Relaxing e.g Perm, Curly kit and Blow out which will be as
a result of relaxing hair with chemicals.
The proposed business will serve individuals working for corporates such as Barclays Bank-
Barclays Plaza branch, Airlines Kenya Airways, KLM and Dye Am Bank - Loita House,
Anniversary Towers - Loita street , Posta Sacco , View park Towers , business firms both
located within the building , in the neighboring building like Anniversary towers, Utalii House ,
8
Kenindia Assurance and High class Hotels like Grand Regency among others and any other
walk in customers.
The owner will provide high customer satisfaction by providing excellent services, quality,
products and furnishing an enjoyable atmosphere at an acceptable price/value relationship. This
will also maintain a friendly, fair and creative work environment which respects diversity, ideas
and hard work.
1.2.2 Location Justification
With a few such businesses in the locality, the area is ideal for the proposed business since it
enjoys various advantages which include:
Security – the area enjoys a 24 hour security, being located near Central Police Station
and being under tight security provided by a professional security firm.
Parking – There is ample and secure space to accommodate many vehicles.
Proximity to targeted market.
Good road network with smooth flow of traffic e.g. Monrovia Street, Uhuru highway and
University way.
Availability of water, electricity and telephone services.
9
The locality of the proposed business will be in Nairobi Central Business District. Most suppliers
of hair products are also within the Central Business District which makes it convenient for the
business operations. Employers and customers will also find it convenient to commute to the
business locality since transport is readily available.
1.2.3 Justifying Need for the Business Venture
Beauty is an inherent aspect of human nature. There is a need to provide beauty services to
satisfy the human need for beauty.
The following highlights show the window of opportunity in satisfying this need:
There is high demand for professional hair services.
Ensure maximum satisfaction of highly esteemed customers needs.
Provide employment opportunities to local residents.
A well versed community set up to accommodate the business and attract customers in a
short time.
Ready market as the average Nairobi residents visits beauty parlor at least fortnight.
Poor enhanced self image in the society prompting search for good looks by individuals
guaranteeing a ready market.
10
Joy beauty parlor will have the state of art equipments, apparatus and air conditioned
rooms to the comfort of our customers
Natural attraction to beauty by people of all walks of life creating a perpetual need to
search for the same.
Provide employment opportunities. Joy Beauty Parlor intends to hire its labour from
Kibera Slums in support of the less fortunate.
1.3 The Industry
1.3.1 Industry Size
The proposed business will be in the Beauty Service Industry which is fast growing. This fast
growth has been attributed to the increased need for professional beauty services at affordable
price in the market.
A survey conducted last year by Infotrack revealed that the size of the industry in the proposed
business community constitutes about a fifth of the entire industry. This figure was arrived from
the following findings, as computed and drawn below in a pie chart. Surprisingly, the fifth
portion accounts for over 50% of the total industry turnover yearly. This clearly shows there is
great potential for growth in this community.
Approximate total number of firms in the industry………. 75 000
Approximate total number of firms within the CBD ………15 000
11
Therefore 15 000/75000= 1/5 = 20%
Geographical Business Distribution in the Industry
20%
80%
Others CBD
1.3.2 The Key Characteristic of the Industry
A survey carried by Standard media group in 2006 revealed the following:
Small Size Salons employ 2–10 employees
Assets worth range from Kshs. 50,000 – 500,000
Sales volumes range from Kshs. 150,000 – 1000,000
For medium sized firms, the number of employees ranges from 7-10
Assets worth range from Kshs 600,000-Kshs 1,500,000
For large sized firms the number of employees ranges from 11-19
Assets worth range Kshs 1,600,000 – 2,000,000
12
The technology mostly used in the industry is labour intensive rather than capital intensive. Hair
relaxing process uses chemical that are applied manually by a trained person. The technology
employs simple machinery at some point to set, dry and treat the hair an activity that could be
said to comprise 20% of the whole process. The driver is usually man operated. The proposed
business plans to initially employ only 3 members of staff. A feasibility study conducted by
Infotrack revealed that for one to enter into the industry, the entrepreneur will require at least
basic capital of Kshs.100, 000 for a small size Salon business.
A latest research by Steadman which was carried out on January 2007 revealed that the
competition on the market is very high with an increase demeanor in hair beauty and excellent
services in the field. It also revealed that there is an increase in number of Hair Salons entry in
the industry. However profitability varies depending on the size and location of the enterprise.
Smaller firms are estimated to make a profit of between Kshs.50000 – 300,000 after deductions
of other expenses per month. Medium size firms are estimated to make a profit of between Kshs
400,000- Kshs 800,000 whiles large size firms are estimated to make profit between Kshs
650,000- Kshs 1,200,000.
The industry experiences peak times during the Months of April, August and December. There is
usually a business boom during these periods due to increased demand such as school goers on
holiday, Christmas Holidays, Easter Holidays that accompany these months. Weather is also a
contributing factor in the industry. Since during hot seasons most women would like to have
their hairs relaxed as compared to rainy seasons when hair is normally braided.
13
1.3.3 The Industrial Trends & Prospects
A recent study by Infotrack has revealed greater potential for growth in the beauty industry. The
survey carried out in 2007 indicates 7 out of 10 Kenyan men believe good looks have everything
to do with hair beauty. Further, 9 out of 10 women believe beauty lie in the condition of your
hair. The survey was concentrated in major towns i.e. Nairobi, Mombasa and Kisumu with half
the interviews done in Nairobi. A similar survey carried out by the same firm in 2005 indicated 5
out of 10 men and 8 out of 10 women held similar views as above.
The apparent change in attitude by the Kenyan populace has led to an increased growth in salons
in Nairobi by an approximately 20% in 2 years with promise of more growth to come. Improved
economic activities also means Kenyans can afford to pay for the services (beauty) on offer. The
industry is projected to expand by approximately 10% in the coming year. With a promising
economic revamping, the prospects are high as the country gets back to business as usual.
1.4 The Product
1.4.1 Products
The proposed business being in beauty industry and small in size will restrict itself to one service
which will involve hair relaxing with chemicals like Dark and Lovely, Excel but with time and
according to business strategies other services will be considered.
The Services to be offered will include:
Perm
Curly kit
14
Blowout.
These will form the key business for Joy Salon with more expected to come in future growth
strategies.
Our concern is not only on what we offer but how we offer it. The following approaches will
make us exceptional from the competition:
Reasonably affordable prices
Provide exceptional service to customers that levels ad impressions.
A relaxed atmosphere at our facility atmosphere.
Proper management of internal finances and cash flow to enable upward turnover growth
to effectively manage our growth strategies.
Provide an environment conducive and giving relaxing and professional services by
installing air conducive in the premises.
The highly experiences staff with good communication skills will ensure that the
customers are retained.
A modern technology facilitated by purchases of well modified operating equipments as
opposed to old technology found in other salons.
Some of the unique features associated with Joy Salon or that will make it exceptional from
others are:
15
Reasonable benefits to loyal customers
Low priced services
Extended working hours from 6am – 9pm
Relationship calls to loyal customers once every month
Free treatment for every 5 visits.
1.5 Entry and Growth Strategy
1.5.1 Entry Strategy
The proposed business laid down strategy of entering the market is well laid down through
different activities a laid down which leaves no doubt of its existence and smooth entry into the
market. These include:
Carrying out advertisements through radio 2 days in a week for one month prior to the
opening of the business. This is target at reaching over 50% of customer within lower
income areas within Nairobi.
New Papers advertisement for a whole month. This is aimed at creating a strong
customer brand
Print business cards and supply to friends prior to opening of the business to increase our
distribution list
16
Printed T. Shirts with the name of the business and location to be given to our initial
customers for publicity purposes. This is aimed at increasing customer satisfaction and a
strong brand.
A discount of 20% will be rewarded to those customers who refer at least 3 customers.
This will aid the business in attracting and retaining loyal customers.
Qualified and professional staff will be recruited to ensure quality service delivery. This
will ensure quality is maintained hence customers are satisfied with the services given
1.5.2 Opportunities for Growth
In recent times there has been increased Rural to Urban migration leading to more people settling
in Nairobi. This is projected to push the Beauty industry towards the path of growth in one to
two years. In addition, the economy is projected to expand to close to 10% by end of 2009. This
will definitely increase the purchasing power of the city dwellers. To reap from the prospects,
Joy Parlor plans to invest back 75% of the profits in the first 2 years. This will be geared towards
introducing new services like, Facial, Pedicure Manicure. .The idea is to transform the Salon into
a one-stop-shop Beauty Centre. The business intends to have at least 2 more branches within
Nairobi CBD in 5 years of operation. This is geared towards creating ultimate customer
satisfaction leading to customer loyalty, strong brand and increased profit margins.
1.6 Business Goals
The business objectives are to be the best Salon in Nairobi by 2009 to expand to major streets
like Moi Avenue, Kenyatta Avenue within its five years of operation.
17
1.6.1 Short Term Goals
To provide quality and affordable services to its customers.
Increased profits by at least 20% within the first 12 months.
Evaluate management team every quarter.
Create employment within the community by engaging committed and qualified staff.
Use appropriate technology to maintain and capture market share and remain in the leading edge.
1.6.2 Long term goals
To open new branches in major streets like Moi Avenue and Kenyatta Avenue in three
years of operation
To be one of the leading service provider in Nairobi and its environs by December 2010.
To open a hair salon college which offer the best services on hair care in five years of
operation.
Diversify its services by offering either auxiliary services such as facials, manicure,
pedicure and fair beauty in two years of operation.
18
CHAPTER TWO
2.0 MARKETING PLAN
2.1 Description of the Potential Customers
Joy Salon will target customers who will be seeking for hairdo. This will mainly be ladies,
especially those in the middle or high income status. The business will not discriminate on age,
religion, education or even the ethnic group. By their hair been done at our salon, our customers
will be looking for quality and efficient services. The customers will also be considering
convenience. This is supported by the virtues that, majority of potential customers are working in
high profile offices in town and therefore would prefer to pay relatively high, but get quality,
efficiency and convenient hairdo services. There are also busy and would like their hair to be
attended to more rapidly than any other place in town. Majority of the customers are therefore
expected in the evening hours on weekdays, and throughout the day on weekends. In addition,
we will be expecting more clients on the end month than any other time since majority of our
potential customers prefer treating their hair at least once a month, especially when they have
enough money. This is also supported by the fact that, our services will be bought on cash bases,
and especially during the first year when the business will still be young.
2.1.2 The Market Size
As the population in Nairobi continuous to grow every day, the market size for the hair salon has
also been growing proportionately. The hair and beauty care industry has grown over the years
with many hair salons opening shops in urban areas. The proprietor has carried out a research
19
that reveals that, 47% of the population in Nairobi is made up of ladies, who are either working
or are students in various learning institutions.
At the moment, there are 4 major competitors within 100 Metres proximity from the proposed
location of Joy Salon. The four competitors share the market as follows:
This is also shown by the pie chart below:
Joy Salon sets its market share as 7% in the first year, but the size is projected to grow by 20%
every year as follows
Year 1 - 7.0%
Year 2 - 8.4%
Year 3 - 10.1%
20
Year 4 - 12.1%
Year 5 - 15.0%
Therefore, the market share after entering the market will as follows for the first year:
Market Share after Joining the Market
Approximately 6,000 people are expected to require our products annually. This is because we
target 20 customers every day for 300 working days per annum. We therefore expect to be
selling 500 units of services in every month.
2.2 Potential Competitors
Our potential competitors are as listed below:
1. Elegant Beauty Salon
2. Beauty Care Hair Salon
3. One Touch Hair Therapy
4. Executive hair Salon
21
22
LOCATION OF THE POTENTIAL COMPETITORS
N
Car park
The proximity of the competitors in terms of location will be of great essence to our business. To
our advantage, the location will help us built quality services since this will be mandatory for us
to acquire a competitive advantage. At the same time, location of our competitors will help us in
23
ZERO CAR PARK
LOITA HOUSE
LOIT
A ST
REET
DYER & BLAIR
UH
URU
HIG
HW
AY
BARCLAYS PLAZA
MARKET STREETMARKET STREET
KENYATTA AVENUEKENYATTA AVENUE
G.P.O
Central Police Station
Central Police Station University of
Nairobi
University of Nairobi
Uhuru ParkJOY SALONJOY SALON
ELEGANT SALONELEGANT SALONONE
TOUCH SALON
ONE TOUCH SALON
EXECUTIVE
SALON
EXECUTIVE
SALON
BEAUTY THERAPY HAIR SALON
BEAUTY THERAPY HAIR SALON
Uhuru Park
building network of our clients since they will come to know of our existence during the process
of visiting the neighbouring salons. Moreover, these competitors will help us in setting up proper
charges for our proposed clients. On the other hand these competitors by the virtue of their
location will be a great threat to our survival since they are already established in the industry,
and have gained customer loyalty. Therefore, Joy Salon will rely on effective strategies in order
to curb the problem of competition. Nevertheless the location of our business is regarded as the
best sine there are adequate supportive services within its proximity. These include the Central
Police Station, which is located just 200 yards from the location of our business. This will ensure
enough security. Other facilities include adequate water, electricity, several banks where we can
Deposit our money and presence of several universities which will be a major source of our
customers
Regarding the size of our potential competitors, the researcher carried out a study and found that,
the entire four salons are categorized into two: medium and large enterprises. The study also
reveals that the number of employees as well as the quantity of assets was also a major
determinant of the scale of operation of the competitors’ businesses. This is as illustrated by the
table below:
24
Table 2.1 Size of Competitors Business
Salon Number of
Employees
Total Investments in Assets
(Kshs)
Size
Category
Elegant Hair Salon 6 1,400,000 Large
Beauty Therapy Hair
Salon
4 700,000 Medium
Executive Hair Salon 3 550,000 Medium
One-Touch Salon 4 650,000 Medium
Comparing the size of our business with that of our competitors, we will be categorized as
medium since we intend to invest Kshs 600,000 initially. This is a good starting point since as
our business grows; we will have more room for expansion in terms of size.
As per the quality of services, Joy Salon will endeavor to offer the best. We rate the current
products given by our competitors as follows, as guided by the Likert Scale.
Joy
Salon
Elegant
Salon
Beauty
Therapy
One
Touch
Executive
Salon
Performance 5 5 4 3 4
Quality 5 4 5 5 4
Efficiency 5 4 5 5 4
25
Reputation 5 5 4 4 5
After Sales
Service
5 3 4 5 4
Key
Very Low - 1
Low - 2
Moderate - 3
High - 4
Very - 5
2.3 Pricing Strategies
Joy Salon will calculate its price based on resources used to attend the client. These
resources will largely comprise of both time and the tangible resources (e.g. the amount
of chemical applied on the client’s hair). However, before we set the price, we will
consider the price of the competitors, since we will make the price to be competitive to
attract more customers. We will be selling our services to our customers on cash bases.
However, after the first six months of operations, we will be in a position to identify
those customers who will be loyal to our business and will consider giving them discount 26
on what we charge them. We will also consider giving after sales service to our loyalties
by retouching their hairstyles without charging them, but a few days after we treat their
hairs. The price, however, will be made fixed to all customers
2.3.1 Labour Costs per Person
MONTHLY LABOUR REQUIREMENT
Job Title
No.
of
Per
son
s
Sal
ary
per
em
plo
yee
Tot
al S
alar
y
Yea
rly
Wag
e B
ill
Hou
rs/D
ay
Hou
rs/W
eek
Hou
rs/A
nn
um
Lab
our
Cos
ts/H
our
6 days 52 weeks
Kshs Kshs Kshs Hours Hours Hours Kshs
Supervisor 1 18000 18,000.00
216,000
.00 10 60 3,120
69.2
3
Beautician 1 12000
12,000.
00
144,000
.00 10 60 3,120
46.1
5
Shampoo
Person 1 8000
8,000.
00
96,000
.00 10 60 3,120
30.7
7
Hairdressers 3 15000
45,000.
00
540,000
.00 30 180 9,360
57.6
9
Total 6
53,000.
00
83,000.
00
996,000
.00
60
360
18,
720
53
Total number of hours every day = 6 days X 10 hours = 60hours
Target customers every day = 25
Hours per customers = (60 hrs)/12 persons = 2.4 hours27
Labour cost per customer = 53 X 2.4 = Kshs 127.69
2.3.2 Material Costs per Person
DIRECT MATERIAL COSTS
Total Direct Material Cost for One Person
Item Particular Quantity/personCost per Unit Cost per Person
Units Kshs Kshs
Conditioner Litres 0.10 200 20.0
0
Disinfectant Litres 0.15 100 15.0
0
Hair Gel Litres 0.25 150 37.5
0
Hair Oil Litres 0.10 400 40.0
0
Hair Relaxer Litres 0.20 800 160.0
0
Shampoo Litres 0.15 300 45.0
0
Styling Spray Cans 0.20 150 30.0
0
Treatment Litres 0.15 600 90.0
0
Total
437.50
2.3.3 Total Direct Cost/Person
Total Direct Cost
Kshs
Total Direct Labour Cost 127.69
Total Direct Material Costs 437.50 28
Total Direct Cost/Person 565.19
29
2.3.4 Indirect/Overheads
COSTING FOR INDIRECT COSTS/OVERHEADS (PER ANNUM)
KshsWater 12,000.00 Electricity 60,000.00 stationery 5,000.00 Advertising 20,000.00 Promotion 30,000.00 telephone 30,000.00 Rent 20,000.00 Tools and Equipment Maintenance 20,000.00 Insurance 5,000.00 Interest on Loan 15,000.00
Total 217,000.00 Add 20% for any increment 43,400.00
Total Annual Overheads 260,400.00
Total customers per Annum 7,800
Indirect Costs per Customer 33.38
Total Costs Per Unit (Customer)
Kshs
Total Direct Material per 437.50 Total Labour Cost Per Customer 127.69 Indirect Costs per Customer 33.38
Total 598.48
30% of 593.96 179.57
Total Selling Price 778.15
Profit Margin 0.23
30
2.3.5 Net Profit
Revenue 6,069,570.00
Less Direct Costs 4,408,500.00
Gross Profit 1,661,070.00
Less Indirect Costs 260,400.00
Net Profit 1,400,670.00
2.3.6 Hour Charge for Gross Profit Recovery
Gross Profit =hourly charge for gross profit
Total Number hours to be worked
= 1661070/18720 = Kshs 88.73
2.3.7 Direct Cost per Hour Service
= Total Wage Bill/Total Hours Worked
= 996000/18720
= Kshs 53.21
31
2.3.8 Rate per Hour Service
Kshs
Direct Cost per Hour Service
53.21
Hour Charge for Gross Profit
Recovery
88.73
Hourly Service
141.94
2.4 Sales Tactics
Joy Salon shall employ personal selling for its services and products. By the nature of our
products, customers will have to visit our premises for them to be attended to. The
business will have a sales force whose will be remunerated on monthly salary. However,
incentives on good performance will always be awarded to the employees.
2.5 Advertising and Promotion Strategies
2.5.1 Advertising Strategy
Joy Salon will make use of different methods of advertising. These methods will mainly be the
printing media where the cost and frequency of usage is as tabulated below:
Frequency per Annum Cost per Annum (Kshs)
Flyers 4 5,000
32
Brochures 3 9,000
Business Cards Through out the year 6,000
Total Cost per Annum 20,000
Through the flyers, business cards and the brochures, the image of our services will be
portrayed. The advert will create a picture in our customers mind that, our services are of
high quality, unique and low priced. The brochure will also illustrate an excerpt of a hair
that is done at our place. The business will be advertising after every four months, while
the flyers will be after every three month. This arrangement will enable us to be
advertising the business through out the year without duplicating the advertising costs.
We will be in a position to judge on the effectiveness of the advert through the number
we receive in a particular month after relating it with the method of advertising used.
Beside increased sales volume, we will evaluate the number of customers returning to us
for more services as well as rate of enquires for our services
2.5.2 Promotion Strategies
In order to promote Joy Salon especially during the first year, we will perform hairdo
without charges for every first customers, who visit us on the first day of the week (i.e.
Monday for our case). This will act as free samples which will be performed at our
33
business premises as a campaign towards popularizing the business. The promotion cost
will add up to Kshs 30,000 per year as shown below:
1 customer X 50 weeks X Kshs 600 = Kshs 30,000/=
To measure the effectiveness of this campaign, we will be taking record of the number of
clients, whom we gave the free sample and come back for our services.
2.6 Distribution Strategies
2.6.1 Channels of Distribution
During the first two years of operation, every employee in the business will contribute
towards the sales force. This will happen mainly spreading the news on Joy Salon to the
friends and neighbors in their respective estates. Since we will be dealing with services,
potential clients will be required to come for the services at the business premises.
Therefore, our business will not account for any transport costs.
2.6.2 Distribution Problems
Since we are starting the business at a small scale level, we will not be dealing with
selling any product that needs direct distribution to the customers. Therefore, we do not
anticipate any distribution problem.
34
CHAPTER THREE
3.0 ORGANIZATION PLAN
3.1 Organization Chart
Figure 3.1: Organization Chart
3.2 The Management Team
The proprietor will be the manager of the proposed business. Her duties and
responsibilities will be as follows:
To supervise the operations of the business
Making both tactical and strategic decisions
Hiring and firing of staff
Rewarding the employees by paying them emoluments
35
SUPERVISORSUPERVISOR
SHAMPOO PERSONSHAMPOO PERSONBEAUTICIANBEAUTICIAN HAIRDRESSERSHAIRDRESSERS
The proprietor is expected to be drawing a monthly salary of Kenya shillings 18,000. She
will be assisted by the rest of the employees to manage the business especially when the
proprietor is not in for supervision. The nature of the business does not advocate for a
secretary or other supportive staffs. However, their duties will be performed by the any of
the employees in the business. However, for accountability and book keeping, the
supervisor will be the accountant of Joy Hair Salon.
3.3 Other Personnel
3.3.1 Other Personnel Required
Other than the supervisor, Joy Salon will have five other personnel, who will include a
beautician, a shampoo person and 3 hairdressers. Duties and responsibilities of these
personnel are as follows:
Job Title Duties $ Responsibilities Salary
Shampoo Person Applying shampoo and washing the hair 8,000.00
Beautician Treating the hair 12,000.00
Hairdressers Hair relaxing 15,000.00
These personnel are required to possess skills that will correspond to their duties and
responsibilities as described below:36
Job Title Skills
Beautician Beauty therapy
Shampoo Person Beauty therapy
Hairdressers Skills on hair relaxing
To get qualified employees, the proprietor will invite applications from all interested
persons. She will put posters on strategic places including Ashley Beauty College notice
board and Odeon Cinema job search gallery. This will enable us to attract as many
applicants as possible, from where we will get those with the required skills and
qualifications.
3.3.2 Evaluation, Remuneration and Development of Employees
To evaluate the performance of Joy Salon employees, the proprietor shall employ various
methods including:
Quality of the end results
Average time taken to attend a customer
Ability to meet challenges inherent with their tasks
37
Suggestions from the customers which will be done through mounting a
suggestion box within the salon.
Evaluation mechanisms are not expected to cost the business about kshs 10,000 every
year.
We also intend to be training our employees at least once per annum. This is because of
emergence of new styles emerging in the market and training would keep our salon
abreast to the latest fashions. Training will always be done by inviting a consultant to our
place of work. This will enable very little interruption on the normal operations of the
business.
All employees will be remunerated with basic salaries as tabulated below:
Designation Monthly Pay Rate Other Benefits Total
Beautician 12,000.00 - 12,000.00
Shampoo Person 8,000.00 - 8,000.00
Hairdressers 15,000.00 - 45,000.00
Total Remuneration - 65,000
The business will provide incentives to the employees which are expected to cost the
business as tabulated below:
38
Estimated Cost
(Kshs)
(a) Tea 25,000
(b) Bonus 50,000
Total 75,000
3.4 Support Services
K - Rep will be the bank for Joy Salon. The preferred branch will be Market Branch
which is along Kenyatta Avenue. This branch is preferred because it is just next to the
proposed location of the business. Annual bank charges are approximated at Kshs 12,000
annually. Since the turnover especially during the first year of operation will not be large,
Joy Salon will not hire the services of an accountant immediately. The proprietor will be
maintaining the records for the business which at then end of every accounting will be
subjected to evaluation for preparation of financial statements. At the same time the
services of an advocate as well as management advisor shall be involved as and when
required. This will minimize the cost of service providers, who might be required
intermittently or even rarely.
Nevertheless, Joy Salon will have a post office box with Telkom Kenya at General Post
Office (GPO). The address shall be 4331 – 00100 Nairobi and charges will be Kshs 1,700
per annum. The business will also insure itself with Blue Shield Insurance Ltd. Charges
are projected to be 30,000 annually. Other supporting services that the business will require
include:
39
Support Services Amount (Kshs)
Auditing 20,000
Training 24,000
Total 44,000
40
CHAPTER FOUR
4.0 OPERATIONS PLAN
4.1 Product Design and Development
The services that Joy Salon will be offering shall entirely be hair relaxing. This will
involve a type of lotion or cream which straightens hair by chemically "relaxing" the
natural curls. In this style, the treated portion of the hair moves away from the scalp as
the new growth of untreated hair sprouts up from the roots, requiring periodic retreatment
(about every 6 weeks) to maintain a consistent appearance. The relaxer is applied to the
roots of the hair and remains in place for a "cooking" interval, during which it alters the
hair's texture by a process of controlled damage to the protein structure as shown below.
Figure 4.1: Picture of a lady with her Relaxed
To come up with this service the salon will distinguish the different stages of hair
treatment and assign each stage a specialist (i.e. hair shampooing, lotion application and
41
then hair dressing). This will enable us to come up with quality services which are rare
with other competitors.
The cost that will be involved in performing this hair style will direct labour cost, direct
material costs as well as the overhead costs. These costs are as tabulated below for each
customer:
Total Costs
Kshs
Total Direct Labour Cost 127.69
Total Direct Material Costs 437.50
Total Overheads 33.38
Total Direct Cost/Person 598.48
Table 1: Total Production Cost per Unit
Our services will entail the most recent hair styles and therefore will apply an updated
technology. The high level technology that we will use will penetrate even to the
performance of transactions where the customer bills will be generated and accumulated
in a computerized system for proper data banking. In addition, modern equipment which
will enhance the aspired quality will also be used during the hairdo. Therefore our choice
of technology will be the best in the hair salon market. Conversely, the choice of the
technology will not in anyway be complicated. In other words, the technology will be
42
appropriate and user-friendly since it will be flexible in adopting, efficient, available and
cheap to maintain.
Nevertheless, Joy Salon will ensure that all equipments will be easily disposable in case
they happen to be obsolete through technological change. Proper maintenance will
enhance the resale value of the equipments that are overtaken by the technology. The
business will also be arranging frequent training workshops to update the staff with the
relevant knowledge and skills in case there is change in technology. This will enable us
cope with any development in the field of technology
4.2 Production Facilities and Capacity
4.2.1 Description of the Machinery and Equipments Required for Operations
Item
Sou
rce
Cos
t P
er U
nit
Un
its
Req
uir
ed
Inst
alla
tion
Cos
ts
Tot
al C
osts
Dat
e R
equ
ired
Kshs Kshs Kshs
Spraycan
Bestlady
Cosmetics
2,000
2
-
4,000 01/08/2009
Dryer
Bestlady
Cosmetics
12,000
2
-
2
4,000 01/08/2009
Blow Dry Machine
Bestlady
Cosmetics
4,500
2
-
9,000 01/08/2009
Movable Locker
Furniture
Palace
10,000
1
-
1
0,000 01/08/2009
Table Furniture 01/08/2009
43
Palace 4,000 1 - 4,000
Chairs
Furniture
Palace
3,800
8
-
3
0,400 01/08/2009
Loose Tools (e.g.
Scissors and rollers) Supermarket
-
-
-
1
0,000 02/08/2009
Total
9
1,400
Table 4.2: Description of the Machinery and Equipments Required for Operations
Joy salon will completely own all tools and equipment needed in operation of the
business. Therefore, there will be no any hired or leased tools.
4.2.2 Plans for Maintenance and Repairs for Machinery & Equipment
To maintain and repair the machinery and equipments, Joy Salon will hire the services of
a reputable firm. The provisional firm to provide this service will be Saloquip
Continuance Ltd, located along Ronald Ngala Street in Nairobi City. This is a reputable
firm which has been in the business of repair and maintenance for 12 years. Annual
maintenance and repair costs are projected to be Kshs 50,000. The decision to outsource
repair and maintenance costs is prudent for the firm since it will same cost and get
maximum quality.
Joy Salon will use machineries and equipments with spare parts that are available locally.
The supplier of the spare part will be the Euro Spares located along the River Road in
Nairobi City Centre. Since spare parts are expensive, it will be prudent for Joy Salon to
44
provide or set aside some money on monthly bases to cater for these expenses. This
provision will amount to Kshs 5,000 monthly.
4.2.3 Features of the Proposed Workshop
Joy Salon will lease the workshop space for the salon. The agreement will entail
payments of monthly rentals to the owner of the property. Monthly rent will be Kshs
20,000 payable by cheque. However, rent deposit for two months will be required as part
of pre-operations costs. The ground plan for the salon will be as illustrated by figure 4.2.
The workshop space is big enough and therefore allows for future expansions.
45
Workshop Space
BEAUTY STATION 1
MOVABLE LOCKER
BEAUTY STATION 2 BEAUTY STATION 3
SUPERVISORS OFFICE
TABLE
(Workshop platform)
TELE
VISI
ON
&
RAD
IO S
LOT
12 Fts
12 Fts
20 Fts
ENTRANCE
ENTRANCE
Figure 4.2: Features of the Proposed Workshop
4.2.4 Other Equipments Required
Item SourceCost Per
UnitUnits
RequiredInstallation
CostsTotal Costs
Date Required
Kshs Kshs Kshs
Computer Davetech 20
,000
1 -
20,000 01/08/2009
TelevisionSwahir Entertainment
14,000
1
-
14,000 01/08/2009
RadioSwahir Entertainment
8,000
1
-
8,000 01/08/2009
DVD PlayerSwahir Entertainment
5,000
1
-
5,000 01/08/2009
Other Office Equipments
Tuskys Supermarket
10,000
-
-
10,000 01/08/2009
Total 57,000
Table 4.3: Other Equipments Required
4.3 Production Strategy
4.3.1 Monthly Material Requirements
Item
Sour
ce
Qua
ntity
Cost
per
Litr
e
Freq
uenc
y Re
quire
d
Tota
l Cos
ts
Litres Kshs Kshs
Conditioner Bestlady
20
200
Once a month 4,
000
Disinfectant Bestlady
32
100 Once a month 3,
200
Hair Gel Bestlady
36
150 Once a month 5,
400 Hair Oil Bestlady Once a month 14,4
46
36 400 00
Hair Relaxer Bestlady
40
800 Once a month 32,0
00
Shampoo Bestlady
25
300 Once a month 7,
500
Styling Spray (Cans) Bestlady
45
150 Once a month 6,
750
Treatment Bestlady
40
600 Once a month 24,0
00 97,2
50
Table 4.4: Monthly Material Requirements
All the above mentioned raw materials are readily available in the market and therefore
the business will not experience any shortages in the supply of raw materials. These
materials will always be bought on monthly bases and at ago unless there is unanticipated
diminution in any of the materials. This arrangement will enable the business to save
carriage in costs. The materials will be transported to the business premises by hired car
at a monthly cost of Kshs 2,000.
4.3.2 Monthly Labour Requirement
The business will employ a total of six employees to commence its operations. All these
employees will provide direct labour and include a supervisor, one beautician, one
shampoo person and three hairdressers.
Total cost of production labour per month is as calculated below:
1 Supervisor = 1 X 18,000 = 18,000.00
47
1 Beautician = 1 X 12,000 = 12,000.00
1 Shampoo Person = 1 X 8,000 = 8,000.00
3 Hairdressers = 3 X 15000 = 45,000.00
Total production labour cost per month = 83,000.00
Total indirect labour cost per month = 0.00
Total monthly labour requirements = 83,000.00
4.3.3 Monthly Production Expenses
4.3.4 Calculating the Cost of Production
Monthly Production Expenses
Monthly Material Requirements 97,250.00
Monthly Labour Requirements 83,000.00
Carriage Inward Costs 2,000.00
Water 2,000.00
Electricity 5,000.00
stationery 416.67
Advertising 1,666.67
Promotion 2,500.00
telephone 2,500.00
Rent 20,000.00
Suport Services 50,000.00
266,333.33
48
Table 4.5: Calculating the Cost of Production
The business will be expecting an average of 25 customers every day, 6 days a week.
This therefore converts to 150 customers a week and 600 customers every month.
Production cost per unit is therefore calculated as follows:
Production Cost per Unit =
= Kshs 216,333.33/600
= Kshs Kshs 443.89
The total cost of production per month will therefore be Kshs 216.333.33
4.4 The Service Delivery Process
The service that Joy Salon will be providing will be characterized by a process from
welcoming the customer up to the point of releasing them. The process will flow as
illustrated below:
49
Total Production Cost per MonthAverage No of Customers per Month
Figure 4.3: The Service Delivery Process
The service delivery may however be affected by external factors and therefore
interfering with the flow. These factors include the absence of a particular staff, who may
fell sick or get caught up in other unavoidable circumstances. In addition, the number of
customers at any one time may exceed the expected number and therefore calling for an
alternative process.
To minimize the impact of the external factors, the business will ensure that all the staff
are well rounded up with skills and experiences necessary for every task carried out
during the process of the service delivery. This will ensure that an absence of a particular
staff will not bring the whole process in a halt. The business will also target expansion in
future that would see that the business have enough employees to perform duties on
rotation.
50
Welcoming Customer
Welcoming Customer
Bill SettlingBill Settling Hair Dressing
Hair Dressing
Hair Beatificatio
n
Hair Beatificatio
n
Shampooing
Shampooing
Releasing the Client
Releasing the Client
4.5 Government Regulations
Permit/Licence Required Source Amount Kshs
Name search and business registration Registrar of Companies 1,000
Trading license City Council of Nairobi 10,000
11,000
Table 4.6: Government Regulations
In addition to the permits, the business will be required to pay local taxes which include
employment taxes for all the employees as well as the V.A.T. before the business
commences, the city council of Nairobi will have to approve whether the premises is fit
for operating the business of a salon it. This approval will cost Kshs 2,000 upon which
the entrepreneur will be awarded with a certificate of approval. There will be no any
other approval required for us to begin the business. Other regulations that are likely to
affect our business will be proposals made by the Minister for Finance affecting products
that are raw materials for our business.
51
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