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