BUSINESS PLAN

NAME OF Business: KUMSA MORODA Bakery

Address :- Nekemte city , Oromia region

Form of Ownership: PRIVACY

Sector: Agro-Processing
TABLE OF CONTENTS
EXECUTIVE SUMMRY.............................................................................................................................iv
INTRODUCTION.........................................................................................................................................1
1.1. Background of the business area....................................................................................................1
1.2. Objective of the project..................................................................................................................1
1.2.1 General objective of the project....................................................................................................1
1.2.2. Specific objectices of the project.................................................................................................1
1.3. Significance of the project.............................................................................................................2
CHAPTER TWO...........................................................................................................................................3
OVERVIEW OF THE PROJECT.................................................................................................................3
2.1. Definition of the Project......................................................................................................................3
2.2. Description of The Business...............................................................................................................3
2.3. Description of the Industry...............................................................................................................3
Potential Advantage over the competitors.................................................................................................4
CHAPTER THREE: MARKETING PLAN..................................................................................................5
3.1.Total Demand.......................................................................................................................................5
3.2.Market Share........................................................................................................................................6
3.3. Sales Plan............................................................................................................................................7
3.5.Promotional Measures.........................................................................................................................8
3.6.Marketing Strategy...............................................................................................................................8
3.7.Marketing Budget................................................................................................................................8
CHAPTER FOUR: PRODUCTION PLAN..................................................................................................9
4.1. Preoperational costs............................................................................................................................9
4.2. Fixed capital........................................................................................................................................9
4.3. Bill of materials& costs: For 100 portion.........................................................................................10
a. Raw materials needed......................................................................................................................10
4.4.Other Operating Expenses including marketing and distribution......................................................10
4.5. Unit sales price..................................................................................................................................11
CHAPTER 5: ORGANIZATION AND MANAGEMENT PLAN.............................................................12
5.1. The form of Business........................................................................................................................12
5.2. Membership in the Firm....................................................................................................................12
5.3. Leadership of the Firm......................................................................................................................12
CHAPTER SIX: FINANCIAL PLAN.........................................................................................................13
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 6.1. Profit and loss Statement..................................................................................................................13
6.2 .Statement of cash flows....................................................................................................................14
6.3. Beginning Balance Sheet..................................................................................................................15
6.4. Loan Amortiation..............................................................................................................................15
CHAPTER SEVEN: RISK ASSESSMENT................................................................................................17
7.1 Financial Risks...................................................................................................................................17
7.2. Market Risk.......................................................................................................................................17
7.3. Consumer Risk..................................................................................................................................17
7.4. Competition.......................................................................................................................................17
7.5. Natural Hazard..................................................................................................................................18
7.6. Steps to be taken to minimize expected risks are:............................................................................18

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EXECUTIVE SUMMRY
The name of the business is Kumsa Moroda Bakery. The business is organized as a Partnership
form of business. The business Address is East Wollega Zone, Nekemte city, Kebele 04, Tele
011-681-53-46. The business is engaged in bakery that mainly produces Tekorach, a type of
cake that is favored by most people.

The business is established to solve the prevailing market gap where poor quality Tekorach cake
is being served. Most of the bakeries produce and sell tekorach cake just to earn money without
taking into account the quality of the cake served and the satisfaction of the customers. This
business is aimed at serving the interest of customers. With an ever increasing number of
populations as a result of the expansion of the city from urbanization and newly built university
and private colleges, the demand for cake has been alarmingly increased with the supply
remaining almost constant. The owner has many years of experience in similar activities.

The business is believed to create permanent job opportunities for 3 individuals for the time
being. In the future when the firm enters into full production and activity more than 8 individuals
will earn their livelihood from the business.

About 80% of the capital required for running the business will be secured from OCSCO
(Oromiya credit and saving lns.S.C), a financing unit established mainly to provide loan for
micro and small scale enterprises. The loan is paid back within a period of three years with equal
monthly payments at an annual rate of 8%. The loan is to be secured from the fund allocated by
the region for the youth unemployed.

The total capital required is Br. 140790. Out of this Birr 28790is contributed by the owners while
the rest 112000 will be long term loan from OCSCO.

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INTRODUCTION

1.1. Background of the business area

The area where the business is to be undertaken is Nekemte city, the capital of East Wollega
zone. The city situated on the main road from Addis Ababa to Wallega and Illuababora, which is
about 350 Km far from Addis.

Currently one of the Priority areas of development of our country is agriculture. Agriculture is
still to be the leading sector in our economy. As more than 80% of the population is engaged in
agriculture, developing the sector would hasten the economic development. East Wollega is one
the suitable land for agriculture. The development in this sector should be followed by the
industrialization which would use the agricultural outputs as its input and produce products such
as cakes the core objective of this business.

The project is established to process and cake products, especially tekorach, which are highly
demanded in the community. The project uses inputs that are locally available and rely on
agricultural products as source of its inputs. The hotels and restaurants in the city as well as
households are targeted as main customers.

1.2. Objective of the project

1.2.1 General objective of the project
The project is intended to supply high quality tekorach for hotels, restaurants, cafes, and
households with the aim of attaining customer satisfaction at a higher level and thereby earn
profit.

1.2.2. Specific objectices of the project

The specific objectives of the project are:
 Bake and distribute high qulity and standardized cake outupts, especially
tekorach, to customers that would attain the maximum satisfaction of the
customers.
 Provide employment opportunities and thereby ensure the economic welbeing
of the society
 Contribute towards the economic develpment endeavor of the country
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1.3. Significance of the project
The project will have the following significances

I. Curbing the unemployment problem in the area

At least six individuals will earn their livelihood from this project: A security
worker, a janitor, two bakers, and two distributers. The employment capacity of
the enterprise will rise to ten individuals within a period of three years as the firm
expands its activities and capacity.

II. Source of revenue to the government

The firm pays taxes to the government based on its earnings. By doing so, the firm
has a contribution in empowering the government to provide public utilities.

III. Promotes health competition in the town

The firm would increase the number of firms engaged in similar activities which
would increase competitiveness and hence creates stable market for the consumers
for their bargaining power would increase with increase in the number of
competitors.

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 CHAPTER TWO

OVERVIEW OF THE PROJECT

2.1. Definition of the Project

Currently one of the Priority areas of development of our country is agriculture. Agriculture is
still to be the leading sector in our economy. As more than 80% of the population is engaged in
agriculture, developing the sector would hasten the economic development. But the development
in this sector should be followed by the industrialization which would use the agricultural
outputs as its input and produce products that would substitute imports.

Accordingly, the cake bakery project which is to be established at Nekemte city is in accordance
with the government’s priority areas and development programs which lays foundation for agro-
processing the laying of appropriate atmosphere for industrialization program in the country.

2.2. Description of The Business

The name of the business is Kumsa Moroda Bakery .the venture is going to start operation in
Nekemte.

The venture is owned by a small group of person, it is a Partnership form of business .Currently
the firm has secured license and become legalized, and attained entrepreneurial skill training and
on the way to get loan to run the business.

2.3. Description of the Industry

At present time, with the increase in the number of the population and rising income of some
sectors of the economy, the demand for cakes and other related products is becoming alarmingly
increasing. This can be witnessed simply by the number of cafes and restaurants that have been
mushroomed in every corner of the town. All these cafes except very few buy cakes to serve for
their customers. These cafes need best quality cakes that would provide maximum satisfaction to

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their customers. Kumsa Moroda bakery knows well the weak points of its competitors and can
easily win the market by filling theses gaps. The rapid economic development in the area is also
another indicator for the potential of future development and expansion.

Potential Advantage over the competitors.

To stay profitably in the market requires some sort of advantage over competitors. Accordingly,
the firm has the following potential advantages over the competitors:

 As the owners has the knowledge and experience in the undertaking, they can easily
adapt modern techniques of production and win competition
 The owners can introduce modern techniques of production that enables their provide
quality products and thereby have larger market share
 Can, in the long-run, establish bakery firm that supplies bakery products that are up to
the standard and would fill the current gap
 People are becoming conscious on health factors. Providing health cakes requires care
and skill. As the business works towards ensuring this fact, the business can gain control
over the market.
 The firm starts door-to-door selling besides distributing its products to the identified and
targeted customers. It also opens two market outlets to reach its customers.

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CHAPTER THREE: MARKETING PLAN
Selecting the business location is one of the several factors which is vitally important for the
success or failure of a small business and is one of the primary initial concerns of the
entrepreneur. In many instances, the entrepreneur looks no further than the centre of the city or
nearest to the university.
The business has planned to be situated on the road from wallega and illubabora to Addis and
opens its outlets in down town, near to the university. These places were selected for a number of
reasons;

1. It is accessible as it is right on the main road that leads to Addis Ababa. This enables
distribution of the product easily.
2. It is possible to transport required inputs and other supplies from the surrounding
market or from Addis..
3. It is easy for expansion and diversification in the long-run.

The main customers are hotels and restaurants, cafes, inns, and households. Of this the share of
the cafes are assumed to be larger as many of the target customers are from this sector.

3.1.Total Demand
The demand has been analyzed taking into account the number of cafes, hotels, restaurants,
hotels, and inns in the city. In addition the estimated numbers of households that can daily buy
soft cake daily were taken into account the existing demand. There are about 50 restaurants, 150
cafes and inns, and about 10 hotels in the city. Of these firms, about 50% do not produce cakes
by themselves, i.e., they buy it from manufacturers. Besides there are about hundred thousand
dwellers in the city, the number varies from month to month, as there is great number of people
flowing into the city from rural areas as well as from the nearby towns and regions. Supposing
that 0.2% of the population consume on soft cake or tekorach, 200 dwellers will buy the product.

If the hotels, cafes, inns, and restaurants all in the average demand 100 cakes each day the
households to the average demand 2 cakes each day the total daily demand will be
(50+150+10)*.5*100= 10,500. The dwellers ‘daily demand will be 600=(200*3) Hence, the

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aggregate daily demand equals 11,100. Supposing that there are 5-10 bakeries and equal sales
opportunity and production capacity a firm can produce and offer for sale 2220-1110 cake per
day and 66600-33300 per 30 days. Supposing that our firm can operate at 75% capacity, the
daily supply will be 1665-832.5 each day.

3.2.Market Share
There are 5-10 bakeries in the city. But those who have the skill and knowledge of bakery are not
more than four. Therefore, if we divide the market for all of the 10 firms, each will have the
capacity of producing 2220 cakes per day (50% of the share). If our firm has the capacity to offer
for sale 75% of the available market, it is possible to produce 1665 slices of cakes each day. The
retail selling price currently is 10 to 15 Birr. Kumsa Moroda Bakery can be profitable if it sells
its cake at 8 Birr per loaf. By doing so, it can expand its market and increase its market share.
Quality wise, the cake of Kumsa Moroda Bakery is by far exceeds all the cakes currently
provided for sale.

Accordingly, Daily sales Birr value will be 13,320 =(1665*8). Assuming constant sales volume
and price the monthly sales value will be Br. 399600.

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3.3. Sales Plan

Meskerem

Megabit
Nehasie

Yekatit
Tahsas

Ginbot
Tikimt

Miazia
Hamle

Hidar

Sene
Tirr
Sales/Month

Total
Sales Units/month( 49950 49950 49950 49950 49950 49950 49950 49950 49950 49950 49950 49950 49950
Loaf)

Selling price per

loaf( Birr) 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0
Total Sales (Birr) 39,9600 39,9600 39,9600 39,9600 39,9600 39,9600 39,9600 39,9600 39,9600 39,9600 39,9600 39,9600 39,9600

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3.5.Promotional Measures
The major promotional effort is through direct marketing. The enterprise uses one or more
advertising media to attain a measurable response and /or transaction at any location. It aims to
create and exploit dialogues between the services provider and the customer.

3.6.Marketing Strategy
The marketing strategy the firm follows should enable it to have competitive advantage over its
rivaling firms. Accordingly, the firm under discussion has its own marketing strategies to grow
customers and increase its market share in the foreseeable future. Some of the strategies are:

a). Quality products at reasonable and affordable prices:

The firm offers quality product with due care to it from the time of production to delivery to
customers, the price being well below that of the competitors.

b). Distribution mechanism. It has its own distribution centers that are accessible to
customers. Customers can chose any of the three centers and get timely (morning or afternoon)
the agreed up on quantity.

c) Credit facilities:Credit facilities are scheduled for customers, especially those who
buy in large quantity for a period of less than one week.

d) Continuous feedback from customers: Customers are provided with an

opportunity whereby they can provide their opinion with regards to distribution, price, and
quality of the product every month. For this the firm has developed a form as to collect the
desired information on continuous improvements are thus made.

3.7.Marketing Budget
The cost that the firm incurs with regards to marketing is distribution related costs. The firm
rents a Bajaj to distribute cake door to door. The monthly costs being 1800 Birr.

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CHAPTER FOUR:PRODUCTION PLAN

4.1. Preoperational costs

No Preoperational activities Estimated
expenses
1 Business registration 2,000
2 Staff salary for 1st month 9,000
3 Architect fee for workshop planning and construction 4,500
4 Purchase of equipment and furniture 114,190
5 Water and electric line installation 8,450
6 Office and sanitary supplies 2,650
Total Project cost 140,790

4.2. Fixed capital

The fixed capital of the firm is presented below:

The depreciation per unit of cake is 0.15 which is calculated as 1712.85 monthly Depreciation
divided by slices of cake per month (16,200)

` Equipment/specification Quantity Unit Total Depreciat

cost cost ion/month
(birr) (ETB)
1 Distribution outlets 3 25000 75,000.0 1125.00
0
2 Furniture and Fixture 1 5000 5,000.00 75.00
3 Oven 1 15000 15,000.0 225.00
0
4 Refrigerator 1 12000 12,000.0 180.00
0
5 Equipment 1 5000 5,000.00 75.00
6 Working table 1 1500 1,500.00 22.50
7 Bawl 1 50 50.00 0.75
8 Sieve 1 30 30.00 0.45
9 Measuring spoon 1 10 10.00 0.15
10 Scale 1 450 450.00 6.75
11 Whisker 1 50 50.00 0.75
12 Baking sheet/mould 1 100 100.00 1.5
Total 114,190 1712.85

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4.3. Bill of materials& costs: For 100 portion

a. Raw materials needed

No Ingredients Quantit Unit Unit cost Total cost Remark

y (Birr) (ETB)
1 Cake Flour 1 Kg 30 30
2 Egg 10 Number 7 70
3 Oil/Butter 0.125 Kg 90 11.25
4 Sugar 0.5 Kg 60 30
5 Salt 1 Tbs 0.1 0.1
6 Baking 1 Tbs 0.75 0.75
powder
Total 142.10

b. Direct labor Cost

No Position qualification Wage/day Remark

(ETB)
1 Cooker Kitchen Operation 250
2 Laborer Grade 10 150
Total 400

4.4.Other Operating Expenses including marketing and distribution

No Description of the expense Per month Yearly
expenditure Expenditur
e
1 Heat and power 6500 78000
2 Transportation 3600 43200
3 Admin and Selling 7200 86400
Expenses
4 Miscellaneous Expense 4000 48000
Total 21300 255600

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4.5. Unit sales price
NO Item Cost/ETB

1 Raw materials 181.1

2 Overhead 224.4
3 Labor 300
4 Sub-total 705.5
5 Markup (20%) 141.1
Grand Total 846.6
6 Price per Unit 8.0

CHAPTER 5: ORGANIZATION AND MANAGEMENT PLAN

5.1. The form of Business

The business is organized as partnership. They have articles which governs the profit and loss
distribution, the dissolution and liquidation of partnership, the role and responsibility of each
partner in the firm, and the amount of salary allowance each partner receives each month.
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5.2. Membership in the Firm
The membership in the firm is determined by the consent or agreement of the members. The
benefits and risks of the new partner are determined by the owners. If need be the heads of the
firm can be replaced by other members. The details will be stated in the articles of partnership.

5.3. Leadership of the Firm

The responsibilities and authorities of the leaders of the firm will be stipulated in the articles of
the partnership. The liquidation of the firm, if needs be, will be conducted based on the
commercial law of the country.

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CHAPTER SIX: FINANCIAL PLAN

6.1. Profit and loss Statement

Hamle Neha Mesk Tikimt Hidar Tahs Tirr Yekat Mega Miaz. Gin. Sene Total
Revenue 137,700 137,700 137,700 137,700 137,700 137,700 137,700 137,700 137,700 137,700 137,700 137,700 1,652,400
CGS & Operating 89,100 89,100 89,100 89,100 89,100 89,100 89,100 89,100 89,100 89,100 89,100 89,100 1,069,200
Gross margin 48,600 48,600 48,600 48,600 48,600 48,600 48,600 48,600 48,600 48,600 48,600 48,600 583,200
Operating Exp 30,780 30,780 30,780 30,780 30,780 30,780 30,780 30,780 30,780 30,780 30,780 30,780 369,360
Net income before 17,820 17,820 17,820 17,820 17,820 17,820 17,820 17,820 17,820 17,820 17,820 17,820 213,840
interest and taxes
Interest Expense
404 404 404 404 404 404 404 404 404 404 404 404 4,848
Net Income before
Taxes 17,416 17,416 17,416 17,416 17,416 17,416 17,416 17,416 17,416 17,416 17,416 17,416 208,992
Income Taxes
6096 6096 6096 6096 6096 6096 6096 6096 6096 6096 6096 6096 73152
Net Income
11,320 11,320 11,320 11,320 11,320 11,320 11,320 11,320 11,320 11,320 11,320 11,320 135,840

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6.2 .Statement of cash flows
Period Preoper Hamle Nehasie Mes. Tik. Hid. Tah Tir Yek Meg Mia Gin Sene
ational
Beginning Cash balance 0 15549 31098 46647 62196 77745 93294 108843 124392 139941 155490 171039
Equity Capital 28790
LT Loan 112000
Cash Receipts 137,700 137,700 137,700 137,700 137,700 137,700 137,700 137,700 137,700 137,700 137,700 137,700
Total Available 140790 137700 153249 168798 184347 199896 215445 230994 246543 262092 277641 293190 308739
Payments for :
Fixed Capital 114190
Cost of sales & Preop. 26600 89,100 89,100 89,100 89,100 89,100 89,100 89,100 89,100 89,100 89,100 89,100 89,100
Costs
Operating Exp. 30,780 30,780 30,780 30,780 30,780 30,780 30,780 30,780 30,780 30,780 30,780 30,780
Principal & Interest 2,271 2,271 2,271 2,271 2,271 2,271 2,271 2,271 2,271 2,271 2,271 2,271
Total Costs & expenses 140790 122151 122151 122151 122151 122151 122151 122151 122151 122151 122151 122151 122151
Ending Cash Balance 0 15549 31098 46647 62196 77745 93294 108843 124392 139941 155490 171039 186588

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6.3. Beginning Balance Sheet
Assets
Cash 0
Direct Materials & Supplies 26600
Equipment & Furniture 114,190
(net)
Total Assets 140,790

Liabilities
Long term Loan 112,000
Owners’ Equity 28,790
Total Equity 140,790

6.4. Loan Amortiation

Pmt. Beginning Scheduled Total Principal Interest Ending Cumulative
No. Balance Payment Payment Balance Interest
1 112,000.00 2,270.96 2,270.96 1,524.29 746.67 110,475.71 746.67
2 110,475.71 2,270.96 2,270.96 1,534.45 736.50 108,941.26 1,483.17
3 108,941.26 2,270.96 2,270.96 1,544.68 726.28 107,396.58 2,209.45
4 107,396.58 2,270.96 2,270.96 1,554.98 715.98 105,841.60 2,925.42
5 105,841.60 2,270.96 2,270.96 1,565.35 705.61 104,276.25 3,631.03
6 104,276.25 2,270.96 2,270.96 1,575.78 695.18 102,700.47 4,326.21
7 102,700.47 2,270.96 2,270.96 1,586.29 684.67 101,114.19 5,010.88
8 101,114.19 2,270.96 2,270.96 1,596.86 674.09 99,517.32 5,684.97
9 99,517.32 2,270.96 2,270.96 1,607.51 663.45 97,909.82 6,348.42
10 97,909.82 2,270.96 2,270.96 1,618.22 652.73 96,291.59 7,001.15
11 96,291.59 2,270.96 2,270.96 1,629.01 641.94 94,662.58 7,643.10
12 94,662.58 2,270.96 2,270.96 1,639.87 631.08 93,022.71 8,274.18
13 93,022.71 2,270.96 2,270.96 1,650.80 620.15 91,371.90 8,894.33
14 91,371.90 2,270.96 2,270.96 1,661.81 609.15 89,710.09 9,503.48
15 89,710.09 2,270.96 2,270.96 1,672.89 598.07 88,037.20 10,101.55
16 88,037.20 2,270.96 2,270.96 1,684.04 586.91 86,353.16 10,688.46
17 86,353.16 2,270.96 2,270.96 1,695.27 575.69 84,657.89 11,264.15
18 84,657.89 2,270.96 2,270.96 1,706.57 564.39 82,951.32 11,828.54
19 82,951.32 2,270.96 2,270.96 1,717.95 553.01 81,233.38 12,381.54
20 81,233.38 2,270.96 2,270.96 1,729.40 541.56 79,503.98 12,923.10
21 79,503.98 2,270.96 2,270.96 1,740.93 530.03 77,763.05 13,453.13
22 77,763.05 2,270.96 2,270.96 1,752.54 518.42 76,010.51 13,971.55
23 76,010.51 2,270.96 2,270.96 1,764.22 506.74 74,246.29 14,478.28
24 74,246.29 2,270.96 2,270.96 1,775.98 494.98 72,470.31 14,973.26
25 72,470.31 2,270.96 2,270.96 1,787.82 483.14 70,682.49 15,456.39
26 70,682.49 2,270.96 2,270.96 1,799.74 471.22 68,882.75 15,927.61

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27 68,882.75 2,270.96 2,270.96 1,811.74 459.22 67,071.01 16,386.83
28 67,071.01 2,270.96 2,270.96 1,823.82 447.14 65,247.20 16,833.97
29 65,247.20 2,270.96 2,270.96 1,835.97 434.98 63,411.22 17,268.95
30 63,411.22 2,270.96 2,270.96 1,848.21 422.74 61,563.01 17,691.69
31 61,563.01 2,270.96 2,270.96 1,860.54 410.42 59,702.47 18,102.11
32 59,702.47 2,270.96 2,270.96 1,872.94 398.02 57,829.53 18,500.13
33 57,829.53 2,270.96 2,270.96 1,885.43 385.53 55,944.11 18,885.66
34 55,944.11 2,270.96 2,270.96 1,898.00 372.96 54,046.11 19,258.62
35 54,046.11 2,270.96 2,270.96 1,910.65 360.31 52,135.46 19,618.93
36 52,135.46 2,270.96 2,270.96 1,923.39 347.57 50,212.08 19,966.50
37 50,212.08 2,270.96 2,270.96 1,936.21 334.75 48,275.87 20,301.24
38 48,275.87 2,270.96 2,270.96 1,949.12 321.84 46,326.75 20,623.08
39 46,326.75 2,270.96 2,270.96 1,962.11 308.84 44,364.64 20,931.93
40 44,364.64 2,270.96 2,270.96 1,975.19 295.76 42,389.45 21,227.69
41 42,389.45 2,270.96 2,270.96 1,988.36 282.60 40,401.09 21,510.29
42 40,401.09 2,270.96 2,270.96 2,001.62 269.34 38,399.47 21,779.63
43 38,399.47 2,270.96 2,270.96 2,014.96 256.00 36,384.51 22,035.63
44 36,384.51 2,270.96 2,270.96 2,028.39 242.56 34,356.12 22,278.19
45 34,356.12 2,270.96 2,270.96 2,041.92 229.04 32,314.20 22,507.23
46 32,314.20 2,270.96 2,270.96 2,055.53 215.43 30,258.67 22,722.66
47 30,258.67 2,270.96 2,270.96 2,069.23 201.72 28,189.44 22,924.38
48 28,189.44 2,270.96 2,270.96 2,083.03 187.93 26,106.42 23,112.31
49 26,106.42 2,270.96 2,270.96 2,096.91 174.04 24,009.50 23,286.35
50 24,009.50 2,270.96 2,270.96 2,110.89 160.06 21,898.61 23,446.42
51 21,898.61 2,270.96 2,270.96 2,124.97 145.99 19,773.64 23,592.41
52 19,773.64 2,270.96 2,270.96 2,139.13 131.82 17,634.51 23,724.23
53 17,634.51 2,270.96 2,270.96 2,153.39 117.56 15,481.12 23,841.80
54 15,481.12 2,270.96 2,270.96 2,167.75 103.21 13,313.37 23,945.00
55 13,313.37 2,270.96 2,270.96 2,182.20 88.76 11,131.17 24,033.76
56 11,131.17 2,270.96 2,270.96 2,196.75 74.21 8,934.42 24,107.97
57 8,934.42 2,270.96 2,270.96 2,211.39 59.56 6,723.03 24,167.53
58 6,723.03 2,270.96 2,270.96 2,226.14 44.82 4,496.89 24,212.35
59 4,496.89 2,270.96 2,270.96 2,240.98 29.98 2,255.92 24,242.33
60 2,255.92 2,270.96 2,255.92 2,240.88 15.04 0.00 24,257.37

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CHAPTER SEVEN: RISK ASSESSMENT

7.1 Financial Risks

The financial risks can be seen from the fact that increase in investment may result in
rise in demand for loan which may give rise to the interest rates. In addition in case
demand for cake, profitability may be very low and it would be difficult for the business
get addition cash for expansion

In order to overcome such problems, the enterprise plans to mobilize personal assets
rather than entering into a high financial risks. The financial risk may also arise if there
exists slack in economy where the employed equipment and machinery may left idle
without giving service and could not be used otherwise.

7.2. Market Risk

Market risk may arise due to such reasons as decrease in market shares as result of new
entrants of the same product or substitute products. The market risk may also emerge as
a result of globalization where the domestic market may be over flooded by imported
items that are relatively cheaper.

7.3. Consumer Risk

Consumer risk is expected to occur if customers are driven away from buying our
product because of the emergence of high quality products with low prices. Customer
risk in the form of fall in purchasing power due to slack in economic activities is also
expected to set in. Customers may also divert their demand to other products due to fall
income or change in taste.

To overcome the problem changing product quality and features are expected to win
customers.

7.4. Competition
If there is a high demand in the market, and pure profit in the industry, this leads to
increase in the number of suppliers. Increase in the number of suppliers increases supply
and decreases price, supply of other things being constant. The increase in the number
of competitors thereby drives out existing suppliers from the market as for most
enterprises the price falls below average variable cost and incur loss. Only those

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enterprises that could produce at the prevailing market price may stay competent and
finally reap pure profit in the long run.

To overcome such risks the enterprise, plans how to tackle such circumstances and
produces at the minimum possible cost and works at marginal profit. The pure profit to
be earned at times of less competition may also be used as an instrument to face such
risks and remain competent in the market.

7.5. Natural Hazard

Natural hazard in the form of earthquake, drought, flood, fire, livestock diseases etc.
also hampers or halt the progress and healthy functioning of an enterprise. This may
adversely affect the profitability, competitiveness, even existence of an enterprise. To
overcome such risks, the enterprise buys casualty insurance and be protected against
such risks.

7.6. Steps to be taken to minimize expected risks are:

 Buying causality insurance
 decreasing the risk of finance through minimizing the amount of loan by
providing money and other assets from personal contribution
 Stocking of raw materials at time of abundance if such expectation as price
rise in the future is expected to occur in the future.
 Winning customers through product diversification and quality products and
adding new features to products and service.

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WOLEGA UNIVERSITY
ENTREPREUNERSHIP
GROUP ASSIGNMENT
NO NAME ID CLASS

1 KEMALU BEKELE 1304089 “A”

2 AREBU KEDIR 1303518 “A”

3 ABEL TESO 1303354 “A”

4 ARSEMA DEREJE 1302768 “A”

5 ABRAHAM WANA 1303377 “A”

6 ABABU TOLERA 1302687 “A”

7 LEMAN SORESA 1303061 “A”

8 GELANA DENUSA 1303919 “A”

9 ASAMINEW TUSE 1303527 “A”

10 ALAMUDIN MOHAMED 1303444 “A”

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