Business Proposal Barber Shop
Business Description
Barber Shop
Proponent
Mr. Onalenna Ramontshonyana has seven years experience as the owner of the barber shop. He
has 3 employees that work on a part-time basis. The shop is registered with the Gaborone Town
Council. Mr. Ramontshonyana has accounts with BBS and BSB and has secondary education up
to form 2.
Location
The barber shop is located at the corner of the Kagiso Mall parking lot, opposite the private
hospital, in the centre of Gaborone. Although the barber shop is located in Gaborone, there is no
mains electrical connection.
Business Factors
The barber shop renders barber services such as cutting of hair and shaving. The business is
strategically located with high exposure to people shopping at the Kagiso Mall and people visiting
the private hospital. The barber shop is housed in a portocabin which the owner obtained on a
cash basis in 1999. This portocabin
was paid from savings. The barber
shop initially used a small generator
for powering the business but it was
found that the generator had high
running costs and was constantly
breaking down. In 2000 a solar
system was purchased for
approximately P5000, consisting of
two 50Wp solar panels and one
100Ah batteries and a regulator and
inverter. In 2006 the solar panels were
stolen since they were not fixed
properly on the roof. After this a
portable solar panel was used that
was placed outside during daytime
and taken inside during the night to prevent theft. In December 2006 a new system was installed
with four solar panels and four 100Ah batteries. This system is capable of providing sufficient
energy for the barber shop, as well as lighting advertising located at the outside of the barber shop.
The business is open 7 days per week from 8am to 19.00am
There is a good opportunity to generate additional income from payphone operation and cell phone
charging. Also the service may be increased by installing ceiling fans to make it more comfortable
for the clients.
Pre-Assessment
The barber shop is an existing and operating business. It has proven to be feasible. This exercise
serves as an assessment to determine if similar barber shops may be feasible in other areas and
to determine what the most important success and failure factors may be.
From the operational experience, the following facts are known:
Cost of:
Portocabin: P20.000
Inventory: P5.000
solar system: P8.000
1
Production:
Number of hair cuts per day: 5/day start of the month, 20/day towards the end of the month
Price per haircut: plain P15/cut style P20/cut
Number of shaving per month is 50 at P5/shaving
Operational expenses:
The owner has 2 to 3 helpers who are paid depending on the number of clients that they serve. It is not
clear how much these helpers earn. They are well known / relatives of the business owner.
There is no payment for rent since the portocabin is owned by the entrepreneur. The portocabin is not
insured.
Advertising is by word of mouth
Approximately P200 is spent on shaving cream, powders, creams, etc. on a monthly basis.
The pre-assessment table1 contains all above data. Then sensitivity analysis with table 1 shows
the impact of the various cost factors. Most sensitive elements are the number of haircuts per
month, the price per haircut and the wages.
Market Assessment
There seems sufficient demand for the services that the barber shop is offering since the business
has been in operation for over 7 years. Income could increase considerably if there would be more
customers earlier in the month. The barber shop serves 20 persons towards the end of the month.
This is four times more than in the first half of the month. A better marketing effort could improve
this situation. Also there could be a price setting with a discount earlier in the month to attract more
customers, to avoid working under-capacity for most of the time. Furthermore a customer loyalty
programme could be established where a customer gets a free haircut say every 5th haircut.
The existing barber shop is not a typical shop that is normally found in rural villages in Botswana.
Most often barber shops operate either from private premises or are set up under a tree with an
additional shade. An assessment has also been made for this type of operation and the results are
shown in table 2. This operation is further assessed (simple barber shop).
Table 3 shows a comparison between the simple barber shop that uses solar energy and a barber
shop that uses hand clippers. The comparison shows that the barber shop with hand clippers has
less investment cost but also fewer clients due to slower operation of the hand clippers, and as a
result fewer clients can be served. Since there is a high sensitivity towards number of clients, this
barber shop is not viable. It appears that the investment in a solar powered clipper pays off.
Operational Plan
It appears that awareness regarding the possibility of using a solar powered hair clipper is lacking
with many small barber entrepreneurs. There are a number of entrepreneurs that use a car battery
that they charge every number of days. Also there are no 12VDC clippers available in Botswana.
What is required is a product package that offers a 12VDC clipper with one or two 12VDC lights,
two 50Wp solar panels and two 100Ah batteries that can be offered to the potential users. Therefor
what is required is:
awareness creation
technology package
Table 4 gives the cash flow during the first three years of operation. The cash flow analysis at the
bottom of the table indicates clearly, how much financing would be required. Under the prevalent
conditions, capital infusion of 1000 Euro would be sufficient. The graphs 4a and 4b visualize this
business development for the first year, and for three years, respectively.
Table 5 finally, gives the profitability forecast and balance for the business start-up.
2
Table 1: Pre-Assessment of existing Barber Shop
INSABA Preassessment of Project Proposals
Country: Botswana
Pilot Region: Gaborone
RE Technology: Solar PV Electricity
Business Idea: Barber shop using Solar Energy
Proponent name, contact Mr. Onalenna Ramontshonyana
Years of experience as owner of business 7
Number of employees w/contract 3
Proponent uses bank acount (yes=5, No=0) 0
Experience with formal loan (received=5, applied=3, no=0) 0
Experience in cost calculations, business p(no=0, several=5) 2
Practice in maintaining/operating equipment (RET) (none yet=0, regularly=5) 5
Total 17
ROE BW Pula to US$ 6
Calculation of ROI
Barber sshop US$ Determination of parameters Definitions
The barbershop operates in a portocabin. Most
Investment Capital 3,333.33 Portocabin shop (1999)
rural barbers operate fron a shade under a tree
Investment Capital 833.33 Inventory and equipment Scissors, mirrors, chairs, table, etc.
2x 50Wp solar panels, 2x 100Ah batteries, battery
Investment Capital 1,333.33 PV solar system
box, regulator, inverter, wiring and installation
Investment Capital 5,500.00 Total of shop, inventory, equipment and PV Total cost of investment
Investment Life of the investment - i.e. period before it must
15 Conservative average life
Lifespan be replaced
Haircuts 160 Haircuts per month
Production 1920 Haircuts per year Units produced per year
Price/unit 2.83 Haircut: Plain=P15, Style=P20 say av.= P17 Sales price per unit produced and sold
Production 600 Shavings per year
Price/unit 0.83 Price of shaving
Revenue 5,940 US$ Sales price multiplied by number of units sold
Variable cost/unit Calculated inti fixed costs
Cost per unit produced e.g. material, processing
Variable cost/unit
packaging
Cost of energy/unit 0 no other energy costs of power, fuel added to variable cost
Fixed costs 3000 Wages Annnual
Fixed costs 116.67 Battery replacements Lifetime of battery taken as 2 yrs, cost per year
Fixed costs 400.00 Shaving cream, spirits, powders, etc. Annnual
Annual indirect costs such as rent, telephones,
Total fixed costs 3,516.67 Total fixed costs
salaries
Amount needed per unit to cover investment in
Amortization/unit: 0.19 367
lifetime
Direct costs per Variable costs plus amortization plus cost of
0.19 367
unit: energy
Gross Margin/unit 2.64 Sales price per unit less the direct costs per unit
Note: Changing the number of haircuts per
Total fixed costs divided by the number of units
Fixed costs/unit 1.83 month from 120 to 160 per month changes
produced
the ROI from 4% to 28%. Equally sensitive
Total costs 2.02 3,883 for the price per haircut. Direct costs plus fixed costs
Net Margin 0.81 1,557 Revenue less total costs
Return on Investment = net margin divided by
ROI 28%
capital investment
Payback period capital investment divided by cash flow until intial
2.86
years expenses are compensated by the net margin
3
Table 2: Pre-Assessment of simple Barber Shop
INSABA Preassessment of Project Proposals
Country: Botswana
Pilot Region: Rural Area
RE Technology: Solar PV Electricity
Business Idea: Barber shop using Solar Energy
Proponent name, contact Cheaper alternative
Years of experience as owner of business 1
Number of employees w/contract 1
Proponent uses bank acount (yes=5, No=0) 0
Experience with formal loan (received=5, applied=3, no=0) 0
Experience in cost calculations, business p(no=0, several=5) 2
Practice in maintaining/operating equipment (RET) (none yet=0, regularly=5) 0
Total 4
ROE BW Pula to US$ 6
Calculation of ROI
Barber Shop US$ Determination of parameters Definitions
Investment Capital 166.67 Operates under nylon shade Small shade fixed permanently
Investment Capital 166.67 Inventory and equipment Scissors, mirrors, chairs, table, etc.
1x 50Wp solar panels, 1x 100Ah batteries, battery
Investment Capital 583.33 PV solar system
box, regulator, inverter, wiring and installation
Investment Capital 916.67 Total of shop, inventory, equipment and PV Total cost of investment
Investment Life of the investment - i.e. period before it must
15 Conservative average life
Lifespan be replaced
Haircuts 75 Haircuts per month
Production 900 Haircuts per year Units produced per year
Price/unit 2.83 Haircut: Plain=P15, Style=P20 say av.= P17 Sales price per unit produced and sold
Production 300 Shavings per year
Price/unit 0.83 Price of shaving
Revenue 2,800 US$ Sales price multiplied by number of units sold
Variable cost/unit Calculated inti fixed costs
Cost per unit produced e.g. material, processing
Variable cost/unit
packaging
Cost of energy/unit 0 no other energy costs of power, fuel added to variable cost
Fixed costs 1800 Wages Annnual
Fixed costs 58.33 Battery replacements Lifetime of battery taken as 2 yrs, cost per year
Fixed costs 400.00 Shaving cream, spirits, powders, etc. Annnual
Annual indirect costs such as rent, telephones,
Total fixed costs 2,258.33 Total fixed costs
salaries
Amount needed per unit to cover investment in
Amortization/unit: 0.07 61
lifetime
Direct costs per Variable costs plus amortization plus cost of
0.07 61
unit: energy
Gross Margin/unit 2.77 Sales price per unit less the direct costs per unit
Total fixed costs divided by the number of units
Fixed costs/unit 2.51
produced
Total costs 2.58 2,319 Direct costs plus fixed costs
Net Margin 0.26 231 Revenue less total costs
Return on Investment = net margin divided by
ROI 25%
capital investment
Payback period capital investment divided by cash flow until intial
3.14
years expenses are compensated by the net margin
4
Table 3: Competitive Analysis
INSABA Verification & Market-Assessment of Project Proposals
Country: Botswana
Pilot Region: Gaborone
RE Technology: Solar PV Electricity
Business Idea: Barber shop using Solar Energy
Market Context : describe
There appears sufficient potential for Barber Shops. The business is scalable to a
certain degree. When more energy is required due to an increase of customers, solar
panels and batteries may be added, provided this has been considered when
purchasing the regulator and inverter. The same business model is replicable for
Market Size & Potential different parts of the country.
Market needs barbers and with the correct service and price setting there appears little
Market Need, Risk risk
There in competition with barbers that use either clippers opereted from the electric
grid, where grid connections are available and hand clippers.
Competitor
Competing Technology Electricity (subsidized) and human operated hair clippers
Using solar powered clippers compared to hand clippers give better end result and
increased speed. Solar system may power light for extended business hours and
ventalation for improved comfort.
Appropriateness of RET
Barbers with hand clippers may operate cheaper
Market Segment
Main Differentiator Better end result, faster, more comfort due to ventilation
Sustainable Production n.a.
Manual hand clippers
Calculation of Competitiveness Compared to simple Barber Shop
Barber Shop Alternative Description of Alternative
Investment Capital 917 333 Simple barber shop with hand clipper
Investment
Lifespan
15 15 equipemnt
Haircuts per year is reduced because hair
Production 900 600 cutting is manual > slower and less service
Price/unit 2.83 2.00 Cheaper rates for hair cutting
Production 300 300 Shavings not effected by hair clipper
Price/unit 0.83 0.83 Price of shaving
Revenue 2,800 1,450 US$
Variable cost/unit
drying of 10 kg lasts 10 h, stove needs 1 kW,
Cost of energy/unit 0 0 price of power is 0,22 €/kWh, therefore costs
for power are 2,2 €/kg
Fixed costs 1,800 1,800.00 Wages not effected by technology
Fixed costs 58 0.00 Battery replacements > no batteries
Fixed costs 400 300.00 Shaving cream, spirits, powders, etc.
Total fixed costs 2,258 2,100 Total fixed costs
Amortization/unit: 0.07 61 0.04 22
Direct costs per
0.07 61 0.04 22
unit:
Gross Margin/unit 2.77 1.96 ROI of alternative barber shop with manual hair
clippers is negative due to less customers and
Fixed costs/unit 2.51 3.50 reduced price per hair cut. Because of the high
sensitivity to these to factors there is a large
Total costs 2.58 2,319 3.54 2,122 change in the ROI comparing the two different
Net Margin 0.26 231 -1.54 -922 businesses.
ROI 25% -277%
Payback period
3.14 -0.37
years
5
Table 4: Cash Flow Analysis
Month-1 Month-2 Month-3 Month-4 Month-5 Month-6 Month-7 Month-8 Month-9 Month-10 Month-11 Month-12
Cash Flow Analysis Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1
Products Sales
Hair cuts 50 75 75 75 75 75 75 75 75 75 75 100
Shavings 15 25 25 25 25 25 25 25 25 25 25 35
Product 3 0 0 0 0 0 0 0 0 0 0 0 0
Cash Inflow
Turnover Price
Hair cuts 2.83 142 212 212 212 212 212 212 212 212 212 212 283
Shavings 0.83 12 21 21 21 21 21 21 21 21 21 21 29
Product 3 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL Turnover 154 233 233 233 233 233 233 233 233 233 233 312
TOTAL Cash Inflow 154 233 233 233 233 233 233 233 233 233 233 312
Cash Outflow
Material Cost
Hair cuts 25 25 25 25 25 25 25 25 25 25 25 25
Shavings 8 8 8 8 8 8 8 8 8 8 8 8
Product 3 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL Material 33 33 33 33 33 33 33 33 33 33 33 33
Overhead Cost
Staff A share 150 150 150 150 150 150 150 150 150 150 150 150
Staff B
Office share 0 0 0 0 0 0 0 0 0 0 0 0
Communication 0 0 0 0 0 0 0 0 0 0 0 0
Vehicle 0 0 0 0 0 0 0 0 0 0 0 0
Marketing 0 0 0 0 0 0 0 0 0 0 0 0
Investment 917 0 0
Investment Lifespan 15 6
TOTAL Overhead 1,067 150 150 150 150 150 150 150 150 150 150 150
Capital cost
interest, redemption 16% 35 35 35 35 35 35 35 35 35 35 35 35
TOTAL capital 35 35 35 35 35 35 35 35 35 35 35 35
TOTAL Cash Ouflow 1,135 218 218 218 218 218 218 218 218 218 218 218
Operating Result -981 15 15 15 15 15 15 15 15 15 15 94
/accumulated -981 -966 -951 -936 -921 -906 -891 -876 -861 -846 -831 -737
Capital input 1,000
Cash Flow 19 34 49 64 79 94 109 124 139 154 169 263
6
Cash Flow Analysis: First Year
4.000 400
3.500 200
3.000 0
2.500 -200
2.000 -400
1.500 -600
1.000 -800
500 -1.000
0 -1.200
Month-1 Month-2 Month-3 Month-4 Month-5 Month-6 Month-7 Month-8 Month-9 Month-10 Month-11 Month-12
TOTAL Cash Inflow, acc TOTAL Cash Outflow, acc Operating Result Operating Result, acc Cash Flow
Cash Flow Analysis: 1st - 3rd Year
4.000 2.500
3.500
2.000
3.000
1.500
2.500
1.000
2.000
500
1.500
0
1.000
-500
500
0 -1.000
Year 1 Year 2 Year 3
TOTAL Cash Inflow TOTAL Cash Outflow Operating Result Operating Result, acc Cash Flow
Profitability Preview Balance
Year 1 Year 2 Year 3 Year 1
Sales 2.796 3.121 3.445 Assets Liabilities
Cost of Sales 400 0 0 fixed assets 856 shareholders equity 452
Gross profit 2.396 3.121 3.445 current assets 263 liabilities 667
other operating income 0 0 0 Σ 1.119 Σ 1.119
personnel costs 1.800 1.900 2.000
hire charges 0 0 0 Year 2
communication 0 0 0 Assets Liabilities
vehicle 0 0 0 fixed assets 794 shareholders equity 1.528
marketing 0 0 0 current assets 1.067 liabilities 333
office 0 0 0 Σ 1.862 Σ 1.862
interest 83 83 83
depreciation 61 61 61 Year 3
other expenses 0 0 0 Assets Liabilities
TOTAL Expenses 1.944 2.044 2.144 fixed assets 733 shareholders equity 2.829
annual surplus/deficit 452 1.076 1.301 current assets 2.096 liabilities 0
/accumulated 451,89 1528,28 2829,17 Σ 2.829 Σ 2.829
7
