Feasibility Study for a General Supplies Company in Egypt

How a general supplies company makes money, and where it loses it

A general supplies company does not manufacture anything and usually holds little stock. It wins a supply order or contract from a government body, a public-sector company or a large firm, buys the goods from a supplier, delivers them, and waits to be paid. Its profit is the gap between the selling price and the cost of buying and transporting the goods, usually a fairly thin margin on a large amount.

The problem is that the cash runs the wrong way round: you pay the supplier in full when you buy, you lock money into bid bonds or bank guarantees, and then you wait until the buyer inspects the goods, accepts them and approves payment. So a general supplies feasibility study does not start with "how much do I make on the deal?" but with two questions: how much money is locked up in each contract, and for how many months?

Public procurement rules that belong in the calculation

Contracts with government bodies are governed by Law 182 of 2018 regulating contracts concluded by public entities¹ and its executive regulations, issued by Minister of Finance Decree 692 of 2019². The law applies to bodies included in the state's general budget, local administration units, and public service and economic authorities, unless a special provision says otherwise¹. Companies, whether private or state-owned, are not on that list, so their payment and guarantee terms are whatever the contract says; do not carry the figures below over to them automatically:

• Bid bond (temporary insurance): submitted with the bid; for purchases of movable goods and services it may not exceed 1.5% of the estimated value¹.
• Performance bond (final insurance): 5% of the contract value within ten working days from the day after notice that the bid was accepted¹. It is not collected if the winner delivers all the items and the body accepts them finally within the bond deadline and the items carry no warranty period; where they need a warranty, 5% is deducted from the supplier's dues instead¹.
• Return of the performance bond: it is returned as soon as the warranty period ends, without a request, within ten working days; otherwise the body bears the bank charges for renewing the guarantee and the financing cost of the delay¹. The bond stays valid until three months after the end of the contract unless agreed otherwise².
• Payment deadline: as soon as possible and within no more than thirty days counted from the date of inspection, acceptance and approval¹, not from the day you deliver. Before paying, the body checks that treasury dues such as taxes, stamp duties, social insurance and delay charges have been settled², so the amount you receive may be net of deductions your accountant can work out.
• Late payment: the body must pay the equivalent of the financing cost for the delay at the credit and discount rate announced by the central bank, provided official documents for the amount claimed are submitted¹; the Central Bank of Egypt kept that rate at 19.50% at its meeting on 24 September 2026³. This is a right you claim, not income to build your study on.
• Late delivery charges: in contracts other than construction works, 1% of the contract value or of the late part if the delay does not exceed 3% of the total period, 2% up to 6%, 3% up to 10%, and 5% beyond 10%².
• Quantity changes: if the tender documents provide for it, the body may increase or reduce the quantity of each item by up to 15% in non-construction contracts, on the same terms and prices¹, and the contract price is fixed throughout execution². If your supplier's price rises you carry the difference, and if the quantity is cut you are left with goods you have already bought.
• Advance payment: with the approval of the competent authority, in contracts whose nature requires it, up to 25% of the contract value and up to 50% with medium, small and micro enterprises, against a bank guarantee for the same value and currency².

Under the MSME Development Law 152 of 2020, enterprises deal with ministries, public authorities and local administration units through a classification certificate issued by the MSME Development Agency; these bodies allocate at least 20% of their contracting to medium enterprises and 20% to small and micro enterprises, and some tenders or competitive bids may be restricted to small and micro enterprises⁴. So get the certificate before you build your study on benefits such as the 50% advance. Company formation can be handled by Maher Consulting Firm.

Tax and e-invoicing when you sell to government

The Egyptian Tax Authority announced that from 1 December 2022 no contracts would be made with government bodies and no dues paid except through companies that issue and use electronic tax invoices, a rule that also covers public-sector and public business-sector companies and companies in which the state holds more than 50%⁵. Registration in the e-invoicing system is therefore a condition for getting paid, not just a tax formality.

The general VAT rate is 14%⁶, the mandatory registration threshold is EGP 500,000⁷, and anyone whose sales reach it must apply to register within 30 days of reaching it⁶; the single contract in the example below exceeds it on its own. VAT falls due on the sale, and a sale is deemed to occur at the earliest of three events: issuing the invoice, delivering the goods, or payment of all or part of the price⁶. So if payment is late you may pay the net VAT before you collect your invoice. Check filing and payment dates with your accountant.

Illustrative example: an EGP 1.5 million supply contract, month by month

This is an illustrative example. Its figures are assumptions to explain the method, not market prices. A supplies company wins a contract to supply office equipment and stationery to a public body:

• Contract value: EGP 1,500,000 before VAT, which is also the estimated value of the tender.
• Goods: EGP 1,275,000 before VAT, paid to the supplier in cash in month 1, and transport and delivery EGP 20,000 in month 2. The margin before fixed costs is 1,500,000 − 1,275,000 − 20,000 = 205,000, about 13.7%.
• Bonds: a bid bond at its 1.5% maximum, EGP 22,500, in month 0, then a 5% performance bond of EGP 75,000 on award in month 1, when the bid bond is released. The goods carry a 12-month warranty from delivery, so the performance bond comes back in month 14. We assume the bank asks for full cash cover on the guarantee; a bank guarantee facility reduces that, for a commission.
• VAT: 14% on purchases, EGP 178,500, paid with the goods, and 14% on the sale, EGP 210,000; the difference of EGP 31,500 is paid in month 3 (a simplifying assumption).
• Collection: inspection and acceptance in month 3 and payment within 30 days, so the EGP 1,710,000 including VAT arrives in month 4, ignoring any deductions at payment.

(The table covers the contract alone, before fixed costs and before financing costs.)

The contract makes EGP 205,000 but needs EGP 1,580,000 at its deepest point, so every pound of profit requires about EGP 7.7 of capital locked up for several months. After payment, EGP 75,000 stays locked in the performance bond for another ten months.

What if payment is late or costs move?

We now add the cost of financing the negative balance, assuming 2% a month (24% a year) on the balance at the end of each month. That rate is an assumption for the example; your bank sets the actual rate:

Each month of late payment costs about EGP 31,600 in financing, so a six-month delay is enough to turn the contract into a loss. On a 60-day contract, if the whole quantity is 3 days late (5% of the period) the charge is 2%, EGP 30,000, and beyond 6 days (over 10%) it is 5%, EGP 75,000, more than a third of the margin; the table keeps the payment date unchanged even though delivery was late. An advance payment only helps if the tender terms provide for it and the bank issues its guarantee without full cash cover, and the guarantee commission is not counted here.

Fixed costs and how many contracts you need

The company in the example runs with two employees on the private-sector minimum wage of EGP 7,000 a month, in force from 1 March 2025⁸, plus the employer's 18.75% social-insurance share⁹, i.e. EGP 2,625, rent of EGP 8,000, an accountant at EGP 3,000 and other expenses of EGP 4,000. That is EGP 31,625 a month, or EGP 379,500 a year.

• Before financing costs: 379,500 ÷ 205,000 = about 1.85, so two similar contracts a year.
• After financing costs in the base case: 379,500 ÷ 111,410 = about 3.4, so four contracts.
• If payment is 3 months late: about 22.8 contracts, which is not realistic for a small company.

Performance bonds also pile up: if you win a contract of the same size every 3 months and each bond stays in place for 13 months, at any time you will have 4 or 5 bonds locked up, between EGP 300,000 and 375,000 that you cannot use to bid for new work. The method is explained in our article on break-even and working capital.

How to reduce the capital locked in each contract

• Credit terms from your supplier: every month of credit moves the largest amount in the table closer to, or after, the day you are paid.
• A complete delivery file: the thirty days start from inspection, acceptance and approval¹, so any missing document or specification mismatch delays the start of the clock itself.
• Bonds paid from your dues: since the regulations were amended in January 2020 you may ask for the bid or performance bond to be deducted from dues payable to you by the same body or by another public body¹⁰.
• Assigning your dues: since the law was amended in September 2020 you may assign your dues to a bank or a licensed non-bank financial company, while remaining responsible for performing the contract¹¹, so the contract itself can finance the gap, at a cost you include in your study.
• Lock in the supplier's price for as long as your bid is valid and the contract runs, because your price to the buyer is fixed² and the quantity may change by 15% at the same price¹.

Common mistakes in a general supplies feasibility study

1. Assuming payment right after delivery, when the legal deadline starts only after inspection, acceptance and approval.
2. Applying the law's rules to a corporate client that is not subject to it.
3. Forgetting the performance bond locked for the whole warranty period, and how it builds up with every new contract.
4. Ignoring the cost of financing the gap, which in the example eats about 46% of the profit in the base case.
5. Bidding on a supplier price that is not fixed, or without testing a 15% quantity increase or cut at the same price.
6. Relying on one buyer or on capital for one contract only, so you cannot take the next contract until the previous one is paid.

To build a month-by-month cash table, see our article on cash flow for small businesses, and if you will finance the gap with a loan, read a feasibility study for a bank loan. If your business is repeat selling to shops from permanent stock, see a trading and distribution company feasibility study.

Frequently asked questions about a general supplies feasibility study

Sources

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