Feasibility Study for a Trading and Distribution Company in Egypt

How a trading and distribution company makes and loses money

A distribution company buys from a manufacturer or importer at wholesale prices, stores the goods, then delivers them in its own vans to grocers, supermarkets, pharmacies and restaurants, and sells to most of them on credit. Its profit is the gap between the buying and selling price, a small gap on every carton, so the money comes from volume and from how fast stock turns over, not from the price of a single unit.

The problem is that this small gap passes through three stages before it becomes cash in your hand: the goods sit in the warehouse, then go out to the retailer on credit, then wait to be collected, and all that time you have already paid the supplier. That is why a trading and distribution feasibility study does not start with "how much will I earn?" but with two questions: how many days is your pound out of the till, and how much money does it take to fund those days? This page is about distributing to retailers and shops; supplying government bodies and companies through tenders has different arithmetic, covered in a general supplies company feasibility study.

The cash conversion cycle: the number that sets your capital

The cash conversion cycle is the number of days between the pound leaving you for the supplier and coming back from the retailer. It is calculated as:

Cash conversion cycle = inventory days + days retailers take to pay − days the supplier gives you

• Inventory days: how long goods stay in the warehouse before they are sold.
• Days retailers take to pay: the average time a retailer takes to settle.
• Days the supplier gives you: the payment period the manufacturer or importer allows. Many new distributors get none at first.

The longer the cycle, the more working capital you need, meaning cash locked up in stock and in retailers' debts. Roughly, working capital = stock value + amounts owed by retailers − amounts owed to the supplier. The difference between profit and working capital is explained in detail in our article on break-even and working capital.

Distribution costs and the mandatory figures

• Wages: the private-sector minimum wage is EGP 7,000 a month from 1 March 2025¹. Drivers, sales reps and the storekeeper make up most of your team.
• Social insurance: the employer pays 18.75% of the insurable wage and the employee 11%².
• Fuel: the Ministry of Petroleum raised diesel from EGP 17.5 to EGP 20.5 a litre from 10 March 2026, and on 15 October 2026 the automatic pricing committee decided to keep prices unchanged, so diesel stayed at EGP 20.50 a litre³.
• Vans and warehouse: rent or instalments, maintenance and licensing for the vans, and rent, shelving and insurance for the warehouse, all near-fixed whether the van leaves full or not, plus losses from breakage and expiry on top.

Illustrative example: a distributor with two vans and EGP 2.5 million a month in sales

This is an illustrative example. Its figures are assumptions to explain the method, not standard margins or prices for any product. A food and cleaning-products distributor covering one area:

• Sales: EGP 1,000,000 in month one, 1,500,000 in month two, 2,000,000 in month three, then EGP 2,500,000 a month from month four. All figures are before VAT.
• Gross margin: 10%, so the cost of goods is 90% of the selling price.
• Stock: covers one month (30 days), so each month's goods are bought in the month before.
• Retailers: pay after 30 days, and 0.5% of sales are never collected.
• Supplier: takes half of each shipment's value on purchase and half a month later, an average of 15 days.
• Stock losses: breakage and expiry at 0.5% of the cost of goods.
• Sales rep commission: 1% of what is actually collected, not of what is sold.
• Fixed monthly expenses: warehouse rent EGP 25,000; wages EGP 52,000 (two drivers at 8,500 each, two reps at 8,000 each, a storekeeper at 7,500 and an accountant at 11,500); the employer's social-insurance share EGP 9,750; rent for two vans EGP 30,000; diesel EGP 15,350.4 (two vans × 120 km a day × 26 days × 12 litres per 100 km = 748.8 litres × EGP 20.50); maintenance EGP 4,000; and other expenses including the inventory and invoicing system EGP 12,000. Total EGP 148,100.4.
• Start-up costs: EGP 300,000 (warehouse deposit 50,000, shelving and fit-out 110,000, van deposits 30,000, devices and systems 70,000, incorporation and registrations 40,000). The owner draws no salary in the example.

Cash conversion cycle = 30 + 30 − 15 = 45 days. At sales of EGP 2,500,000 a month, working capital is:

So every extra EGP 1 million of monthly sales needs about EGP 1,450,000 of additional working capital. Growth itself consumes cash.

Break-even: out of every EGP 100 of sales, EGP 8.055 is left after the cost of goods, commission, bad debts and stock losses. Break-even = 148,100.4 ÷ 8.055% = EGP 1,838,615 of sales a month. If the average retailer invoice is EGP 3,000, that is about 613 invoices a month, or roughly 12 per van per working day. At EGP 2,500,000 the operating profit is EGP 53,275 a month.

Now the cash, month by month (cash out = goods paid to the supplier + commission + fixed expenses, with start-up costs in month 0; rounded to the nearest pound):

The company passes break-even from month three, yet the deepest cash need reaches EGP 3,921,802 in month four, more than 13 times the start-up costs. Profit does not recover that sum quickly: annual profit at EGP 2,500,000 of monthly sales is EGP 639,295, about 16% of the deepest cash need. For comparison, at its 24 September 2026 meeting the Central Bank of Egypt kept the overnight deposit rate at 19% and the overnight lending rate at 20%, with its next meeting on 29 October 2026⁴. If all the working capital were funded with a loan costing 20% a year, the interest would be about EGP 60,417 a month, more than the entire profit. Your actual loan rate is set by your bank, not by the central bank's rate, so ask for it before you calculate. How to build this table is explained in our article on cash flow for small businesses.

What if retailers pay later or the margin shrinks?

The same example with one assumption changed at a time, at sales of EGP 2,500,000 a month:

Retailers paying 30 days later does not change the paper profit, but it locks up an extra EGP 2,500,000, and funding that at 20% a year costs about EGP 41,667 a month, around 78% of the profit. A two-point margin squeeze, because the manufacturer raised its price and you could not pass it on, almost wipes out the profit. With all three together the company loses money every month, so the balance keeps falling after month 12. On the other hand, if the supplier gave you 30 days instead of 15, working capital would fall to EGP 2,500,000 and the deepest cash need to EGP 2,791,177; if you paid the supplier in cash on purchase, as many new distributors do, they would rise to EGP 4,750,000 and EGP 5,052,427. So negotiate the supplier's payment terms as hard as you negotiate the price.

Distribution cost per invoice

In the example, the two vans with their rent, diesel and maintenance, plus the drivers' wages and social insurance, cost EGP 69,537.9 a month, about 2.8% of sales, or about EGP 83 per invoice averaging EGP 3,000. Distribution eats more than a quarter of the 10% gross margin. The EGP 3 diesel increase in March 2026 adds only EGP 2,246.4 a month to the example; the bigger effect comes from the number of invoices on each route. Work out the minimum order value that justifies a van visit, and compare renting or owning vans with a transport company's cost for the same volume.

Bad debts and stock losses: how to control them

• A written credit limit for each retailer, not exceeded before the previous invoice is paid.
• A weekly receivables ageing report: how much each retailer owes, and for how many days.
• Rep commission on collections, not on sales, as in the example, so reps do not sell to customers who do not pay.
• Stock rotation by expiry date: what expires first goes out first, with a written agreement with the supplier on returns and near-expiry goods.
• Regular stock counts of the warehouse and vans, because unrecorded losses show up as a loss at year end rather than when they happen.

VAT and e-invoicing

The general VAT rate is 14% from fiscal year 2017/2018⁵, and the mandatory registration threshold is EGP 500,000, but the Egyptian Tax Authority's official website states that for schedule goods and services, distribution agents, importers and exporters there is no registration threshold⁶. The law itself requires every importer of a taxable good for trading, every exporter and every distribution agent to register whatever the size of its dealings, and anyone whose sales reach the threshold to register within 30 days of reaching it⁵. The law's definitions article does not define "distribution agent", so whether a wholesaler that buys and resells in its own name counts as one depends on your contract with the manufacturer or importer; check it with an accountant. For a distributor the size of the example the question is academic: month one's sales alone are EGP 1,000,000, twice the threshold, so registration is required either way. Some goods are exempt, and exemption applies only to what is in the exemption list attached to the law⁶.

More important for credit sales: the law treats a sale as made on the earliest of issuing the invoice, delivering the goods, or payment of the price in full, in part or on credit⁵. In other words, VAT is due on the invoice, not on collection, so on a month's sales of EGP 2,500,000 tax of EGP 350,000 is calculated even if the retailer has not yet paid. Because the invoice includes the tax, the retailer actually owes you EGP 2,850,000, not 2,500,000, so the real working capital is higher than the example's figures. On the other side, a registered person may deduct the tax already charged on its purchases⁵, so work out with your accountant how the timing of the return affects your cash.

As for e-invoicing, Decision 323 of 2022 of the head of the Egyptian Tax Authority required all taxpayers registered with the Authority in every governorate who had not been covered by an earlier phase to issue electronic tax invoices from 15 December 2022, with an electronic seal certificate, GS1 or EGS item coding, according to the list of taxpayers published on the Authority's website⁷. So confirm when your company registers the date from which it must join the system, and budget in your study for an inventory and invoicing system that codes every item from day one. Maher Consulting Firm can handle company formation, and you should check your tax position and the profit-tax regime that applies to you with an accountant.

Common mistakes in a trading and distribution feasibility study

1. Calculating capital from the first stock purchase only and forgetting the retailer debts that build up before the first collection.
2. Assuming retailers will pay on time, with no scenario for a 30-day delay.
3. Using the gross margin without deducting distribution, commission, bad debts and stock losses.
4. Growing sales without funding; the example shows that every extra million a month needs about 1.45 million.
5. Relying on a single supplier who can raise prices or cancel the distribution agreement.
6. Postponing tax registration and e-invoicing because sales are still small.

To price items with a margin that covers these costs, see our article on how to price your product, and if you will ask for working-capital financing, read a feasibility study for a bank loan.

Frequently asked questions about a trading and distribution feasibility study

Sources

1. Ministry of Planning and Economic Development. الاجتماع الأول للمجلس القومي للأجور: رفع الحد الأدنى لأجور القطاع الخاص إلى 7000 جنيه (in Arabic) (2025-02-09). Checked 22 October 2026.
2. Andersen Egypt. Social insurance in Egypt (contribution rates under Law 148/2019) (2026-06-30) — secondary source. Checked 22 October 2026.
3. Akhbar El-Yom. ننشر أسباب زيادة أسعار البنزين والسولار (in Arabic) (2026-03-10) — secondary source; Al Khaleej. أسعار البنزين والسولار اليوم في مصر.. قرار رسمي يحسم مصير الوقود (in Arabic) (2026-10-16) — secondary source. Checked 22 October 2026.
4. Akhbar El-Yom. 29 أكتوبر.. البنك المركزي يحسم مصير أسعار الفائدة على الإيداع والإقراض (in Arabic) (2026-10-19) — secondary source. Checked 22 October 2026.
5. Financial Regulatory Authority. قانون الضريبة على القيمة المضافة رقم 67 لسنة 2016 وفقًا لآخر تعديل (in Arabic). Checked 22 October 2026.
6. Egyptian Tax Authority. ما هو حد التسجيل الإلزامي لضريبة القيمة المضافة، وما هي الأنشطة المعفاة منها؟ (in Arabic). Checked 22 October 2026.
7. Egyptian Tax Authority. قرار رئيس مصلحة الضرائب المصرية رقم 323 لسنة 2022 بإلزام المرحلة الثامنة من منظومة الفاتورة الإلكترونية (in Arabic). Checked 22 October 2026.