Feasibility Study - Furniture...
Transcript of Feasibility Study - Furniture...
Feasibility Study
(Raw Material Shop Business Plan)
Furniture Pakistan Ministry of Industries & Production Government of Pakistan
www.furniturepakistan.org.pk
HEAD OFFICE
A subsidiary of PIDC, Ministry of Industries & Production 4-A Lawrence Road,
Lahore-54000
Tel.: 092-042-99205271-3 Fax: -092-042-99205276
Note: All Services / information related to PM's Youth Business Loan are Free of Cost
February , 2014
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Table of Contents
1. DISCLAIMER .......................................................................................................................................... 3
2. PURPOSE OF THE DOCUMENT ......................................................................................................... 4
3. INTRODUCTION TO FURNITURE PAKISTAN ..................................................................... 4
4. INTRODUCTION TO SCHEME ........................................................................................................... 5
5. EXECUTIVE SUMMARY ...................................................................................................................... 5
6. BRIEF DESCRIPTION OF PROJECT & PRODUCT ........................................................................ 6
7. CRITICAL FACTORS ............................................................................................................................6
8. INSTALLED & OPERATIONAL CAPACITIES................................................................................. 6
9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT ..................................................................... 7
10. POTENTIAL TARGET MARKETS ............................................................................................... 7
11. PRODUCTION PROCESS FLOW .................................................................................................. 7
12. PROJECT COST SUMMARY ......................................................................................................... 7
12.1 PROJECT ECONOMICS .................................................................................................................... 7
12.2 PROJECT FINANCING....................................................................................................................... 7
12.3 PROJECT COST ............................................................................................................................. .. 8
12.4 SPACE REQUIREMENT..................................................................................................................... 8
12.5 MACHINERY & EQUIPMENT ............................................................................................................. 8
12.6 RAW MATERIAL REQUIREMENTS .................................................................................................. 9
12.7 HUMAN RESOURCE REQUIREMENT .............................................................................................. 9
12.8 REVENUE GENERATION AND PRODUCTION MIX ....................................................................... .... 9
12.9 O T H E R C O S T S ....................................................................... .... 9
13. K E Y A S S U M P T I O N S ...................................................................................................... 10
14. ANNEXURE 14.1. INCOME STATEMENT (ANNEXURE 1) 14.2 BALANCE SHEET (ANNEXURE 2)
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1. DISCLAIMER
This information memorandum is to introduce the subject matter and provide a
general idea and information on the subject. Although, the material included in
this document is based on data / information gathered from various reliable
sources; however, it is based upon certain assumptions which may differ from
case to case. The information has been provided on ‘as is where is’ basis without
any warranties or assertions as to the correctness or soundness thereof. Although,
due care and diligence has been taken to compile this document, the contained
information may vary due to any change in any of the concerned factors, and the
actual results may differ substantially from the presented information. Furniture
Pakistan, its employees or agents do not assume any liability for any financial or
other loss resulting from this memorandum in consequence of undertaking this
activity. The contained information does not preclude any further professional
advice. The prospective user of this memorandum is encouraged to carry out
additional diligence and gather any information which is necessary for making an
informed decision, including taking professional advice from a qualified
consultant / technical expert before taking any decision to act upon the
information.
For more information on services offered by Furniture Pakistan, please contact our website:
www.furniturepakistan.org.pk.org.pk
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2. PURPOSE OF THE DOCUMENT
The objective of the pre-feasibility study is primarily to facilitate potential
entrepreneurs in project identification for investment. The project pre-feasibility
may form the basis of an important investment decision and in order to serve this
objective, the document / study covers various aspects of project concept
development, start-up, production, marketing, finance and business
management.
The purpose of this document is to facilitate potential investors in Raw Material
Shop Business Plan by providing them with a general understanding of the
business with the intention of supporting potential investors in crucial investment
decisions.
The need to come up with feasibility reports for undocumented or minimally
documented sectors attains greater importance, as the research that precedes
such reports reveal certain thumb rules; best practices developed by existing
enterprises by trial and error, and certain industrial norms that become a guiding
source regarding various aspects of business set-up and it’s successful
management.
Apart from carefully studying the whole document one must consider critical
aspects provided later on, which form basis of any investment decision.
3. INTRODUCTION TO FURNITURE PAKISTAN
For many decades, since independence of Pakistan, Textile and agro based
products were considered to be the major commodities for export purposes.
Unfortunately, little concern was given to other industrial sectors for export
promotion. Due to drastic increase in population of Pakistan, the exports of these
products were not only reduced; instead, these commodities are imported from
around the world in order to fulfill the requirements of local population.
The need of time is to focus on different industrial sectors other than Textile and
agro-based products for diversification of our exports and uplift our economic
plight. The new sectors may involve labour intensive products, the quality of labour
intensive products are totally dependent on the skills of artisans and craftsmen.
The export from Sialkot in surgical and sports products is an example of labour
intensive diversification of products that can be exported and are readily
acceptable in the international markets. Through promotion of labour intensive
products, the job opportunities are enhanced and resources are utilized in an
appropriate way.
To promote and enhance the compatibility of the furniture industry and
craftsmanship of Pakistan in international markets, the Government of Pakistan
developed a strategy. Establishment of the company ‘Furniture Pakistan’ is the
major component of the strategy as envisioned by the eminent Government
Authorities.
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The project was taken up as a joint collaboration between Small and Medium
Enterprise Development Authority (SMEDA) and USAID. Renowned international
consultancy firms like J.E Austin were involved for this purpose. An organization
was formulated under the name of the Strategic Working Group (SWOG),
consisting of 27 members that included stakeholders from all major furniture
business and production clusters from across the country, as well as
representatives from SMEDA. The SWOG carried out cross-country studies of the
major furniture exporters of the world, and drafted the plan of incorporating their
techniques and technologies into Pakistan's industry, which then resulted in the
inception of Furniture Pakistan as a sector development company. The basic
structure of the company was formulated in 2007-08 and in 2009, Furniture
Pakistan initiated its operations under the administration of Pakistan Industrial
Development Corporation (PIDC).
4. INTRODUCTION TO SCHEME
Prime Minister’s Youth Business Loan’ scheme, for young entrepreneurs, with an
allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide
subsidized financing at 8% mark-up per annum for one hundred thousand
(100,000) beneficiaries, through designated financial institutions, initially by the
National Bank of Pakistan (NBP) and the First Women Bank Ltd. (FWBL).
Loans from Rs. 0.1 million to Rs. 2.0 million with tenure up to 8 years inclusive of
1 year grace period, and a debt: equity of 90: 10 will be disbursed to SME
beneficiaries+ across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa,
Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered
Tribal Areas (FATA).
5. Executive Summary:
The proposed project is for setting up a Raw Material Shop Business Plan. This
unit will be capable of providing standardized raw material to the furniture sector.
The project will focus and cater to the growing needs of domestic wooden furniture
market. Housing and construction industry has seen a steady growth over the last
many years due to a number of factors. These include; development of new
housing schemes, introduction of housing finance schemes / loans by different
banks, increased urbanization, a growing middle class and enhanced purchasing
power of the public. All these factors have contributed directly and indirectly
towards an increased demand for wooden furniture.
The wooden furniture business venture entails a total investment of about Rs.
909,000/- . This includes a capital investment of Rs.50,000/- and a sum of Rs.
600,000/- as initial working capital. The project is financed through 90% debt
and 10% equity. The project will generate direct employment opportunity for 1
person.
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6. BRIEF DESCRIPTION OF PROJECT & PRODUCT This unit is capable of providing standardized raw materials i.e. cut to size
wooden planks, finishing and coating solutions misc. hardware items.
This business will mainly rely on the buying capability of the purchaser for wooden
planks and hardware items.
It is recommended to use dry wood, from forests for manufacturing quality
wooden furniture. Forest reserves like Changa Manga, Pakhowal, Kundian,
Chicha watni, Bahawalpur and other forests are potential sources. Furniture
manufacturing units in Pakistan mostly use Sheesham wood. Other types of
woods used in manufacturing furniture are; Teak wood, Walnut wood and Keekar
wood. Besides this, substitute material like lasani and vinboard are also used in
the manufacturing of furniture. Other materials used in furniture manufacturing
process are nails, screws, glue/solution, spirit, lakh, thiner, lacquer, sealer,
hardener etc. These raw materials are easily available in the market.
The demand for wooden furniture in the domestic market is consistent throughout
the year, however, it significantly increases during the period of October to March
due to ‘wedding season’. The demand for furniture almost doubles during this
period and is a good time to enter the market. Since strong competition already
exists in the domestic market.
7. CRITICAL FACTORS
• Ensuring availability of seasoned (dry) wood for high quality furniture
manufacturing. Seasoned (dry) wood minimizes deforming that may occur
due to dampness in wood.
• Good Purchasing capability from the local buyers, consequently raising the
level to international buying.
• In depth knowledge about the types of wood and its use, types of finishings
and coatings.
• Aggressive virtual marketing needs to be undertaken in the absence of a
physical showroom.
• Higher return on investment and a steady growth of business is expected
with the entrepreneur having some prior experience/education in the related
field of business.
• Easy access to raw material should be ensured.
8. INSTALLED & OPERATIONAL CAPACITIES
The proposed project is capable of providing cut to size wooden planks as a major portion and misc. hardware, and finishing & coatings solutions in a small portion.
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manufacturing complete range of wooden furniture and other allied products to meet the demand of domestic market. The Unit will work on 8 hours shift for 300 days. This unit is capable of providing different types of raw materials.
9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT
The demand for wooden furniture is higher in densely populated cities of
Pakistan i.e. Lahore, Multan, Karachi, Peshawar, Rawalpindi and Islamabad,
making all these options viable. However, establishment of the unit in the vicinity
of established wooden furniture clusters i.e. Lahore, Chiniot or Gujrat gives the
added advantage of high demand for raw materials.
10. POTENTIAL TARGET MARKETS Potential markets for wooden furniture can be categorized into the following; building contractors, suppliers, furniture manufacturers both large and small scale. Wooden furniture retail clusters are found in most areas of all big cities of Pakistan, where furniture manufacturing raw materials can be sold easily.
11. BUSINESS PROCESS FLOW
12. PROJECT COST SUMMARY
A detailed financial model has been developed to analyze the commercial viability of Raw Material Shop under the ‘Prime Minister’s Youth Business Loan’ scheme. Various costs and revenue related assumptions along with results of the analysis are outlined in this section.
The projected Income Statement, Cash Flow Statement and Balance Sheet are attached as annexure.
12.1 Project Economics: It is estimated that around 1800 ft3 will be sold by the proposed raw material shop and the cost of each ft3 sold would be Rs. 3300 on an average.
The commercial viability of this project will depend upon the expertise of purchasing the wood and raw materials.
12.2 Project Financing:
Details of the equity required and variables related to bank loan are as follows:
Purchase of
Wood &
Furniture
Accessories
Target Market
Warehousing
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Table 1: Project Financing Description Details
Total Equity (10%) Rs. 101,000 Bank Loan (90%) Rs. 909,000 Markup to the Borrower (Percentage / annum) 8% Loan Tenure (years) 8 Years Grace Period (years) 1 year
12.3 Project Cost: Following requirements have been identified for operations of the proposed business.
Table 2: Capital Investment for the project
Sr. No. Description Cost in PKR
Equipment
1 Office equipment and racking 50,000
50,000
Operating Cost (Per Month)
Sr. No. Description Cost in PKR
1 Utilities 10,000
2 Labour (1 persons @ PKR 10,000/- per person per month)
10,000
3 Raw Material / working capital 200,000
4 Rent (500 sqft shop) 10,000
230,000
12.4 Space Requirement: The project is proposed to be set-up in rented premises. In this way, the initial capital cost of the project will be far less.
Table 3: Space Requirement
Space Requirement (in ft) Sq.ft Workshop 500 Total Area 500
12.5 Raw Material Requirement: Following raw materials are required for this program:
Table 4: List of raw materials may be purchased for this project
Sr. No. Description Tentative Qty Units
1 White Ash 690 ft3
2 Beach Wood (European) 450 ft3
5 Soft Wood 30 ft3
6 Tropical Wood (Rose Wood, Accuica)
90 ft3
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Sr. No. Description Tentative Qty Units
8 Sealer 1,000 ltrs
9 Lacquer 1,500 ltrs
10 Thinner 2,000 ltrs
11 Water based caotings 3,000 ltrs
12 Misc Hardware as per requirement
12.6 Consumables and Raw Material: The details of the consumables and raw materials required per year are already depicted in previous table.
12.8 Human Resource Requirement:
Table 5: Human Resource Requirement
Description No. of employees
Salary per person Rupees
Per Month Salary
Rupees
Annual Salary
Rupees
Workmen 1 10,000 10,000 120,000 Total 120,000
12.8 Revenue Generation:
Table 6: Revenue Generation (at 60% of production capacity for first year) Product Sales price First Year
Sale First Year Sales Revenue (Rs.)
Wood & Furniture Accessories 3200 1800 ft3 3,600,000
Total Sales Revenue 1800 ft3
3,600,000
12.9 Other Costs: Approximately 500 sq.ft of office space will be required to setup this p r o g r a m . Monthly rent is estimated up to Rs. 10,000/ month (5% yearly increase) and utility charges @10,000/ (10% yearly increase). In year 1, the total rent cost amounts to Rs. 120,000. Similarly, utility expense is estimated to be about 10,000 per month which comes to Rs.120 ,000 per annum
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13. KEY ASSUMPTIONS
Maximum Capacity Utilization 100%
REVENUE ASSUMPTIONS
3200 Wood sale/ unit (1st
year)
Sale price growth rate (15.5%) OR (times) 1.155
EXPENSES ASSUMPTIONS
Electricity Expenses Per/Year (Rs)
80,000
Equipment’s/ Machine maintenance Cost /year (% of total machinery cost) 2.%
Growth in maintenance cost (3 %) OR (times) 1.03
Pre-paid land rent (12 months) 120,000
Raw material 0.00
Consumables cost 600,000 Rent growth rate 5%
COST OF GOODS SOLD ASSUMPTIONS
COGS Growth Rate (21%) OR (times) 1.21
Financial Assumptions
Project Life (Years) 08
Debt 90%
Equity 10%
Interest Rate on Long term debt 8%
Debt Tenure (Years) 8
Debt payments per years 12
Grace Period (Year) 1
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Annexure-1
Prime Minister Youth Business Loan
Furniture Pakistan
Raw Material Shop
Income StatementYear 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Revenue 3,600,000 3,960,000 4,356,000 4,791,600 5,270,760 5,797,836 6,377,620 7,015,382 7,716,920 8,488,612
Cost of Good Sold
Operation Cost 1 (Direct Labour) 120,000 132,000 145,200 159,720 175,692 193,261 212,587 233,846 257,231 282,954
Operation Cost 2 (Direct Electricity) 84,000 92,400 101,640 111,804 122,984 135,283 148,811 163,692 180,061 198,068
Operation Cost 3 ( Raw Material) 2,400,000 2,640,000 2,904,000 3,194,400 3,513,840 3,865,224 4,251,746 4,676,921 5,144,613 5,659,074
Total Cost of Sales 2,604,000 2,864,400 3,150,840 3,465,924 3,812,516 4,193,768 4,613,145 5,074,459 5,581,905 6,140,096
Gross Profit 996,000 1,095,600 1,205,160 1,325,676 1,458,244 1,604,068 1,764,475 1,940,922 2,135,014 2,348,516
General Administration & Selling Expense
Administration expense - - - - - - - - - -
Building Rental expense 120,000 132,000 145,200 159,720 175,692 193,261 212,587 233,846 257,231 282,954
Utility expense 36,000 39,600 43,560 47,916 52,708 57,978 63,776 70,154 77,169 84,886
Travelleing expense - - - - - - - - - -
Communciation expense - - - - - - - - - -
Promotional expense - - - - - - - - - -
Sub Total 156,000 171,600 188,760 207,636 228,400 251,240 276,364 304,000 334,400 367,840
Earning Before Interest 840,000 924,000 1,016,400 1,118,040 1,229,844 1,352,828 1,488,111 1,636,922 1,800,615 1,980,676
Interest Expense on long term debt 72,720 69,072 60,694 51,620 41,794 31,151 19,626 7,144 - -
Earnings after Interest 767,280 854,928 955,706 1,066,420 1,188,050 1,321,677 1,468,485 1,629,778 1,800,615 1,980,676
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Annexure-2
Prime Minister Youth Business Loan
Furniture Pakistan
Raw Material Shop
Balance SheetYear 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Current Assets
Cash & Bank 1,010,000 1,727,280 2,582,208 3,537,914 4,604,334 5,792,384 7,114,061 8,582,547 10,212,325 12,012,940 13,993,616
Total Current Assets 1,010,000 1,727,280 2,582,208 3,537,914 4,604,334 5,792,384 7,114,061 8,582,547 10,212,325 12,012,940 13,993,616
Fixed Assets
Machinery & Equipment - 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Furniture & Fixture - - - - - - - - - - -
Office Equipment - - - - - - - - - - -
Total Fixed Assets - 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Total Assets 1,010,000 1,777,280 2,632,208 3,587,914 4,654,334 5,842,384 7,164,061 8,632,547 10,262,325 12,062,940 14,043,616
Liabilities & Shareholder's Equity
Current Liabilities
Accounts Payable - - - - - - - - - -
Total Current Liabilities - - - - - - - - - -
Other Liabilities
Long Term Debt 909,000 909,000 808,058 698,737 580,343 452,122 313,259 162,871 - -
Shareholder's Equity
Paid up Capital 101,000 101,000 201,942 311,263 429,657 557,878 696,741 847,129 1,010,000 1,010,000 1,010,000
Retained earnings - 767,280 1,622,208 2,577,914 3,644,334 4,832,384 6,154,061 7,622,547 9,252,325 11,052,940 13,033,616
Total Equity 101,000 868,280 1,824,150 2,889,177 4,073,991 5,390,262 6,850,802 8,469,676 10,262,325 12,062,940 14,043,616
Total Capital and Liabilities 1,010,000 1,777,280 2,632,208 3,587,914 4,654,334 5,842,384 7,164,062 8,632,546 10,262,325 12,062,940 14,043,616