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Feasibility Study

(Small Workshop Startup)

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

http://www.furniturepakistan.org.pk/

Furniture Pakistan-PM Youth Loan Scheme-Small Workshop Startup of 14

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................................................................................. 7

9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT ..................................................................... 7

10. POTENTIAL TARGET MARKETS ............................................................................................... 7

11. PRODUCTION PROCESS FLOW .................................................................................................. 8

12. PROJECT COST SUMMARY ......................................................................................................... 8

12.1 PROJECT ECONOMICS .................................................................................................................... 8

12.2 PROJECT FINANCING....................................................................................................................... 9

12.3 PROJECT COST ............................................................................................................................. .. 9

12.4 SPACE REQUIREMENT..................................................................................................................... 9

12.5 MACHINERY & EQUIPMENT ............................................................................................................. 10

12.6 RAW MATERIAL REQUIREMENTS .................................................................................................. 10

12.7 HUMAN RESOURCE REQUIREMENT .............................................................................................. 10

12.8 REVENUE GENERATION AND PRODUCTION MIX ....................................................................... .... 10

12.9 O T H E R C O S T S ....................................................................... .... 11

13. K E Y A S S U M P T I O N S ...................................................................................................... 12

14. ANNEXURE 14.1. INCOME STATEMENT (ANNEXURE 1) 14.2 BALANCE SHEET (ANNEXURE 2)


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

http://www.furniturepakistan.org.pk.org.pk/


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 Small

Workshop Startup 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.


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 Small Workshop Startup. This unit will

be capable of integrated wooden furniture manufacturing from sourcing and

cutting of wood, to retailing of product to the end customer.

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.

545,400/- . This includes a capital investment of Rs.211,000/- and a sum of Rs.

240,000/- as initial working capital. The project is financed through 90% debt

and 10% equity. The project will generate direct employment opportunity for 3


persons.

6. BRIEF DESCRIPTION OF PROJECT & PRODUCT This unit is capable of producing different sort of wooden furniture i.e. bed sets,

dinning sets, sofa sets, center tables, tables for sofa set and office furniture.

The entire finished product depends on the quality of wood. Detailed technical

know-how about the quality of wood and the use of seasoned / dry wood plays a

vital role in the manufacturing of quality furniture. Wood obtained from the forest

is of prime quality. Therefore, 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, manufacturing of high quality trendy designs and

aggressive marketing is essential to get a prominent place in the market. Despite

the introduction of new/alternative materials in furniture manufacturing, wooden

furniture is still preferred in the domestic market, as well as in the international

market due to its traditional appeal and durability. Over the years, entry into the

global market has also become more competitive, due to demanding factors like

green furniture, multi-functionality, simplicity and neutral colors, Ready-to-

assemble (RTA) and Do-it-yourself (DIY) furniture. Malaysia, Philippines,

Indonesia and China have established strong brand names and have emerged

as key market players.

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.

• Selection of skilled and responsible labor is an important factor, as it can

improve quality of finished product by better craftsmanship & lower wastage.

It is recommended that specialized labor is hired for this business.


• New designs and styles can build brand equity for the business. Creation of

new designs and styles is vital for setting new trends as the market is quite

competitive.

• Aggressive virtual marketing needs to be undertaken in the absence of a

physical showroom.

• Though skilled labor is available in the market, additional manufacturing

workload can be sub-contracted to save time and resources.

• The manufacturing unit will require selling directly to showrooms and direct

clients, for which the owner would need to develop extensive knowledge of

the market.

• 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 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 producing different types of wooden furniture i.e. bed sets, dinning sets, sofa sets, centre tables, tables for sofa set and office furniture. Total number of furniture items produced in year 1 would be 200.

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 easy availability of skilled labor.

10. POTENTIAL TARGET MARKETS Potential markets for wooden furniture can be categorized into the following; newly constructed house, gift on weddings, for renovations, institutional buyers, for offices (public & private sector), etc. Majority of customers in the domestic market belong to first and second category. These customers require furniture for their newly built houses and usually buy a range of products like bed sets, dining sets and sofa sets with other decorative material for their entire house. Initially, entrepreneurs should target these customers to establish the business and increase their customer base. Flourishing hotel and tourism industry can considerably increase the demand for wooden furniture. Large orders can also be secured to supply wooden furniture to hotels and resorts. Wooden furniture retail clusters are found in most areas of all big cities of Pakistan, where manufactured furniture can be sold.


11. PRODUCTION PROCESS FLOW

12. PROJECT COST SUMMARY

A detailed financial model has been developed to analyze the commercial

viability of Small Workshop Startup 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 200 sets per year will be produced by the proposed

small workshop startup program and the cost of each set produced would be Rs.

4800 on an average.

The commercial viability of this project will depend upon the expertise and

creativeness of the workmen and their knowledge about the trends of furniture

components manufacturing. Regular orders from customers will play a vital

role in sustainability of the project and delivering orders on time will add to the

credibility of the business.


12.2 Project Financing:

Details of the equity required and variables related to bank loan are as

follows:

Table 1: Project Financing Description Details

Total Equity (10%) Rs. 60,600 Bank Loan (90%) Rs. 545,400 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

Cash Outflow

Sr. No.

Description Cost in PKR

Equipment

1

Basic Machinery (Thickesser planner, cutter, hands tools)

150,000

150,000

Operating Cost (Per Month)

Sr. No.

Description Cost in PKR

1 Utilities 10,000

2 Labour (2 persons @ PKR 9,000/- per person per month)

18,000

3 Raw Material / working capital 20,000

4 Rent (500sqft shop) 5,000

53,000

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 Machinery and Equipment: Following combination of tools is required for this program:

Table 5: List of tools included in tool kit

Sr. No.

Description Qty Rate Amount

1. Saw 18” 1 20,000 20,000

2. Cutter sliding 1 15,000 15,000

3. Cutter round 1 15,000 15,000

4. Planer / Shaper 12” 1 20,000 20,000

5. Spindle Moulder Machine 1 20,000 20,000

6. Chapaka 1 10,000 10,000

7. Hand Chapaka (jug saw) 1 7,000 7,000

8. Grinder 1 5,000 5,000

9. Drill machine 1 2,000 2,000

10. Compressor 1 16,000 16,000

11. Miscellaneous Tools (Hand Tools, Paint Gun etc.)

1 10,000 10,000

12. Installation costs for machines 1 10,000 10,000

Total

150,000

12.6 Consumables and Raw Material: The details of the consumables and raw materials required per year are as under:

Table 4: Consumables and raw material Description of Item Total Cost

Wood 200,000

Misc Hardware, Colour, etc. 40,000 Total 240,000

12.7 Human Resource Requirement:

Table 5: Human Resource Requirement Description No. of

employees Salary per

person Rupees

Per Month Salary

Rupees

Annual Salary

Rupees Workmen 2 9,000 18,000 216,000

Total 216,000

12.8 Revenue Generation:

Table 6: Revenue Generation (at 60% of production capacity for first year) Product Sales price First Year

Production First Year Sales Revenue (Rs.)

Furniture parts (sets) 4800 200 960,000

Total Sales Revenue 200 960,000


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. 5,000/ month (5% yearly increase) and utility charges @10,000/ (10% yearly increase). In year 1, the total rent cost amounts to Rs. 60,000. Similarly, utility expense is estimated to be about 10,000 per month which comes to Rs.120 ,000 per annum


13. KEY ASSUMPTIONS

Maximum Capacity Utilization 100%

REVENUE ASSUMPTIONS

4800 Furniture sets sale/ unit (1st

year)

Sale price growth rate (15.5%) OR (times) 1.155

EXPENSES ASSUMPTIONS

Electricity Expenses Per/Year (Rs)

100,000

Equipments/ Machine maintenance Cost /year (% of total machinery cost) 2.%

Growth in maintenance cost (3 %) OR (times) 1.03

Pre-paid land rent (12 months) 60,000

Raw material 0.00

Consumables cost 240,000 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


Prime Minister Youth Business Loan Annexure-1

Furniture Pakistan

Small Workshop Startup

Income StatementYear 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Revenue 960,000 1,056,000 1,161,600 1,277,760 1,405,536 1,546,090 1,700,699 1,870,768 2,057,845 2,263,630

Cost of Good Sold

Operation Cost 1 (Direct Labour) 216,000 237,600 261,360 287,496 316,246 347,870 382,657 420,923 463,015 509,317

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) 240,000 264,000 290,400 319,440 351,384 386,522 425,175 467,692 514,461 565,907

Total Cost of Sales 540,000 594,000 653,400 718,740 790,614 869,675 956,643 1,052,307 1,157,538 1,273,292

Gross Profit 420,000 462,000 508,200 559,020 614,922 676,414 744,056 818,461 900,307 990,338

General Administration & Selling Expense

Administration expense - - - - - - - - - -

Building Rental expense 60,000 66,000 72,600 79,860 87,846 96,631 106,294 116,923 128,615 141,477

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 96,000 105,600 116,160 127,776 140,554 154,609 170,070 187,077 205,785 226,363

Earning Before Interest 324,000 356,400 392,040 431,244 474,368 521,805 573,986 631,384 694,523 763,975

Interest Expense on long term debt 43,632 41,443 36,416 30,972 25,076 18,691 11,776 4,286 - -

Earnings after Interest 280,368 314,957 355,624 400,272 449,292 503,114 562,210 627,098 694,523 763,975


Prime Minister Youth Business Loan Annexure-2

Furniture Pakistan

Small Workshop Startup

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 606,000 736,368 1,051,325 1,406,949 1,807,221 2,256,513 2,759,628 3,321,837 3,948,936 4,643,459 5,407,434

Total Current Assets 606,000 736,368 1,051,325 1,406,949 1,807,221 2,256,513 2,759,628 3,321,837 3,948,936 4,643,459 5,407,434

Fixed Assets

Machinery & Equipment - 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000

Furniture & Fixture - - - - - - - - - - -

Office Equipment - - - - - - - - - - -

Total Fixed Assets - 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000

Total Assets 606,000 886,368 1,201,325 1,556,949 1,957,221 2,406,513 2,909,628 3,471,837 4,098,936 4,793,459 5,557,434

Liabilities & Shareholder's Equity

Current Liabilities

Accounts Payable - - - - - - - - - -

Total Current Liabilities - - - - - - - - - -

Other Liabilities

Long Term Debt 545,400 545,400 484,835 419,242 348,206 271,273 187,956 97,722 - - -

Shareholder's Equity

Paid up Capital 60,600 60,600 121,165 186,758 257,794 334,727 418,044 508,278 606,000 606,000 606,000

Retained earnings - 280,368 595,325 950,949 1,351,221 1,800,513 2,303,628 2,865,837 3,492,936 4,187,459 4,951,434

Total Equity 60,600 340,968 716,490 1,137,707 1,609,015 2,135,240 2,721,672 3,374,115 4,098,936 4,793,459 5,557,434

Total Capital and Liabilities 606,000 886,368 1,201,325 1,556,949 1,957,221 2,406,514 2,909,627 3,471,838 4,098,936 4,793,459 5,557,434

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