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

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

Furniture Pakistan-PM Youth Loan Scheme-Raw Material Shop Business of 12

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)


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 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.


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.


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.


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


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


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


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

Furniture Pakistan-PM Youth Loan Scheme-Raw Material Shop of 12

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

Furniture Pakistan-PM Youth Loan Scheme-Raw Material Shop of 12

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

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