Pre-Feasibility Study FURNITURE SHOWRROM Small and Medium Enterprise Development Authority Government of Pakistan www.smeda.org.pk HEAD OFFICE 6th & 8th Floor LDA Plaza, Egerton Road, Lahore Tel: (92 042) 111-111-456 Fax: (92 042) 6304926-7 Helpdesk@smeda.org.pk REGIONAL OFFICE PUNJAB REGIONAL OFFICE SINDH REGIONAL OFFICE NWFP REGIONAL OFFICE BALOCHISTAN 8th Floor LDA Plaza, Egerton Road, Lahore Tel: (042) 111-111-456 Fax: (042) 6304926-7 helpdesk@smeda.org.pk 5TH Floor, Bahria Complex II, M.T Khan Road, Karachi Tel: (021) 111-111-456 Fax: (021) 5610572 Helpdesk-khi@smeda.org.pk Ground Floor State Life Building The Mall, Peshawar Tel: (091) 9213046-47 Fax: (091) 286908 helpdesk-pew@smeda.org.pk Bungalow No 15-A Chaman Housing Scheme Airport Road, Quetta Tel: (081) 831623, 831702 Fax: (081) 831922 helpdesk-qta@smeda.org.pk June, 2006 Pre-feasibility Furniture Showroom DISCLAIMER INTRODUCTION TO SMEDA PURPOSE OF THE DOCUMENT CRITICAL SUCCESS FACTORS IN DECISION MAKING FOR INVESTMENT 3.1 SWOT ANALYSIS 3.1.1 Strengths 3.1.2 Weaknesses 3.1.3 Opportunities 3.1.4 Threats 3.2 CRITICAL SUCCESS FACTORS 3.2.1 Quality of raw material 3.2.2 Attractive Design and Quality Finishing 3.2.3 Sales promotion 3.2.4 Other Success Factors PROJECT PROFILE 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 PROJECT BRIEF OPPORTUNITY RATIONALE TARGET CUSTOMERS MARKET ENTRY TIME PROPOSED BUSINESS LEGAL STATUS PROJECT CAPACITY AND RATIONALE PROPOSED LOCATION PROPOSED PRODUCT MIX OFFERED PROPOSED PRODUCT MIX PROJECT INVESTMENT 10 RECOMMENDED PROJECT PARAMETERS 10 MARKET INFORMATION ABOUT FURNITURE 10 5.1 REQUIREMENT OF WOODEN FURNITURE 11 IMPORTED FURNITURE 12 PROJECT MARKETING STRATEGY 14 7.1 MARKETING STRATEGY 14 7.1.1 Brand Name 14 7.1.2 Advertising 14 7.2 TRENDS IN FURNITURE STYLE 14 7.3 TRENDS IN MATERIALS, COLOURS AND SHAPES 15 7.3.1 Materials 15 PROJECT PRE-REQUISITES 16 FINANCIAL STATEMENTS 23 9.1 9.2 9.3 9.4 PROJECT COST 23 PROFIT & LOSS 24 BALANCE SHEET 25 CASH-FLOW STATEMENT 26 PREF-99/June, 2006/ Rev Pre-feasibility Furniture Showroom DISCLAIMER The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions 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 SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity The prospective user of this memorandum is encouraged to carry out additional diligence and gather any information he/she feels necessary for making an informed decision For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk DOCUMENT CONTROL Document No PREF-99 Prepared by SMEDA Punjab Issue Date June 2006 Issued by SMEDA Punjab PREF-99/June, 2006/ Rev Pre-feasibility Furniture Showroom INTRODUCTION TO SMEDA The Small and Medium Enterprise Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME Support Program Since its inception in October 1998, SMEDA had adopted a sectoral SME Development Approach A few priority sectors were selected on the criterion of SME presence In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants The all-encompassing sectoral development strategy involved recommending changes in the regulatory environment by taking into consideration other important aspects including Finance, Marketing, Technology and Human Resource Development SMEDA has so far successfully formulated strategies for sectors including, Fruits and Vegetables, Marble and Granite, Gems and Jewelry, Marine Fisheries, Leather and Footwear, Textiles, Surgical Instruments, Transport and Dairy Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDA’s areas of operation Along with the sectoral focus a broad spectrum of Business Development Services is also offered to the SMEs by SMEDA These services include identification of viable business opportunities for potential SME Investors In order to facilitate these Investors, SMEDA provides business guidance through its help desk services as well as development of Project Specific Documents These documents consist of information required to make well-researched investment decisions Pre-feasibility Studies and Business Plan Development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way This document is in the continuation of this effort to enable potential investors to make well-informed Investment Decisions PURPOSE OF THE DOCUMENT The objective of this proposed Pre-feasibility is primarily to facilitate potential entrepreneurs with the Investment information and provide an overview about the "Furniture Show Room Business" The proposed Pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document covers various aspects of Furniture Showroom Business Concept Development, Start-up, Operations, Marketing, Finance and Business Management This document also provides Sectoral Information, brief on Government Policies and International Scenario, which have some bearing on the Project itself This particular Pre-feasibility is regarding setting up "Furniture Show Room" In meeting the above tasks we have obtained information from industry sources and officials of major wooden furniture manufacturers and owners of Furniture Show Rooms in Pakistan Our report is based on the information obtained by us from industry sources as well as our discussions with businessmen For financial model, since the forecast/projections PREF-99/June, 2006/ Rev Pre-feasibility Furniture Showroom relate to the future periods, actual results are likely to differ because of the events and circumstances that don’t occur frequently as expected Whilst due care and attention has been taken in performing the exercise, no liability can be inferred for any in-accuracy or omissions reported from the results thereof It is essential that our report be read in its entirety with financial model in order to fully comprehend the impact of key assumptions on the range of values determined 3 CRITICAL SUCCESS FACTORS IN DECISION MAKING FOR INVESTMENT SWOT ANALYSIS Wood is the main raw material and the entire finished product depends on quality of wood The information and technical know how about the quality of wood and use of seasoned (dry) plays a vital role in the manufacturing of good quality furniture and the ultimate establishment of Furniture Show Room Strong competition exists in the international and domestic market Manufacturing and sale of high quality trendy designs and aggressive marketing is essential to get a permanent place in the market Before making the decision, whether to invest in setting up the Furniture Show Room or not, one should carefully analyze the associated risk factors A SWOT analysis can help in analyzing these factors, which can play important role in making the decision 3.1.1 Strengths i- Availability of Cheaper Labor & Raw Material ii- Growing Local Market both in organized and un-organized sectors of the Furniture Industry iii- High quality Furniture using high quality Raw Material iv- The life style of the people is improving and they are getting more quality conscious and are willing to spend more on their house renovation/decoration v- Market penetration through high quality and heavy promotional activities vi- Own designer who could help to create better furniture designs 3.1.2 Weaknesses i- High employment turnover rate ii- Seasonal sector (especially household furniture in the wedding season – November to March) iii- Heavy investment in the working capital iv- Very strict quality control required 3.1.3 Opportunities iii- Increasing preference for the high quality products Construction/Renovation of houses and Offices create new opportunities PREF-99/June, 2006/ Rev Pre-feasibility iii- Furniture Showroom Market share can be acquired from un-organized sector through high quality and promotional activity 3.1.4 Threats iiiiii3 Narrow market, as target market is high class Quality & design of the Furniture needs to be considered very closely as the lifestyle of people is improving Established competitors CRITICAL SUCCESS FACTORS 3.2.1 Quality of raw material The furniture industry in Pakistan is dependent on the quality of the raw material available Although high quality wood is abundant in Pakistan but many times customer complaints arise due to the use of cheaper and low quality wood by the manufacturers It has to be ensured that furniture displayed in Showroom is made of high quality wood 3.2.2 Attractive Design and Quality Finishing The life style of the people is improving and they are getting more quality conscious New tastes and designs are being adopted by the people Special attention should be given to present latest designs according to local market demands & requirements New designs and styles can build brand equity for the business As there is high competition in market, creation of new designs and styles, and setting new trends is vital As this proposed showroom business is expected to target high class, it is likely to attract people living in posh areas of Gulberg, Defence and Model Town etc and the furniture should be able to fulfill their special needs It is therefore more important that furniture should be of latest design, according to new fashion and beauty standards than mere durability and hardness We don’t undermine the importance of durable furniture but it is of utmost importance that furniture should reflect latest style and fashion so as to attract the relevant class of the society 3.2.3 Sales promotion Another critical success factor of this proposed pre-feasibility is the Marketing and Promotion of the Furniture in the market Sales promotion activity is necessary for market penetration This involves the dedication and hard work from the marketing personal and detailed advertising through electronic Media along with the use of other automated marketing techniques 3.2.4 Other Success Factors i- Advance Orders for sale can ensure the success of the Business ii- Assurance to customers that furniture is made of seasoned (Dry) wood Properly seasoned (Dry) wood ensures high quality furniture as it minimizes deforming due to dampness in wood PREF-99/June, 2006/ Rev Pre-feasibility Furniture Showroom iii- New designs and styles can build brand equity for business As there is high competition in market, to make the project commercially viable, creation of new designs ands styles and setting new trends is vital iv- The location of Showroom is very important for success The Showroom should be located in heavily populated or developing cities and its location within the city should in accordance with the target market of the business v- Responsiveness to Customers' demands and requirements is very important to stay in market and retain market share vi- Better customer service and after sale service to promote business goodwill vii- Competitive prices should be offered 4 PROJECT PROFILE PROJECT BRIEF The proposed project is for setting up FURNITURE SHOWROOM This project is only concerned with “Furniture Showroom” and does not include manufacturing facility The furniture manufacturing is assumed to be outsourced to various manufacturers however the project shall have its own designer for the purpose of collecting information about furniture market trends, latest styles, designs, fashions and creating new ones The Project will cater to the needs of domestic market out of the imports and locally manufactured furniture through out-sourcing The products covered in this pre-feasibility are domestic or household furniture in finished form It specifically excludes the contract sector, which includes furniture for civil aviation, hospitals, schools, and other similar purposes Antique, second-hand furniture and garden furniture has been excluded as well In this proposed pre-feasibility furniture is divided into the following major categories: Table 1: Product Categories Product Categories Common Room furniture Bedroom furniture Dining and living Office furniture Upholstered seating Non-upholstered seating PREF-99/June, 2006/ Rev Most Common Items Sideboards, shelf systems, room dividers etc Beds, bedside tables, dressing tables, chests of drawers, wardrobes (fitted or free-standing); Dining sets (tables and chairs), dressers, coffee tables, Desks, tables, chairs, drawer unit, filing cabinets, integrated workstations etc Armchairs, reclining chairs, couches, sofas, divans, footstools, seating elements upholstered with leather, wool, synthetic material, cotton etc; Seats, armchairs, rocking chairs, seats convertible into beds, stools; Pre-feasibility Furniture Showroom OPPORTUNITY RATIONALE The demand for wooden furniture is increasing in the domestic market as well as in the international market due to its traditional appeal and durability despite the introduction of new materials in furniture manufacturing Furniture Showroom is a viable profitable business if done properly on Commercial basis Demand for household and office furniture is growing considerably as socio-economic development is taking place With the rapid increase in the development of new housing schemes, the increased demand of wooden furniture is also anticipated According to the National Housing Policy 2001, the house construction was to be raised by 500,000 houses per annum Furthermore, introduction of new schemes by different banks for house and consumer financing have also raised the purchasing power of general public Furniture, which is given as dowry, forms the major portion of sales of furniture in Pakistan As a result, the demand for household furniture increases substantially in winter and spring season due to weddings Domestic/office requirements and trend of dowry in the form of furniture considerably increase the need for quality furniture Major trading partner of wooden furniture manufactured in Pakistan are USA, UK, Japan, UAE and earning substantial foreign exchange for the country and contributing towards the strengthening of economy TARGET CUSTOMERS Although, currently the Pakistan’s export of the wooden furniture is not significant as compared to total International market but its exports are increasing rapidly Pakistan’s exports of wooden furniture have increased by 34.33 percent in year 2002-2003 Internationally, Pakistan’s major trading partners are Gulf region, Australia, and USA, which are still negligible as compared to the volume of international market There is large scope of wooden furniture in other countries like Spain, Germany, Italy, South Africa, etc This proposed project is concerned with the domestic market of Pakistan The target market for this proposed project would be high class living in posh areas of developed cities The demand in these areas is influenced by the number of new houses/offices built and old houses/offices renovated/reconstructed The renovation and redecoration of households is a routine process in these areas 4 MARKET ENTRY TIME Though the demand for wooden furniture in domestic market exists throughout the year (especially for office furniture & renovation requirements), but it significantly increases during the period of October to March because of the wedding season and hence the demand for the furniture almost gets doubled during this period Hence, the prime time to enter into market is June so that the Showroom gets into commercial operations before the start of the wedding season PROPOSED BUSINESS LEGAL STATUS The said project can be a sole proprietorship or a partnership and even it can be registered under the Companies Ordinance, 1984 with the Securities & Exchange Commission of Pakistan The selection totally depends upon the choice of the entrepreneur This pre- PREF-99/June, 2006/ Rev Pre-feasibility Furniture Showroom feasibility assumes the legal status of a sole proprietorship/partnership as this does not involve heavy investment Moreover less legal requirements and costs are involved in forming, administration and running the sole proprietorship or partnership business Lower tax rates for this type of business legal status would be an added advantage PROJECT CAPACITY AND RATIONALE The proposed project is capable of selling the complete range of wooden furniture and other allied products to meet the demands of the domestic market out of imports and locally manufactured furniture through out-sourcing The Show room will work 11 hours a day for 300 days PROPOSED LOCATION The socio-economic conditions of the country and population have a direct influence on the local furniture demand The Income level of community and improved life style of people also effect the good quality furniture requirements Considering this fact the said project can be started in any posh area of developed cities like Lahore, Karachi, Islamabad, Sialkot or Faisalabad etc It is however recommended to establish the Project at Lahore - Gulberg The general living trend of the people in the region considerably increases the scope for establishment of the proposed project PROPOSED PRODUCT MIX OFFERED This unit is capable of selling different sort of wooden furniture and allied accessories As this project is catering to the needs of the domestic market, it is however assumed that the project will be selling the following furniture items, mix of which is as follows: PROPOSED PRODUCT MIX The proposed project will be selling the Furniture in such mix as have been mentioned below: Table 2: Product Mix Bed Room Set For Bachelors For Married couples Dinning Room seater seater Common Room Drawing Room Office furniture Executive PREF-99/June, 2006/ Rev Single Bed, two side tables, One dressing table, two chairs & one stool Double Bed, two side tables, One dressing table, double seater sofa, one TV Trolley & one stool Projected Sales 75 125 Dinning Table and chairs with trolley Dinning Table and chairs with trolley One TV Trolley, One three seater sofa and two single seater sofas, One wooden partition and a central table One three seater, two single seater and one double seater sofa, one central table, one decorative sofa 75 50 100 One Executive table, one revolving chair, two 75 75 Pre-feasibility General Furniture Showroom chairs, one computer table and one seater sofa One table including computer cabinet, one revolving chair and two other chairs 250 Bedroom furniture is the largest segment as far as the domestic market requirements are concerned and it comprises most of the domestic market of the wooden furniture 10 PROJECT INVESTMENT Total Project cost is Rs 11.97 million worked out in the following table:- Table 3: Project Investment RUPEES Capital Investment 9,681,000 Working Capital Requirement 2,296,202 Total Investment 11 11,977,202 RECOMMENDED PROJECT PARAMETERS Table 4: Project parameters Capacity hour a day for 300 days Project Cost 11,977,202 Human Resource 11 Location Gulberg, Lahore Financial Summary IRR NPV (Rs.) 34.67% 16,919,197 Payback period 4.09 Years The pre-feasibility is based on the assumption of 50% debt and 50% equity However this composition can be changed as per the requirements of the Investor MARKET INFORMATION ABOUT FURNITURE According to Pakistan Economic Census 2005, out of the total 583 thousand manufacturing industries covered in the census, 10.8% were in Wood & Wood Products including furniture According to the census, in the urban areas the share of house hold establishments in wood products including furniture manufacturing was about 8% of the total household manufacturing industries Area wise analysis also depicts the similar trends Details may be seen in the following table Province wise details are given below; Table 5: No of Manufacturing Establishments by Status & Area Manufacturing Status of Establishments Industry All Areas Rural Areas Division Total House Other Total House Other hold than hold than Estab house Estab house PREF-99/June, 2006/ Rev 10 Urban Areas Total House Other hold than Estab house Pre-feasibility 940320 Furniture, metal, nes 940330 Office furniture, wooden, nes 940340 Kitchen furniture, wooden, nes 940350 Bedroom furniture, wooden, nes 940360 Furniture, wooden, nes 940370 Furniture, plastic, nes 940380 Furniture of other materials, incl cane, osier, bamboo/similar material PREF-99/June, 2006/ Rev Furniture Showroom China UAE World China UAE Thailand South Africa World 143 87 534 279 103 23 506 199 7,131 8,372 16 1,823 690 741 33,800 41,155 328 14,971 19,622 111 3,504 3,185 67 2,338 6,353 79 1,230 552 16,651 20,052 China Malaysia USA, PR,USVI Thailand Germany World 130 77 100 47 101 127 198 139 73 59 317 5,981 8,471 2,499 5,321 2,545 2,117 1,105 1,332 1,934 4,211 11,864 China Italy World 70 44 400 203 81 791 3,019 721 16 8,725 2,227 19 Philippines China Malaysia UAE Italy World China UAE Germany Saudi Arabia World China World 125 54 91 51 698 331 117 99 115 47 372 309 151 100 53 14 1,259 616 117 193 98 175 130 530 10 21,960 12,091 3,451 252 553 23,018 6,904 17,337 43,698 27,305 4,153 3,691 570 33,931 26,837 43,345 USA, PR,USVI China 194 61 285 100 13 6,062 21,965 4,046 7,728 Pre-feasibility 7 Furniture Showroom PROJECT MARKETING STRATEGY MARKETING STRATEGY When marketing furniture for the first time, make use of electronic media (cable networks, television, etc.), websites, publicity and advertising in trade, Fashion and Interior Decoration magazines etc In addition, sales promotion can be done at a reasonable cost in order to develop new customers and keep in touch with your current customers For example by a newsletter (by e-mail) one can assure the customers that we are actively following latest interior decoration trends in the Pakistan and are well-aware of the latest developments in quality standards and newer styles & fashion etc In the correspondence, a constant, prompt and reliable communication is vital to build and maintain a long-term business relationship with your customers 7.1.1 Brand Name In our case the name of Furniture Showroom can be promoted Thus after a while people believe in quality of furniture with reference to the Showroom name For this purpose high quality standards must be maintained along with better customer service 7.1.2 Advertising Advertising is another tool aimed at increasing the sale of furniture Advertising in Print Media along with Electronic Media is vital for success In order to get the best out of investment, following should be clarified:   A clearly defined target group A well-formulated message - Potential Buyers - What I want to tell the customer TRENDS IN FURNITURE STYLE In all furniture styles some significant trends are: • Individual items of furniture can be used for different functions: flexible seating for sitting, reclining or sleeping; modular wall systems and living room systems Although newer homes are being built for smaller-sized households, there is a demand for larger sized furniture, particularly loungers or large sofas People like to stretch out on sofas now rather than sitting in the more traditional way • Furniture for older people with a focus on comfort (e.g higher seats) • Part of the trend of making more use of the home space is to extend the home into the garden or onto a patio or veranda • Many households are full of furniture, so rather than overloading their homes, consumers are looking for something with a simple elegance to achieve “less is more” • Combined with this simple functionality, consumers want some emotional attachment with the item For example, LED illumination to enhance simple cabinet, invisible PREF-99/June, 2006/ Rev 14 Pre-feasibility Furniture Showroom loudspeakers in internal doors, new coverings on handles that feel good to touch, flat screen TVs which almost disappear into surroundings when not being used • Small visible legs, made of metal or wood, are an important feature at the moment for living room chairs, couches, armchairs and cupboards and small tables TRENDS IN MATERIALS, COLOURS AND SHAPES Home furniture and furnishings are becoming more colorful The colors used in upholstery furniture fabrics, and cupboard and cabinet fronts are loud and bold The design and form concept in upholstered furniture remains voluminous As far as materials are concerned, there is a decrease in the use of cherry in new lines However, cherry, along with oak and walnut, are key materials for products at the high end of the market The shift towards furniture that is a fusion of wood with materials such as steel, glass and other fabrics is now even more pronounced The vogue is still very much for the dark, exotic look with oak and other wood species presented in a number of guises, striped effect to emulate zebrano, heavily lacquered and most popular of all, stained dark, almost black Modern technology is enhancing pieces with improved finishes and high-tech options 7.3.1 Materials • Woods: Interior parts and primary and secondary frames of most items are made from lower quality wood like birch, ply and laminates, while for exposed surfaces fine timbers are used Lighter hard woods such as oak, beech, maple, alder, birch, cherry and hickory have proved more popular than pine • Rattan: fine wickerwork, bamboo, hemp, abaca and sea grass continue to be important materials, which are increasingly used in natural interiors • Metals: the metallic, hi-tech or industrial look is popular in furniture, being an eye catching element Metals in simple forms are often combined with wood or glass Stainless steel, chrome, wrought iron, aluminum and copper have become popular in the past few years • Glass: smoked glass and other opaque finishes, rather than clear (cold) glass is popular Natural and acrylic glass is increasingly used in combination with other materials in tables, cabinets etc • New materials: Experiments are done with new materials: polycarbonates in matt finish, high gloss, transparent and in many colors Also, recycled polyester is increasingly being used in modern items • Fabrics: these are softer in texture and appearance, with single light natural colors used as a basis Small motifs, textured look, geometric or large colorful designs are possible Floral designs, micro-fibers are still common and (soft) hi-tech fibers are gaining importance • Finishes: There is a trend towards high gloss finish in many colors for tables and chests There is also much use of polished, laminates, satin-finish, acid-etched, painted glass with neutral or bright colors; opaque lacquers; painted and enameled steel; anodized, polished and mat aluminum PREF-99/June, 2006/ Rev 15 Pre-feasibility PREF-99/June, 2006/ Rev Furniture Showroom 16 Pre-feasibility Furniture Showroom FIXED ASSETS Following additional fixed assets are required Office Equipment Items Computers Printers Fax Machine Telephone Sets Fire Fighting Equipments TOTAL No of Items 2 5 Cost per Unit Rupees 30,000 25,000 10,000 500 4,500 Furniture, Fixture & Fittings Items Office Furniture - including tables, chairs, cabinets, etc Items Qty Air Conditioners / Split Units Generator Electric Installations & Fittings cables & wires Fancy Lights Other decoration espenses - sign Board, antiques, wall paintings etc TOTAL 8 Total Cost Rupees 60,000 50,000 10,000 2,500 22,500 145,000 Cost Rupees 280,000 Total Cost Rupees 280,000 Cost per Unit Rupees 25,000 185,000 150,000 Total Cost Rupees 200,000 185,000 150,000 500 500,000 25,000 500,000 50 1,060,000 Motor Vehicles The proposed project will also be following vehicles Items Cars Loader Mazda Motor Cycles Cycles PREF-99/June, 2006/ Rev Qty 1 1 Cost 600,000 675,000 55,000 3,500 17 Total Cost 600,000 675,000 55,000 3,500 1,333,500 Pre-feasibility Furniture Showroom LAND & BUILDING REQUIREMENT 1 L and Land for the proposed business can be acquired on rent or it can be purchased based on the judgment of the entrepreneur It is however recommended to acquire the Land on rent Acquisition of land by way of purchase is not viable for the project since the project is recommended to set up the project in posh area like Gulberg or Defense where the land price ranges between 20,000,000/- to 30,000,000/- The Land Rent is taken to be about Rs 250,000/- per Kannal The total land requirement for this proposed project is assumed to be of approximately 1.5 Kannals B ui l di ng Building & Civil works Display Hall - Ground Floor Display Hall -First Floor Management Offices Wash Rooms Kitchen Store Room Garrage - open Plot Area Lawn / Garden Total Infrastructure Cost Space Reqd Sq ft 5,000 3,000 300 100 100 600 550 100 9,750 Rate Per Sq Ft Rupees 800 700 800 700 600 500 150 100 Total Cost Rupees 4,000,000 2,100,000 240,000 70,000 60,000 300,000 82,500 10,000 6,862,500 10 HUMAN RESOURCE REQUIREMENT 10 Human Resource Requirements Following table shows the requirements of Human Resources Description ADMINISTRATIVE COST Admin & Finance Manager Engineer / Designer Showroom Supervisor Accountant Store Supervisor Office Boy Driver Security Guard, Gate Keepers Sweeper Total Administrative Salaries PREF-99/June, 2006/ Rev Employees 1 1 1 1 18 Salary / Month Annual Salary 20,000 35,000 12,000 7,000 8,000 4,000 5,000 4,500 2,500 240,000 420,000 144,000 84,000 96,000 48,000 60,000 54,000 30,000 1,176,000 Pre-feasibility MARKETING COST Senior Sales Officer Assistant Sales Officer Total Marketing Salaries ADMINISTRATIVE COST Administrative Cost Other Benefits Furniture Showroom 300,000 96,000 396,000 Rs 1,176,000 294,000 1,470,000 MARKETING COST Rs Marketing Cost 396,000 Other Benefits 99,000 495,000 * Other benefits include EOBI, Social Security, Gratuity, Medical and Other welfare expenses PREF-99/June, 2006/ Rev 1 25,000 8,000 19 Pre-feasibility Furniture Showroom 11 KEY ASSUMPTIONS 11 Project Assumptions Projected Life of The Project in Years Sponsors' Equity Debt Financing Annual Mark Up Rate (Short Term & Long Term) Debt Tenure in Years General Inflation Rate 11 10 50% 50% 15% 5% Operating Assumptions Total No of Days in One Year Total No of Months in One Year No of Working Days in One Year Capacity ( Sales ) growth rate 11 365 12 300 5% Depreciation Rate Assumptions Land Buildings Fittings & Installations Office Equipments Furniture & Fixtures Vehicles 11 0% 5% 10% 20% 10% 20% of the Written Down Value of the Written Down Value of the Written Down Value of the Written Down Value of the Written Down Value of the Written Down Value Working Capital Turnover Assumptions The investment in the stock in trade is taken 5,000,000 to be Rs Stores and Spares 30 Days Stores & Spares Consumption Accounts Payable Purchases 30 Days of Cost of Furniture purchase Expenses 30 Days of Total Annual Expenditure 11 Advances & Prepayments Advances to Staff Loans to Staff Advances against expenses Advances to Contractors Electricity Telephone (2 sets) Prepaid Insurance PREF-99/June, 2006/ Rev 20% 10% 5% of the one month's salary of the Total annual salary of the traveling, entertainment, repair, vehicle running, sale promotion and other general expenses 5% of the Raw Material purchases 2,000 per month 300 per month 90 Days Insurance Cost 20 Pre-feasibility 11 Furniture Showroom Long Term Loan Term Total Installments Installments Markup Sales Tax Payable 11 Years 10 bi-annually per year 15% or 7.5% (arrear) Rate 15% month's Annual Sales Tax Revenue Assumptions of locally manufactured furniture - Sale price & Production Mix Units Bed Room Set i For Bachelors ii For Married couples Dinning Room i seater ii seater Common Room Drawing Room Office furniture i Executive ii General 11 Final Price to Consumers net of discount Value ex-Sales Discount Net Sales Tax allowed Value 10% Rupees Rupees Rupees 75 125 60,000 105,000 6,000 10,500 54,000 94,500 75 50 100 75 15,000 20,000 95,000 120,000 1,500 2,000 9,500 12,000 13,500 18,000 85,500 108,000 75 250 65,000 25,000 6,500 2,500 58,500 22,500 Revenue Assumptions of Imported furniture - Sale price & Production M ix Final Price to Consumers net of discount Units Value exDiscount Net Sales Sales Tax allowed Rupees Rupees Rupees Bed Room Sets for married 24 165,000 16,500 148,500 Couples Drawing Room 18 245,000 24,500 220,500 Common Room 18 160,000 16,000 144,000 PREF-99/June, 2006/ Rev 21 Pre-feasibility 11 Furniture Showroom Cost of Sales Locally manufactured Furniture Cost Cost per set Rupees Bed Room Set iFor Bachelors ii For Married couples Dinning Room i6 seater ii seater Common Room Drawing Room Office furniture iExecutive ii General 40,500 70,875 10,125 13,500 64,125 81,000 43,875 16,875 Imported Furniture Cost Bed Room Sets for married Couples Drawing Room Common Room 11 10 111,375 165,375 108,000 Others Carriage & Freight Inward Stores & Spares Research & Development Cost Building and fittings & installations Building Insurance Salaries, Wages & other benefits Traveling & Conveyance Printing & Stationary 11 11 2% 1% 1% 7% 2% 25% 1% 5% of Cost of Furniture of Cost of Furniture of Cost of Furniture of the Cost of the Cost of Building of the Salaries & Wages of Total Cost of Goods Sold of Total Cost of Goods Sold Vehicle Running Expenses Consumption per liter Loader Mazda Cars Motor Cycles Km / Liter 10 Km / Liter 50 Km / Liter PREF-99/June, 2006/ Rev Rate per liter Diesel Diesel Petrol 22 35 35 57 Traveling / day 40 km / day 50 km / day 30 km / day Annual Tours 600 300 300 Pre-feasibility Furniture Showroom 12 FINANCIAL STATEMENTS 12 Project Cost ESTIMATED PROJECT COST & PROPOSED FINANCING RUPEES Fixed Capital Expenditure Building 6,862,500 Fittings & Installations 1,060,000 Office Equipments 145,000 Furniture & Fixtures 280,000 Vehicles 1,333,500 9,681,000 Working Capital Current Assets: Stock in Trade 5,000,000 Stores & Spares 31,373 Cash introduced 500,000 Advances, Deposits & Other Receivables 1,535,655 7,067,027 Current Liabilities: Accounts Payable 2,486,301 Accrued Charges 557,978 Sales Tax Payable 715,688 Provision for Taxation 1,010,859 4,770,826 Total Working Capital 2,296,202 11,977,202 Financed By: Sponsors' Equity 5,988,601 Debt Financing 5,988,601 Total 11,977,202 Project Viability: IRR Payback NPV @ 20% PREF-99/June, 2006/ Rev 34.67% 4.09 Yrs 16,919,197 23 Pre-feasibility 12 Furniture Showroom Profit & Loss Sales out of locally manufactured goods Sales out of imported furniture Sales - Net of Sales Tax Cost of Sales Gross Profit Operating Expenses: Administrative Expenses Marketing Expenses Operating Profit Other Income Financial & Other Charges Mark up on Long Term Loans Bank Charges Profit before Taxation Taxation Profit after Taxation Accumulated Profits - brought forward Accumulated Profits - carried to the Balance Sheet Year - Year - Year - Year - Year - Year - Year - Year - Year - Year - 10 40,837,500 45,023,344 49,638,236 54,726,156 60,335,587 66,519,984 73,338,283 80,855,457 89,143,141 98,280,313 10,692,000 51,529,500 43,009,425 8,520,075 11,787,930 56,811,274 47,239,820 9,571,454 12,996,193 62,634,429 51,894,927 10,739,502 14,328,303 69,054,458 57,017,834 12,036,624 15,796,954 76,132,540 62,656,023 13,476,517 17,416,141 83,936,126 68,861,819 15,074,306 19,201,296 92,539,579 75,692,887 16,846,691 21,169,429 102,024,885 83,212,777 18,812,109 23,339,295 112,482,436 91,491,523 20,990,913 25,731,573 124,011,886 100,606,312 23,405,574 4,266,144 1,674,940 5,941,084 2,578,991 386,471 2,965,462 4,254,713 1,376,687 5,631,400 3,940,053 426,085 4,366,138 4,428,196 943,871 5,372,067 5,367,435 469,758 5,837,193 4,635,418 1,019,651 5,655,069 6,381,555 517,908 6,899,464 4,875,924 1,102,079 5,978,002 7,498,515 570,994 8,069,509 5,149,885 1,191,772 6,341,657 8,732,649 629,521 9,362,170 5,458,028 1,289,409 6,747,437 10,099,254 694,047 10,793,301 5,801,581 1,395,732 7,197,314 11,614,795 765,187 12,379,982 6,182,244 1,511,557 7,693,802 13,297,112 843,618 14,140,730 6,602,162 1,637,778 8,239,940 15,165,634 930,089 16,095,723 77,294 77,294 2,888,168 1,010,859 853,376 85,217 938,593 3,427,545 1,199,641 673,718 93,952 767,669 5,069,524 1,774,333 494,060 103,582 597,641 6,301,822 2,205,638 314,402 114,199 428,600 7,640,908 2,674,318 134,744 125,904 260,648 9,101,522 3,185,533 138,809 138,809 10,654,492 3,729,072 153,037 153,037 12,226,944 4,279,431 168,724 168,724 13,972,006 4,890,202 186,018 186,018 15,909,705 5,568,397 1,877,309 - 2,227,904 1,877,309 3,295,190 4,105,214 4,096,185 7,400,404 4,966,590 11,496,589 5,915,989 16,463,179 6,925,420 22,379,169 7,947,514 29,304,588 9,081,804 37,252,102 10,341,308 46,333,906 1,877,309 4,105,214 7,400,404 11,496,589 16,463,179 22,379,169 29,304,588 37,252,102 46,333,906 56,675,214 PREF-99/June, 2006/ Rev 24 Pre-feasibility 12 Furniture Showroom Balance Sheet Tangible Fixed Assets Long Term Deposits Electricity Sui Gas Current Assets: Stock in Trade Stores & Spares Advances, Deposits & Other Receivables Cash in Hand / Bank Owners Equity: Capital Introduced Accumulated Profits Long Term Loan Current Liabilities: Current Portion of Long Term Loan Accounts Payable Accrued Charges Mark - up payable Sales Tax Payable Provision for Taxation PREF-99/June, 2006/ Rev Year - 8,908,175 Year - 8,225,046 Year - 7,617,588 Year - 7,074,317 Year - 6,585,803 Year - 6,144,279 Year - 5,743,321 Year - 5,377,600 Year - 5,042,671 Year - 10 4,734,814 50,000 10,000 60,000 50,000 10,000 60,000 50,000 10,000 60,000 50,000 10,000 60,000 50,000 10,000 60,000 50,000 10,000 60,000 50,000 10,000 60,000 50,000 10,000 60,000 50,000 10,000 60,000 50,000 10,000 60,000 5,000,000 31,373 1,535,655 5,250,000 34,588 1,640,298 5,512,500 38,134 1,760,374 5,788,125 42,042 1,920,229 6,077,531 46,352 2,096,099 6,381,408 51,103 2,289,506 6,700,478 56,341 2,502,140 7,035,502 62,116 2,735,874 7,387,277 68,482 2,992,785 7,756,641 75,502 3,275,165 3,090,134 9,657,162 18,625,337 5,359,983 12,284,869 20,569,915 8,522,696 15,833,704 23,511,291 12,307,416 20,057,812 27,192,129 16,959,605 25,179,587 31,825,390 22,573,445 31,295,462 37,499,741 30,450,337 39,709,295 45,512,617 39,387,857 49,221,349 54,658,949 49,514,455 59,963,000 65,065,671 60,969,561 72,076,869 76,871,684 5,988,601 1,877,309 7,865,910 4,790,881 5,988,601 4,105,214 10,093,815 3,593,160 5,988,601 7,400,404 13,389,005 2,395,440 5,988,601 11,496,589 17,485,190 1,197,720 5,988,601 16,463,179 22,451,780 - 5,988,601 22,379,169 28,367,769 - 5,988,601 29,304,588 35,293,189 - 5,988,601 37,252,102 43,240,703 - 5,988,601 46,333,906 52,322,507 - 5,988,601 56,675,214 62,663,815 - 1,197,720 2,486,301 557,978 715,688 1,010,859 1,197,720 2,741,147 551,156 404,231 789,045 1,199,641 1,197,720 3,022,115 548,354 314,402 869,923 1,774,333 1,197,720 3,331,882 590,317 224,573 959,090 2,205,638 1,197,720 3,673,399 636,033 134,744 1,057,396 2,674,318 4,049,923 685,822 44,915 1,165,780 3,185,533 4,465,040 740,044 4,922,707 799,097 5,427,284 863,421 5,983,581 933,504 1,285,272 3,729,072 1,417,012 4,279,431 1,562,256 4,890,202 1,722,387 5,568,397 5,968,546 18,625,337 6,882,940 20,569,915 7,726,846 23,511,291 8,509,219 27,192,129 9,373,610 31,825,390 9,131,972 37,499,741 10,219,428 45,512,617 11,418,246 54,658,949 12,743,164 65,065,671 14,207,868 76,871,684 25 Pre-feasibility 12 Furniture Showroom Cash-Flow Statement Profit before Taxation Depreciation Stock in Trade Stores & Spares Advances, Deposits & Other Receivables Accounts Receivable Accounts Payable Accrued Charges Mark - up payable Sales Tax Payable Cash form other Sources Sponsors' Equity Debt Financing Total Sources Applications: Fixed Assets Long Term Deposits Re -Payment of Loan Taxation Year - Year - Year - Year - Year - Year - Year - Year - Year - Year - 10 2,888,168 772,825 3,660,993 (5,000,000) (31,373) (1,535,655) 3,427,545 683,129 4,110,674 (250,000) (3,216) (104,643) 5,069,524 607,458 5,676,982 (262,500) (3,545) (120,076) 6,301,822 543,271 6,845,094 (275,625) (3,909) (159,855) 7,640,908 488,514 8,129,422 (289,406) (4,309) (175,871) 9,101,522 441,524 9,543,046 (303,877) (4,751) (193,407) 10,654,492 400,957 11,055,449 (319,070) (5,238) (212,634) 12,226,944 365,722 12,592,666 (335,024) (5,775) (233,735) 13,972,006 334,929 14,306,935 (351,775) (6,367) (256,911) 15,909,705 307,857 16,217,562 (369,364) (7,019) (282,380) 2,486,301 557,978 715,688 (2,807,060) 254,846 (6,822) 404,231 73,358 367,753 280,968 (2,802) (89,829) 80,877 (116,908) 309,767 41,964 (89,829) 89,167 (88,320) 341,518 45,715 (89,829) 98,307 (73,875) 376,523 49,789 (89,829) 108,383 (57,168) 415,117 54,222 (44,915) 119,492 6,975 457,667 59,053 131,740 73,926 504,577 64,324 145,244 99,093 556,297 70,082 160,131 127,747 5,988,601 5,988,601 11,977,202 12,831,134 4,478,427 9,681,000 60,000 9,741,000 3,090,134 3,090,134 1,197,720 1,010,859 2,208,579 2,269,848 3,090,134 5,359,983 Cash Increase/(Decrease) Opening Balance Closing Balance PREF-99/June, 2006/ Rev - 5,560,074 1,197,720 1,199,641 2,397,361 3,162,713 5,359,983 8,522,696 - - - - - - - 6,756,774 8,055,546 9,485,879 11,062,424 12,666,592 14,406,028 16,345,309 1,197,720 1,774,333 2,972,053 3,784,720 8,522,696 12,307,416 1,197,720 2,205,638 3,403,358 4,652,188 12,307,416 16,959,605 1,197,720 2,674,318 3,872,038 5,613,841 16,959,605 22,573,445 3,185,533 3,185,533 7,876,892 22,573,445 30,450,337 3,729,072 3,729,072 8,937,520 30,450,337 39,387,857 4,279,431 4,279,431 10,126,598 39,387,857 49,514,455 4,890,202 4,890,202 11,455,107 49,514,455 60,969,561 26 Pre-feasibility PREF-99/June, 2006/ Rev Furniture Showroom 27 ... liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity The prospective user of this memorandum is encouraged to carry out additional... a better way This document is in the continuation of this effort to enable potential investors to make well-informed Investment Decisions PURPOSE OF THE DOCUMENT The objective of this proposed... order to serve this objective, the document covers various aspects of Furniture Showroom Business Concept Development, Start-up, Operations, Marketing, Finance and Business Management This document