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Pre-Feasibility Study

(Furniture Manufacturing Unit -Wooden)

Small and Medium Enterprises Development Authority Ministry of Industries & Production
Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
4th Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road, Lahore Tel: (92 42) 111 111 456, Fax: (92 42) 36304926-7

helpdesk@smeda.org.pk
REGIONAL OFFICE Punjab 3rd Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road Lahore, Tel: (042) 111-111-456 Fax: (042) 36304926-7 helpdesk.punjab@smeda.org.pk REGIONAL OFFICE Sindh 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 35610572 helpdesk-khi@smeda.org.pk REGIONAL OFFICE Khyber Pakhtunkhwa Ground Floor State Life Building The Mall, Peshawar. Tel: (091) 111-111-456 Fax: (091) 5286908 helpdesk-pew@smeda.org.pk REGIONAL OFFICE Balochistan Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (081) 2831623, 2831702 Fax: (081) 2831922 helpdesk-qta@smeda.org.pk

Note: All SMEDA Services / information related to PM's Youth Business Loan are Free of Cost December, 2013

Table of Contents
1. DISCLAIMER .......................................................................................................................................... 2 2. PURPOSE OF THE DOCUMENT ......................................................................................................... 3 3. INTRODUCTION TO SMEDA .............................................................................................................. 3 4. INTRODUCTION TO SCHEME ........................................................................................................... 4 5. EXECUTIVE SUMMARY ...................................................................................................................... 4 6. BRIEF DESCRIPTION OF PROJECT & PRODUCT ........................................................................ 4 7. CRITICAL FACTORS ............................................................................................................................ 5 8. INSTALLED & OPERATIONAL CAPACITIES................................................................................. 6 9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT ..................................................................... 6 10. 11. 12. 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 12.10 12.11 13. 14. 14.1 14.2 14.3 14.4 15. POTENTIAL TARGET MARKETS ............................................................................................... 6 PRODUCTION PROCESS FLOW .................................................................................................. 7 PROJECT COST SUMMARY ......................................................................................................... 7 PROJECT ECONOMICS .................................................................................................................... 7 PROJECT FINANCING....................................................................................................................... 8 PROJECT COST ............................................................................................................................... 9 SPACE REQUIREMENT..................................................................................................................... 9 MACHINERY & EQUIPMENT ............................................................................................................. 9 MACHINE MAINTENANCE ............................................................................................................... 10 FURNITURE .................................................................................................................................... 10 OFFICE EQUIPMENT ...................................................................................................................... 11 RAW MATERIAL REQUIREMENTS .................................................................................................. 12 HUMAN RESOURCE REQUIREMENT .............................................................................................. 15 REVENUE GENERATION AND PRODUCTION MIX ........................................................................... 15 CONTACTS SUPPLIERS, EXPERTS / CONSULTANTS....................................................... 17 ANNEXURE 1 .................................................................................................................................. 18 INCOME STATEMENT ..................................................................................................................... 18 BALANCE SHEET ........................................................................................................................... 19 CASH FLOW STATEMENT .............................................................................................................. 20 USEFUL LINKS ............................................................................................................................... 21 KEY ASSUMPTIONS ..................................................................................................................... 22

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. SMEDA, 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 SMEDA, please contact our website: www.smeda.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 establishing Wooden Furniture Manufacturing Unit 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 pre-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 its 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 SMEDA

The Small and Medium Enterprises Development Authority (SMEDA) was established in October 1998 with an objective to provide fresh impetus to the economy through development of Small and Medium Enterprises (SMEs). With a mission "to assist in employment generation and value addition to the national income, through development of the SME sector, by helping increase the number, scale and competitiveness of SMEs", SMEDA has carried out sectoral research to identify policy, access to finance, business development services, strategic initiatives, institutional collaboration and networking initiatives. Preparation and dissemination of pre-feasibility studies in key areas of investment has been a successful hallmark of SME facilitation by SMEDA. Concurrent to the pre-feasibility studies, a broad spectrum of business development services is also offered to SMEs by SMEDA. These services include identification of experts and consultants and delivery of need based capacity building programs of different types in addition to business guidance through help desk services.

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4.

INTRODUCTION TO SCHEME

Prime Ministers 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 subsidised 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 Wooden Furniture Manufacturing Unit. 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. 2.12 million. This includes a capital investment of Rs.1.10 million and a sum of Rs. 1.02 million as initial working capital. The project is financed through 90% debt and 10% equity. The Net Present Value (NPV) of the project is around Rs.43.25 million with an Internal Rate of Return (IRR) of 77% and a payback period of 2.12 years. Higher return on investment and a steady growth of business is expected if the entrepreneur has some prior experience / education in the related field of business. The project will generate direct employment opportunity for 21 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, centre 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

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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-toassemble (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.

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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 202 i.e. 60% of total production capacity.

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.
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11. PRODUCTION PROCESS FLOW


Purchase of Wood (Timber Market) Wood Cutting at Trolley (Big Saw) Wood comes in Factory Wood Seasoning

Wood comes at Shaper Machine

Wood comes to Machine Man

Furniture Designing on CAD

Carpenter shapes the wood into Furniture

Furniture comes to Spindle / Molding Machine

Furniture comes to Carver for Carving

Furniture goes to Store or for Polishing

Furniture comes to Inspection before finishing

Carpenter assembles the Furniture

12. PROJECT COST SUMMARY


A detailed financial model has been developed to analyze the commercial viability of Wooden Furniture Manufacturing Unit under the Prime Ministers 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

The unit is capable of producing different type of wooden furniture. As this project predominantly involves craftsmanship of skilled labor, different types of products can be manufactured. However, this particular pre-feasibility focuses on manufacturing of bed sets, dinning sets, sofa sets, office furniture and miscellaneous furniture (centre table & tables for sofa set). Details of proposed production mix offered by the project are provided in table below:
Table 1 - Proposed Production Mix

Description Bed Set Dinning Set Sofa Set Misc. Furniture Office Furniture

Percentage 40% 10% 25% 15% 10%


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Total
Table 2 - Proposed Production Mix Details

100% Bed Set Dinning Set 20% 30% 50% 100% Sofa Set 20% 30% 50% 100% Misc. Furniture 20% 30% 50% 100% Office Furniture 20% 30% 50% 100%

Superior Fine Normal Total

20% 30% 50% 100%

The following table shows internal rate of return, payback period and net present value:
Table 3 - Project Economics

Description Internal Rate of Return (IRR) Payback Period (Yrs) Net Present Value (NPV)

Details 77% 2.12 Rs. 43,246,044

Returns on investment and profitability depend upon the entrepreneurs practical knowledge about furniture manufacturing, quality of wood, skilled labor and design & style of furniture manufactured. 12.2 Project Financing

Following table provides details of the equity required and variables related to bank loan:
Table 4 - Project Financing

Description Total Equity (10%) Bank Loan (90%.) Markup to the Borrower (%age/annum) Tenure of the Loan (Years) Grace Period (Year)

Details Rs. 212,313 Rs. 1,910,819 8% 8 1

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12.3

Project Cost

Following requirements have been identified for operations of the proposed business:
Table 5 - Capital Investment for the Project

Capital Investment Furniture & fixtures Machinery & Equipment Office Equipment Pre-operating Cost Total Capital Cost Initial Working Capital Total Project Cost 12.4 Space Requirement

Amount (Rs.) 69,000 827,000 168,000 35,878 1,099,878 1,023,254 2,123,132

2 kanals (7,200 sq. ft) land is sufficient for setting up the proposed wooden furniture manufacturing unit. The land would be acquired on lease, preferably in the outskirts of the city. Covered area details of the manufacturing unit are as follows:
Table 6 - Factory (Covered Area)

Description Factory Main Hall Carving Room Polish Room Store for un-finished products Store for finished product Office for factory admin officer & CAD operator Rooms for Labour Kitchen & Washrooms Total

Area (Sq. ft) 2,000 750 1,000 1,000 1,500 300 500 150 7,200

It is recommended to set-up the proposed business on rental premises at cost of approximately Rs. 50,000 per month, hence, total rent of set-up Unit during year 1 would be approximately Rs. 600,000. 12.5 Machinery & Equipment

Machinery & equipment required for Wooden Furniture Manufacturing Unit can be easily purchased locally. Following table provides list of machinery required for the factory:

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Table 7 Factory Machinery Details

Machinery Description Saw 18 Saw 27 Saw 30 Cutter sliding Cutter round Gauge 14 Gauge 18 Planer / Shaper 12 Spindle Moulder Machine Chapaka Hand Chapaka (jug saw) Grinder Drill machine Compressor Miscellaneous Tools (Hand Tools, Paint Gun etc.) Installation costs for machines Total Machinery and Equipment 12.6 Machine Maintenance

Unit 1 1 1 1 1 1 1 2 2 2 2 2 10 2 1 1

Unit Price 42,000 70,000 80,000 20,000 15,000 60,000 110,000 70,000 50,000 15,000 15,000 6,500 3,500 16,000 20,000 30,000

Total Cost 42,000 70,000 80,000 20,000 15,000 60,000 110,000 140,000 100,000 30,000 30,000 13,000 35,000 32,000 20,000 30,000 827,000

Technically advanced machines are not required in the manufacturing process. Therefore, machine maintenance cost is also expected to be on lower side. The major maintenance cost will be of oiling and greasing of machines. 12.7 Furniture

Following furniture will be required at the factory:


Table 8 Furniture Costs

Description Office Table Set for CAD Operator Visitors Chairs Table & Chair set for admin, store & production Fire Extinguishers Total Furniture & Fixtures

Unit 1 4 3 2

Cost/Unit (Rs) 10,000 3,500 12,000 4,500

Total Cost (Rs) 10,000 14,000 36,000 9,000 69,000

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12.8

Office Equipment

Details of office equipment are as follows:


Table 9 Office Equipment Costs

Description Computer with LCD Printer UPS 1.5 KW Telephone Sets Fax Machine Generator 6 KVA Total Office Equipment

Unit 1 1 1 2 1 1

Cost/Unit (Rs) 40,000 15,000 30,000 1,500 10,000 70,000

Total Cost (Rs) 40,000 15,000 30,000 3,000 10,000 70,000 168,000

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Wooden Furniture Manufacturing Unit

12.9

Raw Material Requirements

As variety of material is used for the manufacturing of each type of furniture. Following table shows raw material requirement for each type of furniture:
Table 10 Bed Set Cost
Costing Bed Set Superior Quality Raw Material Cost Description Wood (Cubic ft) Nails/Screws Glue/Solution Spirit (in Ltr.) Lakh (in kgs) Thinner (in Ltr.) Lacquer (in Ltr.) Wooden Frame for Matress Sealer (in Ltr.) Dressing Set Glass Tapestry Dressing St. (in Meters) Foam Channels, Handles Thinner (Butyl) Thinner (imported) Total No. of Unit 15 1 1 20 1.5 8 2 1 3 16 0.5 1 1 1 1 Rate / Total Unit Amount 2,000 30,000 350 350 300 300 60 1,200 350 525 120 960 300 600 5,000 5,000 285 855 200 3,200 250 125 150 2,500 160 240 150 2,500 160 240 46,165 Raw Material Cost Description Wood (Cubic ft) Nails/Screws Glue/Solution Spirit (in Ltr.) Lakh (in kgs) Thinner (in Ltr.) Lacquer (in Ltr.) Sealer (in Ltr.) Wooden Frame for Matress Dressing Set Glass Tapestry Dressing St. (in Meters) Foam Channels, Handles Thinner (Butyl) Thinner (imported) Total Costing Bed Set Fine Quality No. of Unit 12 1 1 15 1 4 2 2 1 16 0.5 1 1 1 1 Rate / Total Unit Amount 1,500 18,000 350 350 300 300 60 900 350 350 120 480 300 600 285 570 4,000 4,000 200 3,200 250 125 150 2,000 160 240 150 2,000 160 240 31,425 Raw Material Cost Description Wood (Cubic ft) Lasani Nails/Screws Glue/Solution Paint (in Ltr.) Thinner (in Ltr.) Lacquer (in Ltr.) Wooden Frame for Matress Dressing Set Glass Tapestry Dressing St. (in Meters) Foam COB (alternate for Hardner) Thinner (Butyl) Thinner (imported) Channels, Handles Total Costing Bed Set Normal Quality No. of Unit 3 5 1 1 1 10 1 1 16 0.5 1 1 1 1 1 Rate / Total Unit Amount 1,500 4,500 2,250 11,250 350 350 300 300 1,500 1,500 120 1,200 300 300 4,000 4,000 150 2,400 250 125 150 150 450 160 240 2,000 450 160 240 2,000 28,925

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Table 11 Dining Set Cost


Costing Dinning Set Superior Quality Raw Material Cost Description No. of Rate / Total Unit Unit Amount 2,000 16,000 8 Wood (Cubic ft) 3,000 375 Poshish/Seat 8 400 400 Nails/Screws 1 400 400 1 Glue/Solution 60 1,080 18 Spirit (in Ltrs.) 700 350 Lakh (in Kgs) 2 960 120 8 Thinner (in Ltrs.) 300 600 2 Lacquer (in Ltrs.) 570 285 Sealer (in Ltrs.) 2 200 6,400 32 Glass Top (12 mm) in sq.ft 2,000 1 2,000 Foam 250 1,250 Tapestry (in Meters) 5 1,000 1 1,000 Misc. Total 34,360 Costing Dinning Set Fine Quality Raw Material Cost Description Wood (Cubic ft) Poshish/seat Nails/Screws Glue/Solution COB Paint Thinner (in Ltrs.) Lacquer Glass Top 12mm in (Sq.ft) Foam Tapestry (in Meters) Misc. No. of Unit 8 8 1 1 1 1 15 2 32 1 3 1 Rate / Total Unit Amount 1,500 12,000 375 3,000 400 400 400 400 450 450 2,000 2,000 1,800 120 300 600 6,400 200 1,500 1,500 750 250 1,000 1,000 Costing Dinning Set Normal Quality Raw Material Cost Description No. of Rate / Total Unit Unit Amount 1,500 6,000 Wood (Cubic ft) 4 250 2,000 Poshish/seat 8 1 400 400 Nails/Screws 400 400 Glue/Solution 1 450 450 COB 1 2,200 2,200 Lasani 1 2,000 Paint 1 2,000 10 120 1,200 Thinner (in Ltrs.) 600 Lacquer 2 300 4,960 32 155 Glass Top 12mm in (Sq.ft) 1,200 1,200 Foam 1 750 Tapestry (in Meters) 3 250 1,000 1,000 1 Misc. Total 23,160

Total

30,300

Table 12 Sofa Set Cost


Costing Sofa Set Superior Quality Raw Material Cost Description No. of Rate / Total Unit Unit Amount Wood (Cubic ft) 6 700 4,200 Poshish/per seat 6 1,200 7,200 Nails/Screws 1 200 200 Glue/Solution 1 300 300 Springs (Dozs) 7 200 1,400 Tat (in Meters) 10 75 750 Rubber Pati 25 22 550 Dori (in Kgs) 0.5 180 90 Foam "A" 1 3,500 3,500 Tapestry (in Meters) 30 400 12,000 Total 30,190 Costing Sofa Set Fine Quality Raw Material Cost Description Wood (Cubic ft) Poshish/Seat Nails/Screws Glue/Solution Spring (Doz) Tat (in Meters) Rubber Patti Dori (in Kgs) Foam Tapestry Total No. of Unit 6 6 1 1 7 10 25 0.5 1 25 Rate / Total Unit Amount 700 4,200 1,200 7,200 200 200 300 300 200 1,400 75 750 22 550 180 90 3,000 3,000 250 6,250 23,940 Costing Sofa Set Normal Quality Raw Material Cost Description No. of Rate / Total Unit Unit Amount Wood (Cubic ft) 6 700 4,200 Poshish/Seat 6 1,200 7,200 Nails/Screws 1 200 200 Glue/Solution 1 300 300 Spring (Doz) 7 200 1,400 Tat (in Meters) 10 75 750 Rubber Patti 22 22 484 Dori (in Kgs) 0.5 180 90 Foam 1 3,000 3,000 Tapestry (in Meters) 20 200 4,000 Total 21,624

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Table 13 Misc. Furniture Cost


Costing Misc. Funiture Superior Quality Raw Material Cost No. of Description Rate / Total Unit Unit Amount Wood (Cubic ft) 6 2,000 12,000 Nails/Screws 1 200 200 Glue/Solution 1 300 300 Spirit (in Ltrs.) 8 60 480 Lakh (in Kgs) 1 350 350 Thinner (in Ltrs.) 3 120 360 Lacquer (in Ltrs.) 1 300 300 Sealer (in Ltrs.) 1 185 185 Glass Top (12 mm) in sq.ft 17 200 3,400 Misc. 1 750 750 Total 18,325 Costing Misc. Furniture Fine Quality Raw Material Cost Description No. of Rate / Total Amount Unit Unit Wood (Cubic ft) 6 1,500 9,000 Nails/Screws 1 200 200 Glue/Solution 1 300 300 COB 1 450 450 Paint 1 2,000 2,000 Thinner (in Ltrs.) 8 120 960 Lacquer 1 300 300 Glass Top 12mm in (Sq.ft) 17 200 3,400 Misc. 1 750 750 Costing Misc. Furniture Normal Quality Raw Material Cost Description Rate / Total No. of Unit Amount Unit Wood (Cubic ft) 3 1,500 4,500 Nails/Screws 1 200 200 Glue/Solution 1 300 300 COB 1 450 450 Lasani 1 2,200 2,200 Paint 1 1,800 1,800 Thinner (in Ltrs.) 8 300 2,400 Lacquer (in Ltrs.) 1 200 200 Glass Top 12mm in (Sq.ft) 17 200 3,400 Misc. 1 750 750 Total 16,200

Total

17,360

Table 14 Office Furniture Cost


Costing Office Furniture Superior Quality Raw Material Cost Description No. of Rate / Total Unit Unit Amount 20,000 Wood (Cubic ft) 10 2,000 1 400 400 Nails/Screws Glue/Solution 1 300 300 Spirit (in Ltrs.) 10 60 600 525 Lakh (in Kgs) 1.5 350 600 Thinner (in Ltrs.) 5 120 600 Lacquer (in Ltrs.) 2 300 570 Sealer (in Ltrs.) 2 285 2,500 2,500 Channels, Handles 1 160 160 Thinner (Butyl) 1 Thinner (imported) 1 240 240 Executive Chair 1 12,000 12,000 Visitors Chair 2 4,500 9,000 Misc. 1 1,000 1,000 Total 48,495 Costing Office Furniture Fine Quality Raw Material Cost Description No. of Rate / Total Unit Unit Amount Wood (Cubic ft) 6 1,500 9,000 200 200 Nails/Screws 1 Glue/Solution 1 300 300 450 COB 1 450 1,500 1,500 Paint 1 Thinner (in Ltrs.) 8 120 960 Lacquer 1 300 300 4,200 Glass Top 12mm in (Sq.ft) 21 200 Channels, Handles 1 2,000 2,000 Executive Chair 1 7,500 7,500 3,500 7,000 Visitors Chair 2 1 1,000 1,000 Misc. Costing Office Furniture Normal Quality Raw Material Cost Description No. of Rate / Total Unit Unit Amount Wood (Cubic ft) 2 1,500 3,000 1 200 200 Nails/Screws 1 300 300 Glue/Solution 450 COB 1 450 2,200 4,400 Lasani 2 Paint 1 1,500 1,500 Thinner (in Ltrs.) 10 60 600 Lacquer (in Ltrs.) 2 300 600 1,500 1,500 Channels, Handles 1 Executive Chair 1 6,000 6,000 Visitors Chair 2 3,000 6,000 1,000 1,000 Misc. 1

Total

34,410

Total

25,550

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12.10

Human Resource Requirement

The labor required for manufacturing process is easily available on daily wages and on per unit basis. It is recommended that only selective skilled labor be employed permanently, while others should be hired on temporary basis. Following permanent human resource is required at the factory.
Table 15 Factory Staff requirement details

Description Production supervisor Carpenter Machine man Polish man Carving Helpers Factory admin officer Draftsman / CAD Operator Purchaser/Store Officer Gate Keeper Total Production Staff

No. 1 8 1 3 2 2 1 1 1 1 21

Monthly Salary (Rs) 30,000 16,000 16,000 16,000 18,000 10,000 15,000 15,000 15,000 10,000

Total Annual Salary (Rs) 360,000 1,536,000 192,000 576,000 432,000 240,000 180,000 180,000 180,000 120,000 3,996,000

One production supervisor is sufficient for 30 laborers. Salaries of all employees are estimated to increase at 10% annually. 12.11 Revenue Generation and Production Mix

Expected production figures of proposed product mix during year 1 are given in table below:
Table 16 Number of Furniture Sale during Year 1

Description Bed Set Superior Fine Normal Dinning Set Superior Fine Normal Sofa Set Superior Fine

Product Mix 20% 30% 50% 20% 30% 50% 20% 30%

Total Units Sold 8 17 36 2 4 9 5 11


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Pre-Feasibility Study

Wooden Furniture Manufacturing Unit

Normal Misc. Furniture Superior Fine Normal Office Furniture Superior Fine Normal Total Furniture Units

50% 20% 30% 50% 20% 30% 50%

23 6 14 30 5 11 23 202

Table 17 Revenue from Sale of Furniture during Year 1

Revenue from selling to other Showrooms in (Rs) Bed Sets Dinning Sets Sofa Sets Misc. furniture Office furniture Total Revenue from selling to other Showrooms Revenue from selling to own Customers in (Rs) Bed Sets Dinning Sets Sofa Sets Misc. furniture Office furniture Total Revenue from selling to own Customers Total Revenue in (Rs) Bed Sets Dinning Sets Sofa Sets Misc. furniture Office furniture Total Revenue from selling to own Customers and other Showrooms

25% 3,292,753 761,869 1,754,664 1,326,553 1,493,095 8,628,935 40% 1,229,295 284,431 655,075 495,247 557,422 3,221,469

4,522,048 1,046,300 2,409,739 1,821,800 2,050,518 11,850,404

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Wooden Furniture Manufacturing Unit

13.

Contacts Suppliers, EXPERTS / CONSULTANTS


Wood Working Service Centre, Small Industrial Estate, G.T. Road, Gujrat Ph: 053 3520250 Wood Working Service Centre, Tipu Road, Near Moti Mahal Cinema, Rawalpindi Ph: 051-9280758, 9280561 Wood Working Service Centre, Small Industrial Estate, Kohat Road, Peshawar Ph: 091-9212731, 9211861

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14.

ANNEXURE 1
14.1 Income Statement
Year 1 11,850,404 5,364,197 3,336,000 504,000 9,204,197 2,646,207 660,000 600,000 66,000 53,642 3,300 59,252 25,000 145,600 7,176 1,619,970 1,026,237 1,026,237 158,597 158,597 867,640 52,646 814,994 Year 2 15,451,801 6,912,109 4,365,600 547,800 11,825,509 3,626,292 726,000 660,000 72,600 69,121 3,630 77,259 26,250 145,600 7,176 1,787,636 1,838,657 1,838,657 145,197 145,197 1,693,459 186,192 1,507,268 Year 3 19,291,783 8,994,817 5,114,160 595,485 14,704,462 4,587,321 798,600 726,000 79,860 89,948 3,993 96,459 27,563 145,600 7,176 1,975,198 2,612,123 2,712,923 127,585 127,585 2,585,338 368,834 2,216,504 Year 4 24,022,142 11,835,075 5,625,576 647,406 18,108,057 5,914,085 878,460 798,600 87,846 118,351 4,392 120,111 28,941 154,427 7,176 2,198,303 3,715,782 3,715,782 108,512 108,512 3,607,270 624,317 2,982,953 Year 5 30,412,906 15,755,243 6,188,134 703,948 22,647,325 7,765,581 966,306 878,460 96,631 157,552 4,832 152,065 30,388 154,427 7,176 2,447,835 5,317,746 5,317,746 87,855 87,855 5,229,891 1,091,467 4,138,424 Year 6 39,186,588 21,222,297 6,806,947 765,529 28,794,773 10,391,815 1,062,937 966,306 106,294 212,223 5,315 195,933 31,907 154,427 2,735,341 7,656,474 7,823,563 65,484 65,484 7,758,079 1,937,827 5,820,252 Year 7 51,406,169 28,913,036 7,487,642 832,606 37,233,284 14,172,885 1,169,230 1,062,937 116,923 289,130 5,846 257,031 33,502 164,645 3,099,245 11,073,640 11,073,640 41,256 41,256 11,032,384 3,083,834 7,948,551 Year 8 68,639,336 39,808,460 8,236,406 905,681 48,950,547 19,688,790 1,286,153 1,169,230 128,615 398,085 6,431 343,197 35,178 164,645 3,531,534 16,157,256 16,157,256 15,017 15,017 16,142,239 4,872,283 11,269,956 Year 9 93,202,377 55,330,221 9,060,046 985,299 65,375,567 27,826,810 1,414,769 1,286,153 141,477 553,302 7,074 466,012 36,936 164,645 4,070,368 23,756,442 23,975,068 23,975,068 7,613,773 16,361,295 Year 10 128,522,393 77,537,758 9,966,051 1,072,058 88,575,867 39,946,526 1,556,245 1,414,769 155,625 775,378 7,781 642,612 38,783 176,474 4,767,667 35,178,859 35,178,859 35,178,859 11,535,100 23,643,759

Projected Income Statement Revenue Cost of sales Procurement Cost Direct Labor (Production Staff) Direct Electricity Total cost of sales Gross Profit General administration & selling expenses Administration expense Building rental expense for Factory Communications expense (phone, fax, mail, internet, etc.) Transportation cost Office expenses (stationary, entertainment, janitorial services, etc.) Marketing expense Professional fees (legal, audit, consultants, etc.) Depreciation expense Amortization of pre-operating costs Subtotal Operating Income Earnings Before Interest & Taxes Interest expense on long term debt (Debt facility : Bank 1) Subtotal Earnings Before Tax Tax NET PROFIT/(LOSS) AFTER TAX

SMEDA Services / Information related to PMs Youth Business Loan are FREE OF COST -

18

Pre-Feasibility Study

Wooden Furniture Manufacturing Unit

14.2

Balance Sheet
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Projected Balance Sheet Assets Current assets Cash & Bank Accounts receivable Finished goods inventory Raw material inventory Pre-paid building rent Total Current Assets Fixed assets Machinery & equipment Furniture & fixtures Office equipment Total Fixed Assets Intangible assets Pre-operation costs Total Intangible Assets TOTAL ASSETS Liabilities & Shareholders' Equity Current liabilities Accounts payable Other liabilities Total Current Liabilities Other liabilities Deferred tax Long term debt (Debt facility : Bank 1) Total Long Term Liabilities Shareholders' equity Paid-up capital Retained earnings Total Equity TOTAL CAPITAL AND LIABILITIES

250,000

623,254 150,000 1,023,254 827,000 69,000 168,000 1,064,000 35,878 35,878 2,123,132

683,145 138,255 191,754 975,046 181,500 2,169,699 744,300 62,100 112,000 918,400 28,702 28,702 3,116,801

1,644,304 318,526 246,365 1,523,398 219,615 3,952,208 661,600 55,200 56,000 772,800 21,527 21,527 4,746,534

3,187,046 405,342 306,343 2,376,574 265,734 6,541,038 578,900 48,300 194,481 821,681 14,351 14,351 7,377,071

5,254,156 505,329 377,251 3,701,467 321,538 10,159,741 496,200 41,400 129,654 667,254 7,176 7,176 10,834,171

8,162,957 635,076 471,819 5,754,867 389,061 15,413,780 413,500 34,500 64,827 512,827 15,926,607

12,406,258 811,994 599,891 8,931,165 470,764 23,220,072 330,800 27,600 225,136 583,536 23,803,609

18,128,119 1,056,916 775,693 13,835,055 569,625 34,365,407 248,100 20,700 150,091 418,891 34,784,298

26,208,661 1,400,531 1,019,803 21,392,208 689,246 50,710,449 165,400 13,800 75,045 254,245 50,964,694

38,300,620 1,888,153 1,361,991 33,017,531 833,988 75,402,284 82,700 6,900 260,623 350,223 75,752,507

56,260,989 2,586,789 1,845,331 50,870,719 111,563,828 173,749 173,749 111,737,577

126,029 126,029 52,646 1,910,819 1,963,465 212,313 814,994 1,027,307 3,116,801

274,495 274,495 238,838 1,698,627 1,937,464 212,313 2,322,262 2,534,575 4,746,534

355,016 355,016 607,672 1,468,823 2,076,495 406,794 4,538,766 4,945,560 7,377,071

453,723 453,723 1,231,989 1,219,945 2,451,935 406,794 7,521,719 7,928,513 10,834,171

585,803 585,803 2,323,456 950,411 3,273,867 406,794 11,660,142 12,066,937 15,926,607

771,495 771,495 4,261,283 658,506 4,919,789 631,930 17,480,395 18,112,325 23,803,609

1,035,933 1,035,933 7,345,117 342,372 7,687,489 631,930 25,428,945 26,060,875 34,784,298

1,416,463 1,416,463 12,217,400 12,217,400 631,930 36,698,901 37,330,831 50,964,694

1,968,585 1,968,585 19,831,173 19,831,173 892,553 53,060,196 53,952,749 75,752,507

2,774,796 2,774,796 31,366,273 31,366,273 892,553 76,703,955 77,596,508 111,737,577

1,910,819 1,910,819 212,313 212,313 2,123,132

SMEDA Services / Information related to PMs Youth Business Loan are FREE OF COST -

19

Pre-Feasibility Study

Wooden Furniture Manufacturing Unit

14.3

Cash Flow Statement


Year 0 Year 1 814,994 145,600 7,176 52,646 (138,255) (191,754) (351,791) (31,500) 126,029 433,145 433,145 Year 2 1,507,268 145,600 7,176 186,192 (180,271) (54,611) (548,353) (38,115) 148,466 1,173,352 (212,192) (212,192) 961,160 Year 3 2,216,504 145,600 7,176 368,834 (86,816) (59,978) (853,175) (46,119) 80,521 1,772,546 (229,804) 194,481 (35,323) (194,481) (194,481) 1,542,742 Year 4 2,982,953 154,427 7,176 624,317 (99,987) (70,908) (1,324,893) (55,804) 98,707 2,315,987 (248,877) (248,877) 2,067,110 Year 5 4,138,424 154,427 7,176 1,091,467 (129,746) (94,568) (2,053,400) (67,523) 132,080 3,178,335 (269,534) (269,534) 2,908,801 Year 6 5,820,252 154,427 1,937,827 (176,919) (128,072) (3,176,297) (81,703) 185,691 4,535,207 (291,905) 225,136 (66,769) (225,136) (225,136) 4,243,301 Year 7 Year 8 Year 9 Year 10 23,643,759 176,474 11,535,100 (698,636) (483,340) (17,853,188) 833,988 806,211 17,960,369 17,960,369

Projected Cash Flow Statement Operating activities Net profit Add: depreciation expense amortization of pre-operating costs Deferred income tax Accounts receivable Finished goods inventory Equipment inventory Raw material inventory Pre-paid building rent Accounts payable Cash provided by operations Financing activities Debt facility : Bank 1 - principal repayment Additions to Debt facility : Bank 1 Issuance of shares Cash provided by / (used for) financing activities Investing activities Capital expenditure Cash (used for) / provided by investing activities NET CASH

(623,254) (150,000) (773,254)

7,948,551 11,269,956 16,361,295 164,645 164,645 164,645 3,083,834 4,872,283 7,613,773 (244,921) (343,615) (487,622) (175,802) (244,110) (342,188) (4,903,890) (7,557,153) (11,625,324) (98,860) (119,621) (144,742) 264,438 380,530 552,122 6,037,994 8,422,915 12,091,959 (316,133) (316,133) 5,721,861 (342,372) (342,372) 8,080,542 260,623 260,623 (260,623) (260,623) 12,091,959

1,910,819 212,313 2,123,132 (1,099,878) (1,099,878) 250,000

SMEDA Services / Information related to PMs Youth Business Loan are FREE OF COST -

20

Pre-Feasibility Study

Wooden Furniture Manufacturing Unit

14.4

Useful Links Prime Ministers Office, www.pmo.gov.pk Small and Medium Enterprise Development Authority, www.smeda.org.pk National Bank of Pakistan (NBP), www.nbp.com.pk First Women Bank Limited (FWBL), www.fwbl.com.pk Government of Pakistan, www.pakistan.gov.pk Ministry of Industries & Production, www.moip.gov.pk Ministry of Education, Training & Standards in Higher Education, http://moptt.gov.pk Government of Punjab, www.punjab.gov.pk Government of Sindh, www.sindh.gov.pk Government of Khyber Pakhtunkhwa, www.khyberpakhtunkhwa.gov.pk Government of Balochistan, www.balochistan.gov.pk Government of Gilgit Baltistan, www.gilgitbaltistan.gov.pk Government of Azad Jammu & Kashmir, www.ajk.gov.pk Trade Development Authority of Pakistan (TDAP), www.tdap.gov.pk Securities & Exchange Commission of Pakistan (SECP), www.secp.gov.pk Federation of Pakistan Chambers of Commerce and Industry (FPCCI) www.fpcci.com.pk State Bank of Pakistan (SBP), www.sbp.org.pk Furniture Pakistan, www.furniturepakistan.org Pakistan Institute of Fashion Design (PIFD), www.pifd.edu.pk

SMEDA Services / Information related to PMs Youth Business Loan are FREE OF COST -

21

Pre-Feasibility Study

Wooden Furniture Manufacturing Unit

15.

KEY ASSUMPTIONS
Table 18 Operating Assumptions

Factory Hours Operational per day Days operational per month Days operational per year
Table 19 Economy Related Assumptions

8 25 300 10% 10% 10% 4% 40% 10%

Annual Electricity Price Growth Annual Salary Growth Rate Rent Growth Rate Annual Sale Price Growth Rate for own Customers Annual Raw Material Price Growth Rate for Wood Annual Raw Material Price Growth Rate other than Wood
Table 20 Expense Assumptions

Communication Expense Transportation Expense Marketing Expense


Table 21 Cash Flow Assumptions

10% of Administrative Costs 1% of Material Procurement 0.50% of Revenues Rs. 200,000 7 7 7 120 7 10% 10% 33%

Initial Cash in Bank Accounts Payable Cycle in (Days) Accounts Receivable Cycle in (Days) Finished Goods Inventory in (Days) Raw Material Inventory of Wood in (Days) Raw Material Inventory other than Wood in (Days)
Table 22 Depreciation Expense

Depreciation Rate for Machinery & Equipment (Annual) Depreciation Rate for Furniture & Fixture (Annual) Depreciation Rate for Office Equipments (Annual)
Table 23 Financial Assumptions

Project Life (Years) Debt Equity Ratio Interest Rate on Long Term Debt Long Term Debt Tenure (Years) Number of Payment/Year Income Tax Rates Grace Period (Years)

10 90 : 10 8% 8 12 Sole Proprietorship Tax Slabs 1

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22

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