Pre-Feasibility Study Catering & Decorating Services

Pre-Feasibility Study
(Catering & Decorating Services)
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 ................................................................................... 4 7. CRITICAL FACTORS............................................................................................................ 5 8. INSTALLED AND OPERATIONAL CAPACITIES ............................................................ 5 9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT........................................................ 6 10. POTENTIAL TARGET MARKETS ...................................................................................... 6 11. PROCESS FLOW ................................................................................................................... 6 12. PROJECT COST SUMMARY ............................................................................................... 6 12.1 Project Economics ......................................................................................................7 12.2 Project Financing ........................................................................................................7 12.3 Project Cost .................................................................................................................7 12.4 Space Requirement ....................................................................................................8 12.5 Machinery and Equipment .........................................................................................8 12.6 Human Resource Requirement ................................................................................9 12.7 Revenue Generation ..................................................................................................9 12.8 Other Costs ..................................................................................................................9 13. CONTACTS - SUPPLIERS .................................................................................................. 10 14. ANNEXURES ....................................................................................................................... 11 14.1 Annexure 1 Income Statement ............................................................................11 14.2 Annexure 2 Balance Sheet ..................................................................................12 14.3 Annexure 3 Cash Flow Statement ......................................................................12 14.4 Useful Project Management Tips ..........................................................................14 14.5 Useful Links ..............................................................................................................15 15. KEY ASSUMPTIONS .......................................................................................................... 16
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 exercised 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
SMEDA Services / Information related to PMs Youth Business Loan are FREE OF COST -
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 Catering and Decorating Services 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 imminence 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 shall form the 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, and institutional collaboration and networking initiatives. Preparation and dissemination of prefeasibility studies in key areas of investment has been a hallmark of SME facilitation by SMEDA. Concurrent to the prefeasibility studies, a broad spectrum of business development services is also offered to the 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.
4. INTRODUCTION TO SCHEME
Prime Ministers Youth Business Loan program, 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 01 year grace period and a debt: equity of 90: 10 will be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).
5. EXECUTIVE SUMMARY
Catering and Decoration Services Business is proposed to be located in a middle income area in cities like Karachi, Lahore, Rawalpindi, Hyderabad, Faisalabad, Multan etc. Services include catering of food & services to events such as weddings, mehndi & mayun, corporate Events etc and decoration of event site (this service is to be outsourced). Capacity: Maximum 150 events per year and initial utilization upto 67% Total Cost Estimates is Rs. 2.10 million with fixed investment of Rs. 1.37 million and working capital of Rs. 0.74 million Given the cost assumptions IRR and payback are 39 % and 3 years respectively The most critical considerations or factors for success of the project are: 1. Procurement of Raw material 2. Location- proximity to marriage halls, business hubs etc 3. Quality Food
6. BRIEF DESCRIPTION OF PROJECT

Location: The recommended area for the proposed catering and decorating service business is the middle income locality in cities like Karachi, Lahore, Rawalpindi, Hyderabad, Faisalabad, Multan, Peshawar and Quetta etc. This business can also be undertaken in all small 2nd tier towns in addition to suburban towns of large cities.
Product: The proposed project will offer high quality food & catering services to events such as weddings, anniversaries and corporate events etc. Target Market: Target customer for catering business would be event management companies, corporate and individual clients, marriage hall & lawns etc. Employment Generation: The proposed project will provide direct employment to 09 people. Financial analysis shows that the business shall be profitable from the very first year of operation
7. CRITICAL FACTORS
Procurement of raw material Location - proximity to marriage halls, business hubs etc Quality of food Strict management control Professionalism and courteous customer service Skilled Staff / Cooks Planning, Organizing & Time management Contract with suppliers for decoration
8. INSTALLED AND OPERATIONAL CAPACITIES

For the proposed project, it is assumed that on an average 100 events will be catered during a year with an average of 400 guests per event. The proposed business can also serve up to 1,000 or more guests per event. Marquee and other decorative arrangement for big events can be outsourced to multiple decorators.
Table 1: Project Economics
Events Weddings Mehndi & Mayun Anniversaries Corporate Events Others Total
No. of Events in a Year 30 30 10 07 23 100
% 30 30 10 07 23 100
9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT

The Pakistani economy is becoming increasingly service-oriented and over the past several decades the food service industry is growing substantially. There has been a mushroom growth of marriage halls, event management complexes in the past decade across all major cities and towns therefore there is a potential for proposed catering and decorative service business to be established in cities like Karachi, Lahore, Rawalpindi, Hyderabad, Faisalabad, Multan, Peshawar and Quetta etc.
10.
POTENTIAL TARGET MARKETS
The recommended areas for the proposed business will be cities like Karachi, Lahore, Rawalpindi, Hyderabad, Faisalabad, Multan etc. This business can also be done in all small 2nd tier towns in addition to suburban towns of large cities. Target customers for the said business would be Corporate and Individual clients, Event Management Companies, Marriage Halls & Lawns etc.
11.
PROCESS FLOW
For a regular event, following process is to be followed: Hiring and scheduling of Staff Ordering and serving arrangements for menu items Ordering equipment as needed from event rental companies Obtaining licenses and permits, if needed, for use of the site etc. Coordinating all ancillary services with the client and the vendors
12.
PROJECT COST SUMMARY
A detailed financial model has been developed to analyze the commercial viability of Catering & Decoration Service Business under the Prime Ministers Youth Business Loan program. Various cost 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 appendix
12.1 Project Economics All the figures in this financial model have been calculated for catering of 100 events in a year, whereas decoration service for such events will be outsourced in order to control the capital expenditure at initial stage. Revenue generated through such events are based on given assumptions and are calculated to be Rs. 19.20 million. The following table shows Internal Rate of Return, Net Present Value and Payback Period.
Table 2: Project Economics Description Internal Rate of Return (IRR) Payback Period (years) Net Present Value (NPV) Rs. Details 39% 3.0 3,855,365
Returns and profitability are highly dependent on regular occurrence of events, good marketing practices, quality of services and more importantly good quality and taste of food. 12.2 Project Financing Following table provides details of the equity required and variables related to bank loan;
Table 3: Project Financing Description Total Equity (10%) Bank Loan (90%.) Markup to the Borrower (%age/annum) Tenure of the Loan including Grace Period (Years) Grace Period (Years) Details Rs.210,400 Rs.1,893,600 8% 08 01
12.3 Project Cost Following requirements have been identified for operations of the proposed business.
Table 4: Capital Investment for the Project
Capital Investment Construction & Renovation Machinery & Equipment Office Equipment & Furniture Advance Rent Vehicles Preliminary Expenses
Amount (Rs.) 105,000 165,000 174,000 150,000 675,000 100,000
Total Capital Cost Initial Working Capital Total Project Cost
1,369,000 735,000 2,104,000
12.4 Space Requirement Space required for Catering & Decoration Services Business is 750 sq. ft. Management office will require 150 sq. ft. and 600 sq. ft. will be used for storage and cooking. It is also assumed that preparation of Bar-B-Que items will be prepared on site as and when required.
Table 5: Space Requirement
Area Required For Office & Storage Total Rent
Area (Sq. ft.) 750
Monthly Rent Charges (Rs.) 25,000 25,000
Yearly Rent(Rs.) 300,000 300,000
12.5 Machinery and Equipment Following table provides list of machinery and equipment required for the proposed Catering & Decoration Services Business.
Table 6: Machinery and Equipment
Description Burners / Fittings / Others Daigs / Kadhai / Others Storage Racks Deep Freezers Other Kitchen Utensils Total
Table 7: Office Equipment & Furniture Costs
Total Rs. 40,000 20,000 15,000 60,000 30,000 165,000
Quantity Computer & UPS Printer Tables Chairs Sofa Set Split AC Others Total 1 1 2 6 1 1 1
Cost 50,000 15,000 8,000 3,000 20,000 45,000 10,000
Amount 50,000 15,000 16,000 18,000 20,000 45,000 10,000 174,000
12.6
Human Resource Requirement

Table 8: Human Resource Requirement
Description
Nos.
Owner Head Cook Cooks / Karigars Helpers Driver Total Staff
1 1 2 4 1 9
Salary per employee per month (Rs.) 25,000 20,000 15,000 10,000 10,000
Total monthly Salary (Rs.) 25,000 20,000 30,000 40,000 10,000 125,000
The table above provides details of human resource required to run a Catering and Decoration Services Business. Salaries of all employees are estimated to increase at 10% annually. 12.7 Revenue Generation The revenues are based on assumption that 100 events/year with an average of 400 guests will be organized. The standard menu will be of two items only.
Table 9: Revenue Generation
Events Banquet Arrangement (Per Head) Shamiana / Kanats (Per Head) Marquee Set up (Per Head) Stage Water (Per Head) Food Standard Menu (Per Head) Total Sales Revenue Total Sales Revenue in a Year
Nos. 400 400 400 1 16 400
Sales Price (Rs.) 90 15 90 20,000 250 225
Revenue (Rs.) 36,000 6,000 36,000 20,000 4,000 90,000 192,000 19,200,000
12.8 Other Costs An essential cost to be borne by the said business is the promotional expense to attract more clients. Average monthly expenditure in this head is assumed to be Rs. 20,000.
Working Capital Requirements: It is estimated that an additional amount of approximately Rs. 735,000 will be required as cash in hand to meet the initial working capital requirements during operations. The requirement is based on the rent, utilities and salaries expenses for at least four months. The following table gives the break up.
Table 10 Working Capital Requirement
Utilities Salaries Rent Total
Month 04 04 04
Monthly Charges (Rs.) 285,000 375,000 75,000 735,000
13.
CONTACTS - SUPPLIERS
KITCHEN 'N' RESTAURANT SYSTEMS 102-A, Allama Iqbal Road Butt Lane, Garhi Shahu, Lahore, Punjab, Pakistan Phone: +92-42-36366590 / 36305989 Fax: +92-42-36305989 KITCHEN CARE # 103, Golden Plaza F-7, Blue Area, Islamabad, Capital, Pakistan Phone: +92-51-32875226 Fax: +92-51-32277176 PRESTIGE KITCHENS Kehkashan Shopping Arcade Block-7, Clifton, Karachi 75600, Sindh, Pakistan Phone: +92-21-35862978 / 35862839 Fax: +92-21-5871814 KITCHEN EQUIPMENTS Syed Qaiser Imam 554 Buffer Zone, Karachi Phone: 03333045358
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14.
ANNEXURES
14.1 Annexure 1 Income Statement
11
14.2 Annexure 2 Balance Sheet
14.3 Annexure 3 Cash Flow Statement
12
13
14.4 Technology
Useful Project Management Tips
List of Equipment Burners / Fittings / Others Daigs / Kadhai / Others Storage Racks Deep Freezers Other Kitchen Utensils
Energy Requirement: Should not be overestimated or installed in excess and alternate source of energy for critical operations be arranged in advance Equipment Suppliers: Should be asked for training/orientation and after sales services under a contract with the suppliers Quality Assurance Equipment & Standards: Products/Service quality standards need to be defined and a monitoring system for compliance to be instituted. This improves credibility.
Marketing Product Development & Packaging: Expert's help may be engaged for product/service and packaging design & development Ads & P.O.S. Promotion: Business promotion and dissemination through banners and launch events is highly recommended. Brochures from good quality Decoration Service Providers need to be obtained and kept for further use. Price - Bulk Discounts, Cost plus Introductory Discounts: Price should never be allowed to compromise quality. Price during introductory phase may be lower and used as a promotional tool. Product cost estimates should be carefully documented before price setting. Human Resources Owner Head Cook Cooks / Karigars Helpers Driver
14
Adequacy & Competencies: Skilled and experienced staff should be considered an investment even to the extent of offering share in business profit. Performance Based Remuneration: Attempt to manage human resource cost should be focused through performance measurement and performance based compensation. Training & Skill Development: Encouraging training and skill of self & employees through experts and exposure of best practices is route to success. Least cost options for Training and Skill Development (T&SD) may be linked with compensation benefits and awards. 14.5 Useful Links
Prime Ministers Office www.pmo.gov.pk Small & Medium Enterprises Development Authority (SMEDA) 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 Pakhtoonkhwa www.khyberpakhtunkhwa.gov.pk
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Government of Balochistan www.balochistan.gov.pk Government of Gilgit Baltistan www.gilgitbaltistan.gov.pk Government of Azad Jamu 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
15. KEY ASSUMPTIONS

Description Debt Equity Ratio Interest Rate Loan Tenure (With 01 year grace period) Sales Price Growth Rate Depreciation Rate Weighted Average Cost of Capital Prepaid Rent Period Increase in Staff Salaries Increase in Office expense 90:10 8% 8 Years 10% 10% 9.2% 6 Months 10% 10%
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Pre-Feasibility Study Catering & Decorating Services

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Pre-Feasibility Study

(Catering & Decorating Services)

2. PURPOSE OF THE DOCUMENT

6. BRIEF DESCRIPTION OF PROJECT

8. INSTALLED AND OPERATIONAL CAPACITIES

No. of Events in a Year 30 30 10 07 23 100

9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT

POTENTIAL TARGET MARKETS

PROJECT COST SUMMARY

Amount (Rs.) 105,000 165,000 174,000 150,000 675,000 100,000

Total Capital Cost Initial Working Capital Total Project Cost

1,369,000 735,000 2,104,000

Area Required For Office & Storage Total Rent

Area (Sq. ft.) 750

Monthly Rent Charges (Rs.) 25,000 25,000

Yearly Rent(Rs.) 300,000 300,000

Total Rs. 40,000 20,000 15,000 60,000 30,000 165,000

Cost 50,000 15,000 8,000 3,000 20,000 45,000 10,000

Amount 50,000 15,000 16,000 18,000 20,000 45,000 10,000 174,000

Human Resource Requirement

Owner Head Cook Cooks / Karigars Helpers Driver Total Staff

Nos. 400 400 400 1 16 400

Sales Price (Rs.) 90 15 90 20,000 250 225

Table 10 Working Capital Requirement

Utilities Salaries Rent Total

Monthly Charges (Rs.) 285,000 375,000 75,000 735,000

14.2 Annexure 2 Balance Sheet

14.3 Annexure 3 Cash Flow Statement

Useful Project Management Tips

15. KEY ASSUMPTIONS

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