Pre-Feasibility Study

(Driving School)

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

Pre-Feasibility Study

Driving School

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 THE PROJECT................................................................................. 4 7 CRITICAL FACTORS .................................................................................................................. 5 8 INSTALLED & OPERATIONAL CAPACITIES ........................................................................... 5 9 POTENTIAL TARGET MARKET / CITIES .................................................................................. 5 10 PROJECT COST SUMMARY ..................................................................................................... 5 10.1 10.2 10.3 10.4 10.5 10.6 10.7 PROJECT ECONOMICS ...................................................................................................... 6 PROJECT FINANCING ........................................................................................................ 6 PROJECT COST ................................................................................................................ 6 MACHINERY REQUIREMENT ............................................................................................... 7 RAW MATERIAL REQUIREMENTS........................................................................................ 7 HUMAN RESOURCE REQUIREMENT .................................................................................... 7 REVENUE GENERATION .................................................................................................... 8

11 CONTACT DETAILS OF GOVT. INSTITUTIONS / EXPERTS .................................................. 8 12 ANNEXURE ................................................................................................................................ 9 12.1 12.2 12.3 12.4 12.5 INCOME STATEMENT ......................................................................................................... 9 CASH FLOW STATEMENT ................................................................................................ 10 BALANCE SHEET............................................................................................................. 11 USEFUL MANAGEMENT TIPS ............................................................................................ 12 USEFUL LINKS ................................................................................................................ 12

13 KEY ASSUMPTIONS................................................................................................................ 14

Pre-Feasibility Study

Driving School

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

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Pre-Feasibility Study

Driving School

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 Driving School 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 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 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 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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Pre-Feasibility Study

Driving School

4 INTRODUCTION TO SCHEME
Prime Ministers Youth Business Loans Programme, 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). Youth Business 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 Pakhtunkhwa, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).

5 EXECUTIVE SUMMARY
This particular pre-feasibility is for starting of Light Transport Vehicle (LTV) Driving School. Driving is a skilful task that needs proper training and knowledge of traffic laws and regulations. There is a tremendous increase in the number of vehicles particularly in the urban cities of Pakistan. Moreover, the government has been taking steps towards effective implementation of traffic regulations. This has created a demand for formalized driver training and provision of road safety information, thereby creating an opportunity for establishing a Driving School for a prospective entrepreneur. The project is proposed to be set-up in a suitable locality of any urban city such as Lahore, Karachi, Sukkur, Hyderabad, Faisalabad, Sargodha, Multan, Quetta, DI Khan, Nowshera and Peshawar. Keeping in view the nature of services, there is a minimal requirement of establishing a formal office. The facility will comprise of 3 vehicles and employ 4 individuals including the owner / manager. The total capacity of the training service center will be to train 720 drivers annually. During the sessions, trainees shall be familiarized with the basic rules of driving along with traffic signal system, awareness about traffic rules and dealing with emergencies and accidents. Total investment in the project is Rs. 1.8 million with Rs. 1.6 million as capital investment and Rs. 0.2 million as working capital. NPV and IRR of the project is Rs. 6.31 million and 47% respectively with a payback period of 2.58 years.

BRIEF DESCRIPTION OF THE PROJECT

The proposed Driving School can be started as a home based business without having any formal office set-up, with the legal status of Sole Proprietorship. The

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Pre-Feasibility Study

Driving School

facility will acquire three second hand vehicles for practical training and hire three trainers / instructors for imparting training. The instructors will also brief trainees on traffic regulations and road safety information. The driving school will train 396 individuals in the first year @ 55% of its capacity.

7 CRITICAL FACTORS
The following significant factors may be taken into account while making investment decision: Hiring of quality trainers / instructors with a special focus on engaging female drivers. Effective marketing / awareness of the service particularly with traffic police & drivers licensing section. Competitive fee structure offering value for money. Efficient utilization of idle capacity by offering Pick & Drop facilities to office executives on need basis, as an additional business opportunity. Timely and cost effective repair and maintenance of vehicles due to major / minor accidents during the training.

8 INSTALLED & OPERATIONAL CAPACITIES

The facility will consist of 3 vehicles out of which two are 800 cc and one 1000 cc vehicle. The Driving School will offer a 10 day training program. The total capacity of the driving school will be to train 720 students annually. The capacity of the facility is calculated on the basis of available vehicles, and drive time of 40 minutes per trainee per day. In the first year, the training service will operate at 55% capacity and will provide training services to 396 individuals.

9 POTENTIAL TARGET MARKET / CITIES

Due to development and expansion of roads and increase in the number of vehicles, the Driving School can be started in any suitable area of a big city such as Lahore, Karachi, Sukkur, Hyderabad, Faisalabad, Sargodha, Multan, Quetta, DI Khan, Nowshera, Peshawar, Abbotabad and Khuzdar etc.

10 PROJECT COST SUMMARY

A detailed financial model has been developed to analyze the commercial viability of a Driving School under the Prime Ministers Youth Business Loan scheme. Various cost and revenue related assumptions along with results of the analysis are outlined in this section.

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Pre-Feasibility Study

Driving School

The projected Income Statement, Cash Flow Statement and Balance Sheet are attached as annexures. 10.1 Project Economics The Driving School will train 396 drivers at 55% capacity in year one with three vehicles and three trainers. The following table shows internal rate of return, payback period and net present value.
Table 1: Project Economics

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

Details 47% 2.58 Rs. 6,308,128

Returns on the investment and its profitability are highly dependent on trained staff, marketing, and competitive fee structure. In case the Driving School is not managed efficiently, it will not be able to capitalize on the potential market and recover payments; hence cost of operating the business will increase. 10.2 Project Financing Following table provides details of the equity required and variables related to bank loan:
Table 2: Project Financing Description Details

Total Equity (10%) Bank Loan (90%.) Markup to the Borrower (%age/annum) Tenure of the Loan (Years) Grace Period (Year) 10.3 Project Cost

Rs.180,000 Rs.1,620,000 8% 8 1

Following requirements have been identified for operations of the proposed business.
Table 3: Total Project Cost Capital Investment Amount (Rs.)

Vehicles Total Working Capital Cash in hand

1,600,000 1,600,000 200,000

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Pre-Feasibility Study

Driving School

Total Total Project Cost 10.4 Machinery Requirement

200,000 1,800,000

Main equipment required for a Driving School are vehicle(s) for providing practical training to the drivers. Keeping in view the project investment size, used vehicles are proposed. Therefore, due attention and care should to be exercised while procuring these vehicles.
Table 4: List of Vehicles

Description 800 CC 1000 CC Total

Quantity

Cost Rs/unit 2 500,000 1 600,000 3

Total Rs. 1,000,000 600,000 1600,000

10.5 Raw Material Requirements Fuel for vehicle(s) will be the only commodity required as a raw material in this project.
Table 5: Cost of Fuel

Sr. No 1 2

Unit 800 CC 1000 CC

No. of vehicles

Fuel Petrol Consumption Rate / ltr Km/ltr 2 12 Rs. 113 1 10 Rs. 113

Total Km / day / vehicle 90 90

Average fuel cost per Kilometer is estimated to be Rs. 10.044. Considering total mileage of 180 KM / student (for 10 days training session), fuel cost for 396 students (55% of total capacity) is worked out to be Rs. 715,968. 10.6 Human Resource Requirement The below table provides details of human resource required to run the Driving School. Salaries of all employees are estimated to increase at 10% annually.
Table 6: Human Resource Requirement

Description Owner

No. of Employees 1

Salary per month 20,000

Annual Salary 240,000

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Pre-Feasibility Study

Driving School

Driving Instructors Total Salaries

3 4

15,000

540,000 780,000

10.7 Revenue Generation

Table 7: Revenue Details

Product Fee (Rs./Student) Expected no. of Students First Year Revenue 1st Year (Rs.)

Unit Rs. No. Rs.

6,000 396 2,376,000

11 CONTACT DETAILS OF GOVT. INSTITUTIONS / EXPERTS

Principal National Logistics Cell (NLC) Driving School G. T. Road, Dina Ph: 0544-631908

National Highways and Motorway Police (NH&MP) Training College P.O. Box #16 General Post Office, Sheikhupura Ph: 056-3794601

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Pre-Feasibility Study

Driving School

12 ANNEXURE
12.1 Income Statement

Income Statement
Year 1 2,376,000 Year 2 2,851,200 Year 3 3,397,680 Year 4 4,024,944 Year 5 4,743,684 Year 6 5,565,923 Year 7 6,122,515 Year 8 6,734,766 Year 9 7,408,243 Year 10 8,149,067

Revenue Cost of sales Cost of goods sold (Fuel Cost) Operation costs 1 (direct labor) Vehicles Maintaince Cost Total cost of sales Gross Profit General administration & selling expenses Administration expense Communications expense (phone, fax, mail, internet, Promotional expense Depreciation expense Subtotal Operating Income Gain / (loss) on sale of office vehicles Earnings Before Interest & Taxes Interest expense on long term debt (Project Loan) Subtotal Earnings Before Tax Tax NET PROFIT/(LOSS) AFTER TAX

715,968 540,000 178,200 1,434,168 941,832

859,162 594,000 213,840 1,667,002 1,184,198

1,023,834 653,400 254,826 1,932,060 1,465,620

1,212,850 718,740 301,871 2,233,461 1,791,483

1,429,430 790,614 355,776 2,575,820 2,167,864

1,677,198 869,675 417,444 2,964,318 2,601,605

1,844,918 956,643 459,189 3,260,749 2,861,765

2,029,410 1,052,307 505,107 3,586,824 3,147,942

2,232,351 1,157,538 555,618 3,945,507 3,462,736

2,455,586 1,273,292 611,180 4,340,057 3,809,010

240,000 47,520 118,800 320,000 726,320 215,512 215,512 134,459 134,459 81,053 81,053

264,000 57,024 142,560 320,000 783,584 400,614 400,614 123,099 123,099 277,516 277,516

290,400 67,954 169,884 320,000 848,238 617,382 617,382 108,167 108,167 509,215 10,921 498,293

319,440 80,499 201,247 320,000 921,186 870,297 870,297 91,997 91,997 778,301 39,245 739,056

351,384 94,874 237,184 320,000 1,003,442 1,164,422 960,000 2,124,422 74,484 74,484 2,049,938 257,487 1,792,451

386,522 111,318 278,296 515,363 1,291,500 1,310,105 1,310,105 55,517 55,517 1,254,587 110,688 1,143,899

425,175 122,450 306,126 515,363 1,369,114 1,492,652 1,492,652 34,977 34,977 1,457,675 141,151 1,316,524

467,692 134,695 336,738 515,363 1,454,489 1,693,453 1,693,453 12,731 12,731 1,680,722 183,644 1,497,078

514,461 148,165 370,412 515,363 1,548,402 1,914,335 1,914,335 1,914,335 230,367 1,683,968

565,907 162,981 407,453 515,363 1,651,705 2,157,304

2,157,304 2,157,304 278,961 1,878,344

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Pre-Feasibility Study

Driving School

12.2 Cash Flow Statement

Cash Flow Statement
Year 0 Operating activities Net profit Add: depreciation expense Deferred income tax Cash provided by operations Financing activities Project Loan - principal repayment Additions to Project Loan Issuance of shares Purchase of (treasury) shares Cash provided by / (used for) financing activities Investing activities Capital expenditure Acquisitions Cash (used for) / provided by investing activities NET CASH Year 1 81,053 320,000 401,053 Year 2 277,516 320,000 597,516 Year 3 498,293 320,000 10,921 829,215 Year 4 739,056 320,000 39,245 1,098,301 Year 5 1,792,451 320,000 257,487 2,369,938 Year 6 1,143,899 515,363 110,688 1,769,951 Year 7 1,316,524 515,363 141,151 1,973,038 Year 8 1,497,078 515,363 183,644 2,196,085 Year 9 1,683,968 515,363 230,367 2,429,698 Year 10 1,878,344 515,363 278,961 2,672,668

1,620,000 180,000 1,800,000

(179,897) (179,897)

(194,829) (194,829)

(210,999) (210,999)

(228,512) 2,576,816 2,348,304

(247,479) (247,479)

(268,019) (268,019)

(290,265) (290,265)

(1,600,000) (1,600,000) 200,000

401,053

417,618

634,386

887,301

(2,576,816) (2,576,816) 2,141,426

1,522,472

1,705,019

1,905,820

2,429,698

2,672,668

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Driving Training service

12.3 Balance Sheet

Balance Sheet
Year 0 Assets Current assets Cash & Bank Total Current Assets Fixed assets Office vehicles Total Fixed Assets Intangible assets Total Intangible Assets TOTAL ASSETS Liabilities & Shareholders' Equity Current liabilities Total Current Liabilities Other liabilities Deferred tax Long term debt (Project Loan) Total Long Term Liabilities Shareholders' equity Paid-up capital Retained earnings Total Equity TOTAL CAPITAL AND LIABILITIES 200,000 200,000 601,053 601,053 1,018,671 1,018,671 1,653,057 1,653,057 2,540,359 2,540,359 4,681,784 4,681,784 6,204,256 6,204,256 7,909,275 7,909,275 9,815,095 9,815,095 12,244,793 12,244,793 14,917,461 14,917,461 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

1,600,000 1,600,000

1,280,000 1,280,000

960,000 960,000

640,000 640,000

320,000 320,000

2,576,816 2,576,816

2,061,453 2,061,453

1,546,090 1,546,090

1,030,726 1,030,726

515,363 515,363

1,800,000

1,881,053

1,978,671

2,293,057

2,860,359

7,258,600

8,265,709

9,455,365

10,845,822

12,760,156

14,917,461

1,620,000 1,620,000

1,620,000 1,620,000

1,440,103 1,440,103

10,921 1,245,274 1,256,196

50,166 1,034,275 1,084,441

307,654 805,762 1,113,416

418,342 558,284 976,626

559,493 290,265 849,758

743,137 743,137

973,504 973,504

1,252,464 1,252,464

180,000 180,000 1,800,000

180,000 81,053 261,053 1,881,053

180,000 358,568 538,568 1,978,671

180,000 856,862 1,036,862 2,293,057

180,000 1,595,918 1,775,918 2,860,359

2,756,816 3,388,368 6,145,184 7,258,600

2,756,816 4,532,268 7,289,084 8,265,709

2,756,816 5,848,791 8,605,607 9,455,365

2,756,816 7,345,869 10,102,685 10,845,822

2,756,816 9,029,837 11,786,653 12,760,156

2,756,816 10,908,181 13,664,997 14,917,461

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Driving School

12.4 Useful Management Tips Marketing Ads & Point of Sales Promotion: Business promotion and dissemination through banners and launch events is highly recommended. Product brochures from good quality service providers Price - Bulk Discounts, Cost plus Introductory Discounts: Price should never be allowed to compromise on service quality. Price during introductory phase may be lower and used as promotional tool.

Human Resources Adequacy & Competencies: Skilled and experienced instructors should be considered an investment even to the extent of offering share in business profit. Training & Skill Development: instructors through experts Encouraging training and skill of self &

12.5 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 National Highway Authority (NHA) 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 Government of Balochistan, www.balochistan.gov.pk Government of Gilgit Baltistan, www.gilgitbaltistan.gov.pk

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Driving School

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

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Driving School

13 KEY ASSUMPTIONS
Table 8: Project Assumptions

Projected Life of the Project in Years Owner' Equity Debt Financing Annual Mark Up Rate (Short Term & Long Term) Debt Tenure (Years) Grace Period (Years) General Inflation Rate Per Annum
Table 9: Operating Assumptions

10 10% 90% 8% 8 1 10% 300 Rs 6,000 10 days 396 10% 5% 20% 05 Years

No of Working Days in One Year

Table 10: Revenue Assumptions

Fee income per Student Course Duration Expected Number of Students per year at 55% Capacity Sale price growth rate Production capacity growth rate
Table 11: Depreciation Assumptions

Vehicles Life of Vehicle

Table 12: Expenditure Assumptions

Communication expense Promotional Expense

2% 5%

Of Sales Of revenue

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