Contents

EXECUTIVE SUMMARY................................................................................................. 3
BACKGROUND............................................................................................................ 4
MARKET ANALYSIS...................................................................................................... 5
1.1 COLLECTION OF SECONDARY INFORMATION.......................................................5
1.2 CONDUCT OF MARKET SURVEY.............................................................................5
1.3 MARKET OVERVIEW:........................................................................................... 7
1.4 MARKET SEGMENTATION...................................................................................... 8
1.5 DEMAND FORECASTING........................................................................................ 8
1.6 MARKETING PLAN................................................................................................. 9
1.6.1Market Entry Timing........................................................................................ 9
1.6.2 Existing Competition...................................................................................... 9
1.6.3 Consumer demand....................................................................................... 10
1.6.4 Target Market............................................................................................... 10
1.6.5 Market Size and trends.................................................................................10
1.6.6 Chocolate Distributors.................................................................................. 10
1.6.7 Advertising /Promotional Activities and Demand Creation...........................11
TECHNICAL ANALYSIS............................................................................................... 12
2.1 Proposed Chocolate Manufacturing Plant Capacity...........................................12
2.2 Project Cost........................................................................................................ 12
2.3 Project Investment.............................................................................................. 12
2.4 Raw Material / Inventory..................................................................................... 12
2.5 PROCESS FLOW OF MANUFACTURING CHOCOLATE............................................14
2.6 Technology Options............................................................................................ 15
2.7 Product Mix and Innovation Parameters.............................................................15
2.8 Proposed Location.............................................................................................. 16
2.9 Land Requirement.............................................................................................. 16
2.10 MANPOWER REQUIREMENT.............................................................................. 16
FINANCIAL ANALYSIS................................................................................................. 19
3.1 COST OF PROJECT............................................................................................... 19
3..1.1 LAND & BUILDING...................................................................................... 19

3.1.2 Overall Factory & Office Renovation............................................................20

3.1.3 PLANT & MACHINERY.................................................................................... 20
3.1.4 Maintenance Requirement........................................................................... 21
3.1.5 FACTORY & OFFICE EQUIPMENT....................................................................22
3.1.6 OFFICE VEHICLE........................................................................................... 22
3.2 COST OF PRODUCTION....................................................................................... 23
3.2.1 UTILITIES...................................................................................................... 23
3.2.2 WORKING CAPITAL REQUIREMNET................................................................23
3.2.3 PRELIMINARY & MACHINERY TRANSPORTATION EXPENSES...........................24
3.2.4 FACTORY OVERHEAD COST...........................................................................24
3.2.5 RAW MATERIALS INVENTORY........................................................................24
3.2.6 FINISHED GOODS INVENTORY......................................................................24
3.2.7 REVENUE PROJECTIONS................................................................................24
3.2.8 ACCOUNTS RECIEVABLES.............................................................................25
3.2.9 ACCOUNT PAYABLES..................................................................................... 25
3.2.10 FINANCIAL CHARGES.................................................................................. 25
3.2.11 TAXATION................................................................................................... 25
3.2.12 COST OF CAPITAL....................................................................................... 25
3.2.13 OWNERS WITHDRAWAL.............................................................................25
3.3 FINANCIAL SUMMARY.......................................................................................... 26
3.3.1

EVALUATION OF FINANCIAL SUMMARY......................................................26

SOCIO- ECONOMIC ANALYSIS..................................................................................... 28

4.1 ENVIRONMENTAL SUSTAINABILITY.......................................................................28
4.2 MANAGERIAL POLICY........................................................................................... 28
CONCLUSION............................................................................................................ 28
ANNEXURES.............................................................................................................. 29
REFERNCE................................................................................................................ 29

EXECUTIVE SUMMARY

This pre-feasibility report is prepared for the course of PROJECT MANAGEMENT, fully guided
by Professor A. R. ZAKI. This is a comprehensive report on the establishment of a Chocolate
Company. A complete analysis of manufacturing of chocolate is given which includes marketing
analysis, technical analysis, financial analysis & socio-economic analysis. The chocolate which
will be manufactured is segmented into different flavors like dark chocolate , milk chocolate and
white chocolate. First the market survey was conducted through questionnaires which was filled
mostly by young generation. The marketing and promotion will be accomplished by placement
of bill boards and advertisement in television . The target market is chosen upper middle and
middle classes. All the machinery will be procured from Pakistan but some of the equipments
which are not available in Pakistan can be imported. The basic raw material required for making
chocolate is Sugar, Full Cream or Skimmed Cream, Skimmed Milk Powder, Cocoa Butter,
Cocoa Mass, Vegetable Fat, Emulsifiers and Flavors. For our chocolate we will import high
quality cocoa from Asian Countries. A complete organizational setup has been defined. Building
will be rented and it will be in industrial area of Karachi. The project cost is 13.94 million. The
business is based on partnership, there will be 2 partners. Debt to equity ratio is 50:50 so 50% of
investment will be done by both partners & 50% loan will be taken. So a loan has been applied
from bank for 3 years payback period at 16% interest rate. Finally, 5 year projections of income
statements cash flows and balance sheet has been performed. Then some financial ratios have
also been calculated to evaluate the financial position of company for 5 years. Internal rate of
return calculated is 35% Net present value is Rs, 14,385,386. The thorough and comprehensive
projections along with income statement and balance sheet assumptions and other financial
summary show that project is a viable and practical business to be run

BACKGROUND

Products like candies, toffees, chew jellies, fudges, lollypops, chocolates and bubble gums are
considered to be the part of confectionery industry which also includes all kind of biscuits,
cookies and sweet meats. However, this pre-feasibility provides details on chocolate, its
manufacturing, packaging, marketing and distribution.
Chocolate is loved by every age group & chocolate industry is growing day by day. Chocolate
enjoys about 30% of total candy market and its manufacturing is easy and could be done using
home recipes. Many industrial producers of chocolate and other confections are manufacturing
chocolates on large scale for the local market and export purposes. This project envisages the
production of chocolate using local plant and machinery. We are starting a business of
manufacturing chocolates. Our company name is FRIVOLOUS which means (made or done
with extreme care & accuracy) & with respect to the meaning our company objective is similar
to its name. The objective of our industry would be to manufacture & provide our customers
with the quality products to the best interest of the customers. To create price competitive
products, To ensure hygiene & clean working environment. Our target market would be all
people of all age group & we will be launching chocolate of three types

Frivolous Plain Chocolate

Frivolous Milk Chocolate
Frivolous Fruit & Nut Chocolate

MARKET
ANALYSIS
1.1 COLLECTION OF SECONDARY INFORMATION
Information may be obtained from secondary or primary sources. Secondary information is some
information that has been gathered with some context. Secondary source of our project is the
annual report on CHOCOLATE INDUSTRY ANALYSIS 2015 Cost & Trends.
Chocolate Industry in 2015 at a Glance:
The chocolate industry offers a wide variety of opportunities for the small business owner,
weathers economic recession well and is growing despite increased health-consciousness and
calorie counting. Growth will be driven by population growth as well as expansion into new
markets, product innovation and rising disposable income levels leading to greater purchasing of
premium offerings.
Chocolate is wildly popular for individual consumption, gift giving and cooking. Due to the
dominance of large-scale production dynasties, franchises and small businesses tend to focus on
unique or specialty items or services. Unique chocolates may be from a region famous for a
particular technique, baked on-site or offer a different take on tradition, while specialty services
tend to focus on gift-packaging or delivery

1.2 CONDUCT OF MARKET SURVEY

Secondary information though useful but do not provide a comprehensive basis for market
analysis. It needs to be supplemented with primary information gathered through a market
survey.
We have done a sample survey to collect the primary information. Our target population was
young generation as chocolate is eaten most by the young ones we selected the sample size of 30

& developed a questionnaire which is given in the last. Then the questionnaire was scrutinized
properly in order to gather the information.

Key Findings:
The information gathered through questionnaire is discussed below:

We wanted to know that what kind of chocolate people prefer to eat now days. We came
to know that most of the people like milk chocolate.

An average people buy chocolate twice in a week which gives us the idea about demand
of chocolate.

The filling people want in chocolates is caramel & nuts

Due to high prices of other brands chocolates, people find chocolates as luxury.

People are becoming health conscious so they want sugar free chocolate to be introduced

People are not influenced with any celebrity all they want is quality and taste in a
economical price

Above area the main points which are gathered through questionnaire & this information is very
useful for making decisions while starting a new business.
So based on the information gathered we came to know that, demand of chocolate is increased.
Most of the brands are selling chocolates in high prices. People do not need big celebrities to
influence them. Chocolates are highly consumed on special occasions.

1.3

MARKET OVERVIEW:

The global chocolate market is characterized by aggressive growth in developing regions and
maturity and innovation in developed regions. Chocolate, a food preparation that has cocoa as
the key ingredient, is a popular sweet across the world in a myriad of forms. The chocolate
market has reported substantial growth in the last decade and market experts anticipate it to grow
at an even faster rate in the current decade. The global chocolate market is primarily driven by a
surging demand for dark chocolate and cocoa chocolates, and their established health benefits.
The demand for new varieties and flavors continues to drive this market ahead. However,
unfavorable factors such as an unstable supply of cocoa, spike in raw material prices, and labor
becoming costlier are likely to inhibit growth in this market. Striking a balance between quality
and pricing, however, remains a looming challenge for chocolate manufacturer.

1.4 MARKET SEGMENTATION

Dark chocolate

Milk chocolate

White chocolate

1.5 DEMAND FORECASTING

One of the primary demand drivers for chocolate and other sweets is consumer taste, and
consumers continue to love chocolate! Long a beloved treat in the western world, a recent study
in Great Britain showed that 91% of females and 87% of males consume chocolate products. But
the taste for chocolate is now expanding into highly populated nations with a growing middle
class, such as China and India. Rising disposable incomes and changing tastes will continue to
drive growth in the industry overseas, just as improving domestic economic conditions increase
sales at home.

Chocolate is a marketable product and its demand is stable through out the years. Population
demographic analysis indicate that more than half of the current population of Pakistan falls
under the age of 15 years1, who is, luckily, the target consumer group of confectionery products.
Considering the current population which is estimated around 161 million (United Nations
Estimates, 2014), population growth rate and percentage of under 15 age group, increase in per
capita income, reduction in poverty rate etc. opportunity for the confectionery products and its
demand appears to be attractive and growing.

The candy and confection industry remained strong through the recent recession, with the
chocolate industry in particular having strong sales despite belt tightening. Considered a luxury,
chocolate surprised many industry observers with continued sales strength over the last several
years. Though people spent less on big ticket items like vacations, consumers refused to give up
the little ways they spoil themselves at home. A chocolate bar is often considered an affordable
luxury.

1.6 MARKETING PLAN

1.6.1Market Entry Timing
To take entry into Chocolate business, beginning of winter is supposed to be the best time.
The reason is that in winter children and teenagers are more inclined to have food more rich in
starch/sugar; secondly confectionery remains safe from melting and de-shaping.
During summer, children prefer to have Ice cream, Flavored Ice bowls due to hot weather.

1.6.2 Existing Competition

When starting up a new business of chocolate manufacturing, direct competition will mainly be
with un-organized or informal sector which is mostly involved in producing me-too products.
Due to the simplicity of producing Chocolates, almost every confectionery manufacturer is
producing Milk Chocolate which increases the level of difficulty of competing with existing
players. To assess existing competition, the factors to consider would be the number of
competitors, variety of products they offer, promotional schemes they offer etc. Besides the
informal sector, following medium and small scale business units might be tough competitors.
1. Cadbury Pakistan
2. Nestle Pakistan
3. DANPAK Foods Industries (Pvt) Ltd

1.6.3 Consumer demand

In Pakistan confectioneries have always been used as gifts on weddings and other occasions
however now there is a higher demand for chocolate confectioneries on not only weddings

but also on Eid and birthdays. There is a high and an increasing corporate demand for such
confectionery items as now people want to deviate from the traditional sweets.

1.6.4 Target Market

Our major target market will be the corporate clients of Karachi mainly and other adjacent
cities as well. The trends in the corporations of Pakistan are now changing; corporations
often present gifts in the form of chocolates to their consumer as well as their business
clients. This trend is on an increase in the country. We will also cater for weddings in large
packaging and other occasions such as birthdays and Eid. However this will be targeted
towards the upper and the upper middle class of the country. Our target market will also
largely include walk in clients who will purchase chocolate in small quantities as compared
to the corporate clients or those catered for weddings. There is no age limit to the target
market as Chocolate is a certain product that is liked by everyone.

1.6.5 Market Size and trends

The market size of our target market includes all of the upper and middle class of Karachi
and adjacent cities, all of the upper middle class and any person who could be a walk in
customer. Apart from this we are serving to corporate clients who include banks and other
multinational organizations as well as the local ones.

1.6.6 Chocolate Distributors

CHOCOLATE MANUFACTURING SALES FORCE

Designated Wholesalers

Distribution Agents

Secondary
Wholesalers

Retailers
1. Departmental Stores 3. Supermarkets
2. Convenience/Town Shops 4. Bakeries/Staple food stores

1.6.7 Advertising /Promotional Activities and Demand

Creation
Promotional activities play a key role in driving sales. It is very important to focus on promotional
activities to ensure a constant stream of business. Most of the confectionery producers offer variety
of the same brand with different price mix to attract customers, which do not give them the desired
results though to some extent it works especially in low income areas. The primary focus should be
to introduce promotional activities in the concerned locality to attract a larger volume of retail shops.
Although majority of the confectionery items producers bank on the promotional activities of the
confectionery brands for attracting business, self initiated promotional activities that are specifically
tailored to meet the requirements of the concerned localities are of vital importance to the
confectionery business. For example, a Chocolate Specialty shop decorated colorfully might want to
capitalize on the opportunity of attracting children with discounted prices.

TECHNICAL ANALYSIS
2.1 Proposed Chocolate Manufacturing Plant
Capacity
Locally manufactured Chocolate manufacturing plant with 10 k.g./hr. production capacity would
be an economical size for starting chocolate business. However, due to the time required in
developing market reputation and running of the unit, it is expected that the plant would achieve
100% efficiency in the last year of the projected period.

2.2 Project Cost

Total project cost of the chocolate business is approximately Rs.13.94 million. Out of this,
capital cost of the project is around Rs. 9.9 million and remaining will be the working capital.

2.3 Project Investment

A total of Rs. 13.94 million will be required to setup and operate the proposed chocolate business
Table 1: Project investment
CAPACI
TY

80
kg /day

HUMAN
RESOUR
CE

14

TECHNOLO
GY/

LOCATION

MACHINERY
local
machinery

Medium
Cost
industrial
area

2.4 Raw Material / Inventory

The basic raw material required for making chocolate is Sugar, Full Cream or Skimmed Cream,
Skimmed Milk Powder, Cocoa Butter, Cocoa Mass, Vegetable Fat, Emulsifiers and Flavors.

Most of the world's cocoa is grown in a narrow belt 10 degrees either side of the Equator because
cocoa trees grow well in humid tropical climates with regular rains and a short dry season. The
trees need even temperatures between 21-23 degrees Celsius, with a fairly constant rainfall of
1000-2500mm per year.
Many countries now grow cocoa. The main producers outside the main central American
producers, Brazil and Ecuador, are:
WestAfrica
Ghana, which grows some of the best quality cocoa in the world, Nigeria and Cote D'Ivore.
Cocoa was first planted in Ghana, now a major producer, in 1879 and as in the rest of West
Africa, cocoa is grown almost entirely on small family farms. Cocoa farming is a small
unsophisticated business as the current planting patterns of cocoa trees make mechanisation
impractical.
Asia
In Asia, public and private plantations have been developed as well as small farms.
Malaysia and Indonesia, where the cocoa is a relatively new crop, are becoming increasingly
important growing areas.
For our chocolate we will import high quality cocoa from Asian Countries.

2.5 PROCESS FLOW OF MANUFACTURING

CHOCOLATE

2.6 Technology Options

The type of technology to be employed largely depends on the market to be captured. The
proposed business setup is based on the assumption to cover both local and export markets.
Currently in Pakistan export oriented confectionery manufacturers are also using local plants and
machinery. However, for the purpose of high volume, manufacturers are also using imported
plant and machinery to obtain economy of scale and volume based market leadership. Hilal is
using this strategy and enjoying leadership in local chocolate industry Available technology
options are as follows:
1. Full European Plant New
2. Full European Plant Used
3. Full Chinese Plant with local Wrapping machine
4. Locally Manufactured Plant with Wrapping and bagging Machine
Beside technology options a few things should also be taken into account before deciding on
setting up a chocolate manufacturing unit. Normally chocolate Plants are not readily available in
Pakistani market. Therefore entrepreneur will have to place order to the local plant and
machinery manufacturer well in advance. Normally the delivery period is 1 to 2 months for
wrapping and bagging machines and 6 months for production plant/machinery

2.7 Product Mix and Innovation Parameters

Proposed product mix for the chocolate manufacturing business should be:
Introduce unconventional but somewhat known flavors with eye catching colors &
shapes.
Innovative packaging and designs should be given importance.
Place emphasis on new products development and shift gradually towards a good
mix of different chocolate types.
Revitalize your product by introducing new flavors, colors and distributor schemes

etc.

2.8 Proposed Location

Location for setting up a chocolate plant has imperial implications on fixed costs, operational
costs and procedures. Generally locations where labor and skilled manpower is easily available
and population density is also reasonable are preferred, however availability of utilities like
Power, Water, Gas, Telephone, Roads and Sewerage should also be considered when deciding
where to setup the business. In addition, a location should be chosen from where business
operations like production and distribution can be performed quickly with low operational cost.
For chocolate business, it is suggested to locate the manufacturing facility in North
Karachi Industrial Area, Federal B Industrial Area Karachi,. For the purpose of this study, it is
assumed that the project will be setup in a medium cost industrial location.

2.9 Land Requirement

The workspace required to setup the assumed chocolate plant is a 2250 sq. ft. (250 yards plot),
which will serve for the office, storage godown and manufacturing plant. It is normally available
for Rs. 3 4 million in a medium cost industrial location.

2.10 MANPOWER REQUIREMENT

15 persons can handle the operations of a chocolate manufacturing business unit. The business
unit will work on one shift basis. Technical staff with secondary school education is sufficient to
look after specific tasks at the plant while trained staff will be required for operating production
plant and wrapping/bagging machines. Such staff is available in the local market. Total estimated
manpower required for the business operations along with their respective salaries is given in the
table

Table 2 :Technical Manpower Required

TYPE OF

NUMBE
R

MANPOWER

MONTHLY
SALARY

Trained Plant Operator

Trained Wrapping and Bag
Making
Machine Operator

40,000

15000

Packers

6000

Helper / Loader
Store Keeper

2
1

6000
8000

Total

ANNUA
L
SALAR
Y
480,00
0
54000
0
14400
0
14400
0
96000
14040
00

Table 3:General Management / Administrative & Selling Staff

TYPE OF
MANPOWER

NUMBE
R

MONTHLY
SALARY

OWNER

Admin/Account officer

25000

Sales Co-ordinator
Office driver
Security Guard

2
1
1

8000
5000
5000

Total

The owner is required to manage the following jobs:

ANNU
AL
SALRY

30000
0
19200
0
60000
60000
61200
0

 Overall business operations including general administration.

Procurement of new orders
Distribution
Customer handling
Product quality
Ensuring adequate cash flow to meet working capital requirements etc.
2. The plant operator is required to operate production plant, checking and managing raw
material/production quantity/quality and mixing ingredients; and testing output quality etc.
3. Wrapping and Bagging machines Operators are required to operate the wrapping and
bagging machines. They are also responsible for machines timely maintenance, oiling, etc.
Further, they will also be responsible for providing necessary support and assistance to the plant
operator.
4. Packer & Helper are required to facilitate in packing process and shifting of produced
material to store room etc.
5. Sales Coordinators are responsible for day to day coordination with distribution and
production functions. They are also responsible to carry out field surveys and ensuring product
availability in the immediate market.
6. Admin. / Accounts Officer is mainly responsible for carrying out day to day administrative
activities of the overall business including facilitation provided to the owner as and when
required.

FINANCIAL ANALYSIS
The project cost estimates for the proposed Chocolate Production Business have been
formulated on the basis of discussions with relevant stakeholders and experts. The projections
cover the cost of land, machinery and equipment including office equipment, fixtures etc. The
specific assumptions relating to individual cost components are given as under.

3.1 COST OF PROJECT

3..1.1 LAND & BUILDING
Table 1: Cost of land & building

SIZE

LOCATION

250 yards
200yards
Construction
Cost
(approximate
)

Medium cost
Industrial Area
Office &
warehouse
Production
Facility

TOTAL COST
(RS)

RENT PER
MONTH (RS)

3 to 4
million

EXPECTED
ANNUAL
INCREASE IN
RENT

40,000

10%

600,000

800,000

This pre-feasibility assumes that the space will be acquired on rental basis. Initial contract would
be for two years with 6 month deposit and 6 month advance rent after which the rent will be
payable on a monthly basis. In addition construction and renovation will cost around Rs.
1,400,000/- which will depreciate at 10% per annum using diminishing balance method. Total
initial cash outflow for acquisition of land would be as follows:

Table 2: Rent Charges

Mont Re
hs
nt
Security
Deposit

Advance Rent

Total

240,0
00
240,0
00
480,0
00

Land & Building will include:

General Management Office / Storage Area

Production Facility

The proposed business unit will be based in a medium cost industrial locality in a metropolitan
area like North Karachi or Federal B. Area as the business highly depends on a good distribution
network and quick access to the prospects market with less distribution cost. The expected area
required for the set up would be a single story building with two storage godown of 15ft. x 15ft.
each. One for raw material storage and other will be used for finished products. It is assumed that
all activities will be undertaken under one roof and the factory be acquired on a rental basis at
Rs. 40,000 per month for the projected period. This rent is expected to increase at a rate of 10%
per year. It is further assumed that there will be no addition or deletion during the projected
period. Furthermore, it is assumed that Rs. 480,000 will be paid in advance before possession of
premises. This will include advance rent for six months and six months security deposit.

3.1.2 Overall Factory & Office Renovation

It is expected that a total of Rs.500,000 would be incurred to renovate the factory / office
premises in Year 5 and Year 10.
In the following lines we are providing a break up of other assets required for setting up Chocolate
Business

3.1.3 PLANT & MACHINERY

Considering factors like tough competition in the industry, technology advancement, machinery
used by the competitors, desired volume of production and the minimum cost in which
machinery is easily available in the local market, we have assumed that local machinery will be
used for the proposed set-up.
The production capacity of the machine would depend on the amount of business expected to be
generated. Capacities vary from brand to brand but on a general scale they can be segregated into
three categories as follows:
1. Machines having a production capacity of 350 k.g. of chocolate per hour
2. Machines having a production capacity of 750 k.g. of chocolate per hour
3. Machines having a production capacity of more than 1000 k.g. of chocolate per hour
The cost implications would depend on the capacity of the machine. For this prefeasibility, local
machinery with expected capacity of 600 k.g. per hour is assumed to be sufficient which cost
around Rs. 7.3 million. The detailed specification of the machinery will be as follows:
Table 3: Plant & Machinery Cost
sr
n
o.

unit

1 Weighing & mixing pot

Chocolate making plant

local/fore cost(r
ign
s)

capacity in kg

local

600/hr

Man power

1 Warm Mix

local

2 Press Whip

local

3 Cooling Drum Conveyer

local

4 Extruder

local

5 Cooling Tunnel

local

6 Rope Sizer

local

7 Forming Machine

local

8 Liquid powder Filler

local

20,000
require
d2
875,00
0
2,000,0
00
700,00
0
350,00
0
800,00
0
250,00
0
700,00
0
200,00
0

600 kg/hr
Works
Synchronically
Works
Synchronically
Works
Synchronically
Works
Synchronically
Works
Synchronically
Works
Synchronically
Works
Synchronically

9 Pan lifting jel

local

50,000
5,925,0
00
1,000,0
00
400,00
0

TOTAL COST OF PLANT

10 Wrapping Machines 2
Chocolate bags making
11 machine
Total Cost of Wrapping and Bagging
machines

local
local
Local

Works
Synchronically
250
chocolate/min
1000 bags / hr

1,400,000

7,345.
000

Total cost of the machinery

3.1.4 Maintenance Requirement

The local machine is expected to be serviced on an annual basis, for the projected period, costing
around 1.5% of the cost of machine for first five years and 2.5% for the coming years.

Depreciation Treatment
The treatment of depreciation would be on a diminishing balance method at the rate of 10% per
annum. This method is also expected to provide accurate tax treatment.

3.1.5 FACTORY & OFFICE EQUIPMENT

A lump sum provision of Rs. 150,000 for procurement of office furniture and factory equipment
is assumed. This would include table, desk, chairs, office stationery and plant & machinery
equipment. The breakup of Factory Office Furniture & Fixtures is as follows:
Table 4: Factory & Office Equipment Cost

ITEM

NUMB
ER

CO
ST

Table & Chair for Owner

Tables & Chairs for Staff
Carpet for Office
Air Conditioner

1
4
1
1

7,000
20,000
10,000
30,000

Waiting Chairs
Sofa Set
Curtains & Interior Decoration
Electrical Fittings & Fancy Lights
Others

6
1

Total

9,000
10,000
10,000
40,000
14,000
150,00
0

Depreciation Treatment
Factory/Office equipment and furniture is expected to depreciate at a constant rate of 10% per
annum according to the diminishing balance depreciation method.

3.1.6 OFFICE VEHICLE

The proposed setup would require an office vehicle (a delivery van) to carryout all office
activities and to cater urgent delivery requirements, if any. The cost of vehicle is assumed to be
Rs. 400,000.

Depreciation Treatment
The office vehicle is expected to depreciate at a constant rate of 10% according to the
diminishing balance method.

3.2 COST OF PRODUCTION

3.2.1 UTILITIES
The proposed Chocolate making machinery will operate using electricity for chocolate
production. This would draw considerable amount of electricity. The cost of the utilities
including electricity, telephone, and water is estimated to be Rs. 960,000 per annum. The utility
expenses are assumed to increase at 10% per annum.
Table 5: Utilities Cost

Utilities

MONTHLY
COST

Water &
Gas
Telephones

5,000
10,000

(2)
Electricity

65,000

Total

80,000

3.2.2 WORKING CAPITAL REQUIREMNET

It is estimated that an additional amount of approximately Rs. 3.5 million will be required as
cash in hand to meet the working capital requirements / contingency cash for the initial stages.
This provision has been estimated based on the salaries of the staff and utilities charges for first
three months of operations of the proposed Chocolate business.
Table 6: Working Capital Requirement

Working Capital

Amount
in Rs

First Three Months Salary

First Three Months Utilities Charges
First Three Months Misc. Expenses
Inventory (Raw Material-One Month)
Total

504,000
450,000
75,000
2,994,871
4,023,871

3.2.3 PRELIMINARY & MACHINERY TRANSPORTATION

EXPENSES
A lump sum provision of Rs. 50,000 is assumed to cover all preliminary expenses like
registration, documentation charges etc. which will be amortized over the 5 year period.There
has been a provision of Rs. 100,000 for plant and machinery transportation. Machinery
installation and trial run production services are generally provided by the machinery suppliers;
therefore no cost has been assumed for this purpose.

3.2.4 FACTORY OVERHEAD COST

Miscellaneous expenses of running the business are assumed to be Rs. 25,000 per month. These
expenses include various items like office stationery, daily consumables, fuel expenses, traveling
allowances etc. and are assumed to increase at a nominal rate of 10% per annum.

3.2.5 RAW MATERIALS INVENTORY

It is assumed that an initial raw material inventory for one month would be purchased the total
cost of which would be around Rs. 3 million. The cost of raw materials is expected to increase at
the rate of 10% per annum for the projected period.

3.2.6 FINISHED GOODS INVENTORY

The proposed setup is assumed to maintain a Finished Goods Inventory of at least 15 days.

3.2.7 REVENUE PROJECTIONS

Key assumptions for the revenue projections are as following:

Chocolate Weight 20 gms.

1 chocolate bar cost of Rs 10
Box of chocolate which contain 30 bars will cost Rs 300

Sales price of confectionery items are generally revised after every 3 to 5 years.
However, for the purpose of this pre-feasibility we have assumed 10% price growth
annually.
It has been assumed that it will take some time for the business to reach the optimal
capacity utilization point for the projected period. Therefore the first year sales are
assumed to be based on 30% capacity utilization and an annual increase of 8% in
capacity utilization is expected for the projection period. Provision for raw material
wastage is assumed to be 1% of the daily production.

3.2.8 ACCOUNTS RECIEVABLES

A collection period of 45 days is assumed for sales. A provision for bad debts has been assumed
equivalent to 2% of the annual gross sales.

3.2.9 ACCOUNT PAYABLES

A payable period of 45 days is assumed for raw material purchases.

3.2.10 FINANCIAL CHARGES

It is assumed that long-term financing for 5 years will be obtained in order to finance the project
investment cost. This leasing facility would be required at a rate of 15% (including 1% insurance

premium) per annum with 60 monthly installments over a period of five years. The installments
are assumed to be paid at the end of every month.

3.2.11 TAXATION
The business is assumed to be run as a sole proprietorship; therefore, tax rates applicable on nonsalaried individual are used for income tax calculation of the business.

3.2.12 COST OF CAPITAL

The cost of capital is explained in the following table:
Table 7: Cost of Capital
Particulars
Rate
Required return on equity
20%
Cost of finance
15%
Weighted Average Cost of Capital
17.5%

The weighted average cost of capital is based on the debt/equity ratio of 50:50.

3.2.13 OWNERS WITHDRAWAL

It is assumed that the owner will draw funds from the business once the desired profitability is
reached from the start of operations. The amount would depend on business sustainability and
availability of funds for future growth.

3.3 FINANCIAL SUMMARY

Table 8: Finance of the company

PROJECT
COST
RS. 13.94
million

IRR
35%

NPV(RS
)
14,385,
386

PAY BACK
PERIOD
3years 10
months

COST OF
CAPITAL
17.50%

Table 9: FINANCIAL RATIOS

2015

2016

2017

2018

2019

2020

32670
54
3.64

415745
3
1.92

442588
4
1.83

60460
73
1.95

80893
08
2.07

110214
39
2.23

2%

3.10%

9.31%

9.77%

RETURN ON EQUITY

3.09%

16.21%

36.01%

35.82%

5.67%
30.02
%
34.31
%
38.21
%

6.24%

RETURN ON INVESTMENT

4.98%
23.30
%
31.72
%
37.13
%

1.56

1.39

61%

58.24%

1.03
50.78
%

0.72
42.11
%

LIQUIDITY RATIOS
WORKING CAPITAL
CURRENT RATIO

PROFITABILITY
RATIO
OPERATING INCOME
MARGIN

GROSS PROFIT MARGIN

34.82%
34.80%
38.52%

FINANCIAL
LEVERAGE RATIO
DEBT TO EQUITY RATIO
DEBT TO ASSET RATIO

3.3.1

1.17
58.86
%

0.51
33.88%

EVALUATION OF FINANCIAL SUMMARY

Working capital compares current assets to current liabilities, and serves as the liquid reserve
available to satisfy contingencies and uncertainties. A high working capital balance is mandated
if the entity is unable to borrow on short notice. As we can see that working capital amount is
increasing every year that means the company is more likely able to make its payment on time.
Current Ratio provides an indication of the liquidity of the business by comparing the amount of
current assets to current liabilities. In general, businesses prefer to have at least one dollar of
current assets for every dollar of current liabilities. So, every year in projection it has 1 dollar of
current assets to current liabilities. For eg, in year 2015 it has a ratio of 3:1.
In 2015 our working capital is 3,267,054 and as our operating income margin will increase in
preceding years and debt to equity ratio decreases so our working capital is increasing in
preceding years as well. Our profitability ratios are increasing every year that means the

company profit will also increase. So we can evaluate through our financial analysis that our
business will be more stabilize in preceding years .

SOCIO- ECONOMIC ANALYSIS

4.1 ENVIRONMENTAL SUSTAINABILITY
We commit ourselves to environmentally sustainable business practices. At all stages of product
life cycle we strive to use natural resources efficiently, favor the use of sustainably managed
renewable resources, and target zero waste.

WATER

We are committed to sustainable use of water and continuous improvement in water

management. We recognize that the world faces a growing water challenge and that responsible
management of the worlds resources by all water users is an absolute necessity.

POLLUTION

As our factory will be build in industrial area & it is a chocolate factory so we will be very
careful about environmental aspect such as pollution, noise may occur in the area due to these
reasons company have clear policies and proper drainage system of waste materials so that no
pollution must be created

4.2 MANAGERIAL POLICY

Our managerial policy guidelines are made in consultation with senior executives of our
company. If any changes are made regarding policy and procedures, it is the responsibility of
Human Resource Manager to convey the change to all employees of company or to the line
managers. Apart from the policies, managerial styles vary from person to person.

CONCLUSION
This business plan was given in order to get a loan to start a business for chocolate
manufacturing company. The whole report gives a clear view about marketing, technological,
financial and socio-economical aspects. Financial ratios are being calculated and evaluated.
Projections of income statement, balance sheet and cash flow statement shows that this project is
viable and practical for business to run.

ANNEXURES
REFERNCE

Dr. Prasanna Chandra. Projects. 7th edition. Tata McGraw Hill Education Private limited,
New Delhi.

CHOCOLATE INDUSTRY ANALYSIS 2015 Cost & Trends

www.euromonitor.com/chocolate-confectionery-in-pakistan/report