Professional Documents
Culture Documents
SOAP FACTORY
TABLE OF CONTENTS
PROJECT DESCRIPTION...............................................................2
2.1
2.2
3.1
3.2
4
4.1
4.2
4.3
4.4
LBN/B7-4100/IB/99/0225/JC20/0105
Executive Summary
The proposed project consists in establishing a soap factory in Hasbaya caza. The factory will
produce natural and laurel soaps.
The initial investment is at $81,165, which includes $48,320 in equipments, and $32,845 in
working capital needs (including beginning inventories).
The main assumptions are conservative and consider an average yearly sale of 31.2 tons of
natural soaps and 31.2 tons of laurel soaps, which is equivalent to a total of 1 ton per week
(500 Kg of each type).
The projections are taken over a period of 5 years. The soap factory is expected to provide an
average annual net profit of $41,373. The owners will be able to withdraw 90% of net profits
starting in year 2.
The soap factory will provide an internal rate of return (IRR) of 46.3% and a payback period
of 3 years and 9 months. These results show that the project is feasible.
A worst case scenario was developed with the assumption that the factory would produce an
average of 800Kg per week instead of 1 ton per week. These assumptions gave an IRR of
26% and a payback period of 5 years and 10 months.
A best-case scenario was based on the production of 1.4 tons per week. This scenario
provided an IRR of 73% and a payback period of 2 and years 11 months.
In order to achieve satisfactory results, the plant should be well managed with intensive
marketing efforts, high quality soaps, excellent service, as well as tight control over
receivables.
The soap factory will offer 5 job opportunities and will contribute to the development of the
economic and social environment in the region.
Project description
The project aims at establishing a soap factory in Hasbaya caza. The factory will be mainly
specialized in producing natural soaps as well as laurel soaps
2.1
It is assumed that the factory area is 400 m2 and is rented at an annual budget of $2,400.
The following table shows the projected equipment and initial investment requirements. The
total investment required includes the cost of equipment, transport vehicle as well as working
capital requirements.
INITIAL INVESTMENT OF SOAP FACTORY
Cost Items
Quantity Unit cost Total cost
Insulated pan with coils
1
4,800
4,800
Reservoirs for caustic soda, salt, water
3
840
2,520
Boiler for steam generation
1
8,400
8,400
Installation
1
4,800
4,800
Generator incl. connections
1
7,800
7,800
Van
1
12,000
12,000
Office Equipment (computer, phone, fax)
1
3,000
3,000
Office Furniture
1
3,000
3,000
Establishment Costs
2,000
Total Fixed Assets
48,320
Working capital needs
32,845
Total initial investment
81,165
LBN/B7-4100/IB/99/0225/JC20/0105
2.2
Staffing structure
Product strategy
The Hasbaya soap factory will seek to deliver high quality natural soaps.
In simple words, soap is a salt produced by mixing an acid (fatty acids of the oils) with an
alkali solution (sodium hydroxide). Every oil has different fatty acids in its structure and
therefore, its benefits to human skin are different. Also, every oil needs different amounts of
alkali solution to have a complete saponification process.
There are many different kinds of soaps in the market today. The majority is the commercial
beauty" or "toilet" soaps. Having different brands, shape, color, scent and packaging, they
are sometimes called "detergents" due to their content of various chemicals, artificial
colorants, scents and other artificial preservatives. They have no curing effect on human skin
and they are mainly used for cleaning purposes. Besides, some studies have proven that such
chemicals are absorbed by the body cells and transferred into the blood circulation system,
causing some health problems in the long run. For this reason, the trend towards the
consumption of "cold process" natural soaps is increasing day by day.
3.1
The rounds
The ovals
LBN/B7-4100/IB/99/0225/JC20/0105
The squares
Rose of Damascus:
Lavender: the lavender is known for its soothing and calming effect.
LBN/B7-4100/IB/99/0225/JC20/0105
Tea Tree: Thanks to its medicinal properties that encourage the natural healing action of the
epidermis; it is particularly effective for problematic skin. This soap is also a welcome remedy
for insect bites.
Olive: This soap is well known to nourish the skin with vitamins, minerals and proteins.
Mastic: It is made with the aromatic resin of the pistacia lentiscus , this soap is known for its
antibacterial and astringent properties.
Tuberose:
Orange Blossom:
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Honey: this kind of soap seems to be very powerful in removing impurities from the skin's
surface. It fortifies the skin against environmental aggression.
Almond Exfoliant: This soap is rich in protein and vitamin E. It is composed of oat grain and
wheat germ that are known for their energizing and healing action as well as removing
impurities. Pure almond essential oil is also a component of this soap.
Laurel: T h e laurus nobilis is a plant typical of the Mediterranean region that has been
celebrated since antiquity for its renowned healing virtues.
Alghar is a member of the Laurel family of evergreen trees, also known as Bay trees. Laurel
has been used as a symbol of power and victory throughout history; Julius Caesar wore a
crown of laurel.
Cleopatra was also known to use laurel in her beauty regimen. Laurel botanicals have been
used in soaps and beauty enhancers for centuries and the tradition of using laurel extracts in
shampoos, soaps and cosmetics continues to this day.
Laurel soap is considered an effective antiseptic; laurel relieves tired muscles and stimulates
the circulation, easing arthritis pains. Often, these types of soaps are sold in pharmacies for
their healing effects.
3.2
Production Process
1.
2.
3.
4.
The oils are emptied in the pan that is already filled with a little bit of water.
Water and caustic are added and the pan is brought to a boil
Diluted salt is added every day over a period of 3 days
On the 4th day, the bottom of the pan is opened and the nigger (black soap) is thrown
away. The remainder is clean soap and is left to dry.
5. Hand cutting is feasible to obtain crude shaped soaps. For properly shaped soap, a
plodder is needed as well as a stamper.
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Vapor Coil
Boiler
4
4.1
Caustic
Salt
Water
Market Analysis
Soap market overview
Natural soaps are becoming very trendy in the most distinguished regions of Beirut, where
some stores are becoming specialized in the sale of these items. Moreover, the well-known
Tripoli Souk as well as Saidas soap museum are an important destination for all those seeking
natural soaps.
There are only 2 soap manufacturers in Hasbaya caza; a plant: Al Anwar for Soap and another
informal manufacturer who produces the soap at his home.
Hasbaya caza would be in ideal place to establish a Soap factory since the area provides all
the raw materials needed for soap manufacturing, which are known for their high quality.
Therefore, quality of raw materials and lower transportation costs to all neighboring cazas
would offer the Soap factory a comparative advantage.
4.2
Main competition
The most serious competitors for natural and laurel soaps remain the commercial soaps that
have a strong presence in the market.
In general, the known brands represent 76% of the market including Le Chat, Lux, Zest,
Palmolive, and Dove Cream, and other branded soaps.
The natural soaps present on the Lebanese market are not very numerous, among them:
Brand
Weight
Price in LBP
Equiv. in USD
Al Koura (green)
900 gr.
2,900
1.93
Al Koura (white)
900 gr.
3,850
2.57
Al Wazir (green)
900 gr.
2,500
1.67
Souayfan (Misk scent)
500 gr.
3,100
2.07
Laurel
900 gr.
5,500
3.67
Kobayter (white)
900 gr.
4,875
3.25
Non-branded laurel
900 gr.
4,000
2.67
Baladi (non-branded)
1,000 gr.
5,500-7,500
3.67-5
4.3
Target market
The soap factory will produce natural soaps that can be sold to Hasbaya cazas families but
also everywhere in Lebanon.
Natural soaps were mainly used by conservative families. However, nowadays, it is
increasingly gaining in popularity among the trendiest people.
Women seem to be more sensitive to the importance of natural soaps for an esthetic use.
On the other hand, laurel Soaps are used for medicinal reasons as they can cure some
illnesses such as rheumatism.
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4.4
SWOT Analysis
STRENGTHS
WEAKNESSES
are
widely
available
in
THREATS
The bigger share gained by commercial
soaps can represent a threat to the
sale of natural and laurel soaps.
The political situation is still relatively
unstable in this region.
LBN/B7-4100/IB/99/0225/JC20/0105
Marketing Plan
Financial Plan
This section details the calculations, assumptions and methodology used as a basis for the
projections of the expected financial performance of the soap factory.
6.1
Initial Investment
The above table shows the various equipments needed for the establishment of the soap
factory.
The insulated pan with coils is the equipment where all the raw materials will be added. This
machine has a cost of $4,800.
3 reservoirs will contain respectively caustic soda, salt and water. Each one of these reservoirs
will have a cost of $840. Moreover, a boiler whose cost is approximately $8,400 is an
important equipment for the production process.
LBN/B7-4100/IB/99/0225/JC20/0105
Beginning inventory
Olive kernel oil
Laurel
Salt
Caustic soda (concentration 100%)
Packaging (nylon bags)
Total beginning inventory
Tons
5
1
1
1
6.2
Major assumptions
The assumptions are conservative and are based on market achievable levels.
The prices of natural and laurel soaps are shown in the following table:
prices
Price of 1Kg of Laurel Soap
Price of 1 ton (1000Kg) of Laurel Soap
Price of 1 Kg of Natural Soap
Price of 1 ton (1000 Kg) of Natural Soap
$4.64
$4,643
$2.65
$2,653
720
2,112
32
60
2,924
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Sales assumptions
Laurel Soaps Production
Daily production of Laurel Soaps (in tons)
Monthly production of Laurel Soaps (in tons)
Yearly Production of Laurel Soaps (in tons)
Yearly production of Laurel Soaps (in Kgs)
0.1
2.6
31.2
31,200
0.1
2.6
31.2
31,200
The above assumptions consider that 0.5 ton of laurel and natural soaps are produced every 5
days. It is assumed that all the production will be sold.
It is assumed that laurel and natural soaps revenues will grow by 5% in year 2, by 5% in year
3, by 3% in year 4, and 2% in year 5. The daily sales of laurel soaps and natural soaps will
grow as follow:
464
265
Year 5
10%
5%
3%
2%
511
292
536
306
552.41
316
563.46
322
Other assumptions
The following table shows the main assumptions for the income statement. The marketing
expenses are assumed to be 2% of annual revenues. An annual increase in general expenses
of 2% is taken into account for inflation factors. The maintenance expenses are taken as 3%
of total fixed assets while the annual increase in salaries is assumed to be of 2% annually. The
increase in rental expenses is estimated to be of 5% every 3 years.
Other assumptions include the cost of packing, which is of $50 for every ton of soap, as well
as the energy cost estimated at $30 for every ton of soap produced.
Packaging cost
Energy cost (electricity)
Marketing expenses
Annual increase in general expenses
Maintenance expenses
Annual increase in salaries
Increase in rental expenses
Income Tax Rate
70
50
2%
2%
3%
2%
5%
2%
every 3 years
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months of sales
months of cost of sales
months of cost of sales
of general expenses
The following table shows the depreciation rates, which follow international accounting
standards:
DEPRECIATION RATES
Equipment
Vehicles
Office Equipment
Furniture
Establishment Costs
10%
12%
20%
7.5%
33%
According to professionals in the caza, a budget of $2,400 is needed for annual rent for the
warehouse.
Warehouse to be rented
Warehouse area
400
Annual rent
2,400
In order to ensure the proper distribution of soap all over the Lebanese territory, the soap
factory should take into account the transport expenses.
Transport expenses
Transport expenses (gas)
Maintenance on vehicle
Staff structure
The soap factory will create 5 job opportunities.
STAFF STRUCTURE
Number of
employees
Management & Sales
General manager
Sale Representative
Workers
TOTAL
1
1
3
5
The General Managers tasks consist in directing the production team, developing new
marketing strategies and establishing contacts with clients.
The sales representative will handle sales and delivery. He is expected to have frequent trips
in order to promote the soap products over all the Lebanese territory.
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6.3
SOAP FACTORY
Projected Income Statement
Year 1
Year 2
5%
152,119
86,925
239,045
95,790
26,601
4,586
3,276
11,016
25,791
4,272
171,333
67,712
Year 3
5%
159,725
91,272
250,997
100,580
27,931
4,816
3,440
11,236
26,307
4,272
178,582
72,415
Year 4
3%
164,517
94,010
258,527
103,597
28,769
4,960
3,543
11,461
26,833
4,272
183,436
75,091
Year 5
2%
167,807
95,890
263,697
105,669
29,344
5,059
3,614
11,690
27,370
4,272
187,019
76,678
28%
28%
29%
29%
29%
2,400
4,553
1,390
16,038
600
1,492
1,200
27,673
35,580
16%
2,400
4,781
1,417
16,359
630
1,492
1,260
28,339
39,373
16%
2,400
5,020
1,446
16,686
662
1,492
1,323
29,028
43,387
17%
2,520
5,171
1,475
17,020
681
1,025
1,363
29,254
45,837
18%
2,520
5,274
1,504
17,360
695
1,025
1,390
29,768
46,910
18%
712
34,869
15%
787
38,585
16%
868
42,519
17%
917
44,920
17%
938
45,972
17%
144,876
82,786
227,662
91,229
25,334
4,368
3,120
10,800
25,286
4,272
164,409
63,253
The income statement shows satisfactory income levels with an average net profit margin of
17%.
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6.4
The balance sheet shows the projected assets and liabilities of the company.
SOAP
Projected Balance Sheet
Year 1
Year 2
Year 3
Year 4
Year 1
34,869
34,869
Year 2
34,869
38,585
34,727
38,727
Year 3
38,727
42,519
38,268
42,979
Year 4
42,979
44,920
40,428
47,471
Year 5
43,022
65,924
17,612
126,558
28,320
12,000
4,000
3,000
2,000
27,885
21,435
147,993
8,806
5,954
14,759
81,165
52,068
133,234
147,993
Year 5
47,471
45,972
41,375
52,068
The owners can start withdrawing around 90% of net profits annually starting in year 2.
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6.5
The following table shows the projected cash flows of the hotel.
SOAP
STATEMENT OF CASH FLOWS
Year 1
Year 2
Year 3
Year 4
Year 5
Net income
Adjustments to reconcile net income
to cash provided by operating activities
Depreciation
Changes in accounts receivable
Changes in inventory
Changes in accounts payable
Changes in expenses payable
Total Adjustments
Cash provided by operating activities
34,869
38,585
42,519
44,920
45,972
5,764
(56,915)
(15,205)
7,602
5,535
(53,220)
(18,351)
5,764
(2,846)
(760)
380
133
2,671
41,256
5,764
(2,988)
(798)
399
138
2,514
45,034
5,297
(1,882)
(503)
251
45
3,208
48,129
5,297
(1,293)
(345)
173
103
3,935
49,907
(48,320)
(48,320)
81,165
81,165
(34,727)
(34,727)
(38,268)
(38,268)
(40,428)
(40,428)
(41,375)
(41,375)
14,494
14,494
14,494
6,530
21,024
21,024
6,766
27,790
27,790
6,700
34,490
34,490
8,532
43,022
(1,000)
(1,000)
The projected cash flows show the initial net investment in fixed assets. It also shows the net
invested capital by the owners. The owners' withdrawals are shown starting in year 2.
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6.6
Ratio analysis
Ratio Analysis
Liquidity Ratios
Current Ratio
Quick Ratio
Working Capital
Profitability Ratios
Gross Profit Margin
Operating Profit Margin
Net Profit Margin
Financial Strength
Total Debt to Owners' Equity
Management Effectiveness
Return on Assets=ROA
Return on Equity=ROE
Return on Investment = ROI
Sales / Business Days (360)
Asset Management (Efficiency)
Total Assets Turnover: Sales/tot
assets
Total Debt to Total Assets
Working Capital Cycle
Days Sales Outstanding
Days of Inventory
Days of payables
Year 1
Year 2
Year 3
Year 4
Year 5
Average
6.59
5.44
73,478
7.09
5.92
83,100
7.56
6.38
93,115
8.04
6.84
101,905
8.57
7.38
111,799
7.57
6.39
92,679
28%
16%
15%
28%
16%
16%
29%
17%
17%
29%
18%
17%
29%
18%
17%
29%
17%
17%
11%
11%
11%
11%
11%
11%
27%
30%
82%
632
29%
32%
105%
664
31%
34%
137%
697
31%
35%
168%
718
31%
35%
214%
732
30%
33%
141%
688.85
176%
10%
179%
10%
181%
10%
181%
10%
178%
10%
179%
10%
90
60
30
2.9
90
60
30
2.7
90
60
30
2.5
90
60
30
2.4
90
60
30
2.71
90
60
30
Working Capital Turnover=Sales/Working Capital
3.1
The current ratio, which is computed by dividing current assets by current liabilities, witnesses
a major increase over the years led by higher levels of inventories and receivables.
The quick ratio, which is the same as the current ratio except that it excludes inventories
increases rapidly over the years as accounts receivable increase. The current and quick ratios
demonstrate the capability of the company to quickly meet its short term liabilities.
The gross profit margin increases and stabilizes at 29% in year 3. The operating margins and
the net profit margins increase slowly as well and reach an average of 17%.
The return on average assets, which is computed by dividing net profits by total assets, shows
how much profit the company is able to achieve from the use of its assets. This ratio reaches
an average of 30%.
The return on average investment shows healthy levels fueled by the growth in profitability.
The ratio shows increasingly high levels that reach 214% in year 5.
The total assets turnover shows how well the management is making use of its assets. The
assets turnover is computed by dividing sales over total assets. This ratio increases rapidly to
reach 179% in year 5.
The internal rate of return is 46% and the payback period, which is the period necessary to
pay back the investment, is 3 years and 9 months.
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6.7
Break-even analysis
The following table shows the annual revenue levels needed for the plant to break even. Thus,
an average of $155,222 per year is a minimum level of revenues for the soap factory.
BREAK-EVEN ANALYSIS
6.8
Year 1
Year 2
Year 3
Year 4
Year 5
Total Revenues
Total Variable Costs
Total Fixed Costs
227,662
124,051
68,030
239,045
130,254
69,418
250,997
136,766
70,843
258,527
140,869
71,820
263,697
143,687
73,100
Break-even revenues
149,482
152,531
155,663
157,810
160,622
Sensitivity analysis
A worst case scenario is taken by assuming that the daily production of natural soaps and
laurel soaps is of 800Kg/week, thus the yearly production is of 24.96 tons for each type of
soaps.
In this case, the soap factory has an average profitability of $ 20,225 annually. The internal
rate of return is 26%. The payback period is 5 years and 10 months.
A best-case scenario is developed considering that 104 tons will be produced weekly. These
assumptions will give as a result a yearly production of 43.68 tons for each type of soap.
This scenario gives an average profitability of $ 83,670 annually. The internal rate of return is
73% and the payback period is 2 years and 11 months.
Worst-case
Most likely
Best-case
24.96
31.20
43.68
24.96
31.20
43.68
20,225
10%
41,373
17%
83,670
24%
26%
46%
73%
5 yrs 10 months 3 yrs 9 months 2 yrs 11 months
These results confirm the viability of the project, especially if it is well-managed providing
quality soaps at affordable prices.
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In order to achieve satisfactory results, there are some key success factors that should be
highlighted:
The soap factory should focus on delivering quality soap products.
Intensive marketing efforts should be deployed in order to gain market share. It is
also necessary to develop public relations and direct contacts with supermarkets,
mini-markets, specialized retailers for natural soaps, etc Also, advertising in local
cooperatives could be a good tool to attract new clients.
Prices should be equal or less than the competition. In fact, discounts should be
applied for cash payments, in order to manage cash flows. Discounts of 2% to 5%
could be provided to those customers that pay in cash.
Eventually, the soap factory should develop contacts with expatriates to try to open up
new markets abroad.
The soap factory is expected to deliver very satisfactory results, contributing in promoting the
Hasbaya soap production into other markets.
Moreover, it will create 5 new jobs, thereby contributing positively to society by offering new
opportunities to young Hasbaya citizens and discouraging them from emigrating. Also, the
soap factory can offer job opportunities for women as they can contribute effectively in this
kind of production.
On the other hand, it will help in revitalizing the industrial sector of Hasbaya. The soap factory
will contribute in propping up the soap production as well as the demand for the local soap.
This will pave the way for further new developments in Hasbaya as the success of the soap
industry can encourage other investments in new industries. It can promote also the export of
Hasbaya soaps to Arab countries and some European countries in the long run.
Besides its expected business performance, the soap factory will be seen as an organization
that is contributing to enhance the social good of Hasbaya.
18