AKRAH LEATHER

Entrepreneurship Business Plan

AKRAH LEATHER

Submitted to

Mr. Haroon Rasheed

Submitted by

Usman Ali 111

Shafiq Ur Rehman 65

Waseem Hafeez 78

Imran khan 57

Hamayun Khichi 87

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Table of content

Executive summary....................................................................................................5

Name of business....................................................................................................... 7

Business address.....................................................................................................7

Vision....................................................................................................................... 7

Mission.................................................................................................................... 7

Core values.............................................................................................................. 7

Name of business principal .....................................................................................7

Nature of business ..................................................................................................8

Identification of finance...........................................................................................8

Report of confidence ..............................................................................................8

Industry analysis ........................................................................................................9

Business trend/ future need....................................................................................9

Total Market Size.....................................................................................................9

Target Customers....................................................................................................9

Competitor’s analysis..............................................................................................9

Direct competitors.................................................................................................10

Indirect competitors..............................................................................................10

Market segmentation............................................................................................11

Market/ industry forecast......................................................................................11

Description of Venture..............................................................................................12

Product ................................................................................................................. 12

Service..................................................................................................................12

Size of business.....................................................................................................12

Office equipment...................................................................................................14

Background of entrepreneurs................................................................................16

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Production Plan.........................................................................................................17

Manufacturing process..........................................................................................17

Physical plant........................................................................................................19

Machinery and plant..............................................................................................20

Names and suppliers of raw materials..................................................................21

Operational Plan.......................................................................................................22

Description of company’s operation......................................................................22

Human Resource...................................................................................................22

Finance department..............................................................................................23

Operation department...........................................................................................23

Marketing department...........................................................................................23

IT department........................................................................................................24

Flow of order for goods..........................................................................................25

Technology utilization...........................................................................................26

Marketing Plan..........................................................................................................28

Pricing................................................................................................................... 28

Distribution............................................................................................................ 28

Product forecasts...................................................................................................29

Controls.................................................................................................................29

Organizational plan.................................................................................................. 29

Form of ownership.................................................................................................29

Identification of partners or principal shareholders...............................................29

Authority of principals...........................................................................................30

Management team background ............................................................................30

Roles and responsibilities of members of organization.........................................30

Assessment of risk....................................................................................................30

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Evaluate weaknesses of business..........................................................................30

New technologies..................................................................................................31

Contingency plans.................................................................................................31

Financial plan...........................................................................................................32

Income Statement.................................................................................................37

Cash Flow Projection............................................................................................. 38

Balance Sheet....................................................................................................... 39

Break-even analysis..............................................................................................40

Source and applications of funds...........................................................................41

Appendix ................................................................................................................. 42

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Executive summary
The entrepreneurial venture we are going to practice is to step in, in the leather business. This
venture will help to stand up on our own feet. World leather industry is huge and never ever
going to be closed down although could face ups and downs as the history of leather products is
as old as human beings are, and leather products are need more than a want of us, so the scope of
leather products could never die although it might face difficulties, which is the part of business

Pakistan is always considered as important player of this ground since after its independence,
Leather industries contribution towards exports is always essential part of the exports share, but
importantly for last 9 years there is marginal contribution in exports. This may have some certain
reasons important are the intense competition, new players like Bangladesh, China, Turkeys
strong position gained in last decay. Importantly electricity shortfall, raw materials prices and
very importantly War against Terrorism put negative effects on leather industry. As said by,
former chairman of Pakistan Tanners Association, Agha Saidain in a presentation given to the
Ministry of Commerce recently, It was pointed out that the livestock sector was badly damaged
in the war-affected areas of Fata, North Waziristan and Swat. Transportation of hides and animal
skins has completely stopped from the war-affected areas. Despite low exports, the price of hides
and skins are showing an upward trend due to scarcity created by the war on terror in the areas
which were previously rich in livestock. The negative perception of the country in the world
community has adversely affected business and we are getting 20 per cent less price for the same
product manufactured in other countries. Price is the only attraction to the buyers who have
created fences against Pakistani goods. So it shows that there are lots of problems in the industry
but still is attractive one as history could repeat itself, and we believe we can get some thing
positive out of it.

Statistics shows there are considerable problems for last five years, as share of leather garments
decreased from 2.39% to 2.16% in 2009/10 comparing with 2008/09. Same is the trend in other
categories of leather goods, leather tend declined by .27% and other leather products only leather
gloves by .07%, the same trend is in the first quarter of 2010 as trend of leather exports of
leather sector, in terms of monetary value as in 2009 was 744,40400$ and in 2010 is 614,69500$
although this impression may discourage for investment but we believe that opportunities arises
is difficult conditions and we all are ready to cash this opportunity by taking risk.

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Competition with in the market of Pakistan is not intense but facing difficulties as told by Agha
Saidan. Many Companies like Bata shifted their manufacturing operations in country like China
and Bangladesh where advantage of cheap labor is attractive. So with in the geographic
boundaries of Pakistan competition in manufacturing may not intense, but in selling there is
competition lies and we believe our business strategy of dealing customer according to his
demand could give us an edge, as we can say, We are the Leather Tailor. At the same time we
will focus on bulk quality productions for our business clients. We believe our two dimensional
strategy give us competitive edge over our competitors.

We divided the market into two segments one is local, our national market where we will focus
on change of trends and needs and wants and will supply according to that, national market may
give essential share in respect of Leather Shoes so mainly we decide to concentrate on shoes
manufacturing for Pakistan market, other categories like jackets, gloves will also there but we
consider that we will focus more on shoes manufacturing for local market. International market
is attractive one s earnings in dollar contribute a lot in ones pocket. We will contact our
international clients through websites and also planned to participate in exhibitions around the
globe, although its is difficult one and our limited resources may create hurdle but it is essential
for business development to have direct access to your clients, so Future plans are there for
expansion with increasing our products demand in market.

Future Trend shows that there will be no shortage of raw materials as demand and supply of our
live stock will increase, and at the same time lather industry could get the advantage by utilize
this opportunity, at the same time market demand is gradually increasing in international market
specially and a bit in national market, Demand is there and we are ready to supply.

We are ready to run in the field of entrepreneur, ready to take the risk, not ready to freeze our
feet in the slavery of job.

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Name of business

Reflects Your Personality

Email

akrahleather@yahoo.com

Phone No +92404220140

Business address
10/2 Islam Nagar Tariq Bin Ziad Colony Sahiwal Pakistan

Vision
Become the Pakistan’s largest exporter of leather garments in 2020.

Mission
Provide customers satisfaction through quality products

Core values

• Respect

• Honesty

• Equality

Name of business principal

Mr. Usman Ali

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Nature of business
It is manufacturing business of leather garments including jacket, ladies hand bags, key chain,
shoes, skirts, belts and wallet. We shall purchase finished leather from different suppliers then
make different products mentioned above according to the customers demand. At early stage of
business we will focus on jacket, skirts and handbags, with the passage of time we will expand
our product line. In other words we have defined wallet, belts and shoes as expansion of
business.

Identification of finance
First of all we have decided our capacity of units per month that is 350 pieces.

Initial/fixed cost Rs. 0.2 million

Operating cost/expense Rs. 0.5 million

Reserve Rs. 0.5 million

Total investment Rs. 1.2 million

Report of confidence
Every person has his own perception about any business same case with me. According to the
industry analysis and future trend in leather garments I recommend that leather goods are the
main source of Pakistan exports to boost up the economy. There is 4 to 5% of total export from
leather. There was $1,088 million in 2004-05 from leather export so it is clear that it has great
demand and also a gap between demand and supply. It has more chances to grow as large scale
as compare to other traditional business.

Online shopping is increasing day by day so it is necessary to sell our products online, selling
online company can get potential buyers at lower cost. Pay Pal has over 184 million accounts, so
it is clear that online shopping preferences is increasing day by day.

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Industry analysis
There are about 350 leather garment manufacturing units in the organized sector in the country.
Total annual installed capacity of these units is estimated to be 15 Million leather garments (of
all kinds) per annum.

Business trend/ future need

Leather product is a fashion symbol for teenager and youth generation in the western world like
UAS, Canada, Germany, France and Italy. Now in these days every business is facing decline
due to the global crisis but in future it is predicted that the winter season period is increasing as
compare to the summer. Leather products are treated as fashion symbol and to protect the bodies
against cold. So we have forecast that the future need/trend is bright due to the above two
reasons.

Total Market Size

95% of the leather garments manufactured in the country are targeted towards exports. In

2003, an estimated 8 million pieces of leather garments were exported from the country.

Local consumption of leather garments is minimal and is estimated to be less than 90,000 pieces
per annum.

Target Customers
Export market is the primary market for a leather garment-manufacturing unit. In the export
market, major customers include chain stores and major garment brands in Europe and USA.
Major customers of Pakistani leather garments are Germany, USA, United Kingdom, and UAE
& France. The business is done either directly to the buyers or through middlemen.

Competitor’s analysis
It is very important to analyze the competition environment of the industry in order to compete
successfully. It is good for strategy making to identify the strengths and weakness of competitors
and try to differentiate itself from them.

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Our main focus to export our garments (goods) in western world, Indian garments products are
our rivals because they have high market share in leather garments. Indian designers are
innovator in garments. In our business customers are the main innovators and designer of the
products, they can customize their products through our website and can send their order along
their own designs. We shall also target the South African market where quality is not issue
because they are price conscious. It means that we are dealing two kind of customers as price and
quality conscious.

Direct competitors

It includes the following local and international competitors. In Sahiwal there are many small
and larger producers are competing our products as

• Qamar tanneries Ltd.

• Yousaf tanneries Ltd

• Latif tanneries Ltd.

We have international competition as

• China

• Bangladesh

• India

• Turkey

Indirect competitors

The rexion sheet makers are also main competitors in the national market and international
market.

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Market segmentation

Market is divided into two major segments as

• National market segmentation

• International market segmentation

Both further divided into following

• Individual/ single consumer

• Business customers

Individual consumer are those who will purchase small amount of items for their personal use
and business customers cover all the wholesalers, retailers and others business who will sell them
to their customers.

Market/ industry forecast

Local industry is facing difficult times today. During July-November 2008-09, the leather
exports of Pakistan faced a decline of 27 percent while India, which exported 43 percent more
leather garments, witnessed 27 percent increase in its leather exports during the same period.
Indian government is giving rebate to the exporter so it decreases the cost of producers. Global
recession is also another reason for decline in exports but now government of Pakistan is also
thinking about rebates and tax relaxation to the exporters. So it can boost our economy as well as
leather industry particularly exporters.

Basically demand is divided into two parts as

• Seasonal demand

• 365 days demand

Every business has its seasons for demand so leather products have also seasonal demand. It
covers some states of USA. In 365 days demand all those countries where winter season is

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longer as compare to other so in these countries products is demanded always. (UK, Canada &
Russia etc)

Description of Venture

Product
We are dealing in leather garments including

• Leather jacket

• Ladies handbags

• Leather shoes

• Leather belts

• Leather skirts

• Leather wallet

• Leather gloves

Mostly company will focus on global market including Canada, USA, Germany, France, Italy
and UK. Local demand is very small as compare to international market but the leather shoes
demand is high.

Service
Company will give online sale services for its customers to access the global market. Customers
can order through company website for customize their products. We are also giving shipping
facility or service for the delivery of goods on behalf of customers.

Size of business
The business size of the AKRAH Leather is 15 employees including 5 partners. Following is the
details of the employees. It is small size of business having annual capacity of leather jackets of
4200 having marketing department, finance, human resource, IT and operation department. We
will reinvest our net profit

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Job/ Position No. of employees

Cutting Master 2

Packing master 1

Fusion master 1

Skilled Stitchers 5

Partners 5

Sweeper 1

Total 15

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Office equipment
There are the following office equipments

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Equipments Amount / No.

Office Tables 1

Computer 1

Printer 1

Internet connection 1

Landline number & phone 1

Office Stationery According to need

Office chairs 5

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Background of entrepreneurs
We are five partner having different background and specialization in our study. Names are
given below

Usman Ali (Marketing)

I belong to a business family, other than my father every one established his own business. The
same I want. I did my batchlors from Govt Collage Sahiwal, iam doing job sine I was in 11th
standard, firstly join Call center field did job in G.C.C Lahore(British based call center). Later on
I joined FM-96Sahiwal having 4 year experience in radio field, As a producer I am part of
management for last 2 an a half year. In M.B.A my specialization is in marketing and I am into
the last semester of MBA.

Shafiq Ur Rehman (HR)

I have agriculture & leather business background after completion of my intermediate I have
spent 1 year in agriculture and leather sector. My education background was not professional
because I have done premedical then B.com and now doing MBA. Therefore after intermediate I
have changed my education path from medical to business. For this purpose, I done two
businesses but very short time one is agriculture including dairy farming and leather. Leather
manufacturing is good one in which we produce a lot of earning with new learning, contacts and
can boost the economy of Pakistan by exporting the leather products.

Imran Khan (HR)

I have just background related to agriculture. I basically do not have any business experience
with respect of leather manufacturing product or industries. Now I am completing my MBA
program. I am looking opportunity in leather manufacturing industry in future. That’s why I want
to devote my all business expertise to this business. With respect of this business, we also want
to make our presences in economy of Pakistan.

Hamayun Khichi (Finance)

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I belong to agriculture family. My education background was not professional because I have
done FSC premedical then B.com and now doing MBA.I have changed my education path from
medical to business. For this purpose, we have done one business of dairy farming which is still
running in profitability. Now we are starting a new business of Leather manufacturing. Leather
manufacturing is good one in which we produce a lot of earning with new learning, contacts and
can boost the economy of Pakistan by exporting the leather products

Waseem Hafeez (Marketing)

I belong to business background. Basically our business background is related to trading. Now I
am a student of MBA and I am interesting in business as well. Leather manufacturing business in
good choice for me as it is related to my primary business. I hope I will enjoy my business. I am
also hopeful that this business will provide a lot of opportunities of learning and building
customer and social relationship as well.

Production Plan

Manufacturing process
After receiving the finished leather from the supplier the following procedure is adopt by the
organization.

Matching

Leather made from different skin/hides inherently varies in grain style for each other. In the
matching process the grain and color of leather are matched on per garments requirement. This is
most critical part in the whole process and requires expertise of the matcher.

Cutting

After the matching, the cutter cuts different panels of a jacket with the help of the design patterns
and knives. The list of panels includes Front, Back, Collar, Sleeves, and Cuff etc. Generally,
design patterns made of cardboard are used in cutting process. In case single type/design
garments are to be manufactured in large quantities, then press machines with metal dyes can
also be used. Average wastage of leather in cutting process ranges between 15 to 25%. In
Pakistan, a cutter cuts 15 to 20 jackets per day per shift (shift 8 hours).

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Assembly

After the cutting process, fusing is added to different panels of the garment, as per design
requirement. Fusing machines or irons are used for this purpose. Generally, half fusing is done
on the end area where stitching is to done and full fusing is applied on front & back panel for
providing garment outlook. Fusing reduces stretch ability and adds stiffness to the leather
making it convenient for the stitchers to stitch. In this process, accessories are added and rolled
together for sending to the stitching section. Major accessories include lining (Cotton, Viscose,
and Satin), zippers (Metal, Nylon), padding, wadding, shoulder pads, buckles, buttons, labels and
thread.

Stitching

Next to assembly is the stitching of different panels of the garments by using sewing machines.
Two stitching methods, depending upon the quantity produced, are currently being employed in
the industry.

1. One stitcher one garment

2. Chain process (Assembly Line)

In the first method, one stitcher stitches together all the panels of the garment. All the allied
processes (folding etc.) required during sticthing are also performed by one person. Depending
upon the garment type & size, on an average, output per stitcher per shift is 1 to 2 garments. The
second method is more efficient and average productivity level per stitcher in some cases rises
between 4-8 garments per day. In the chain process, an assembly line is made in which each
stitcher is assigned one specific process out of the total processes required for garment
manufacturing. Ultimately, the stitcher gets specialized by constantly performing one task
resulting in production efficiencies and better quality. In each assembly line, there are seven
stitchers who perform the following sub-processes:

• Folding

• Lining Stitching

• Sleeves

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• Back

• Front

• Pocket

• Panel Joining

Finishing

Finishing is the last process in leather garments manufacturing. In the finishing process,
buttons/snaps are attached to the garment, extra thread and fibers are clipped off. After this
process garments passes through touching process, in which chipped off and out of matching
leather grains are treated to give the garment a good look. The garment then moves to ironing
stage after which hangtags, price tickets, etc are attached. The final stage is the quality check by
the quality inspectors. Their job is to check the conformance of the manufactured garment to the
customer’s specifications. The quality check is followed by the final packing of the garment.

Physical plant
In our physical plant only one thing is included Building of hostel but this building is also rented.
Company operations require a building having 6 to 7 rooms. Details is given below

• Raw Materials Store

• Cutting and matching room

• Stitching room

• Fusing or finishing room

• Packing room

• Company office

• Wash room

Utilities Requirements

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• Electricity

• Telephone

• Water

Machinery and plant

Mostly Japanese stitching machinery is used in the leather industry. Although, the Japanese
machinery is expensive but it has an established market share, because of the easy and speedy
availability of spare parts and machine mechanics. Our building has 7 rooms having road for
transport that we can receive and deliver the goods easily.

There are the following machinery is required for the operations

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Name of machine No./amount

Over lock Machine 1

Stitching Machine 6

Iron regular 1

Cutters 7

Scissors 7

Factory Tables 7

Scale 5

Inch tape 5

Show case 1

Water cooler 5

Generator (1.5 KVA) 1

Fusing Machine (optional) 1

Total 47

Use machineries also available at reasonable price and good conditions.

Names and suppliers of raw materials

Recently we are dealing two main suppliers of finished leather in Karachi & Sialkot.

Finished leather suppliers

• Sharafat Hussain (Karachi & Sialkot) 0322-7080748

• Azlan Ali (Sialkot) 0346-7487823

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We will try to contact more suppliers to make the strong vendor relations.

Material provider

We are purchasing thread, buttons, size label, care label and zip from local supplier of Sahiwal. Sheikh
Anjum is a material provider of leather product material including button, size label, and care label, zip
etc so it is very cost effective because in which transport is eliminated.

Operational Plan
Basically operation plan is mixture of following three activities as under,

• Description of company’s operation

• Flow of order for goods
• Technology utilization
So let see each and every aspect of operation plan as under,

Description of company’s operation

In our case we are performing overall our activities with respect of following functions

• HRM department
• Finance department
• Operation department
• Marketing department
• IT department

Human Resource
We have categorized the functions of human resource into selected field as requirements

 Recruitment & selection

 Compensation

 Training

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 Performance appraisal

Finance department
Finance department will perform all those functions according to the need of the business
including

 Budgeting

 Payrolls

 Financing

 Preparing statements

 To issue the credit to other departments after documents

 To put check and balance on capital

Operation department
Our operation activities are based on supply chain management system for our product, name &
number of suppliers which are concerned in our project and process of manufacturing as a whole.
The connection with customers is also a major function of our operation plan. Here we make a
proper direct to our suppliers as well as our customers. The overall activities regarding product
manufacturing to supply toward customer is associated with this function.

 To select the appropriate suppliers

 To check the performance of current suppliers

Marketing department
It is very critical department of our business because production/manufacturing is not a big task
but it is very important how to reach the customers, so marketing department will perform the
following functions.

 Pricing

 Promotion

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 Distribution

 Demand forecasting

IT department
We are also giving online shopping so it is necessary for us to focus on the information
technology as well as its importance. It will perform the following functions.

 Update the website

 Promotion through e-marketing and different website

 Invoicing of bills

 Make query

 Customers & suppliers contact via email

We will focus on information technology plan as first preference because our customers can
access throughout the world via internet, so it is necessary for company to focus on internet
marketing and its applications.

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Flow of order for goods

It is a process it starts from customer order ends at customer delivery of product. We can explain
it with the help of diagram. It represents our online business model.

Receiving & Matching &

Suppliers of
Storing of cutting of
leather &
leather and jacket/handba
material
material g

Customer
Stitching of
order/
products and
Website / phone
Receiving of finishing
Head office of
goods /packing
company

Shipment of
goods via
transport

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Technology utilization
Technology is an essential part of every business similar case with leather products in every step
technology is used for different purpose like wear housing, leather dying, processing, and
transport, stitching, cutting and packing. Now we have explained it in different processes to
know its importance.

Leather tanning

Leather tanning consists of two meta-processes: wet blue production and finishing. The former
involves removing unwanted substances (salt, flesh, hair, and grease) from a rawhide, trimming
it, treating it to impart the desired grain and stretch, and finally soaking it in a chrome bath to
prevent decomposition. Finishing involves splitting, shaving, re-tanning, and dying the wet blue.

Five clean technologies are considered here: two associated with dehairing and two associated
with chrome tanning.

High exhaustion:

Using special inputs and procedures to ensure that more of the chrome in the tanning bath
actually affixes to the hide and less ends up in waste streams.

Enzymes in the dehairing bath:

In this process biodegradable enzymes for lime and sodium sulfide are used to remove the hairs.

Precipitation of chrome:

By using alkalis to precipitate out the chrome in the tanning bath, then collecting the resultant
sludge and processing it with sulfuric acid to recover the chrome.

Recycling the dehairing bath:

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This simple technology requires only fixed investments in a holding tank, a pump, and a filtering
system to remove suspended solids (usually a simple wire mesh screen). Because the chemical
inputs into the dehairing bath are relatively inexpensive, only minor cost savings accompany the
environmental benefits.

Recycling the chrome tanning bath:

These reusing contents of the tanning bath instead of discharging them into the sewer after a
single use. Like recycling the dehairing bath, this simple technology requires only fixed
investments in a holding tank, a pump, and a simple filter. It can reduce chrome use by up to
20%.

Finishing of raw leather

In this process different technology is used to finalize the leather into good and colorful shape. It
includes pressing, cutting and dying.

Storing in manufacturing unit

To store the finished leather it is necessary that store room must be protected from moisturizer,
water and other chemical that can damage it.

Pattern

In which jacket’s pattern is made by board, basically design is made by this board that helps the
cutter to cut easily.

Cutting

In which different cutters are used to cut the leather into different parts according to the pattern.
It is a special kind of cutter that is used in leather cutting.

Stitching machine

After cutting the leather it is stitched by the stitchers with special machine shown below. It is
different from ordinary sewing machine that is used in home.

Fusing or finishing

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After stitching the jacket button and extra thread is clipped off by the clip cutter then it is moved
to the ironing person where jacket is ironed that gives it some extra shining and soft surface.

Packing

In which jacket is packed also tagged with company logo and stickers. To look nice it is
decorated by well looking material.

Marketing Plan

Pricing
We have two type of customers individual and business, so different pricing strategy for both.

We are offering customize products for individual consumer so we will charge premium price
but business partner we will charge standard price that will exist in the market.

Value based price

According to the customization in products, customers can add new attributes and their favorite
design so we can charge value based price at every customize product.

Cost based price:

It’s another pricing option for us in which certain percentage of profit is charged at cost. We will
charge 20 percentage profits at any cost.

Distribution
We will focus on direct distribution through any courier/logistic company to provide products
delivery at given time.

Promotion

We will use different promotion tools for our customers as

Online marketing:

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We are dealing online shopping so it is necessary to advertise our products on different social
media sites like face book, tagged, my space and twitter so it is good promotion tool for our
products.

Showbiz magazine

Leather goods are fashion symbol for teenager in USA. We are focusing youth/teenagers (who
like fashion) biker jacket, wallet, belts and gloves are our main products so we will promote our
products in showbiz /fashion magazine.

Product forecasts
As we have dived into segments we believe there will be increasing demand in leather shoes category but
leather jacket, gloves and other leather products may not have great demand in the local market. On the
other hand there is demand of Pakistani leather products other than shoes is huge. We have flexibility in
our operation to deal with flaunting demand in both market and their demand

Controls

Organizational plan

Form of ownership
It is partnership among 5 members with equal investment, loss and profit. Every partner will
perform duties according to his specialize field.

Identification of partners or principal shareholders

We are five partners in this business with equal investment of Rs. 240000/ each.

I. Usman Ali

II. Shafiq Ur Rehman

III. Imran Khan

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IV. Hamayun Khichi

V. Waseem Hafeez

Authority of principals
The principal authority is given to Mr. Usman Ali but he can not pay/ withdraw of money with
the approval of Mr. Shafiq Ur Rehman. Both will deal in join account.

Management team background

All the members will perform their duties according to their specialization. Every member has
knowledge of marketing, finance, accounting and human resource. But their duties are according
to specialization.

Roles and responsibilities of members of organization

1. Mr. Usman Ali will deal in marketing department; he will perform all marketing
activities like pricing, promotion, public relations and product forecast.

2. Mr. Shafiq Ur Rehman will perform the human resource functions along Mr. Imran
Khan. Recruitment & selection, compensation, training and planning are the basic
duties of them. Both are responsible for labor availability and their duties.

3. Mr. Hamayun Khichi will perform finance and accounting functions as costing,
budget allocation, making invoices and preparing financial statements.

4. Mr. Waseem Hafeez will perform operational activities, he will keep maintain and
repair of production plants and machinery and assist the labor at any problem.

Assessment of risk

Evaluate weaknesses of business

• Shortage created in local market due to exports of raw and finished leather
• Requirement of high working capital
• High cost of electricity

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• Economies of scale is a important factor, as most of units in Pakistan have small

capacity, which means higher cost, and this results in decreasing competitiveness
in the international markets.
• Wastage due to unskilled labor

New technologies
New technology has great impact on every business same case with leather in which tanning
process might be more affected by any new innovation. Our operation might be influenced
(cutting, stitching and finishing) by new technology. Innovation in internet or online shopping
can also change in website transaction process so it is necessary for our IT department to make a
plan for future how should adopt these changes when it happens.

Contingency plans
We planned that in case of failure we will go for two options

1-selling out the whole infrastructure, as there are firms who might interested in investment and their this
purpose could help us in order of exit from this situation.

2-selling machines and other equipments less then market price, the reason is to exit from the business as
early as possible to save our time.

Importantly we will do short term agreements in order of rental building and will do short term contract
with labor.

In case of failure our step might help us to exit as early as possible and save our coast of time.

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Financial plan
Project cost

Projects Costs (Rs.) Total Cost

Machinery (used) Rs. 96000

Furniture & Fixtures Rs. 91000

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Miscellaneous (salaries) Rs. 63000

Raw material inventory Rs. 420000

building rent Rs 30000

Total reserve for next month Rs. 500000

Total Investment in the Project (Rs.) Rs. 1.2 million

Assumptions

Machinery Assumptions

Number of Machines Installed 6

Maximum Capacity Utilization (year 1) 100%

Total Production of the unit per month 350 units

Total Production of the unit per year 4200 units

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Operating Assumptions

Annual Production capacity 4200 units

Hours operational per day 8hrs

Days operational per month 26

Days operational per year 312 days

Cash Flow Assumptions

Accounts Receivable cycle (in days) 30

Raw material inventory (in day) 30

Revenue Assumptions

Production capacity of the unit 4200 units

Sale price growth rate 10%

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Maximum capacity utilization 100%

Export sales 90%

Expense Assumptions

Machine maintenance (per year) Rs 1000

Pre-paid building Rent (months) 06

Rent growth rate 10 %

Raw material price growth rate 5%

Financial Assumptions

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Project life 05

Equity 100%

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Income Statement

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AKRAH LEATHER MANUFACTURING

Income Statement

For the year ended on

Year 1 Year 2 Year 3 Year 4 Year 5

Rs Rs Rs Rs Rs

Revenues 10130400 12,256,860 13,482,546 14,830,800 16,313,880

Revenue 10,130,400 12,256,860 13,482,546 14,830,800 16,313,880

Cost of Goods Sold 8442000 10,214,820 11,236,303 12,359,933 13,595,926

Gross Profit 1,688,400 2,042,040 2,246,243 2,470,867 2,717,954

Less Operating Expenses

Marketing Expenses 75000 75,000 75,000 75,000 75,000

Building rental expense 5000 5,500 6,050 6,655 7,321

Telephone expense 2000 2,200 2,420 2,662 2,928

Miscellaneous expense 500 550 605 666 733

Depriciation expense(office equipment) (equipment) 18,200 18,200 18,200 18,200 18,200

Fixed Electicity 4000 4,400 4,840 5,324 5,856

Repairs & Maintenance 1000 1,100 1,210 1,331 1,464

Office supplies expense 500 550 605 666 732

Total Operation Expenses 106,200 107,500 108,930 110,504 112,234

Net Profit 1,582,200 1,934,540 2,137,313 2,360,364 2,605,720

Retained Earnings 72,725 72,725 72,725 72,725 72,725

Profit Turn Forward to B/S 1,509,475 1,861,815 2,064,588 2,287,639 2,532,995

Cash Flow Projection

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Cash Flow Statement

For the year ended on

Year 1 Year 2 Year 3 Year 4 Year 5

Rs Rs Rs Rs Rs

Operatin Cash Balance 500,000 600,000 650,000 700000 775000

Profit 1,509,475 1,861,815 2,064,588 2287639 2532995

2,009,475 2,461,815 2,714,588 2987639 3307995

Add Depriciation 18,200 18,200 18,200 18200 18200

Total 2,027,675 2,480,015 2,732,788 3005839 3326195

Balance Sheet

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AKRAH Leather

Blance Sheet

As on………..

Year 1 Year 2 Year 3 Year 4 Year 5

Liabilities Rs Rs Rs Rs Rs

Current Liabilities

Capital 1,200,000 1,260,000 1,323,000 1,389,150 1,458,607

Retain Earnings 0 72,725 72,725 72,725 72,725

Total Liabilities 1,200,000 1,332,725 1,395,725 1,461,875 1,531,332

Current Assets

Prepaid Rent (Office) rent (building) 30,000 33,000 36,300 39,930 43,923

office supply 23,000 22,450 21,845 21,179 20,447

Cash/Bank 500000 600000 650000 700,000 775000

Total Current Assets 553,000 655,450 708,145 761,109 839,370

Fix Assets

inventory 460000 527,675 575,380 625,966 654,562

Machinery 96,000 76,800 57,600 38,400 19,200

Equipments 91,000 72,800 54,600 36,400 18,200

Total Fix assets 647,000 677,275 687,580 700,766 691,962

Tatal Assets 1,200,000 13,327,725 1,395,725 1,461,875 1,531,332

Break-even analysis
We have done this analysis on monthly basis it means that initial fixed cost and variable cost is
considered in this analysis as

Total Costs = Total Revenue

TC = TR

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TFC + TVC = P × X
TFC + (V × X) = P × X

X = TFC / (P - V)

X = 200000/ (2430- 2025)

X = 494 units

Breakeven Point = Fixed Costs/ (Unit Selling Price - Variable Costs)

= 200000/ (2430-2025)

= 200000/ 405

= 494 units

Source and applications of funds

Equity 100% Rs. 1.2 million

Usman Ali Rs. 240000

Shafiq Ur Rehman Rs. 240000

Imran Khan Rs. 240000

Hamayun Khichi Rs. 240000

Waseem Hafeez Rs. 240000

Total Investment Rs.1200000

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Appendix

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COMSATS Institute of Information Technology Sahiwal