Documente Academic
Documente Profesional
Documente Cultură
FOR
GUITAR PRODUCTION
UNIT
PRESENTED BY
ARNAB BHATTACHARYA
ANIRBAN BHATTACHARYA
ARGHYADEEP MITRA
SHAMBO ROYCHOUDHURY
MANISH NEL CHATTERJEE
Indische Guitars
January 5, 2016
Contents
Purpose of Funding..................................................................................................... 3
Executive Summary.................................................................................................... 5
The Company................................................................................................................ 5
Corporate Plan.............................................................................................................. 5
The People.................................................................................................................. 6
Arnab Bhattacharya...................................................................................................... 6
Anirban Bhattacharya................................................................................................... 7
Arghyadeep Mitra......................................................................................................... 7
Shambo Roy Choudhury................................................................................................ 8
Manish Nel Chatterjee................................................................................................... 9
Introduction.............................................................................................................. 10
Industry....................................................................................................................... 10
Mission Statement...................................................................................................... 10
Goals & Objectives...................................................................................................... 10
Workshop Hours.......................................................................................................... 12
Location...................................................................................................................... 12
Floor Plan.................................................................................................................... 13
Business Cycles.......................................................................................................... 14
Average Business Day............................................................................................. 14
Average Business Week........................................................................................... 14
Average Business Month.......................................................................................... 14
Average Fiscal Year.................................................................................................. 15
Supply Analysis........................................................................................................ 15
Products & Services.................................................................................................... 16
Pricing......................................................................................................................... 16
Promotions.................................................................................................................. 16
Positioning, Targeting & Segmentation.......................................................................17
Specific Market Analysis............................................................................................. 17
Sales Strategy............................................................................................................. 17
Advertising.................................................................................................................. 18
SWOT Analysis............................................................................................................ 20
Capital Budget............................................................................................................ 27
Product Cost Analysis.................................................................................................. 28
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January 5, 2016
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Purpose of Funding
Indische
Guitars
aims
at
being
Limited
Liability
Partnership
firm
with
Anirban Bhattacharya
Shambho Roychowdhury
Arghyadeep Mitra
According to preliminary research and estimation the total capital investment required
to launch the business is 29,36,100.00 (Twenty Nine Lakh Thirty Six Thousand One
Hundred). This includes the initial expenditure required to get the business
incorporated and established and assets to kick start the production process. It also
covers average recurring monthly costs for a period of 6 months.
This capital contribution will help the business grow and also provide financial
cover for the initial two years during which the business is expected to break even
(Please Refer Profit Projection). The estimated investment amount has been arrived at
by considering current costs of raw materials and parts required for production as well
as estimation of certain pre and post incorporation expenditures such as incorporation
expenses and monthly recurring expenditures like Advertising, Telephone & Internet
Charges and Rent etc.
We propose the capital investment be carried out in two phases:
such as legal fees, paying security deposit and advance rent etc.
The second installment will consist of two parts namely Cash for Working Capital
and Cash Reserve for Expenses
1. Cash Reserve for Expenses:
Cash
Reserve
amounting
to
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has just been set up, and/or when the revenue from sales is below
expectations. Details of the amount is provided in Table 4 titled Required
Capital Expenditure.
2. Working Capital: This amounts to 3,84,000.00 (Three Lakh Eighty
Four Thousand), details of which are calculated in Table 3 titled Working
Capital Requirements. This amount will be invested in the business
cycle and will help maintain working costs while debtors are realized.
The repayment of the capital is estimated to be done over a period of 4 years,
and will be inclusive of an increased return on the initial investment. The rate of
interest to be provided to the investing partner and the periodicity of repayment
will be decided upon by mutual consent before the initial funds for business
incorporation are released.
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Executive Summary
The Company
Indische Guitars aims to penetrate the Kolkata/India music and guitar market by
producing and marketing premium quality guitars to hungry guitarists at competitive
and affordable prices. On being incorporated, this company will look to attract guitarists
of all of ages and genres that are seeking affordable, premium quality guitars.
Corporate Plan
Our goal is to supply the city/country with a guitar-specialized production unit that
provides high end guitars, built to exacting standards, and offering premium feel and
sound at affordable prices. We will have two base product lines, one being an affordable
mass produced instrument at a fixed price, and a custom line specializing in ultra-high
end
built
to
order
instruments
constructed
according
to
individual
customer
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The People
Any visionary dream may just start with a simple idea but, it only can be turned into a
profitable endeavor with experience, dedication and innovation. The five people behind
this project bring in a varied expertise from different areas of life and each have a
unique skillset to contribute to the project giving it just the right balance of innovation
to make it a success.
Arnab Bhattacharya
Head Luthier
With an advanced degree in science and an avid bass player, luthiery started as a
simple hobby about 12 years ago and over the years slowly gained experience into
more and more complex and extravagant builds. During all this time a vast tally of
instruments were built from local as well as exotic woods and parts, with some being
very low budget instruments to exquisite one-off gem studded beauties.
An avid painter, photographer and graphic artist made for more interesting
instruments, trying to outdo the previous build every single time. For, the last 6 years
what started as a simple hobby turned into a lucrative alternative career option with an
immense outlet for creative ideas. This in turn created a better customer base looking
for unique instruments with industry changing innovations (like the Truss-less neck).
The customer base has been ever-growing reaching overseas, with instruments owned
and played by renowned European musicians.
With 2012, the interest grew from stringed instruments (mainly guitars) to simple
percussion instruments and within a year the handmade custom Cajons flooded the
Kolkata market with almost all of Kolkatas big-name percussionists owning one.
All of the above considered, I bring in over a decade of experience as a luthier and
vision to this endeavor along with various other acquired skill-sets and an already
flourishing customer base.
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Anirban Bhattacharya
Luthier
A musician by profession with over 15 years of stage experience playing guitars in
almost all genres, I always had a keen interest in how guitars were made and when my
brother (Arnab Bhattacharya) embarked on his luthiery journey I stayed by his side like
an ever learning assistant. After learning under him for almost a decade I finally
completed a solo build in 2013 to prove my abilities to myself.
With immense experience and currently pursuing my Masters in Classical Guitar
Performance & Composition from Trinity College, London, I conduct and participate in
workshops all over India giving me a scope to demo and market our endeavor to a wide
demographic. This, in turn is guaranteed to increase reach and scope of this company
in various regions.
Also, being a full time member of two different bands (Cadence of Tears & AITU) I have
access to a huge fan-base to promote our products to, during performances and fan
meets. The added experience and education in western classical music will also allow
me to setup, evaluate and ensure the quality of our instruments and having access to a
wide demographic will in-turn allow me to evaluate which kind of instruments appeal
the most to a masses.
Arghyadeep Mitra
Assistant luthier
Indische Guitars
January 5, 2016
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He has always been interested in the art of luthiery. Meeting Mr. Arnab Bhattacharya
has been the catalyst to push this interest of his to the next level. Also, with a degree in
Graphics & Animation from MAAC, I can provide invaluable graphic design and 3D
modelling expertise to the business.
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Introduction
Industry
The musical instrument industry in Kolkata covers a vast amount of area including
wind, brass, percussion and string instruments as well as their respective accessories
and sound equipment requirements. The guitar industry specifically narrows focus to
electric and acoustic guitars, guitar amplifiers, pedals and respective accessories
(strings, picks, cables and sheet music). Industry research done by us shows that
musical instrument retailers achieved a third consecutive quarter of sales growth in the
first quarter of 2015. This growth is being driven by guitars primarily due to its
explosion in popularity among young musicians as well as for musical schools. Figures
compiled from all over India show strong industry growth, from a total sales of over
50,000 units in 2010 to over 200,000 in 2015. The sales of budget (<20,000) fretted
instruments have also risen 3.6% this past year. Such strong growth is indicative of
high profitability, and is a positive sign for a firm looking to enter this industry.
Lower average prices for guitars have sparked a growth in guitar purchases by both
ends of the age spectrum. More and more teenagers and young adults are starting out
with guitars due to influences such as video games like Guitar Hero and the Internet,
and yet more guitarists have started forming new bands. This is due to increased
disposable income leading to greater purchasing power over the past few years. This
increased purchasing power has created a market of opportunity.
Mission Statement
Indische Guitars is committed to supporting the music sector within India by serving
new as well as well-established guitarists through the supply of high quality budget
guitars, ultra-high end custom made guitars and repairs and servicing. All of this will be
channeled through a friendly and knowledgeable local staff dedicated to providing the
best service to our customers.
Effectively establish an image, a brand name, and a reputation for quality among
Kolkatas guitarists
Serve Kolkatas guitarists with premium segment guitars at affordable prices
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Attain profitability and cross the break-even mark by the end of the second year
of operation
Consistently achieve an average of 10 or more customers per week spending on
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Operations Plan
Indische Guitars will be both a direct sales company that will specialize in selling
premium budget guitars and custom made high end instruments to established as well
as prospective guitarists of Kolkata, India. Sales will be achieved through stores,
personal contacts and endorsements. Our staff will provide hospitable treatment as well
as knowledge and expertise to customers. Our instruments (be it budget or high-end)
will aesthetically attract customers and close sales through easy navigation and
informative product descriptions, as well as expert guidance regarding what instrument
is best suited to the playing of the customer.
Workshop Hours
Monday- Friday
10am 7pm
Saturday
10am 4pm
Sunday
Closed
We want to accommodate the high level of customer relations that Indische has aimed
to achieve and we shall do that by having at least two consistent employees working
during hours of operation. The work will be divided according to individual expertise
and skillset among the positions of Luthier, Sales, Marketing and Accounting. Our
unique backgrounds provide the skillset needed to effectively start and run the
business. With the need for excellent repair service for customers, another employee
with knowledge of guitar electronics and mechanics will be hired to conduct both
repairs and additional sales service.
Location
Indische Guitars will be located in the suburbs, Kolkata, at a commercial property. The
location will be a commercial space of 1500-2000 square feet that will be rented/leased
at current viable market rates per square foot including basic utilities. In total, the
monthly cost for lease will be around Rs. 30,000. We will choose this location based on
the following reasons:
1. Financial Flexibility The location should be relatively inexpensive for the area,
providing
price that will give the owner flexibility in budgeting. The building should provide
the preferable size for inventories and space requirements as well.
2. Distance Relative to Competitors Indische Guitars will be situated at a minimum
15 kilometers from its nearest competitor.
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3. Instruments - The distance will allow for more freedom of movement in our
marketing strategies and customer relations as there is and will be an
established and developing customer base in that area of the city.
4. Convenience The workshop would be situated in a convenient location for
potential customers to visit and the area should provide the needed consumer
traffic for the businesss sales goals.
Floor Plan
Figure 1
The proposed floor plan for Indische Guitars is designed to allow efficient production,
finishing and setup of guitars. There will be a main production space where inventories
will be held and viewed, allowing for a very smooth flow of production traffic on the
floor as shown in Figure 1 above. There will also be places where customers can test
out guitars that they are interested in. This area will be located in a partitioned section
from the main area, containing guitars and amplifiers. Raw materials like wood stocks
will be held in racks for easy viewing and access. There will also be a separate room for
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spraying guitar bodies. Another room will be partitioned off to act as the setup and
service area and a final room will be there to act as the business office.
Business Cycles
Average Business Day
There will be little variability in business days at Indische throughout the year. The
owners/managers will check over necessary inventory lists and store needs such as
product placement. The schedule and target for the week will be set on every Monday
morning with a short meeting. Production each day will commence with specific tasks
involving choice and sorting of wood, hardware and finish, and details of such
production targets will be put on specific tabulated forms to be displayed in the main
production area for convenience of each workstation. All employees must know the ins
and outs of each instrument produced as guitarists will have more respect for
knowledgeable staff that are willing to spend time discussing the products in question.
Weekends will have a lower workload in order to provide the staff with a satisfying work
environment. Accounting for everyday sales and purchases as well as income and
expenditure will be carried out, for which records will be kept in the form of daybooks
and cashbooks.
Time for other sales/repair work that will have been brought in on earlier occasions will
be allocated separately. The weekend will conclude with another small meeting to
update bookkeeping, marketing strategies and daily purchase orders for inventory as
well as handling of sales duties if any are needed. The cleanup and preparation of the
work floor if necessary for the next day as well as making final inventory purchase
orders based on inventory sold during the day, will be done before closure.
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Supply Analysis
All inventories in the line will be purchased from respected manufacturers that have
strong reputations in the music and guitar industry. Wood will be purchased specifically
from reputed suppliers both local and overseas. All required parts and electronic
components will be purchased in bulk from wholesalers to reduce costs. All products
will be purchased directly from manufacturers in order to eliminate middleman costs.
These manufacturers (suppliers) have been chosen based on brand, quality, product
availability and overall service level. New suppliers will be proposed and analyzed by
the staff in order to determine if they should be dealt with by the company.
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Marketing Plan
Products & Services
Indische Guitars will be a premium guitar manufacturer that will provide affordable
products, knowledgeable and engaging staff and excellent service in Kolkata. Indische
will sell to a specific market for premium quality guitars, making models with high end
configurations at very affordable price points.
We will also provide the customers, custom designed made-to-measure high end
instruments, where they have complete control over design decisions, wood, finishing,
hardware and electronics choices.
Pricing
Indische will be entering a competitive music and instrument retail industry within
Kolkata. In the city, there are a number of small music and guitar shops mostly located
in the North and Central areas of the city. Notable competitors include Hobmer, Givson,
Yemaha, Grason, Hertz etc. which provide low quality, low budget instruments to a
large consumer base. Appendix B shows the current competitor analysis within Kolkata.
Indische will look to target the influx of low-priced but branded (Squire, Epiphone,
Ibanez, etc.) instrument influx from Chinese manufacturers, using a mixture of
penetration pricing and value-based pricing to enter the guitar retail industry in
Kolkata. The strategy is very different from the usual music and guitar retail stores
because it is based on the unique value of each guitar. Indische will be focused on
selling uniquely produced guitars for a price that will create a large margin whilst still
creating a lot of value to the customers. With the ability to produce these guitars as
factory made high-grade low priced instruments, it is feasible to sell them at a cost-plus
price. (i.e. sell at a margin of 40%-50% over production costs). The advantage of using
this strategy is that guitarists especially tend to highly value personalization on their
instruments, and by providing unique guitars for them to purchase, we will create value
for them and profit for our business. The feasibility of the business is centered on this
concept.
The pricing strategy for repairs will be competitive pricing, as there are no lost margins
for repairs, we will charge prices that equal to or just below are industry averages for
repairs
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Promotions
Indisches promotion strategy will be based on the specific pricing and services
strategies for the divisions of products. We aim to be to be recognized as a unique
guitar manufacturer that sells premium guitars at prices that no one can match and
providing knowledgeable service as well as repairs for its customers as well. We will
focus on our competitive advantage to get our name out to the market of guitarists and
musicians.
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The current bestselling brand is Ibanez in Kolkata, with Squire coming a close second,
with their most selling instruments ranging between 18000-25000, and with our
instruments ranging in the vicinity but with much higher quality of construction,
hardware and electronics, we are sure of reaching our target demographic. A detailed
analysis of the competition can be found under Competitor Analysis.
Sales Strategy
Indisches sales and profit objectives are:
Reach monthly sales of at least 20 guitars by the end of the first year
Establish sales channels via local retailers and distributors by the end of first
year
Earn an average owner compensation salary over the first 5 years, keeping in
mind the first years extra equity will eventually have to be paid off
Maximize sales by the end of 5th year
There are two channels of distribution for Indische Guitars, in-store purchasing and
through dealers and retailers. The in-store, direct model of purchasing will be the most
prominent for the business because customers will get to experience the quality of the
Indische instrument by trying out the guitars first-hand against commonly available
options.
Indische wants to establish itself as a new and unique guitar manufacturer in Kolkata,
known for quality products and swift and diligent service and support. We expect new
customers to enter the market as awareness of the Indische brand spreads with time.
The location and new selling strategy will place Indische in a strong position within the
market, which will have to be continuously evaluated in order to maximize position on a
consistent basis.
Indische can meet its objectives by achieving the forecasts shown in the financial
model. It must reach a sales level of 20 units per month by the end of the first year and
increase it to 50 units per month by the end of 5 th year. The sales predictions are fairly
conservative with the base case in the first year being 10 customers per fortnight
spending 25,000 each. This is made more achievable by the repairs sector of the
business. The advantage of a greater margin in guitars will be a strong advantage as
these margins are not attainable for comparably priced guitars from competitors.
Indisches different methods of selling guitars will distinguish it among competitors and
will be difficult to replicate.
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Advertising
The main advertising objective in the first two years of business will be to create
awareness in the city and to persuade customers that we offer quality products as well
as personalized customer service. In the following years, advertising objectives will
focus on cementing Indisches brand in the minds of the citys consumers. The focus
will also be to penetrate the markets in other prominent cities and thus gain national
exposure. Exposure is key for the business, so most of the advertising methods have
been focused on creating more and more awareness.
The different advertising channels that will be used will include:
Newspaper/Magazine Advertisements This type of advertising specifically in
newspapers and on newspaper sites that focus on the arts and music will reach some of
the market we are targeting although large responses from these are not expected
when compared to other mediums. These ads are inexpensive and can last for the
duration of the 5-year plan changing with new offerings and promotions done by our
store.
Website The internet is the largest and fastest growing advertising channel in the
world. Consumers expect their prospective stores to have some sort of web presence
where they can scout and purchase possible products from home. Indische aims to set
up a professionally designed profile that will display info, products and promotions in an
aesthetically appealing way. The page also serves the purpose of boosting sales
through the availability of online quotes and personalized chats. Eventually, we may
look into the possibility of an online store.
Online Advertisements In addition to having a website, it will also be beneficial for
our business to purchase advertisements on popular guitar websites such as ultimateguitar.com where many guitarists from around the world can be exposed to the
awareness for our brand. Advertising by way of ads on Indian Youtube videos related to
music will also help the brand get recognition and increase awareness for the products.
We intend to follow a similar strategy with Facebook, Twitter and others social
networking websites where our target audience can be easily reached.
Posters Posters provide unique one-on-one advertising in strategic places around
Kolkata. Our primary focus is to place them in music venues and bars around the city
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where aspiring musicians and starter bands can learn about the new guitar store in the
city that wants to form a relationship with them. These posters will have eye-catching
graphics as well as basic information about the competitive advantages.
Sponsorships We will sponsor local musical events to create buzz. Events sponsored
will display our posters and hoardings and also enable us to promote our products
directly to the musicians and target audience. We will offer discounts on our products to
sort of kick start our business in Kolkata. We will promote this long before it happens in
order to have maximum awareness for the event.
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Competitor Analysis
SWOT Analysis
INTERNAL
POSITIVE
NEGATIVE
STRENGTHS
Have an
advantage in
terms of pricing
as a result of
small scale
production and
savings in overall
cost of
production.
Ability to provide
better quality
instruments with
superior
specifications at
a cheaper cost
than the
competition.
Experienced
Luthiery
knowledge allows
for production of
guitars unique in
their
characteristics in
comparison to
competition while
retaining quality
and performance
at par with the
competition, and
with even higher
quality standards
in the case of the
WEAKNESSES
Lack of experienced
Marketing knowledge.
Small scale production
size currently limits
meeting an increasing
demand beyond
considered levels.
Small staff size. The 5
partners will be carrying
out the all the duties from
production to sales, and
marketing.
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EXTERNAL
specialized
custom shop.
The ability to
garner an
audience
receptive to high
quality products
made in India by
virtue of being
the countrys first
true high end
instrument
manufacturer.
OPPORTUNITIES
THREATS
Opportunity to
Competitors such as
create a market
Ibanez, Fender, Cort have
base among
an already established
customers who
market and a loyal
desire quality
customer base. Such
instruments
customers may be less
without having to
inclined to move away.
Low end segment guitar
spend too much
makers such as Hertz,
on them.
Ability to create a
Yemaha and Grayson may
dedicated and
also may change pricing
loyal customer
policies to avoid losing
base by providing
customers.
Too much of an increase
personal
in forex prices may push
assistance and
the cost of importing
after-sales
electronic parts for the
service.
Can garner a
instruments thus leading
market space due
to increase in prices of
to being a one of
the products.
a kind Indian
Guitar
Manufacturer
providing
products of
internationally
accepted
standards.
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and products. Subsequently the partners themselves can take over the
operations once they gain reasonable knowledge and experience in the field.
5. Small size of staff is also a drawback though only in the short term. To cut costs
and boost overall profitability the partners themselves will be directly involved in
production as well as managerial tasks. This can be later remedied as overall
profitability increases by hiring required semi-skilled or non-skilled labor as the
situation permits.
6. Competitors in the premium guitar segment are truly the closest threat to the
firm, though only in the long run, due to their already established huge customer
base. However, at the scale Indische Guitars will be functioning at, we will pose
no threat to these manufacturers and therefore we do not expect any reaction
from them to our brand at least till the next 5 years.
7. The low end local guitar manufacturers are a form of indirect threat as they do
not possess the knowhow or the specialized labor to create similar products as
those of Indische Guitars. They mainly thrive by supplying basic low end low
quality instruments which are cheap copies of international guitar models.
Therefore we do not expect any direct threat from this segment till the next five
years either.
8. Lastly, factors such as foreign exchange prices can affect our product prices
since various parts for the guitars will have to be imported from outside as there
is no manufacturer for such parts in the country. However cementing
relationships with foreign suppliers on account of constant dealings will reduce
the cost of purchase thus to a great extent negating any adverse effects of forex
fluctuations.
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Woods: the quality of wood used to build a guitar affects not only its timbre,
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Our competitors do not offer locking tuners until well past the Rs. 40,000 price
point, and thus cannot provide the same tuning stability or precision at the price
point we will be targeting with our production models.
The bridge of a guitar is the second point where the strings are connected to the
body. Indische will be offering two types of bridges, namely a tremolo and a
hardtail. Our Floyd Rose bridges will come with stainless steel upgrades and a
heavy sustain block, thus improving the balance of the guitar as well as extending
the length of time that a played note or chord continues to ring. Our hardtails will
be made out of constructed out of specially formulated lead-free alloys, also
mounted with a sustain block to increase sustain. Both bridges will be built to
custom specifications and imported.
Our competitors, both above and below our target price range, use far inferior
designs (no sustain block, less suitable alloys, inferior designs and specifications),
thus giving our instruments a competitive edge.
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Ergonomics: Our guitars will come in a variety of shapes, all designed to feel
comfortable and balanced for a guitar player. Competitor shapes tend to follow tried
and tested designs which are not scientifically ergonomic or comfortable.
Paints and Finishes: Indische will offer a variety of paints and finishes on our
guitars, ranging from subtle solid colors to truly mesmerizing swirls and mixes.
While such finishes may be availed at higher price points, no Indian competitor
offers such finishes, and most foreign competitors only offer a limited choice of
colors on their models.
Warranty and Service: Indische will be the only manufacturer in India offering
a one year warranty on all components and a service center where musicians may
get their instruments adjusted and repaired. No competitor at any price range
offers this.
Custom Shop: Indische will also offer the option of a custom shop, where a
customer may have a single, one-off guitar designed and built according to his
exact specification. Woods, hardware, electronics, finish, and body design will all be
the choice of the customer. This custom shop will cater to the ultra-high end
market, above the Rs. 50,000 price point. No competitor offers custom made
instruments below the 2 Lakh price point, and often these need to be imported from
abroad, incurring a price penalty due to taxation. Moreover, these instruments are
not designed in India; for example, to order an Ibanez custom, one would need to
contact their Los Angeles custom shop, which may or may not accept the proposed
design. Other custom makers exist, but again none in any convenient location
(Mayones and RAN: Poland, Ormsby- Australia, Strandberg- Sweden, Washburn and
Carvin- USA). Therefore, the Indische custom shop will have a monopoly of the
custom ultra-high end market.
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Financial Plan
Capital Budget
The total capital requirement for Indische Guitars as mentioned previously is
2936100.00 (Twenty Nine Lakh Thirty Six Thousand One Hundred). This cost includes
leasehold improvements for the space assumed, machinery, stock, including computer
equipment and custom design costs. It also includes cover for average monthly
operating expenses for a period of 6 months. This amount is kept aside to cushion the
business from uneven sales and revenue for the first 6 months when the business is
settling in. The detailed breakup in the funding amount and its utilization can be found
in Table 4 titled Required Capital Expenditure.
Inventories are estimated based on the selling price being 17017.00 (assuming a
profit of 43%) and averaging the prices for custom inventories. This inventory cost
breakdown can be found in Table 1 titled Product Cost Break-Up below. There will
be accounts receivable as sales made via retailers will be on credit basis. However
direct sales to end users will also be made which will be on cash-only basis. Such direct
sales made to the end users/customers will be done directly from the workshop so as to
strengthen sales initially and also give the end user a personal insight into what the
firm stands for and what we aim to achieve i.e. Premium Quality & Affordability.
Accounts payable will be maintained on the purchase of inventory from manufacturers.
This will include Raw Materials such as wood supply and semi-finished goods such as
electronics (pickups, preamps, and potentiometers), bridges, tuners, etc.
The liquidity value of these inventories after processing is much higher than their cost,
meaning that profits will increase high above purchase costs. For example, we foresee
high margins for the sale of guitars as we can increase price based on their cost to
purchase raw materials in bulk.
The table below (Table 1) shows us the break-up of product cost for one unit/ product.
The above figures have been considered by taking a conservatively higher cost of each
individual component so as to cushion against any increase in the prices of individual
components as the prices of some components being imported from abroad will be
heavily dependent upon the foreign exchange rates and/or the accompanying taxes
and duties.
However despite assuming a higher cost of sales, the overall cost is still quite low and
is very beneficial from a pricing perspective as it helps to maintain a higher profit
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Indische Guitars
January 5, 2016
margin and also allow the retailers to keep better margins for themselves all the while
keeping the overall MRP from going beyond our target estimate of 25000 per guitar.
COST (Rs.)
Body Blank
Neck Blank
Fretboard Blank
Pickups
Bridge (Floyd Licensed)
Machine Heads
Electronics
Misc. parts costs
Paint/Finish
Gig Bag
Electricity consumed (calculated as per 25 units produced
per month)
Logistics
Other incurred costs
TOTAL
Profit@ 43%
APPROXIMATE SALES VALUE
400.00
300.00
400.00
5000.00
1700.00
1300.00
250.00
1000.00
250.00
300.00
500.00
250.00
250.00
11900.00
5117.00
17017.00
The profit margin has been currently assumed at 43% so as to allow for retailers to
keep a good profit margin for themselves while keeping the product at an affordable
cost. This strategy will also create an incentive for retailers to market and promote our
products, as they stand to earn a much greater profit by selling an Indische as
compared to a guitar made by a competitor.
Operating Expenses
Indische will be open 6 days every week for 52 weeks a year excluding statutory
holidays. The estimated monthly operating costs are listed as follows in Table 2 titled
Estimated Monthly Operating Expenditures. Insurance will be necessary for the
inventories as there will always be risk of damage due to vandalism, accident or
weather conditions. It is anticipated that advertising expenses could rise if opportunity
to reach more customers presents itself. Parts and tools inventory supplies will be a
continuous expense and will likely vary each month in connection with the amount and
nature of sales and orders.
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Indische Guitars
January 5, 2016
In Table 2, the Operating Expenses is divided into two sections namely Fixed Costs and
Variable Costs. Fixed Costs will remain constant over the months irrespective of the
production process or quantity whereas the Variable Cost component will change
according to the change in production scale. It should be noted that the costs are all
estimated on a conservative approach so as to cover any fluctuations in costs; real
world figures will be lower than the estimates shown below.
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Indische Guitars
January 5, 2016
Estimated
Costs
FIXED COSTS
Building Rent
Insurance (Annual Prem/12 mts)
35000.00
2500.00
3500.00
HR Expenses:
Employee Salaries
Employee Benefits (15% of Basic)
TOTAL FIXED COST
25000.00
66000.00
VARIABLE COSTS
Supplies (stains, paints, glues)
Office Supplies
Advertising, Consumables & Other Variable Costs
TOTAL VARIABLE COST
10000.00
1000.00
5000.00
16000.00
82000.00
PARTICULARS
TOTAL COST OF PRODUCTION
(11900*20) [A]
Monthly Variable Expenses:
OF
GUITARS
238000.00
10000.00
1000.00
5000.00
16000.00
35000.00
2500.00
3500.00
HR Expenses:
Employee Salaries
Employee Benefits (15% of Salaries)
25000.00
66000.00
320000.00
TOTAL
WORKING
REQUIREMENTS [A+B+C+D]
CAPITAL
64000.00
384000.0
0
From the above table we can estimate that the working capital requirement of the
business will be 384000.00. However this amount to working capital will increase from
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Indische Guitars
January 5, 2016
2nd year onwards when there is an increase in production scale. Therefore the above
working capital has been calculated keeping in mind production of 20 units on average
per month. Revenue from the sale of units will be reinvested to working capital for use
in the next cycle. This working capital requirements is included in the total fund
requirement though it will be a one-time investment.
AMOUNT
500000.00
30000.00
10000.00
8000.00
2000.00
15000.00
5000.00
20000.00
21700.00
18400.00
500000.00
100000.00
1230100.0
0
START UP EXPENSES
Cost of Sample Inventory
Rent Deposit/Advance
Legal & Incorporation Expenses
Electricity
Office Supplies
Pre-Opening Marketing Costs
Telephone & Internet Connection Charges
Miscellaneous Expenses
TOTAL EXPENSES AT STARTUP (B)
400000.00
250000.00
60000.00
5000.00
100000.00
5000.00
10000.00
830000.00
2060100.
00
35000.00
2500.00
3500.00
25000.00
25000.00
Indische Guitars
January 5, 2016
66000.00
10000.00
1000.00
5000.00
16000.00
82000.00
492000.00
384000.00
2936100.
00
Profit Projections
Income Statement
Table 5: Projected Income Statement for the Year Ended 31.03.17
PARTICULARS
SALES Revenue (Considering 20 Units p.m.) [17017*20]*12mts
Less: Cost Of Sales (11900*20)*12mts
AMOUNT
4084080.00
(2856000.00)
420000.00
30000.00
42000.00
300000.00
47500.00
10800.00
120000.00
12000.00
60000.00
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Indische Guitars
January 5, 2016
However towards the latter 6 months we should have built awareness of our brand and
range of products amongst most retailers and a good number of consumers and we
anticipate that this will help push sales upward, thus getting an overall average of
around 20 units p.m. at the end of the first financial year.
PARTICULARS
2016-17
2017-18
2018-19
2019-20
2020-21
SALES
4084080
4900896
5881075.
2
7057290.
24
8468748.
29
(2856000)
(2793510.
72)
(3352212.
86)
(4022655.
44)
(4827186.
53)
1228080
2107385.
28
2528862.
34
3034634.
80
3641561.
76
Rent
Insurance
Telephone &
Internet
Charges
Salaries
Depreciation Of
Machinery
Depreciation Of
Furniture
Maintenance Of
CCTV
System
Maintenance Of Fire
Extinguishers
420000
30000
42000
420000
30000
42000
420000
30000
42000
420000
30000
42000
420000
30000
42000
300000
47500
300000
47500
300000
47500
300000
47500
300000
47500
10800
10800
10800
10800
10800
1200
1200
1200
1200
500
500
500
Supplies (Stains,
Paint,
Glues)
Office Supplies
Advertising,
Consumables
& Other Costs
120000
120000
120000
120000
120000
12000
60000
12000
60000
12000
60000
12000
60000
12000
60000
185780
1063885.
28
1484862.
34
1990634.
80
2597561.
76
Net Profit
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Indische Guitars
January 5, 2016
The above table shows a prediction of yearly sales growth and the resultant net profit
over the period of 5 years. Some important observations are as follows:
50000)/10]/12}.
The amount of depreciation for furniture has been calculated by taking the entire
value of furniture at purchase and dividing the cost over its assumed lifespan
after deducting assumed scrap value of 10 percent of the cost price, i.e.
{[(60000-6000)/5]/12}.
The maintenance of CCTV system is free for first year and hence no cost has
been attributed. From 2nd year onwards a yearly charge of 1200 is attributed to
maintenance.
Similarly as above the first two years maintenance for Fire Extinguisher System
is provided free of cost after which a yearly charge of 500 will be incurred.
The profit projections provide an indication of the profitability of the business over a
comparatively long period of time. Though there are several costs that can fluctuate
over the years to come the business has a really strong potential to be a serious market
contender. The overall sales increase has been taken to be a steady growth of 20
percent year on year however according to the increase in demand by the end of the
second year the overall sales can increase well beyond the anticipated figures thus
pushing a higher net profit.
The projection growth are showcased in the line graph below.
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Indische Guitars
January 5, 2016
4000000
3000000
2000000
1000000
0
2016-17
2017-18
2018-19
2019-20
YEAR ENDINGS
SALES
GROSS PROFIT
Page 38
NET PROFIT
2020-21
Indische Guitars
January 5, 2016
6months-1st
This will allow the customers to have their specific choice of some of the
components and color options of their guitars at a higher price point.
1st-2nd
1st-2nd year
To meet the growing demands, more staff will have to hired and the
production capacity need to be increased. This will also allow us to decrease
production cost per unit.
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1st-2nd year
Indische Guitars
January 5, 2016
For our more demanding customers the option to get their unique one-off
dream guitar will be provided, where they can have complete creative and
technological control over their own master-built instrument at a premium
price point
Conclusion
The city of Kolkata is ripe for a specialized guitar manufacturer to enter its market.
Indische Guitars plans to change the scene by offering a unique type of guitar inventory
that will attract guitarists from all around. A detailed financial analysis of this proposed
business proves that Indische Guitars is feasible and has the opportunity to attain
profits and deliver a quality service and product line to its customers.
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Indische Guitars
January 5, 2016
Notes
Page 41