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Pre-Feasibility Study
(Driving School)
Small and Medium Enterprises Development Authority

Ministry of Industries & Production
Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
4th Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road,
Lahore
Tel: (92 42) 111 111 456, Fax: (92 42) 36304926-7
helpdesk@smeda.org.pk
REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE
Punjab Sindh Khyber Pakhtunkhwa Balochistan
3rd Floor, Building No. 3, 5th Floor, Bahria Ground Floor Bungalow No. 15-A
Aiwan-e-Iqbal Complex, Complex II, M.T. Khan Road, State Life Building Chaman Housing Scheme
Egerton Road Lahore, Karachi. The Mall, Peshawar. Airport Road, Quetta.
Tel: (042) 111-111-456 Tel: (021) 111-111-456 Tel: (091) 111-111-456 Tel: (081) 2831623, 2831702
Fax: (042) 36304926-7 Fax: (021) 35610572 Fax: (091) 5286908 Fax: (081) 2831922
helpdesk.punjab@smeda.org.pk helpdesk-khi@smeda.org.pk helpdesk-pew@smeda.org.pk helpdesk-qta@smeda.org.pk
Note: All SMEDA Services / information related to PM's Youth Business Loan are Free of Cost
December, 2013
Pre-Feasibility Study Driving School
TABLE OF CONTENTS
1 DISCLAIMER ............................................................................................................................... 2
2 PURPOSE OF THE DOCUMENT ................................................................................................ 3
3 INTRODUCTION TO SMEDA ...................................................................................................... 3
4 INTRODUCTION TO SCHEME ................................................................................................... 4
5 EXECUTIVE SUMMARY ............................................................................................................. 4
6 BRIEF DESCRIPTION OF THE PROJECT................................................................................. 4
7 CRITICAL FACTORS .................................................................................................................. 5
8 INSTALLED & OPERATIONAL CAPACITIES ........................................................................... 5
9 POTENTIAL TARGET MARKET / CITIES .................................................................................. 5
10 PROJECT COST SUMMARY ..................................................................................................... 5
10.1 PROJECT ECONOMICS ...................................................................................................... 6
10.2 PROJECT FINANCING ........................................................................................................ 6
10.3 PROJECT COST ................................................................................................................ 6
10.4 MACHINERY REQUIREMENT ............................................................................................... 7
10.5 RAW MATERIAL REQUIREMENTS........................................................................................ 7
10.6 HUMAN RESOURCE REQUIREMENT .................................................................................... 7
10.7 REVENUE GENERATION .................................................................................................... 8
11 CONTACT DETAILS OF GOVT. INSTITUTIONS / EXPERTS .................................................. 8
12 ANNEXURE ................................................................................................................................ 9
12.1 INCOME STATEMENT ......................................................................................................... 9
12.2 CASH FLOW STATEMENT ................................................................................................ 10
12.3 BALANCE SHEET............................................................................................................. 11
12.4 USEFUL MANAGEMENT TIPS ............................................................................................ 12
12.5 USEFUL LINKS ................................................................................................................ 12
13 KEY ASSUMPTIONS................................................................................................................ 14
1 DISCLAIMER
This information memorandum is to introduce the subject matter and provide a
general idea and information on the subject. Although, the material included in
this document is based on data / information gathered from various reliable
sources; however, it is based upon certain assumptions which may differ from
case to case. The information has been provided on ‘as is where is’ basis without
any warranties or assertions as to the correctness or soundness thereof.
Although, due care and diligence has been exercised to compile this document,
the contained information may vary due to any change in any of the concerned
factors, and the actual results may differ substantially from the presented
information. SMEDA, its employees or agents do not assume any liability for any
financial or other loss resulting from this memorandum in consequence of
undertaking this activity. The contained information does not preclude any further
professional advice. The prospective user of this memorandum is encouraged to
carry out additional diligence and gather any information which is necessary for
making an informed decision including taking professional advice from a qualified
consultant / technical expert before taking any decision to act upon the
information.
For more information on services offered by SMEDA, please contact our website:
www.smeda.org.pk
SMEDA Services / Information related to PM’s Youth Business Loan are FREE OF COST - 2
2 PURPOSE OF THE DOCUMENT

The objective of the pre-feasibility study is primarily to facilitate potential
entrepreneurs in project identification for investment. The project pre-feasibility
may form the basis of an important investment decision and in order to serve this
objective, the document / study covers various aspects of project concept
development, start-up, production, marketing, finance and business
management.
The purpose of this document is to facilitate potential investors in Driving School
by providing them with a general understanding of the business with the intention
of supporting potential investors in crucial investment decisions.
The need to come up with pre-feasibility reports for undocumented or minimally
documented sectors attains greater imminence as the research that precedes
such reports reveal certain thumb rules; best practices developed by existing
enterprises by trial and error, and certain industrial norms that become a guiding
source regarding various aspects of business set-up and it’s successful
management.
Apart from carefully studying the whole document, one must consider critical
aspects provided later on, which form basis of any investment decision.
3 INTRODUCTION TO SMEDA
The Small and Medium Enterprises Development Authority (SMEDA) was
established in October 1998 with an objective to provide fresh impetus to the
economy through development of Small and Medium Enterprises (SMEs).
With a mission "to assist in employment generation and value addition to the
national income, through development of the SME sector, by helping increase
the number, scale and competitiveness of SMEs" , SMEDA has carried out
‘sectoral research’ to identify policy, access to finance, business development
services, strategic initiatives, institutional collaboration and networking initiatives.
Preparation and dissemination of prefeasibility studies in key areas of investment
has been a hallmark of SME facilitation by SMEDA.
Concurrent to the prefeasibility studies, a broad spectrum of business
development services is also offered to SMEs by SMEDA. These services
include identification of experts and consultants and delivery of need based
capacity building programs of different types in addition to business guidance
through help desk services.
4 INTRODUCTION TO SCHEME
‘Prime Minister’s Youth Business Loans’ Programme, for young entrepreneurs,
with an allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to
provide subsidised financing at 8% mark-up per annum for one hundred
thousand (100,000) beneficiaries, through designated financial institutions,
initially by the National Bank of Pakistan (NBP) and the First Women Bank Ltd.
(FWBL).
Youth Business Loans from Rs. 0.1 million to Rs. 2.0 million with tenure up to 8
years inclusive of 01 year grace period, and a debt : equity of 90 : 10 will be
disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber
Pakhtunkhwa, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and
Federally Administered Tribal Areas (FATA).
5 EXECUTIVE SUMMARY
This particular pre-feasibility is for starting of Light Transport Vehicle (LTV)
Driving School. Driving is a skilful task that needs proper training and knowledge
of traffic laws and regulations. There is a tremendous increase in the number of
vehicles particularly in the urban cities of Pakistan. Moreover, the government
has been taking steps towards effective implementation of traffic regulations.
This has created a demand for formalized driver training and provision of road
safety information, thereby creating an opportunity for establishing a Driving
School for a prospective entrepreneur.
The project is proposed to be set-up in a suitable locality of any urban city such
as Lahore, Karachi, Sukkur, Hyderabad, Faisalabad, Sargodha, Multan, Quetta,
DI Khan, Nowshera and Peshawar. Keeping in view the nature of services, there
is a minimal requirement of establishing a formal office. The facility will comprise
of 3 vehicles and employ 4 individuals including the owner / manager. The total
capacity of the training service center will be to train 720 drivers annually. During
the sessions, trainees shall be familiarized with the basic rules of driving along
with traffic signal system, awareness about traffic rules and dealing with
emergencies and accidents.
Total investment in the project is Rs. 1.8 million with Rs. 1.6 million as capital
investment and Rs. 0.2 million as working capital. NPV and IRR of the project is
Rs. 6.31 million and 47% respectively with a payback period of 2.58 years.
6 BRIEF DESCRIPTION OF THE PROJECT
The proposed Driving School can be started as a home based business without
having any formal office set-up, with the legal status of “Sole Proprietorship”. The
facility will acquire three second hand vehicles for practical training and hire three
trainers / instructors for imparting training. The instructors will also brief trainees
on traffic regulations and road safety information. The driving school will train 396
individuals in the first year @ 55% of its capacity.
7 CRITICAL FACTORS
The following significant factors may be taken into account while making
investment decision:
• Hiring of quality trainers / instructors with a special focus on engaging female
drivers.
• Effective marketing / awareness of the service particularly with traffic police &
drivers licensing section.
• Competitive fee structure offering value for money.
• Efficient utilization of idle capacity by offering Pick & Drop facilities to office
executives on need basis, as an additional business opportunity.
• Timely and cost effective repair and maintenance of vehicles due to major /
minor accidents during the training.
8 INSTALLED & OPERATIONAL CAPACITIES

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

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

A detailed financial model has been developed to analyze the commercial
viability of a Driving School under the ‘Prime Minister’s Youth Business Loan’
scheme. Various cost and revenue related assumptions along with results of the
analysis are outlined in this section.
The projected Income Statement, Cash Flow Statement and Balance Sheet are
attached as annexures.
10.1 Project Economics

The Driving School will train 396 drivers at 55% capacity in year one with three
vehicles and three trainers.
The following table shows internal rate of return, payback period and net present
value.
Table 1: Project Economics
Description Details
Internal Rate of Return (IRR) 47%
Payback Period (yrs) 2.58
Net Present Value (NPV) Rs. 6,308,128
Returns on the investment and its profitability are highly dependent on trained
staff, marketing, and competitive fee structure. In case the Driving School is not
managed efficiently, it will not be able to capitalize on the potential market and
recover payments; hence cost of operating the business will increase.
10.2 Project Financing

Following table provides details of the equity required and variables related to
bank loan:
Table 2: Project Financing

Description Details
Total Equity (10%) Rs.180,000
Bank Loan (90%.) Rs.1,620,000
Markup to the Borrower (%age/annum) 8%
Tenure of the Loan (Years) 8
Grace Period (Year) 1
10.3 Project Cost

Following requirements have been identified for operations of the proposed
business.
Table 3: Total Project Cost

Capital Investment Amount (Rs.)
Vehicles 1,600,000
Total 1,600,000
Working Capital
Cash in hand 200,000
Total 200,000
Total Project Cost 1,800,000
10.4 Machinery Requirement

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

Description Quantity Cost Total
Rs/unit Rs.
800 CC 2 500,000 1,000,000
1000 CC 1 600,000 600,000
Total 3 1600,000
10.5 Raw Material Requirements

Fuel for vehicle(s) will be the only commodity required as a raw material in this
project.
Table 5: Cost of Fuel
No. of Fuel Total Km /
Sr. Petrol
Unit vehicles Consumption day /
No Rate / ltr
Km/ltr vehicle
1 800 CC 2 12 Rs. 113 90
2 1000 CC 1 10 Rs. 113 90
Average fuel cost per Kilometer is estimated to be Rs. 10.044. Considering total
mileage of 180 KM / student (for 10 days training session), fuel cost for 396
students (55% of total capacity) is worked out to be Rs. 715,968.
10.6 Human Resource Requirement

The below table provides details of human resource required to run the Driving
School. Salaries of all employees are estimated to increase at 10% annually.
Table 6: Human Resource Requirement

Description No. of Salary per Annual Salary
Employees month
Owner 1 20,000 240,000
Driving Instructors 3 15,000 540,000

Total Salaries 4 780,000
10.7 Revenue Generation

Table 7: Revenue Details
Product Unit
Fee (Rs./Student) Rs. 6,000
Expected no. of Students First Year No. 396
Revenue 1st Year (Rs.) Rs. 2,376,000
11 CONTACT DETAILS OF GOVT. INSTITUTIONS / EXPERTS
Principal National Highways and

National Logistics Cell (NLC) Driving Motorway Police (NH&MP) Training
School College
G. T. Road, Dina P.O. Box #16 General Post Office,
Ph: 0544-631908 Sheikhupura
Ph: 056-3794601
12 ANNEXURE
12.1 Income Statement
Income Statement
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Revenue 2,376,000 2,851,200 3,397,680 4,024,944 4,743,684 5,565,923 6,122,515 6,734,766 7,408,243 8,149,067
Cost of sales
Cost of goods sold (Fuel Cost) 715,968 859,162 1,023,834 1,212,850 1,429,430 1,677,198 1,844,918 2,029,410 2,232,351 2,455,586
Operation costs 1 (direct labor) 540,000 594,000 653,400 718,740 790,614 869,675 956,643 1,052,307 1,157,538 1,273,292
Vehicles Maintaince Cost 178,200 213,840 254,826 301,871 355,776 417,444 459,189 505,107 555,618 611,180
Total cost of sales 1,434,168 1,667,002 1,932,060 2,233,461 2,575,820 2,964,318 3,260,749 3,586,824 3,945,507 4,340,057
Gross Profit 941,832 1,184,198 1,465,620 1,791,483 2,167,864 2,601,605 2,861,765 3,147,942 3,462,736 3,809,010
General administration & selling expenses

Administration expense 240,000 264,000 290,400 319,440 351,384 386,522 425,175 467,692 514,461 565,907
Communications expense (phone, fax, mail, internet, 47,520 57,024 67,954 80,499 94,874 111,318 122,450 134,695 148,165 162,981
Promotional expense 118,800 142,560 169,884 201,247 237,184 278,296 306,126 336,738 370,412 407,453
Depreciation expense 320,000 320,000 320,000 320,000 320,000 515,363 515,363 515,363 515,363 515,363
Subtotal 726,320 783,584 848,238 921,186 1,003,442 1,291,500 1,369,114 1,454,489 1,548,402 1,651,705
Operating Income 215,512 400,614 617,382 870,297 1,164,422 1,310,105 1,492,652 1,693,453 1,914,335 2,157,304
Gain / (loss) on sale of office vehicles - - - - 960,000 - - - -

Earnings Before Interest & Taxes 215,512 400,614 617,382 870,297 2,124,422 1,310,105 1,492,652 1,693,453 1,914,335 2,157,304
Interest expense on long term debt (Project Loan) 134,459 123,099 108,167 91,997 74,484 55,517 34,977 12,731 - -
Subtotal 134,459 123,099 108,167 91,997 74,484 55,517 34,977 12,731 - -
Earnings Before Tax 81,053 277,516 509,215 778,301 2,049,938 1,254,587 1,457,675 1,680,722 1,914,335 2,157,304
Tax - - 10,921 39,245 257,487 110,688 141,151 183,644 230,367 278,961

NET PROFIT/(LOSS) AFTER TAX 81,053 277,516 498,293 739,056 1,792,451 1,143,899 1,316,524 1,497,078 1,683,968 1,878,344
12.2 Cash Flow Statement
Cash Flow Statement
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Operating activities
Net profit 81,053 277,516 498,293 739,056 1,792,451 1,143,899 1,316,524 1,497,078 1,683,968 1,878,344
Add: depreciation expense 320,000 320,000 320,000 320,000 320,000 515,363 515,363 515,363 515,363 515,363
Deferred income tax - - 10,921 39,245 257,487 110,688 141,151 183,644 230,367 278,961
Cash provided by operations - 401,053 597,516 829,215 1,098,301 2,369,938 1,769,951 1,973,038 2,196,085 2,429,698 2,672,668
Financing activities
Project Loan - principal repayment - (179,897) (194,829) (210,999) (228,512) (247,479) (268,019) (290,265) - -
Additions to Project Loan 1,620,000 - - - - - - - - - -
Issuance of shares 180,000 - - - - 2,576,816 - - - - -
Purchase of (treasury) shares
Cash provided by / (used for) financing activities 1,800,000 - (179,897) (194,829) (210,999) 2,348,304 (247,479) (268,019) (290,265) - -
Investing activities
Capital expenditure (1,600,000) - - - - (2,576,816) - - - - -
Acquisitions
Cash (used for) / provided by investing activities (1,600,000) - - - - (2,576,816) - - - - -
NET CASH 200,000 401,053 417,618 634,386 887,301 2,141,426 1,522,472 1,705,019 1,905,820 2,429,698 2,672,668
Pre-Feasibility Study Driving Training service
12.3 Balance Sheet
Balance Sheet
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Assets
Current assets
Cash & Bank 200,000 601,053 1,018,671 1,653,057 2,540,359 4,681,784 6,204,256 7,909,275 9,815,095 12,244,793 14,917,461
Total Current Assets 200,000 601,053 1,018,671 1,653,057 2,540,359 4,681,784 6,204,256 7,909,275 9,815,095 12,244,793 14,917,461
Fixed assets
Office vehicles 1,600,000 1,280,000 960,000 640,000 320,000 2,576,816 2,061,453 1,546,090 1,030,726 515,363 -
Total Fixed Assets 1,600,000 1,280,000 960,000 640,000 320,000 2,576,816 2,061,453 1,546,090 1,030,726 515,363 -
Intangible assets
Total Intangible Assets - - - - - - - - - - -
TOTAL ASSETS 1,800,000 1,881,053 1,978,671 2,293,057 2,860,359 7,258,600 8,265,709 9,455,365 10,845,822 12,760,156 14,917,461
Liabilities & Shareholders' Equity

Current liabilities
Total Current Liabilities - - - - - - - - - - -
Other liabilities
Deferred tax - - 10,921 50,166 307,654 418,342 559,493 743,137 973,504 1,252,464
Long term debt (Project Loan) 1,620,000 1,620,000 1,440,103 1,245,274 1,034,275 805,762 558,284 290,265 - - -
Total Long Term Liabilities 1,620,000 1,620,000 1,440,103 1,256,196 1,084,441 1,113,416 976,626 849,758 743,137 973,504 1,252,464
Shareholders' equity
Paid-up capital 180,000 180,000 180,000 180,000 180,000 2,756,816 2,756,816 2,756,816 2,756,816 2,756,816 2,756,816
Retained earnings 81,053 358,568 856,862 1,595,918 3,388,368 4,532,268 5,848,791 7,345,869 9,029,837 10,908,181
Total Equity 180,000 261,053 538,568 1,036,862 1,775,918 6,145,184 7,289,084 8,605,607 10,102,685 11,786,653 13,664,997
TOTAL CAPITAL AND LIABILITIES 1,800,000 1,881,053 1,978,671 2,293,057 2,860,359 7,258,600 8,265,709 9,455,365 10,845,822 12,760,156 14,917,461
12.4 Useful Management Tips

Marketing
• Ads & Point of Sales Promotion: Business promotion and dissemination
through banners and launch events is highly recommended. Product brochures
from good quality service providers
• Price - Bulk Discounts, Cost plus Introductory Discounts: Price should
never be allowed to compromise on service quality. Price during introductory
phase may be lower and used as promotional tool.
Human Resources
• Adequacy & Competencies: Skilled and experienced instructors should be
considered an investment even to the extent of offering share in business
profit.
• Training & Skill Development: Encouraging training and skill of self &
instructors through experts
12.5 Useful Links

• Prime Minister’s Office, www.pmo.gov.pk
• Small and Medium Enterprise Development Authority, www.smeda.org.pk
• National Bank of Pakistan (NBP), www.nbp.com.pk
• First Women Bank Limited (FWBL), www.fwbl.com.pk
• National Highway Authority (NHA)
• Government of Pakistan, www.pakistan.gov.pk
• Ministry of Industries & Production, www.moip.gov.pk
• Ministry of Education, Training & Standards in Higher Education,
http://moptt.gov.pk
• Government of Punjab, www.punjab.gov.pk
• Government of Sindh, www.sindh.gov.pk
• Government of Khyber Pakhtoonkhwa, www.khyberpakhtunkhwa.gov.pk
• Government of Balochistan, www.balochistan.gov.pk
• Government of Gilgit Baltistan, www.gilgitbaltistan.gov.pk
• Government of Azad Jammu & Kashmir, www.ajk.gov.pk

• Trade Development Authority of Pakistan (TDAP), www.tdap.gov.pk
• Securities & Exchange Commission of Pakistan (SECP), www.secp.gov.pk
• Federation of Pakistan Chambers of Commerce and Industry (FPCCI),
www.fpcci.com.pk
• State Bank of Pakistan (SBP), www.sbp.org.pk
13 KEY ASSUMPTIONS
Table 8: Project Assumptions
Projected Life of the Project in Years 10
Owner' Equity 10%
Debt Financing 90%
Annual Mark Up Rate (Short Term & Long Term) 8%
Debt Tenure (Years) 8
Grace Period (Years) 1
General Inflation Rate Per Annum 10%
Table 9: Operating Assumptions

No of Working Days in One Year 300
Table 10: Revenue Assumptions

Fee income per Student Rs 6,000
Course Duration 10 days
Expected Number of Students per year at 55% Capacity 396
Sale price growth rate 10%
Production capacity growth rate 5%
Table 11: Depreciation Assumptions

Vehicles 20%
Life of Vehicle 05 Years
Table 12: Expenditure Assumptions

Communication expense 2% Of Sales
Promotional Expense 5% Of revenue

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Pre-Feasibility Study

Small and Medium Enterprises Development Authority

2 PURPOSE OF THE DOCUMENT

8 INSTALLED & OPERATIONAL CAPACITIES

9 POTENTIAL TARGET MARKET / CITIES

10 PROJECT COST SUMMARY

10.1 Project Economics

10.2 Project Financing

Table 2: Project Financing

10.3 Project Cost

Table 3: Total Project Cost

10.4 Machinery Requirement

Table 4: List of Vehicles

10.5 Raw Material Requirements

10.6 Human Resource Requirement

Table 6: Human Resource Requirement

Driving Instructors 3 15,000 540,000

10.7 Revenue Generation

11 CONTACT DETAILS OF GOVT. INSTITUTIONS / EXPERTS

Principal National Highways and

General administration & selling expenses

Gain / (loss) on sale of office vehicles - - - - 960,000 - - - -

Tax - - 10,921 39,245 257,487 110,688 141,151 183,644 230,367 278,961

12.2 Cash Flow Statement

Cash Flow Statement

12.3 Balance Sheet

Liabilities & Shareholders' Equity

12.4 Useful Management Tips

12.5 Useful Links

• Government of Azad Jammu & Kashmir, www.ajk.gov.pk

Table 9: Operating Assumptions

Table 10: Revenue Assumptions

Table 11: Depreciation Assumptions

Table 12: Expenditure Assumptions

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