Business Plan Jute Bag 20189

Brief Description of the Project Business Idea: Housewives love plastic bags and shoppers find it indispensable because plastic bags are light enough for anyone to carry it easily. There is more harm than benefit by the use of plastics bags. Plastic is not biodegradable and releases harmful dioxins into the air. Besides, people who work in plastic industries are at a greater risk for cancer and other diseases. Colored plastic bags contain harmful toxic metals like chromium and copper which can cause allergies. Now everyone has come to realize that plastic bags have many disadvantages that have adversely affected the environment. I think jute can be a most viable option to the light plastic bags. Jute being bio-degradable it does not pollute the air. Disposal of jute will be no problem as they rot easily and turn to soil. There are two manufacturers of jute bags in the market till date. They are covering 100% market share in the segment but they have a very limited distribution. Consumers have to go to department stores and Thamel area to get those bags. The bags they are producing are less attractive, heavier and expensive. The price they have charged doesn’t go with the product quality. I conducted a survey with 100 people in the department stores and local markets to know the view regarding the quality and availability of jute bags. From that survey I found that people are very much aware about their health and they want to use jute bag which is environment friendly but the bags are expensive, less attractive and are not available in the local market. Opportunity: As per the market survey majority of people are ready to use jute bags instead of plastic bags. They said that the jute bags which are in the market are heavier, expensive, not well designed and limited distribution. They also said that if they get the jute bags which are reasonable, well designed, environment friendly and don’t have any harmful affects on human health they will be happily using such bags for their daily use. So I want to start this business. I want to manufacture jute bags which have good finishing, reasonable price, lightness, attractive design and wide distribution. Chapter1. Marketing Plan 1. 1. Product The product we are dealing with is jute bag. Jute bag is the best alternative for the plastic bag. Its size will be 18 by 9 inches. Their will be two colours which will be normal jute color and other one will be in black. Both color bags will be embroided with different color thread and with zipper. It is durable, can be reuse and carry up to 15 kilograms. It can reuse even after people reach home, for their future shopping and packing needs. 1. 2. Market simulation The target segment of this business is segment A which is upper class. Till now all the jute bags are prices similar and have similar quality. There are two major competitors engaged in this business. The competitors are covering 60% and 40% market share respectively. I estimate to cover 40 % market share by the end of 3 rd year. This business targets the upper class segment because they are the major shoppers and are willing to pay price for the natural and environment friendly product. The average cost of the product is Rs.60 and the market price per bag is Rs.75 for the existing competitors. The product demand is highly sensitive to price, promotion and place: - one unit change in price effects sales by 100 units, when Rs.10000 is spend on promotion, it has 1200 units of effect on sales units. Similarly, spending Rs. 5000 on Place or distribution will have 500 units’ effect on sales units.

Business Plan for Jute Bag

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1.3. Demand forecasting: In 2001 the demand for jute bag was 28000.It’s demand has been increasing due to increase in population and urbanization by 2.5% and 4.5% respectively. Hence the effect will be increased by 5%. Till 2009 the demand for jute bag will be around 40000. 1. 4. Marker share: The firm estimates to capture 40 % of the total market share within three years. The total bags sold in the year 2008 were 38067; we have forecasted the units sold will be around 40000 in 2009. So the total demand will be 3,333 bags per month. With 40 % market share we plan to capture 80 % of our target in the first year. So we need to sell 16000 bags per year which is 1333 bags per month and 67 bags per day. 1.5. Marketing & Promotion In order to market the product, initially campaigning program will be conducted to create the awareness to the customers about its impact on environment and human health. Promoting the product is a must for selling the product because as per the mini research, most of the consumers are unaware of the product. But upon having learned the benefits, most of them are willing to buy. My promotion strategy will be basically word of mouth Quality->value->satisfaction->word of mouth 1. 6. Market expansion: Market expansion will be done with the aid of considerable advertising and promotion activities. We will be advertising our product in TV, radio and newspaper and make consumers aware of the usage of environment friendly jute bag in their daily life. I. 7. Main Customers The main target customers of this business are upper class customers, shopping centers and department stores as they have the purchasing power and also are most willing to switch over from plastic shopping bags for jute bags which are durable and environment friendly. 1.8. Distribution Distribution is the major concern of our business. An outlet will be opened at Kupodole and it will also be the distribution centre for Kathmandu, Lalitput and Bhaktapur. I. 9. Selling Price Our manufacturing cost is Rs.60 per bag and our selling price is Rs.70. In market it will be sold at Rs. 75 but we will be charging Rs 70. Our unit cost of production cost is Rs 49 and after adding other istrative cost and marketing cost it will become around Rs 60. We will not be charging the market price as our competitors are charging because we will be following low price strategy as a beginner. Our margin will be 14.28 %. 1. 10. Marketing Expenses The company will have wide promotional activities because at first it is necessary to make consumers aware about the value about the product and its availability. Brochures, hoarding board, posters and flex will be made. It will be an informative ad targeting the intended market. We will be advertising our product in TV, radio and newspaper and make consumers aware of the usage of environment friendly jute bag in their daily life. The total marketing expenses will be around to Rs. 11666 per month in the initial phase. A total of Rs.140000 will have to be expensed in order to gain targeted sales. 1.11. Location The business will be located at Satdobato, Lalitpur. The location is chosen because; • Near at the markets: Lalitpur, Kathmandu and Bhaktapur.

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Cost of rent is lower Near the transportation hub Chapter 2. Operation Plan

The production process of bag will be using automatic machinery and equipment which requires minimum human effort and supervision. The whole production process is shown in the diagram below:-

Drying of jute

Cutting and sewing the bags

Colouring the bags

Deg and Embroidry

2. 1. Fixed Capital Requirement Machineries and equipments, vehicle, other tools and furniture, office equipments are our initial investment. The total investment in the fixed assets will be Rs. 150000 2. 2. Life of Fixed Capital Machineries and equipments will be depreciated at the rate of 7%, vehicle will be depreciated at the rate of 8%. Other tools & furniture will be depreciated at the rate of 7% and office equipments will be depreciated at the rate of 7%. These are the ongoing rate of depreciation for similar kinds of assets. The total depre4ciation in a year will be Rs. 11500. 2. 3. Repair & Maintenance Because of the simplicity in handling and using the product it’ll not require any repair work at all. However, if s face any kind of problems, the service will be provided by the owner herself. 2. 4. Raw Materials Required: The raw material in this business is the critical factor. It constitutes total of 50% of selling price. The raw material will be procured from Biratnagar jute mill. Other raw materials required like threads and colors are procured from the local market. 2. 5. istrative Expenses The total rent for land and building per month will be Rs.5000. Our owner and manager will be the same person. The salary for the manager will be Rs. 5000. An electricity and water cost per month will be Rs.800. total istration cost will be Rs 6000 per month. 2.6. Cost of Labor: There will be 3 staffs at the factory for operation; each will be for cutting, stitching and embroidery. There will be 2 staffs one for supervision and other for distribution .The cost of five labours will be Rs 90000 annually. I will myself look after other activities of the business like Marketing, Finance and ing ,HRM and Operational management in the beginning five years of the operation. All the istrative work will also be handled by myself and will be paid a monthly salary of Rs.5, 000. Chapter 3. Organization & Management Plan 3. 1. Form of Business The business will be ed under the name “Baliyo Ramro Jute Bag” as a sole proprietorship and owned by Ms. Ranju Shakya.

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3. 2. Organization Structure

Owner/Manager

Finance and ing (myself)

Production Personnel (myself)

Factory Supervisor (to be hired)

HRM and Marketing (myself) Four Workers (to be hired)

The business will be managed by Ms Ranju Shakya who will act as the General Manager. I’ll look after Finance, HRM, Marketing, production as well. I will also hire a factory supervisor to assist me in the production process and act as production in charge in my absence. The supervisor will also be responsible to assign duties to three semi-skilled workers and distributor in the factory. The goods will be brought from the factory to its retail outlets using a mini tata. 3. 3. Business Experience & Qualifications of the Entrepreneur Ms. Ranju Shakya, an entrepreneur, is an active member of Handicraft Association of Nepal. She has taken training in cotton bags from Japan and has participated in national and international seminars. She has done her MBA from SAIM. She has also worked and participated in her family handicraft business. She is also well known social activist. With a strong desire to establish her own business, she has chosen this field for her career as an entrepreneur. 3. 4. Pre-operating Activities & Expenses The required pre-operating activities along with their details and cost involved are shown in the excel file. 3. 5. Office Equipment The details of the equipments and tools required for the office setup is going to be financed by the owner herself but the vehicle is going to be financed by the bank. The details of the office setup cost is shown in the excel file. Chapter IV. Financial Plan 4. 1. Financial Plan & Loan Requirement The total initial capital required for the project is Rs.482, 264. The investment in the fixed assets will be Rs. 150000 in total. The working capital will constitute the maximum share of capital i.e Rs 322764. The owner has planned to manage the funding by taking a loan of Rs. 100000 from bank as a long term loan and Rs 100000 as short term loan from her own sister and remaining 282264 will be financed by herself. I have planned to pay my sister’s loan within the first year of operation so I don’t have to pay any interest for that. For Bank loan of Rs. 100000 I had to pay interest of 10% and I plan to pay back the loan equally in five installments, 20000 in each year. 4. 2. BEP & ROI Interpretation The average BEP for five years is 73%. Therefore I can achieve my total variable cost as soon a I can sell 73 % of her production units. With the increasing awareness about the environment and low price of the product I think the BEP of 73% can be easily achieved. We can also see that due to the economies of

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scale and efficient use of capacity in the coming years the BEP has decreased with the increasing in capacity utilization. Return on investment is 21 % on average which is quite good enough, as the maximum return from the market is only 14 % (from finance Companies). So return of 21 % is very good. ROE is also satisfactory which 23 % is. So the investors will be happy enough. The ROE and ROI is reasonable and it is less likely that it will invite big players in the market. Raw material constitutes 50 % of the cost of selling price. This is the variable that has highest proportionate share in the cost of the product. Due to frequent bandhs and strikes in the jute mill company the regular supply is not guaranteed. So in such situation the cost of raw material will be very high. So I have taken Raw material as the most sensitive variable in my product. When the cast of raw material is 40% of the selling price, the IRR is 125 % and the probability of cost being 40% is only 20%. The probability of cost being 50 % is 60% and IRR for this situation is 61% and when the cost of raw material is 60% and probability is 20%, IRR is only 20%. 4.3 Payback Period: year 1 Investment balance Cash Flow Surplus

482264 -212,264

Year 2

Year 3

Year 4

Year 5

Year 6

694,528 118,800

575,728 178,400

397,328 180,400

216,928 180,400

36,528 180,400 143,872

It will take total of 5 years and 73 days to recover the initial investment. The total risk of having the IRR of the project less than the cost of capital which is between 5.5 %.and 8.1%. This value is less than 10%so we can conclude that the business has lower risk. Chapter 5. Entrepreneurial Strategy We will follow focused differentiation leadership strategy in order to retain the market leadership in the years to come. Though the business currently is small, it aims to create dominance in the market. The following activities will be carried in order to achieve this target: TQM: TQM is an effective strategy for sustainable competitive advantage. We will adopt TQM program for high performance and better quality. Quality can work as a strategy for sustainable competitive advantage because it is not easy to implement and everyone cannot master it. JIT: We will follow JIT approach because we believe that JIT will help us to achieve strategic competitive advantage over our competitors. Retain human resource: Human resource is the greatest asset of any company. It is the only resource which cannot be copied and has the greatest value among other resources. So to retain the skilled and trained employees is the greatest success of any company which helps to achieve competitive advantage.

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