Chapter I
Introduction of business
1.1 The Company
Today
the world is moving towards the advancement by the development of business in
different sectors. The plants are never away with the animals. There is the
strong relationship between the lives stocks and the plants. And this has
created the high demand of the vegetarian products. Plants are not enough to
produce the vegetarian products. Thus the need of animals has been identified
which can be fulfilled by the milk. To meet today’s milk demand Raaz Buffalo
Farm has promised to give the necessary support in that field. Toady various
products made by milk are to be provided in daily parties, food festivals and
in many picnics too. Many people are being vegetarian and the chocolate items
are demanded more today. Milk is the complete food since it provides all the
necessary ingredients needed for the proper development of the body.
Livestock and the
plants have been helpful in the balance of nature. Keeping in consideration of
organic fertilizer we have put forward this business both for the balance in
nature as well as to fulfill the milk demand in our surroundings.
The Raaz Buffalo Farm (RBF) offers quality milk
to its customer efficiently and effectively i.e. delivery at the reasonable time
and cost. Market for milk is growing rapidly because of the increase in the
number of vegetarian and the more items needed in the parties, ceremonies and
picnics. More verities are produced by milk. Paneer, Curd, Butter, Ghee, Nauni,
Mohi, Ice creams, Chocolates etc are the varieties produced by milk.
Milk contains all the nutrients for the
proper development of human body. It fulfills the requirements like proteins,
vitamins, water, fats, carbohydrates and other nutrients. Thus milk satisfies
the needs of health-conscious consumers and are a desirable alternative food,
especially for vegetarians. Similarly the manure i.e. the compost fertilizer is
the best fertilizer for the plants which is free from harmful chemicals.
1.1.1 Corporate
Mission, Vision, Goal and Objectives
Our Mission
· To enlighten consumers on the virtues and
benefits of milk from our members.
· Promote
and drive category growth for our customers.
· For
efficient, fair and sustainable supply chain to optimize returns, innovate and
provide best value services to our consumers.
· Developing a trustworthy brand image
· Creating professional human resources
· Upholding transparent and crystal
clear management
· Developing a harmonious networking
and relationship
· Implementing Information Technology
based approach
Our Vision
To be the best, most
innovative Milk Producer in the Business.
Promise
·
To ensure honesty and openness in all
our commercial dealings.
·
To focus on the need and expectations
of the customers.
·
To consistently demonstrate our passion
for quality and strive for continuous improvement of our product to the
customer and service to our members.
Goals
and Objectives
· To reach self-reliance in the economy
through supply chain of milk producers, distributed through wholesale and retail
outlets, and consumed.
· To provide milks with high quality, readily available,
handled properly, effectively and efficiently to ensure the benefits to the
people.
· To maintain and expand the existing
markets and develop the new markets and uses for milks that is vital to the welfare of
consumer.
· To cooperative development, financing, and
implementation of a coordinated program of milk promotion for startup business.
· To make milk available at reasonable cost through
research, and consumer information.
· To strengthen the milk industry's position in the
marketplace.
With the Motto "MILK’S TOUCH DEVELOPS THE THOUGHT", it is an expression
of the full confidence in the economic prospects and business. Strong
management team, fulfill the market needs, as well as new shareholder
requirements, shows that Raaz Buffalo Farm has all the ingredients to be
success in reaching its goal.
Location
Raaz Buffalo Farm is mainly focused
for the terrain region. The production plant will be installed at Jahada V.D.C
8 Nawalparasi. Nawalparasi is plane geographical area with the availability of
access underground water resource and thus is the most appropriate place for production because of the excess
land and suitable environment. The most
important thing is that the buffaloes and the human resources are available in low
cost in comparison to the hilly regions. Hence, this region has very good
prospects of transportation as well for the delivery of the milk and the
compost fertilizer. This farm has also got the location advantage since good
market area, access water, plan area for grass development are available here.
Present Status of the Business
and the Promoters
Still
the competition in the milk production in Nawalparasi is no more. Thus except
the house wise keeping of buffaloes very few farms are present. However some
large farms in Rupandehi are available. Though the number of the farms may be
increasing still the demand of milk is much more. Companies like Pawan
Misthan Bhandar, Om Ganapati Misthan
Bhandar are ready to contract for the milk. I am also a young MBA student with
the strategic missions and visions having the desire and ability to deal with
the threats and convert them into the opportunities. We will be six members establishing this
farm.
1.2 The Project
1.2.1 Rationale of the new Project
Business starts with the feasibility analysis. During
feasibility analysis we found the current market have high demand of milk. And
the government has been providing special offers in the field of agribusiness
and the livestock. Negligible tax rate and the low interest rate for loan have
also encouraged forwarding the farm. The feasibility for inauguration of the
business inspired much. The feasibility analysis also showed that the
availability of raw materials, water resources, ease in transportation and
delivery is quite suitable for the business.
1.2.2 Objective of the Project
·
Make a
good farm in own area.
·
Make
accessible of milk with effective supply chain.
·
To
reach economic self-reliance as entrepreneur through income generation.
·
Expand
and maintain the market and develop the new market and gain the competitive
advantage.
·
Provide
employment for the local peoples.
1.2.3 Strategy of the Project
Strategy differs from time to time and business to business. It is very
difficult to stand up and survive for the new enterprise or the firms. However
we also know that the rate of return increases with time and the loyalty of
customers become high by the good customer relationship, quality in products,
and quick service. Thus initially we will make aware to the consumers about the
benefits of milk through promotion in local level and slowly outside. Maintain
the crucial relationship with the potential consumer. Producing milk in
economies of scale that would minimize the cost than competitors with better
quality and taste.
Chapter II
Production Plan
2.1 The Product
Raaz Buffalo Farm has milk and dung as
its products. Its products also involve the calves .Milk is considered as the
complete food. It contains all the necessary ingredients for the proper
development of the body. Proteins, vitamins, carbohydrates, fats, minerals, and
water are the necessary nutrients present in the milk. The products are as
follows;
S.N
|
Products
|
Price per unit
|
1.
|
Milk
|
Rs. 50 per liter
|
2.
|
Dung
|
Rs. 3000 per taali (Tractor)
|
3.
|
Calves
|
Rs. 12000 per calf
|
The above prices are based on the
market survey. Milk will be sold at Rs. 50 per liter, similarly dung at Rs.
3000 per tractor and the calves at Rs. 12000. The calves are sold at the age of
1 year.
Thus,
the attributes of this milk and the consumer consumption benefits can be
displayed in the product laddering as follows.
Fig: The
product laddering of milk
Quality Assurance
The
production of quality milk requires a high level of competence and skill. It
includes the proper feeding for the buffaloes. The principal management factors
that draw attention are temperature monitoring, watering, carbon dioxide
monitoring, humidity control, air movement and hygiene, pest and disease
control. The manager and laborers of the
plant will be provided training on these aspects. Vaccination is very important in the buffalo
keeping. It also requires the appropriate amount of Baran, Straw, Hey, Salt and
the nutritious green grasses. Moreover, an veteran will be employed to
constantly monitor the buffaloes and the calves. It’s very important to
maintain the temperature since milk may be damaged.
2.2 Production Materials
Availability of Materials
All the required
materials can be efficiently and conveniently purchased where available. Baran,
Hey, Salt are available in the market and vaccination can be done by the help
of doctor assistant.
Research and Development
The
company would maintain a close relationship with the Livestock doctor to be
abreast of the recent developments in research and development of production of
milk. Also the research and development team supervise the production process
and the quality of milk as well as the raw materials used as food for the
buffaloes.
2.3 Production Technique and the Process
Buffaloes in Nepal are well known for
their ability to thrive on low quality forage, as they utilize crop residues-
straws of rice, millet, wheat and legumes across all agro-ecozones, but are
also fed on green forage. It is usually a milking buffalo which is offered with
high quality green fodder and some supplemental grains on regular basis. In
Terai, inner Terai and the lower hills, buffalo are usually given a permanent
housing either separate from or attached to the house of the owner farmers. As
the altitude increases towards North, the buffalo housing tends to be
increasingly temporary and poorly built, exposing the animals to increasingly
cold climate.With the production of products; it is obvious that the
production materials are also required. The materials for production are no
more tangible assets or equipment however buffaloes are responsible for the
production of milk, dung and the calves. For this process the buffaloes are
vaccinated with the sperms which can be bought as an injection. This process
also includes the skilled manpower who can supply the necessary food materials
to the livestock. The environmental temperature is maintained and thus suitable
breeding environment is created. Daily the food requirement is fulfilled and
more care is given in cleanliness and the nutrition.
2.4 Production Plan
Today
the demand of milk as well as dung is increasing day by day. To meet this
demand we best plan for the better production of high and quality milk by
focusing on cleanliness and nutrition. As per the market coverage and the
requirement basis the demand and supply are analyzed. The full capacity of the
buffaloes is 112000 liter per year. It may be increasing or decreasing. Thus we
have supposed that the production of milk is 80% in first year and 100% on the
next remaining years.
2.5 Factory Location and Layout
The
company will establish this farm in Jahada V.D.C Jahada 8, Nawalparasi which is
located in plane area near to the graveled road. Here, the price of land is acceptable
compared to other places. The labor is also cheap in this locality. The firm
includes the buffaloes and the human resources, storing house, and an office
building.
The
farm consists of one Bigha in which office building is made in 4 kattha where
as the shed is made in 6 kattha and the fodder i.e the grass is produced in 5
kattha. For the inventory of straw and hey a separate area is separated. The
area will be surrounded by the fences made by a cemented bar and the spiny
ropes i.e. kade tar. The office
consists of the furniture and the fans. Motors and the vehicles will be kept in
one corner. The shed are made of two types one for the calves and another for
the adult buffaloes. The balance of temperature will be taken into
consideration.
Chapter III
Management & Human Resource plan
3.1 Structure of the Organization
Structure
determines the organization of the human resources in an organization as to
make a network to communicate and share the
skills, views, strategies to obtain the goal of the organization. A
structure depends entirely on the organization’s objectives and the strategy
chosen to achieve them. In a centralized structure,
the decision making power is concentrated to
the top layer of the management team and tight control is exercised over
departments and divisions. Similarly, in decentralized
structure, the decision making power is distributed and the
departments and divisions have varying degrees of autonomy. Our organization
will have following type of structure.
|
 |
Workers
|
Workers
|
3.2 Human Resource Policy
Policies are often the backbone of
the organization. Human resource policy deals with the employment laws,
guidelines and information, performance management, process redesign and
development, sample and example policies, procedures, forms, training and
development. Our farm will be operating for 365 days.
All the policy will be accounted as per act
of the company. The employee recruitment and selection, hiring and firing will
be accordance with company need and regulation. Employee should notice 15 days
earlier before resignation. Salary will be paid on performance, education and
experience basis. The company would
provide attractive salaries. The employees will be paid one month extra salary
at the end of the fiscal year. The company will be an equal opportunity
employer. The owners would continually measure the job satisfaction of the
employees in order to take steps to increase the employees’ work effort and
commitment.
The company will recruit a general manager, one accountant and four Workers.
The manager will supervise the activities of the entire procedure. S/he will
also hold the whole husbandry. Thus s/he must have a few years of previous
experience of supervising, and keeping accounts. The Workers work from 7:00 AM
to 11: 00 AM and from 2:00 PM to 8:00 PM. The Workers will have at least
primary schooling so that they can understand directions. The account must be a
business graduate in accounting with skills. S/he will be given training on the
accounting system of the company. Since the manager has no more tasks to do
thus s/he will be responsible for the delivery of milk and the dung.
The
human resource requirement and placement are as follows:
Designation
|
Number
|
Salary (per month)
|
Total (Rs.)
|
Manager
|
1
|
11000
|
Rs.11000
|
Account
|
1
|
8000
|
Rs .8000
|
Other employees
|
4
|
6000
|
Rs .18000
|
Success
depends on the hard working and production of the quality production in time.
The total salary paid to the human resources in the first year is Rs.559, 000.
3.2.1 Employee Management and Employee Performance Management
·
Formal procedure of
recruiting and hiring will be applied.
·
Employee salary will be based on their
post and capacity with their experience.
·
Educational background and nature of
job will be matched.
3.2.2 Motivation, Coaching, Training, and Development
For
any organization motivation plays very important role to satisfy the employees
as well as to make them committed towards the organization. Various tangible
and intangible assets will be provided to promote the employees as per the
need.
·
Necessary training related to the
nutrition, cleanliness etc. will be provided per month.
·
Flexibility in working hour will be
provided.
·
Livestock care training will be given.
·
Considering the safety of the
employees, the farm will provide them gloves, masks, shoes, and uniform.
3.3. Labor Market and Availability of Staff
Labor
market may be local or national in their scope and are made up of smaller,
interacting labor markets for different qualifications, skills, and geographical
locations. Nawalparasi is totally farmer based region and thus the human
resources are available in low cost and in convenient way. Many people are
seeking job that are unemployed. Our farm best tries to decrease the
unemployment on further days if the initial investment is returned. Selection
of manager and the accountant will be also easier due to the low qualification
needed for this farm.
3.4. Roles and Responsibilities of Key Staffs
Every human resources
has own responsibility in the organization. They do their own task and try to
make a harmonic environment to work easily. Here we have divided the role and
responsibilities of the human resources as follows.
3.4.1 Farm Manager
For
our farm, the farm manager will be responsible for entire operations conducted
inside the buffalo farm. The necessary equipment, payment of interest, delivery
of the milk and dung, valuation of the calves will be done by the farm manager.
Scheduling daily task by the workers, report generating will be done by the
manager.
3.4.2 Accountant Officer
In
Raaz Buffalo Farm, the accountant should have to maintain fair and transparent
accounting records carried out inside the farm. S/he will be responsible for
financial activities management.
Following activities
have to be done by the accountant.
i)
To record revenue and expense.
ii)
To lead the farm in absence of the
manager.
iii)
To provide the pesky etc and salary in
time.
3.4.3 Workers
Workers
are responsible for following tasks.
i)
To cut the grasses and straw.
ii)
To collect the dung and make
environment clean.
iii)
To collect milk.
iv)
To irrigate in the field.
Chapter IV
Environmental Analysis
Environment analysis deals with the study of the
surrounding. Business is social activity and all the activities are done with
in the surrounding very close to the life of the nature. Various factors affect
the business. The factors may be internal or external.
External factors involve all the factors which
cannot be easily controlled and affected by human activities. Thus political
environment, economic environment, socio-cultural environment legal
environment, technological environment and global environment are the external
factors which affect the business. Similarly, internal environment refers to
the factors which can be controlled. This includes competitors, suppliers,
promoters, shareholders, employees and their unions.
Environmental effects were studied by survival
analysis, adjusted to the fixed effects of farm, year and season of birth,
class of first-lactation milk yield and age at first calving. Buffaloes with a
higher milk yield at first calving presented a lower culling probability and
remained for a longer period of time in the herd. The effects of breeding farm,
year of birth and first-lactation milk yield should be included in models used
for the analysis of ST in buffaloes.
Scanning trough these internal and external
environment help us to find the challenges which can be changed into the
opportunities.
4.1 Macro Economic Analysis
About
37% of the people of Nepal live below the international poverty line. While
agriculture remains the main source of income for around 77% of the people.
Therefore, there is limited land available for the cultivation of vegetables.
Moreover, a population growth rate of 2.1% per annum is also reducing per
capita land holding of the country. Thus the milk item products are lacking in
the community. There is high demand of food in today’s scenario which can also
be fulfilled by the milk. Macro economic analysis consists of the following
factors.
4.2 Demand and Supply analysis
Today’s worldwide competition has made
the business to be determined by the market forces i.e. demand and supply.
Supply and demand is an economic model of price determination of products in
the markets. Thus demand and supply affect the price of the products. Today
also the demand of milk is high and the supply is less. Our farm will just try
to make the demand supply equilibrium. The full employment opportunity and the
growth plays vital role in the economic development and the nation. The
potential customer is fixed. These customers are the dairy and the local
individuals.
4.3 Assessing the various Risk
Often the business bears several
problems and there is a high level of risk. The risk of environment, political
stability, socio-cultural environment risk etc. arises. The analysis provides a
comprehensive review of the Nepalese market over the last twenty years, looking
at the impact of historical, political and employment relations developments on
the working environment. It presents both objective evidence concerning the
relationship between labor market developments and broad economic trends as
well as the subjective views of employers, workers and trade union leaders on
labor legislation and the functioning of the labor market.
4.3.1 Socio-cultural Factors
Culture,
customs, beliefs, lifestyles and values are the parts of the socio-cultural
factors. These factors play significant role to make the customers satisfy. The
need, expectations of the customers is determined by these factors.
In
every society and community there is a huge demand of milk and its products.
All most of the festivals need is the milk. Not only in the festivals, is
milk required in our daily life. We make tea, butter, ghee, etc daily.
Chocolate items, cakes, ice-creams, sweets etc are made by the milk. In Eid,
Tihar, Rakshyabandan, Maghi, and many more of the festival the milk is
required. Today people are focusing on the parties, picnics, and get together
programs which finally need the milk products. Socio-cultural factors such as religion, beliefs, food
preferences, gender discrimination, education and women’s' employment all have
a noticeable influence on food consumption patterns in this region. Mass media,
especially televised food advertisements, play an important role in modifying
the dietary habits. The migration movement, particularly that which was carried
out during the 70s has a great impact on the food practices in many Arab
countries. It is found that milk
production is the best option to meet the demand of nutritious food too.
4.3.2 Political Risk
Political environment may be positive
or negative. It may support the business or may destruct the business. If the
political situation of the country is favorable than the business is supported
and the business gets advanced. However, government has provided better service
and the policies in the favor of the buffalo farm. It has decreased the
interest rate in livestock and agricultural activities. The tax payment is also
less with the buffalo farm. The new policy of the government is that it will
buy the compost fertilizer when no other customers come front.
4.3.3 Economic Risk
Change in the fiscal and the monetary
policy impacts on the business. The rapid change in the interest rates is
affecting on the return of the investment. The inflation on the equipments and
materials are also the risk to be taken into consideration. It may be
summarized as:
i)
The
possibility of economic downturn may negatively impact the firm.
ii) Tax policies may be changed in
agricultural sectors.
iii) Various donation to political parties may
be hamper for the organization
4.3.4 Technological Risk
The technological change is creating
vast different in the cost of production and quality. Technology can reduce the
cost due to economies of scale where as it requires huge amount of investment. However
it may create following risks:
i)
Lack
of knowledge to handle the new technologies.
ii) Problem in operating with new
technologies.
iii) Acquiring the advance technology.
4.3.5 Global Risk
Due to globalization the world had
become the small village. The companies are gaining competitive advantage
through globalization due to the increase in the market area. However these
risks may appear:
i)
Recession
may affect the monetary value of the currencies.
ii) Foreigner business man may attack the
market area.
4.4 Analysis of Competitors
There are numerous small firms for the
milk production. Small dairy are more in numbers. However the demand of milk is
much more. They have a few numbers of buffaloes and mostly they supply to the
local area. Our farm will better produce milk and supply to the Chitwan dairy
and others. Still the dairies are not operated in their full capacity. There is
huge amount of milk and milk product so that the farm will not face any
difficulties to sell the milk.
4.5 Suppliers and Customers
The
first and foremost thing in business is to find out the customers and their
expectations and demand. The basic principles for doing business are to satisfy
the customer, satisfy the supplier, and continuously improve the business
processes to satisfy promoters and shareholders.
i)
How do
you satisfy the customer?
ii)
Why
should you satisfy the supplier?
iii)
What
is continuous improvement?
1) Satisfy the Customer
Our
primary customers are the dairy and the local peoples. We have planned to sell
the milk in whole sale and the dung to the customers according to the need. As
per our plan we will be producing 8 liter milk per day per buffalo for 250
days. The first and major principle is to satisfy the customer-the person who
pays for the product or service. Customers want to get their money's worth from
a product or service they purchase. If the user of the product is different
than the purchaser, then both the user and customer must be satisfied, although
the person who pays gets priority.
2) Satisfy the Supplier
Our
Farm, is mainly dependent with suppliers for the straw, hey, legumes, Baran, salt etc. We do have many
suppliers in our V.D.C because there are mills for the grinding of wheat, and
rice.A second principle is to satisfy the supplier, which is the person or
organization from whom you are purchasing goods or raw materials. We will be
satisfying the suppliers by paying them for needed materials in time.
External Suppliers:
A
company must look to satisfy their external suppliers by providing them with
clear instructions and requirements and then paying them fairly and on time. It
is only in the company's best interest that its suppliers provide it with
quality materials, milk seeds etc. if the company hopes to provide quality
goods or services to its external customers.
Internal Suppliers:
A
supervisor must try to keep his or her workers happy and productive by
providing good task instructions, the tools they need to do their job and good
working conditions. The supervisor must also reward the workers with praise and
good pay.
4.6 Analysis of Internal Factors
Labor Unions
Unions
are not always bad although they conflict with the management team. The labor
unions are the source of motivation and the unity in the team work which make
prominent effect in the following:
Ø Get better work
The reason to do this is to get more
productivity out of the workers, as well as to keep the good workers. An
effective supervisor with a good team of workers will certainly satisfy
his or her internal customers.
Ø Empower Labors
One area of satisfying the internal suppler
is by empowering the workers. This means to allow them to make decisions on
things that they can control. This not only takes the burden off the
supervisor, but it also motivates these internal suppliers to do better work.
Ø Worker suggestions
Workers are often a source of continuous
improvements. They can provide suggestions on how to improve a process and
eliminate waste or unnecessary work.
Promoters / Shareholders
The success of the mission and objectives satisfy the
promoters. The wealth maximization, goodwill, and reputation pay much to the shareholders
and make them happy and make the crucial ground for investment opportunity.
Organizational Values and Norms
The
organization should follow all the duties and responsibility for which it meant
the existence of the business. It accounts all the responsibility, to the
shareholders, customers, suppliers’ society and the nation.
Ø Company philosophy
A company that seeks to satisfy the customer
by providing them value for what they buy and the quality they expect will get
more repeat business, referral business, and reduced complaints and service
expenses. Some top companies not only provide quality products, but they also
give extra service to make their customers feel important and valued.
Ø Continuous improvement
The important principle is continuous improvement.
You can never be satisfied with the method used, because there always can be
improvements. Certainly, the competition is improving, so it is very necessary
to strive to keep ahead of the game.
Ø Working smarter, not harder
Some companies have tried to improve by making employees
work harder. This may be counter-productive, especially if the process itself
is flawed. Often the process has bottlenecks that are the real cause of the
problem. These must be removed.
4.7 Michael Porter's
Five Forces Model Analysis
Michael
E. Porter of Harvard Business School in 1979 developed the framework through
which the company or industry can analyze its competitive environment. Porter’s
five forces model determines the competitive status with the analysis of five competitive
forces which are: Threats of new entrant, bargaining power of customers,
bargaining power of customers, Threat of substitute and Level of rivalry.
Noodle Industry's competitive analysis is presented in the picture below as
suggested by Michael E. Porter.
1) Barriers to Entry:
It represents how easy or difficult is the
situation for new entrants to startup the similar company in the industry. New
companies can enter into the business because huge investment is not required.
However there is no barrier in the entry of milk producing company due to high
demand of milk.
2)
Bargaining Power of Buyers:
Bargaining
power of buyers refers to the strength of the buyer’s position. In context of
the noodles industry, buyers / customers are the individuals or organizations
using the product provided by the noodles companies. Buyers are strong because
they have significant influence over product and the price. There are numbers
of same product in the market; customers have a lot of alternatives. But
fortunately the bargaining power is less for customers in terms of milk.
3) Bargaining
Power of Suppliers:
The Suppliers in the Buffalo Farm are the straw,
hey, Baran, salt, chokar, etc. The power of the companies to select the
suppliers shows that the suppliers are strong. Since more mill are in this
surroundings thus, number of supplier in the Nepali market for this farm are
more.
4) Rivalry
among the Existing Players:
Very small farms and the household business
in milk production exist in Nawalparasi. They are not able to supply the milk
in the level of demand. Thus, rivalry does not affect too much in this business.
5)
Threat of Substitutes:
The
threat of substitute products occurs when the demand of a product is affected
by the price or service provided by the substitute product changes. The cheaper
price and easy availability of different noodles has affected the sales may
affect our products. Each and every noodle can be obtained in almost all shops;
in this situation customer have alternatives to choose the noodles.
On
the other hands the substitutes like biscuits and different snacks ate highly
available in the market within similar range of price. So the lower price
substitute products are the strong substitutes for our noodle.
Chapter V
Marketing Plan
5.1 Present Scenario of the Product
Milk is
the complete food which contains all the necessary ingredients of the nutrients
for the proper growth and performance of the body. Since it contains all the
nutrients, it is the healthy food. It helps in the proper growth of the body.
It also provides the strength and the immunity to fight against the diseases. Today more are the people who are vegetarian and all most everyday there
is a high demand of milk every day.
Similarly, compost fertilizer is the nutrients for the plants and they
are better suggested to use by the agricultural assistants. Since the compost
fertilizer is free from harmful chemicals and the effect of the fertilizer is
long lasting farmers believe in this fertilizer.
5.2 Existing producers and their Capacity
Still
no reputed milk producing companies are available. Very small firms are available and the small
households keep buffaloes and produce very negligible amount of milk in
comparison to the demand of the milk. Some dairies collect milk in small amount
in the local areas.
5.3 Gap Analysis
In Gap
analysis we compare actual performance with potential performance. At its core
are two questions: "Where are we?" and "Where do we want to
be?" If a company or organization
does not make the best use of current resources, or forgoes investment in
capital or technology, it may produce or perform below its potential. This
concept is similar to the base case of being below the production possibilities
frontier. Such analysis can be performed at the strategic or operational level
of an organization.
We
assure our resources of what a business is doing currently and where it wants
to go in the future and fulfill it. It can be conducted, in different
perspectives, as follows:
1. Organization
(e.g., human resources)
2.
Business direction
3.
Business processes
4.
Information technology
GAP
Analysis
Strengths
|
Ø
Pioneer
company
There is no milk
company which produces purely for the domestic consumers. Therefore, Quality Milk
Company will be the pioneer of the market and it will be easy for it to build a
position in the mind of the consumers.
Ø
Labor-intensive
This business does
not require a large amount of capital.
It is mainly labor intensive. It does not require a lot of land, equipments or machinery. A simple
cropping house, built from locally available material is adequate. Sufficient
watering of the cropping house provides the moisture level required to trigger milk
fruiting.
Ø Government
facilities
The Government of Nepal is encouraging the business
people to invest in livestock. It is also providing different types of loan
facilities for these types of programs. Therefore, it will be easy for the
company to obtain loans and thus to expand the business.
Weaknesses
Ø Image
of the product
In the local market many people believe that milks
are only for vegetarian and that it is difficult to protect and make other
items. This image of the core product is a major weakness of the company.
Ø Consumer
illiteracy
As some people are uneducated and do not know
the importance of milk for human body and compost fertilizer for the plants
they do not choose milk.
Ø Price
As meat can be bought at low cost and the
same amount could be served to more people than milk thus
people may not support this.
Opportunities
Ø Expand
the product line
At the very beginning the company will just
produce little amount of milks but it will have the opportunity to produce milk
in different seasons. It will also be possible to grow the other types of milks
by creating an artificial environment using technology.
Ø Expand
the market
If the company can educate the rural consumers through a
heavy promotional campaign, it will be able to expand its market to a large
extent. The company also has the potential opportunity to export milks to other
countries.
Threats
Ø Competitors
The Government of Nepal is vastly encouraging
the business people to invest in agro-business and is also providing different
types of loan facilities for these businesses. Thus, it is likely that very
soon the company will face extensive competition.
Ø Government
agency
In the first few years, the company will be collecting
spawn from the government agro based organization operation. If the government
decides to close down this project, the company will be in trouble. In that
eventuality, the company will have to procure a considerable sum on loan to buy
the technology for producing milk spawn.
5.4 Marketing strategy
Advertising, Trade
promotion, and Fairs
The
retail shops selling milks will be decorated with attractive posters of milks
indicating the availability and containing the information about the benefits
of milk consumption. Leaflets will be distributed to the consumers through the
national daily newspapers. The leaflets will contain the consumption benefits
and cooking process of milk. In the first two years, such campaign would be
conducted only in Pokhara division. Afterwards, when the company moves to other
divisions, similar campaigns would be conducted there as well.
The
retail shops and local vegetable traders would be provided with a trade
discount. Moreover, retail shop salespersons and vegetable traders would be
handed out T-shirts displaying the company’s logo as part of the motivational
technique.
The
company will participate in trade fairs. The stalls will serve the visitors
several kinds of food, pickles etc made from milks. Free cooking recipes, and
free milk sachets will also be provided as part of the sales campaign.
As the
company targets the rural as well as the urban market, it will launch radio
advertisements and word-of-mouth communication will be spread with the help of
reference groups such as the imams, doctors (rural) and teachers. It will also
provide free samples to this reference group for promotion.
Customer
Service
The company believes in relationship marketing.
Therefore, it wants to build a lifetime relationship with its customers. This
will be achieved by paying attention to the customer needs. Thus, the company
will provide its phone numbers to the customers so that, they can promptly
inform about any of their demands or complaints. As it is a new kind of
vegetable introduced to the market, people will be very much confused about
preparing food items with milk. Therefore, the company will also train and
advice customers on preparing foods containing milk. A book of recipes of
exotic foods prepared with milk would be distributed in the urban areas.
5.5 Marketing Challenges
The
greatest challenge all specialty farmers face is marketing. A thorough study of
milk production and marketing is imperative before buying equipment and
starting even a small-scale operation. The demand for specialty milks is huge,
particularly in Asian countries. Trying to market internationally, however, is
beyond the resources of most small and medium-sized companies.Risk analysis
includes the discussion of the unforeseeable barriers the company might face
and the precautions it would have to take to overcome these barriers. The
business might face three unforeseeable barriers. First, it might be the
occurrence of natural calamities such as heavy storms during monsoons, high
temperatures during summer or low temperature during winter. Second, is attack
of any new diseases or pests on milk spawn. Third, is the possibility of a
prolonged transportation strike. These barriers would incur high costs for the
company in terms of taking precautionary measures and thus would lower its
profit. To
tackle the second barrier, the company would keep
abreast of the development of diseases or pests of milks at home and abroad. If
the company observes any anomalous change in any milk spawn, it would
immediately separate the troubled spawn from the rest and would send it to the
investigation and report.In the event of a prolonged transportation strike all
the yield of milks would have to be dried up. Since fresh milks bring more
profit than dried milks, such event would lower the profit for the company.
5.6 Pricing Policies
A cost-plus pricing strategy will be adopted to set the price of the
product. As the economy of the country is weak, the common people will not be
able to purchase the product at a high price. Besides, Raaz Buffalo Farm wants
to be the market leader of this industry by establishing a higher quality
product at lower price. This will restrict the entry of new competitors and
defeat competitors in the market. A profit margin would be achieved by pricing milk
at Rs.50 per liter These quoted prices for milk are lower than the existing
market prices as compared to Pokhara.
5.7 Sales Policies
It is linked to the long term relationship of
suppliers and customers. Suppliers in the sense that they supply required
materials and inventory management that reduce cost of production. The relation
of the supplier impacts the customer in terms of cost and the continuous supply
which increases sales. The sales strategy will be market penetration in the
niche market at the initial period. As the domestic market is satisfied we move
towards the geographical coverage and the international market. We will focus
on personal marketing i.e. home to home delivery. Offer special discount to the
departmental store, hotels and restaurants etc. making intimate long term
relationship. Membership card will be provided to regular potential customers.
5.8 Distribution Channel
The company will establish an extensive distribution
channel for milks to make it available throughout the place. It will build
distribution centers in the different divisions of Nawalparasi. From these distribution centers, the sales representatives will supply the milks
to different retail shops (small and mega) on the basis of their demand. The
small vegetable traders will purchase milks directly from the distribution
centers. On the other hand, the business customers such as hotels and
restaurants will place order prior to delivery and the company will supply them
directly from the cultivation plant. Very
few suppliers of milk are available whereas a large number of buyers have been
giving the opportunity for this farm.
Chapter VI
Financial Analysis
6.1 Description of Initial Investment
The initial investment in an organization
depends on the type of business and the shareholders. For the Raaz Buffalo
Farm, the startup cost is Rs. 8,000,000 of which 60% will be financed by equity
and remaining 40% will be financed by the long term loan. The company will pay
the interest at the rate of 14% in 12 installments in one year.
6.2 Requirements of Fixed Assets
Fixed assets are directly related with the capital budgeting
decision. Fixed assets are the backbone of the business. Thus the equipments,
human resources, capacity and productivity depend upon the fixed assets of the
firm.
Raaz Buffalo Farm will spend approximately Rs.
7,652,000.00 in fixed assets. It includes land, machinery equipments,
vehicles, furniture etc. The biggest investment will be in acquisition of land,
buffaloes, and the milking machines and other equipments.
6.3 Requirement of Working Capital
Working capital for any
organization deals with the funds needed to run the day to day operations. So
working capital may vary according to the business plan. Since the business is
concerned with cash payment system after the service, there is no need of such
a big amount in working capital. The working capital amount is Rs. 318,652. A detail of working
capital is shown in the annex in schedule-6.
6.4 Capital Structure
In finance the, the capital
structure means the way of financing its assets through some combinations of
equity, debt, or hybrid securities. The
initial investment of the project will be Rs. 8,000,000 which consists of
equity capital of Rs. 4,800,000 and long term loan of Rs. 3,200,000. The
capital structure of the project is stated in the annex part. The ratio of debt
to equity is 40:60.
6.5 Loan Payment Schedule
An amortization
schedule breaks down the payments into interest and principal. Due to
amortization the loan amount varies with each payment. Typically an
amortization schedule will also include additional information such as the
amount of interest and principal paid, as well as the remaining principal
balance. The repayment of loan with the interest is on the type of installments
periods. The interest rate is assumed to be 14% as the Agriculture Development
Bank provides the loan in low rates to the farmers and the agricultural
sectors. The loan amount is Rs 3,200,000. We have planned to pay the principal
and interest monthly. The annual amount of installment is Rs 893,501. The detailed
information is provided in annex in schedule-12.
6.6 Estimation of Sales Revenue
Every
organization has its own type of products and they are sold in varying prices
as per the types of products. The products are often either made to enter in
new market or are added value to the products. The profit maximization either
can be done by producing huge amount in low cost or by adding value to products
to increase the price of the products. By this value we can increase the sales.
Sales projection is the first step of projection in capital budgeting. The
sales revenue is generated from the milk, dung and the calves.
6.7 Estimation of Variable Expenses
Variable
costs are those costs which vary according to the change in unit price and the
number of units. Cost of raw materials, sales commission, cleaning and
supplies, internet, phones come under these expenses. Sales and variable
expenses are correlated with each others. When the sales increase then the
increase in variable expenses also increase. Variable expense is 24.2% of total
sales.
6.8 Estimation of Interest and other Expenses
Loan
will be taken from Agriculture Development Bank and thus the interest rate is
assumed to be 14% as per the banks law for the livestock. The loan amount will
be approved from the Agriculture Development Bank. Since the loan will be paid
in 12 installments per year for 5 years in amortization method thus the
installment includes both interest and partial payment of principal too. The
amortization schedule is shown in the annex part in schedule 12.
6.9 Projected Income Statement
Income
statement provides the overall revenues and expenses occurred in the organization.
This includes only the revenues and the expenses. On the basis of our analysis,
the net income is increasing in the succeeding years. There are the net
earnings of Rs 1,088,794 in the first year, and then the income
has increased up to Rs.2, 750,848 at
the 5th year. The detailed information about income statement is
shown in the annex in schedule-3.
6.10 Projected Balance Sheet
Balance
sheet is the statement of company’s assets, liabilities and stockholder equity
at the given period. It makes transparency in the above assets, liabilities and
stockholder’s equity. It also shows the performance of the company. The balance
sheet of this project shows that it will have the assets of Rs. 8,000,000 in the first
year and increased up to Rs. 16,168,781 in the fifth year.
6.11 Projected Cash flows Statement
Cash
flow statement shows the overall cash inflows and cash outflows in the
organization. A projected cash flow statement is used to evaluate cash inflows
and outflows to determine when, how much, and for what period of time cash
surplus or deficit occurs. Statement of cash flow is a statement showing the
changes in the organization working capital from the beginning of the year by
listing both the sources and the uses of those funds. It’s useful to determine the viability of the
company, particularly its ability to pay bills and meet other obligations. The
details of the projected cash flow of Raaz Buffalo Farm are shown in the annex
part in schedule-5.
6.12
Projected Breakeven Analysis
Break
even sales provides the information about the sales required to meet the
expenses or to become income equal to assets. The break-even point is the level
of sales at which revenues equals expenses and net income is zero.
Net
Income = Sales Revenues – Expenses = 0
Break
even sales can be both in units and rupees in this project break even sales in
units is calculated, details of this is shown in the annex part in schedule-8.
6.13
Calculation of Payback Period, NPV, IRR, PI
6.13.1 Pay Back Period
Payback period represents the time required
to recover its initial cost. The use of payback period as a capital budgeting
decision rule specifies that all independent projects with a payback period
less than a special numbers of period should be accepted.
Payback period for this project is 2.84 years.
Since this method ignores the time value of money and cash flows after the
payback period, it can provide only a partial picture of whether the investment
is worthwhile. Length
of time required to recover the initial amount of a capital investment.
6.13.2 Net Present Value
NPV is the central tool in discounted cash flow
analysis and is a standard method for using time value of money to appraise
long term projects. The Net present value of the project is Rs.1, 140,235.07. NPV method used in evaluating investments whereby
the net present value of all cash outflows (such as the cost of the investment)
and cash inflows (returns) is calculated using a given discount rate, usually a
required rate of return. An investment is accepted as the NPV is positive. The
equation of NPV is as follows:
NPV = TPV – NCO
Where, TPV = Total present value
NCO = Net cash outlays
The detail information is provided in the annex in
schedule-9.
6.13.3 Internal Rate of Return
The internal rate of return on an investment
is the annualized effective compounded rate of return or the discount rate that
makes the net present value of all cash flows from particular investment to
zero. The internal rate of return of the project is
24%. The rate of return that would make the present value of future cash flows
plus the final market value of an investment or business opportunity equal the
current market price of the investment or opportunity. The internal rate of
return is an important calculation used frequently to determine if a given
investment is worthwhile as it is greater than cost of capital.
6.13.4 Profitable Index
Profitability Index is ratio of the present
value of a project's cash flows to the initial investment. A profitability
index number greater than 1 indicates an acceptable project, and is consistent
with a net present value greater than 1.14. As the projected profitability
index of this farm is 1.14 i.e.
greater than one thus the project is acceptable.
The profitability is defined as ratio of TVC to NCO
PI = TVC/NCO
6.14 Sensitivity Analysis
Sensitivity
analysis is the study of uncertainty or the variation in the output of a
statistical model can be attributed to different variations in the inputs of
the models. In every capital budgeting some variables are uncertain. Future tax
rates, interest rates, inflation rates, operating expenses may not be known
with great precision. Sensitivity analysis answers the question, “If these
variables deviate from expectations, what will be the effect on the
business.”The value of different variables in the excel sheets can be changed
to evaluate the effects of that variable in the total scenario.
6.15 Major Financial Ratios
Financial ratios assess the liquidity,
profitability and productivity of the specific projects. Financial
ratios are useful for evaluating the performance of the any organization.
Financial ratios are one of the most common tools of managerial decision
making. Ratios may serve as indicators, clues, or red flags regarding
noteworthy relationships between variables used to measure the firm's performance
in terms of profitability, asset utilization, liquidity, leverage, or market
valuation. The average ROA, ROI and ROE are 20.84%, 28.12% and 21.34%
respectively. The average interest coverage ratio is 19.02. Further details are
provided in the annex in schedule-7.
Chapter VII
Assumption / Basis of Financial Calculations
7.1 Underlining Assumptions
Ø Capacity Utilization
The capacity of
production is increased as 60% on the first year and 100% thereafter. Where the
total capacity of production of milk is 112,000 liter per year and dung is 125
tractor and the calves are 50 in number. Since the demand of milk is high thus full
capacity is used to produce the milk.
Ø Number of days of operation
The annual working
days of the company are 365 days. There won't be any
disturbances from the political as from other forces like Band, strike and
other disturbances.
Ø Depreciation
is calculated by using straight line depreciation method.
Ø Pricing
is done on the basis of trend of the market.
Ø Interest
on bank loan is supposed to be 14%.
Ø Income
tax is assumed to be 15%.
Ø Cost, Interest rates and inflation
In this business
plan assume a strong economy, without major recession and no
unforeseen changes in economic policy to make our service immediately obsolete
or unwanted. The cost of materials, utilities, operation expenses etc. doesn’t
change and affected by the inflation and increase in interest rate.During the
project life the tax rate, deprecation rate for fixed assets will remain
constant and insurance fee is assumed to one percent of net assets that remains
constant throughout the year of the operation company.Inflation rate will
remain constant so that Salary level of the staff will be unchanged for five
years as per the rules and there is steady basic monthly salary.
Ø The
cost of capital is constant in the entire business plan where cost of capital
is the sum of interest rate and the risk premium.
Ø Lastly,
it is not affected by internal environment i.e. employers, customer,
shareholders or stake holders, labor union etc. as well as external environment
i.e. Political and legal, socio-cultural, economical and technological
environment. There won't be any natural calamities and destruction.
Chapter VIII
Conclusion & Recommendation
8.1 Conclusion
Business
Development Plan (BDP) is an analysis of the ability to complete a project successfully,
taking in account of legal, political, economic, technological scheduling and
socio-cultural factors. The main objective of BDP is to determine whether a
certain plan of action is feasible or not, it will work or not, and is
profitable or not. Examining the
financial statements, ratios analysis and cost of capital in capital budgeting
we found Business Development Plan feasible and profitable. Raaz Buffalo Farm
is profitable business and maximizes the value of the share holders. From the projected data we have taken in to
account from the different sources are more appropriate to our project
evaluation and selection.
The
project evaluation from the NPV, IRR, cash flow, discounted cash flow and many
more methods are providing the more feasibility to establish the project in
near future. From the given feasibility report we can say that there is the
profitability ratio in to our investment i.e. 1.14, discounted payback period
is 2.84 years, IRR is 24% and NPV is Rs. 1,140,235.07
etc. which is favorable in all aspects. From the given
financial indicator we can confirm that the capital expenditure is viable to
our project.
Analyzing
different financial statements and ratio analysis such as income statement,
balance sheets, statement of cash flow etc. it seem viable business development
plan. The income is enlarged every year and the assets are increased as well
which maximizes the promoter’s value. We can draw the following conclusions:
i)
The payback period is less than the assumed
time period. Thus the project is acceptable.
ii)
The NPV is positive and the IRR is 24% which
is greater than the cost of capital, thus the project is acceptable.
iii)
The profitability index is 1.14
greater than 1, thus
the project is suggested to be acceptable and
generate profit.
Criteria of evaluation of the project
Total
Project Investment
|
8,000,000.00
|
Total
Present Value
|
9,140,235.07
|
Net
Present Value
|
1,140,235.07
|
Internal
Rate of Return
|
24%
|
Pay
Back Period (Years)
|
2.84
|
PBP(Discounted)
Years
|
4.17
|
Benefit
Cost Ratio (PCR):
|
1.14
|
BEP
Sales ( %)
|
58%
|
The
different ratios are examined in which ROA, ROE and ROI and other ratios are
feasible for doing business which is clearly shown above.
8.2 Recommendation
Taking
consideration of the above analysis and projection based on the assumptions, I
would like to recommend that project is profitable for equity investor and
maximizes the shareholders value and wealth as it recover the cost with in the
3 year of operation as well as growth has opportunity in the business. Raaz
Buffalo Farm is promising to provide long term benefits in term of
profitability, fixed assets and liquidity.
I
had performed successful analysis of Raaz Buffalo Farm.
The data which I used in this analysis to perform different calculation are
real case data that was reference from actual Business Development Plan. The
different financial calculation and projection and found the projected revenue
budget, income statement, balance sheet, cash flow statement. Similarly, found
the financial requirement and made the financial plan to carry out our Business
Development Plan.
Finally,
I recommend you to own the business as the shareholder and assure you will be
the prominent entrepreneur.
Table of Contents
Annex
No comments:
Post a Comment