HAFF Business Plan4

7/31/2019 HAFF Business Plan4

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1 BUSINESS DESCRIPTION

1.1 Purpose of the DocumentsThis document is developed to provide the information about the potential investment opportunity in

setting up and operating a Auto sales and purchase, Repair, Service and customization workshop offering

various services. This document gives insight information about the various technical and general

requirements for each particular service offered. The document provide all relevant details to entrepreneurs

in making the correct decision providing various technological as well as business informations. The

document also allows flexibility in change of various parameters to suit the customized needs of the

entrepreneur.

1.2 General Description

The Auto Repair market has a lot of competition, almost all offer repair and service features. Very

few have fully equipped workshops with latest machinery, technical equipments, spare parts and skill full

work force for the repair of racing and imported cars. However, availability of parts, latest machinery ,

technical equipment supports the service and repair departments by allowing them to turnaround jobs at

a faster rate than the competition. There are no other auto shops which provide warranty on the sale of

used local and imported cars. The uniqueness of the proposed business is that it provides customers

warranty on the used cars up to 1 year and free checkup and service facilities for 6 months after the sale.The other unique feature of proposed venture is that it offers customization of cars according to the

customers demand and requirements.

The document addresses the unmet need of having a quality auto repair workshop that provides:

Quick and quality repair & maintenance services;

Wheel Alignment and Balancing Facilities

High Pressure Cleaning Services; and Easy access to new and used retail parts to meet the demands of the customer.

Sale and purchase of used cars

Warranty on the sale of used cars

Customization of cars according to customers demand


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1.3 Business Opportunity

The Auto sales and purchase, Repair, Service and customization Workshop business is a viable

business provided that it is operated with a good business acumen that involves having a thorough

knowledge and experience of the repair and service operations and also managing the jobs with the right

type of skilled manpower. When these factors combine with good customer relationship management

and effective business development skills, the business is expected to give considerable profits which

are expected to grow over the years.

1.4 Proposed Business Legal Status

Although the legal status of business tends to play an important role in any setup, the

proposed Auto Repair & Service Workshop is assumed to operate on a Partnership basis.

1.5 Proposed Product Mix

The Auto sales and purchase, Repair, Service and customization Workshop is to provide the

following services:

Mechanical, and

Denting & Painting

Wheel Alignment & Balancing

High Pressure Cleaning

Spare parts

Sale and purchase of used cars

Warranty on the sale of used cars

Customization of cars according to customers demand

The following table presents an overview of the proposed main services to be offered under the

first two major categories identified above:


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1.6 Key Success Factors

The four main critical success factors that affect the decision to invest in the proposed businesssetup are:

1.6.1 Uniqueness of business

In Pakistan there is no other auto workshop or dealer which provides warranty and free repair and

service after the sale of used cars. The proposed business only provides the 1 years warranty on the used

local and imported cars and also provide the facility of resale and purchase of customers cars. It also

provides the customization of cars according to needs, wants and desire of the customers. The proposed

business is the only one of its nature in Pakistan which provides all the services, repair, maintainess,

painting, customization under one roof.

De n t in g & P a in t ing

Cosmetic Touchups

Accidental Repairs Full Body Restoration

Mechani c al Repairs & Mai n t enance

Maintenance Services

Major RepairsW h e e l Alignment & Ba lancing

Alignment

Balancing High Pressure Cleaning

Customization of cars

Sale and purchase of cars


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1.6.2 Hands on Experience

Having a thorough knowledge and hands on experience of all the relevant technical details is a must

for entry into this business. The proposed business partners have relevant work experience, knowledge and

practical work experience in managing automobile dealers and workshops.

1.6.3 Marketing Skill

Another critical factor is that the entrepreneur must have effective marketing skills. The

entrepreneurs of proposed business have marketing skills that enable them to carryout business

development activities to target potential customers and also to maintain existing client.

1.6.4 Technical Skill

The third critical factor relates mostly to technical skills required especially for Operating

computerized Wheel Alignment & Balancing machines and high pressure cleaning equipment and

customization of cars.

The proposed auto workshop has the skilled technical mechanics. All machine operators are

properly trained in order to completely inspect steering and suspension systems, take computer

measurements, make factory adjustments to restore alignment specifications and to all repair work

according to the international standards. With quality services customers will be satisfied and become the

permanent customers.


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2 MARKETING

2.1 Research and Analysis of market size and Market trends

The Pakistani automobile industry has registered a considerable growth over the past couple of years. It was further estimated that the car industry experienced a growth rate of 51.4% during July 02 to

April 03 signifying an increasing demand for cars which is expected to continue in the future.

Furthermore, increasing competition between leasing companies have caused the lease rates to

decline considerably which have made car an affordable commodity for a majority of the middle-income

class which constitutes a considerable segment of the population of Pakistan. These factors coupled

together reflect on the growing need for quality repair and service facilities.

Similarly, wealthy people and new generation are more inclined towards the sports and imported cars.

In spite of purchasing the local cars they prefer to purchase imported cars. In Pakistan there is no such auto

dealer who can import the cars, customize them and also give warranty on them. There is a big segment of

such people which can be targeted.

Unlike many countries, the Pakistani car industry is unique in the sense that once the car comes on the

road it is expected to run for an indefinite period requiring major repair and maintenance services

throughout its operational life. Moreover there is a considerable demand for wheel alignment and

wheel balancing services, which is required by almost every car, whether new or old. The roughness of

the roads and continuous friction causes a continuous disruption to the alignment and balancing of the

wheels which require adjusting

These days trends are also changing now customers want quality services with out consuming time.

They want Auto workshop from where they get all the services in less time. People these days are very

much conscious about the quality services and are willing to pay more for quality services to save some

time.

Conclusively it can be said that there exists an ample demand for quality repair and serviceworkshops in Pakistan and also that the existing scenario provides conducive opportunities for entry into

this business venture.


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2.2 Marketing Plan

The main challenge to the proposed business is of location that can affect the business but to prevent

these effects, effective marketing strategies are developed. This would help in providing knowledge to the

customers about the services and unique characteristics of the business. The effort made to overcome the

location factor and to attract customer can be done by the effective marking plans.

The Marking strategy that the new business would adopt is first to attract customers by aggressive

advertising on the internet, cable T.V, newspapers and in magazines. Opening ceremony of the work shop

is conducted and during the first week customers are given 50% discount on all repairs and services. To

make the customers permanent all the services and repairs are done the given time so that the customers

would not have to wait for the long time. Waiting room for the customers is also set, so that they can set

and do not get boor during the repair time. The work shop web site is also establish on which all the

information relating services, repairs , customization ,purchase and sale of the cars is given so that

customers in the workshop city and in other city get all the information with the single click.

In work shop web site the rates of the services and customization options are also given. In

customization section of the web site customer can enter his requirements and can get the export opinions

and advice from the workshop exports through e-mails.

The new business will also start a scheme for its loyal customers called Ak bar payment bar bar

repair . In this customer had to deposit a fix payment for a year and can repair the car for unlimited timesin a year.


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3 OPERATIONAL DETAILS

3.1 Proposed Location

The Auto Workshop and cars purchase and selling dealer business is very much dependent on thelocation of its setup. Auto Workshops located on main roads or prime locations usually depend on walk-in

customers while those that are based on off-road locations have their business coming in from

contacts, referrals and companies.

The proposed business would be setup on off-road location. The main reason is that the on the road

locality are very expansive and the room required for the workshop would not be available on the main or

prime location. The workshop is setup near to the main road or prime location where enough space for the

workshop is available and is less expensive. The location can affect the business but to prevent these

effects, effective marketing strategies are developed. This would help in providing knowledge to the

customers about the services and unique characteristics of the business. The effort made to overcome the

location factor and to attract customer can be done by the effective marking plans.

Following are the main factors which are considered in deciding the location are:

3.1.1 Anticipated Source of Business

The anticipated source of business is the contracts with companies, good referral network,

advertisements, work shops, exhibitions, website etc. This would help in attracting customers.

3.1.2 Accessibility of Sublet Services

All other work shops do not provide all the services hence they outsourced services to other

specialized workshops or personnel. The proposed business has got edge in this regard it provides all the

services under one roof. This would help the customer to save time and get all the services under one roof,

without visiting different workshops for different services.

3.1.3 Existing Competition

Concentration of similar types of workshops can give difficult competition, which increases if the

competitors are well established and famous for their service. Therefore it is advisable to choose such

locations only when the owner is expected to have considerable amount contacts and referrals.


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3.1.4 Quick Accessibility to Parts Market

Maintaining a spare parts inventory is crucial for reducing the job turnaround time. However many

auto workshops prefer to be located within close proximity to the spare parts markets to ensure ready

availability of desired spare parts. Therefore less money is tied up in maintaining an adequate spare parts

inventory.


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4 HUMAN RESOURCE REQUIREMENT

The Auto Workshop is a labor intensive business where the labor cost constitutes a

considerable portion of the cost of sales.

The following table gives a breakup of the total administrative manpower required to operate the

proposed setup.

GENERAL MANAGEMENT

Designation Type Number Monthly Salary (Rs.)

Owner 4 -

Accountant 1 6,900

Purchaser 1 4,600

Office Assistant/ Store Keeper 1 4,600

Guard 1 5,750

Considering the size of the proposed establishment it is assumed that the owners would be

managing the overall affairs of the workshop.

A full-time accountant is required to process and check bills, invoices, job orders etc. The

purchaser would be primarily responsible for keeping track of the spare parts inventory in the store and

making daily purchases; spare parts inventory purchases and other purchases as and when required. To

keep the specific level of spare parts inventory available in the store.

The office assistant would be responsible for handling customers & complaints, following-up on

bills and managing all activities related to spare-parts store keeping.

A security guard would be required for ensuring safe custody of customer cars during day and

night.

The following table gives the details for the proposed technical labor that forms theintegral part of the cost of sales:


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JOB / DUTY ALLOCATION

Designation / Type Number Monthly Salary (Rs.)

In charge 2 19,000

MECHANICAL REPAIRS & MAINTENANCEDesignation / Type Number Monthly Salary (Rs.)

Mechanics 1 13,800

Assistant Mechanics 2 10,350

Helpers 1 4,600

DENTING


Head Denter 1 13,800

Denters 2 10,350

Assistant Denter 1 6,900

Helper 1 4,600

PAINTING


Painter 1 13,800

Assistant Painters 2 10,350

Helper 1 4,600

Total 15 124,200

The In charge would be responsible for checking and diagnosing the customers car to ascertain

any additional repairs / replacements that might not have been identified by the customer. Once the

estimates and repair / replacement work is agreed with the customer the In charge would then allocate the

job and ensure its timely completion. The In charge would also be required to check the cars (trial run) beforedelivering them to the customers


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WHEEL ALIGNMENT & BALANCING


Operator 1 13,800

Assistant Operator 1 6,900HIGH PRESSURE CLEANING


Cleaner 1 13,800

Assistant Cleaner 1 6,900

Total 4 41,400

CUSTOMIZATION OF CARSDesignation / Type Number Monthly Salary (Rs.)

Mechanics 1 13,800

Assistant mechanics 2 6,900

Helpers 2 4,600

Total 5 36,800

The total monthly salary of the technical staff would amount to Rs. 202,400 and is assumed toincrease by 15% per annum.


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5 PROJECTPROJECT INVESTMENTINVESTMENT

This section will provide the total cost of the project

ITEM COST (RS.)

Construction Office / Store 675,000

Construction Service Stations 850,000

Masonry Work 120,000

Mechanical Repairs Equipment 90,000

Denting Equipment 100,000

Painting Equipment 30,000

Wheel Alignment Machine 1,000,000

Wheel Balancing Machine 650,000

High Pressure Cleaning Equipment 550,000

Piston Pump 250,000

Spare Parts Purchases 125,000

Lubricant Purchases 25,000

Advance Rent & Deposit 900,000

Working Capital 552,000

Pre Operating Costs 50,000

Office Furniture & Equipment 80,000

Total Cost 6,047,000


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5.1 Equipment Requirement

The equipment required for running an Auto Workshop would relate to the activities that the

workshop tends to undertake. In this case, the equipment required would be as follows:

MECHANICAL REPAIRS & MAINTENANCE

Equipment Number Estimated Cost (Rs.)

Complete Mechanical Toolbox 2 26,000

Work Bench 2 5,000

Vice 2 9,000

Tool Box Cupboard 1 5,000

Voltmeter / Ammeter 2 5,000Timing Light 2 12,000

Battery Charger 1 7,000

Compression Gauge 1 6,000

Others - 15,000

Total 90,000

DENTINGEquipment Number Estimated Cost (Rs.)

Denting Toolbox 2 20,000

Mechanical Toolbox 1 13,000

Pressure Jack (Large) 1 30,000

Gas Cylinder 1 6,000

Carbide Tank 1 3,000

Welding Kits 2 6,000Drill Machine (Hand) 2 3,000

Puller Jack 1 4,000

Others - 15,000

Total 100,000


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PAINTING


Painting Compressor (2 hp; 1k lbs) 1 15,000

Spray Gun (Small) 1 3,000

Spray Gun (Large) 1 4,000

Pipe 1 1,000

Others - 7,000

Total - 30,000

HIGH PRESSURE CLEANING


High Pressure Cleaner (including

Piston Pump) 1 550,000

Piston Pump 1 250,000

Total - 800,000WHEEL ALIGNMENT & BALANCING


Complete Computerized Alignment

Equipment (Including Heads, Disc plates etc.)

A Class1 1,000,000

Computerized Wheel Balancing Machine

1 650,000

Total - 1,650,000


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5.2 SpaSpa rere PPaa r r ts &ts & LLubub r r iicacanntsts IInvnv eennttooryry

As is practiced widely, the proposed workshop would maintain an estimated inventory of Rs.

125,000 for spare parts & lubricants.

5.2.1 SpaSpa rere Pa Pa r r ts &ts & CoConns suumabmab l l ee

This would mainly include items for general repairs like bush, break shoes, filter, points, clutch

plates, spark plugs, nuts / bolts etc. for about 8 to 10 models of most common car brands like Suzuki,

Toyota and Honda. These purchases would also include daily consumables items like carbide, sand papers

etc. that are required for denting & painting services.

It is estimated that initial purchases for spare parts & consumables would amount to Rs. 125,000

which would subsequently average to purchases of Rs. 3,200 on a daily basis (Rs. 80,000 for 25 day

month) after commencing of operations.

5.2.2 L Lububr r iicaca ntsnts

The workshop would also be required to keep a minimum inventory of lubricants to meet the

immediate requirements of the customer. Usually lubricants are expensive and many workshops dont

find it affordable to keep a large inventory of such items.

It is estimated that an initial inventory of Rs. 25,000 would be required for lubricants and the

monthly purchases would amount to Rs.10,000 per month after resuming of operations.

5.3 Machinery and Equipment requirementMachinery and Equipment requirement

5.3.1 W 5.3.1 W hheel eel A Al l ignign mmeent nt Ma Ma cchinehine

The procedure of wheel alignment was traditionally carried out based on manual iterations which

was largely dependent on the skill of the worker. The system was totally manual where the angles and the

alignment deviations were brought into conformity through guesswork. Through the subsequent

introduction of technology, alignment machines were introduced which later developed in totally

computerized and automated alignment packages in which the alignment can now be done by sitting on a

computer.

Majority of the wheel alignment machinery in the market is computer operated with


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software based operating system. Some machines have electronic panels that only show the deviations

while the newer ones have a computer interface having more features.

The prices of wheel alignment machines are based on two factors

(i) Condition and

(ii) Make or Brand.

Wheel alignment machines have a very long life lasting for over 15 20 years with very little

depreciation. Because of this many machine suppliers in local markets are refurbishing old / used

machinery by repainting them and selling them in the market.

Brand new European machines cost around Rs. 850,000 1,000,000 (A Class) while the others

cost around Rs. 650,000 750,000 (B Class). Brand new Chinese machinery with A Class features also costsaround Rs. 650,000 750,000 but despite the low cost people prefer to opt for European brands since Chinese

Machinery are still in the testing stages.

For the purpose of this study we have assumed procurement of new European branded

machinery costing around Rs. 1,000,000 having the latest features and easy to operate facilit ies.

5.3.2 W W hheel eel Ba Ba lala nnccing ing Ma Ma cchinhin eses

The Wheel balancing Machinery is available on similar brands and makes as those of alignment machines. However the price variation of these electronically operated machines is greater

where used machines cost around Rs. 200,000 while new ones cost around Rs. 1,200,000.

For the purpose of this study we have assumed purchase of a wheel balancing machinery

containing good features and costing around Rs. 650,000.

5.3.3 High High P P r r ees ss suurere C C l l eaea ning ning E E quipquip mmeent nt

High pressure cleaning equipment is relatively delicate machinery which has a lot of

deprecation such that it needs to be replaced after every 3 years. Usually the water tank and the pressure

valves and hoses loose their durability within this time period and need to be completely replaced. For

some service stations the replacement time period ranges around 2 years depending on the continuous use

of the product.

High pressure cleaning equipment is available in local markets ranging from Rs. 750,000 to


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800,000 of various European Brands like ITM ITALIA, EUROCLEAN, and KRENZELEY etc. Due to its

high depreciation the high pressure equipment requires a lot maintenance costs on a monthly basis which even

amounts to one fourth of its original cost per month.

For the purpose of this study we are assuming a quality pressure cleaning equipment

costing around Rs. 550,000 having life of 3 years with maintenance cost of approximately 25

% of its written down value. An additional Rs. 250,000 will be required for the purchase and installation

of Piston Pressure Lift.

Since the machines require diesel fuel for operation, it is assumed that the fuel cost would be Rs.

5,000 per month.

5.4 LAND & BUILDING REQUIREMENT

5.4.2 Land Requirement

The proposed Auto Workshop setup is assumed to operate in 1,000 sq. yards that allows ample

space for Denting & Painting and Mechanical services and also for general parking services for walk-in

customers.

5.4.3 Covered Area Requirement

The workshop is assumed to be totally covered with around 95% of the total area catering to

technical works and the remaining 5% for General Office and Stores. It is recommended that minimum

space be utilized for office and store setup to allow maximum number of cars within the workshop vicinity.

The covered area for workshop operations would be divided between the proposed services and

would assume the following break up (including parking for standby / waiting customers):

Mechanical Works 350 Sq. Yards

Denting & Painting 300 Sq. Yards

Wheel Balancing & Alignment 150 Sq. Yards

High Pressure Cleaning 150 Sq. Yards

5.4.4 Recommended Mode


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The proposed land will be acquired on a rental basis with 3 month deposit and 3 months advance

rent after which rent will be payable on a monthly basis.

5.4.5 Office Furniture & Equipment

A total of Rs 80,000 is required for purchase of office furniture and related equipment. The following table

gives an assumed breakup

The Office Furniture & Equipment will be depreciated at the rate of 10% per annum according to

the diminishing balance method for the projected period.

5.4.6 Suitable Location

The proposed location for an Auto Workshop considering the factors mentioned earlier

would be in a medium high income locality area where almost all of the nearby residents are expected to

have at least one car.

Sofa Set for Customers 1 15,000

Curtains / Interior Dcor - 10,000

Total 80,000


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6 Key Success Factors

The main objective for an Auto Repair Workshop is to offer a hassle free quality repair and service

operations that eliminate waiting on part of the customer and help to offer value added services to the customer

who need their cars fixed right away. The following factors need a continuous focus for making the proposed

setup a successful business venture:

6.1 Growing and Maintaining a Referral Network of Customers

The main factor is to attract and maintain a loyal customer base through a customer-oriented focus on

business rather than concentrating on volume and losing out old customers. All the workers at the workshop

need to be trained and held responsible for providing superior service and developing long lasting trust bond

with the customers. This is very important in this industry, where trust and honesty reflect on the image of

repair and service facilities. This would help in maintaining a consistent revenue base, to ensure stability of

business on the long- run.

6.2 Expedient and Convenient Auto Repair & Service Facilities

This business is very unique in the sense that switching costs are almost negligible for the customer

hence the main effort required is to maintain and enhance customer loyalty by providing quick and quality

services. Otherwise, the customer would not take time to move to other workshops.

6.3 Skilled & Experienced Manpower

The knowledge and experience of the entrepreneur is not sufficient to run the business smoothly.

Provision of quality repair and service facilities solicits skilled and experienced workmen which are an integral

component of this business. It is important that the manpower hired should have the required technical

capability and customer relationship management skills. Unless the entrepreneur is not skilled and does not

possess the required know-how he would not be able to properly hire and manage the manpower.

6.4 Auto Parts Inventory

An adequate auto parts inventory based on prior experience and business volume needs to be maintained

in order to give quick service and prevent any inconvenience caused to the customer. Moreover, quick

accessibility to used / new auto parts is another important factor that enables to provide hassle-free service to the


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customers. However, the entrepreneur needs to carefully manage the auto parts inventory to ensure that

minimal working capital is tied up. Some workshops usually keep auto parts for the most common car

brands while parts of less common / unpopular brand are usually made available on call basis.

6.5 Specialized Skills

Some Auto Workshops become famous due to their expertise in particular area / field or brand. These

workshops develop their expertise over a period of years and become famous for specialized areas like

Denting & Painting, Axle Repair & Maintenance etc. Some workshops are known experts for specific car

brands like Suzuki, Toyota etc. These specialized skills draw the attention of car owners of particular

brands or those who are facing specific problems, hence consistent quality needs to be maintained to

develop such skills. Another specific issue that relates to specialized skills is the proper use of alignment and

balancing equipment such that the customer is properly satisfied. This can be achieved only when the workers

operating these machines are properly trained and knowledgeable about the processes.


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7 FINANCIAL ANALYSIS & KEY ASSUMPTIONS

The project cost estimates for the proposed Auto Workshop have been formulated on the basis of

estimation. The cost projections cover the cost of land, building, inventory, equipment including office

furniture etc. The specific assumptions relating to individual cost components are given as under:

7.1 Revenue & Cost Projections

Revenue projections for this Auto Workshop include sales streams from four main sources i.e.

Denting & Painting, Mechanical Repairs & Maintenance, Customization of cars and the purchase and sale

of local and imported cars. The Sales are expected to grow at a real rate of 12% per annum which

reflects on the anticipated growth in the number of cars on the road hence the business is expected to

increase based on volume rather than increased service charges.

7.2 Rent Cost

The rent for the assumed premises will be Rs. 150,000/- per month. It is assumed that Rs. 900,000

will be given in advance before possession of premises. This will include 3 months deposit and 3 month

advance rent. The rent would be payable on a monthly a basis and is expected to increase at the rate of 10%

per annum for the projected period.

7.3 Construction Cost

The Auto Workshop involves construction cost which translates into three main

components as follows:

Office / Store Construction which involves a two storey building in which the ground floor would

accommodate the owners office and administration while the first storey would serve as a store for

spare parts and other items. The office and store construction cost is taken to be as Rs. 750 per

square feet which comes to a total of Rs. 675,000 for the two storey structure (450 sq. ft. x 2). This

cost is inclusive of all accessories and fittings except for AC and Office Furniture.

Masonry work would be required in the area allocated for Denting & Painting and

Mechanical Works. It is assumed that the proposed workshop would be able to


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accommodate 6 cars for mechanical repairs and around 8 cars for denting & painting at one time.

This would require a total of 14 bay areas to be constructed with underground ducts and

ramps in 6 of the bay areas for mechanical repairs. The cost for masonry will be as follows:

MASONRY WORK FOR BAY AREAS

Item Bay Areas Estimated Cost (Rs.)

Mechanical Work (Duct & Ramp) 6 60,000

Denting 4 30,000

Painting 4 30,000

Total 14 120,000

The third main construction would be required for making two separate sections for (i) Wheel

Alignment & Balancing and (ii) High Pressure Cleaning. The cost of construction for these

would be approximately:

Wheel Alignment & Balancing (Rs. 400 per Sq. Feet x 1000 Sq. Feet)

High Pressure Cleaning (Rs. 400 per Sq. Feet x 1000 Sq. Feet) requiring high ceiling for piston

pump car lift.


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CONSTRUCTION COST FOR WHEEL ALIGNMENT / BALANCING

& PRESSURE CLEANING

Item Estimated Cost (Rs.)

Wheel Alignment & Balancing 400,000

Ramp for Alignment 50,000

High Pressure Cleaning 400,000

Total 850,000

(Note: For wheel alignment there should be at least a minimum space of 5 feet from the front & back

end of the car and a space of 2 feet at the sides for flexibility in operating the machine)

7.4 UtilitiesUtilities ReRe quiqui r r eemm eentnt

The following table presents the assumed breakup of utilities on a monthly basis:

It is estimated that work shop will use over 5000 units and will use up to 250 Gallons of water and

the Telephone bill would be 5000 and may have expense of 10,000 relating newspapers, magazines etc

UTILITY MONTHLY CHARGES (RS.)

Electricity 36,000

Water 24,000

Telephone 10,000

Entertainment 5,000

Total 75,000

It is assumed that utilities expenses will increase by 10% every year.

7.5 Depreciation on Building & Equipment


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Depreciation on Building, Technical Equipment, Alignment & Balancing Equipment and Office

Furniture & Fixtures is assumed to be at the rate of 10% per annum based on the diminishing balance

method for the projected period. Depreciation on High Pressure Cleaning Equipment will be calculated on

a straight-line basis with no salvage value at the end of 3rd year; hence it has been assumed that this

equipment will be replaced after every three years at a cost which will be 10% greater than the acquisition

cost of the previous equipment.

7.6 Working Capital & Pre Operating Costs

It is estimated that an additional amount of approximately Rs. 832,200 will be required as cash in

hand to meet the working capital requirements / contingency cash for the initial stages. The requirement is

based on the utilities and salaries expenses for at least three months. The following table gives the break up.

ITEM 3 MONTHS COST (RS.)

Utilities 225,000

Salaries 607,200Total 832,200

The provision for pre operating costs is assumed to be Rs. 50,000 which will be amortized equally over a 5

year period.

7.7 Account Receivables

A collection period of 45 days is assumed for sales. Further provision for bad debts has been assumed

equivalent to 10% of Gross receivables.

7.8 Traveling & Miscellaneous Office Expenses

A monthly figure of Rs 5,000 (200 per day) is assumed to be incurred for traveling expenses and

office purchases which are expected to increase at the rate of 10% per annum for the projected period.


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7.9 Financial Charges

It is assumed that long-term financing for 5 years will be obtained in order to finance the Auto

Workshop setup which would mainly include Construction of Building, Masonry work, Purchase of

Equipment etc. This facility would be required at a rate of 15% (including 1% insurance premium) per

annum with 60 monthly installments over a period of five years. The installments are assumed to be paid at

the end of every month.

7.10 Taxation

The tax rate applicable to small companies i.e. 20%.

7.11 Cost of Capital

The cost of capital is explained in the following table:

Particulars Rate

Required return on equity 20.0 %

Cost of finance 15.0 %

Weighted average cost of capital 17.5 %

The weighted average cost of capital is based on the debt/equity ratio of 50:50.

7.12 Cost of Capital

It is assumed that the owner with withdraw from the business once the desired profitability is reached

from the start of operations. The amount would depend on business sustainability and availability of funds

for future growth.


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7.13 Key Assumptions

I tem Assumption(s)

Sales Increase 12 % per year

Increase in Cost of Sales 10 % per year

Increase in Staff Salaries 10 % per year

Increase in Utilities (Electricity / Water / Gas) 10 % per year

Increase in Rent 10 % per year

Increase in Office Expenses 10 % per year

Debt / Equity Ratio 50 : 50

Depreciation

Building & Masonry Work 10 % per annum (Diminishing Balance)

Technical Equipment 10 % per annum (Diminishing Balance)

Office Furniture & Equipment 10 % per annum (Diminishing Balance)

Wheel Alignment & Balancing 10 % per annum (Diminishing Balance)

Piston Pump Car Lift 10 % per annum (Diminishing Balance)

High Pressure Cleaning Straight Line 33 % per year

High Pressure Cleaning Maintenance Cost 25 % of Cost Price

High Pressure Cleaning Replacement 3 years

Lease Period 5 Years

Lease Installments Monthly

Financial Charges (Lease Rate) 15 % per annum

Tax Rate 20 % per annum


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Refrences:Kotler, Philip, Kevin L Keller, Abraham Koshy, and Mithileshwar Jha. Marketing Managment A South

Asian Perpecptive. 13th. New Delhi: Dorling Kindersley, 2009.