Pre-Feasibility Study

(Driving School)


Small and Medium Enterprises Development Authority
Ministry of Industries & Production
Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
4th Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road,
Lahore
Tel: (92 42) 111 111 456, Fax: (92 42) 36304926-7
helpdesk@smeda.org.pk

REGIONAL OFFICE
Punjab
REGIONAL OFFICE
Sindh
REGIONAL OFFICE
Khyber Pakhtunkhwa
REGIONAL OFFICE
Balochistan
3
rd
Floor, Building No. 3,
Aiwan-e-Iqbal Complex,
Egerton Road Lahore,
Tel: (042) 111-111-456
Fax: (042) 36304926-7
helpdesk.punjab@smeda.org.pk
5TH Floor, Bahria
Complex II, M.T. Khan Road,
Karachi.
Tel: (021) 111-111-456
Fax: (021) 35610572
helpdesk-khi@smeda.org.pk
Ground Floor
State Life Building
The Mall, Peshawar.
Tel: (091) 111-111-456
Fax: (091) 5286908
helpdesk-pew@smeda.org.pk
Bungalow No. 15-A
Chaman Housing Scheme
Airport Road, Quetta.
Tel: (081) 2831623, 2831702
Fax: (081) 2831922
helpdesk-qta@smeda.org.pk


Note: All SMEDA Services / information related to PM's Youth Business Loan are Free of Cost
December, 2013

Pre-Feasibility Study Driving School
Table of Contents
1 DISCLAIMER .......................................................................................................................................... 2
2 PURPOSE OF THE DOCUMENT ......................................................................................................... 3
3 INTRODUCTION TO SMEDA .............................................................................................................. 3
4 INTRODUCTION TO SCHEME ........................................................................................................... 4
5 EXECUTIVE SUMMARY ...................................................................................................................... 4
6 BRIEF DESCRIPTION OF THE PROJECT ........................................................................................ 4
7 CRITICAL FACTORS ............................................................................................................................ 5
8 INSTALLED & OPERATIONAL CAPACITIES ................................................................................. 5
9 POTENTIAL TARGET MARKET / CITIES ....................................................................................... 5
10 PROJECT COST SUMMARY ............................................................................................................... 5
10.1 PROJ ECT ECONOMICS ................................................................................................................... 6
10.2 PROJ ECT FINANCING .................................................................................................................... 6
10.3 PROJ ECT COST ............................................................................................................................. 6
10.4 MACHINERY REQUIREMENT ......................................................................................................... 7
10.5 RAW MATERIAL REQUIREMENTS ................................................................................................. 7
10.6 HUMAN RESOURCE REQUIREMENT .............................................................................................. 7
10.7 REVENUE GENERATION ................................................................................................................ 8
11 CONTACT DETAILS OF GOVT. INSTITUTIONS / EXPERTS ...................................................... 8
12 ANNEXURE ............................................................................................................................................. 9
12.1 INCOME STATEMENT .................................................................................................................... 9
12.2 CASH FLOW STATEMENT ........................................................................................................... 10
12.3 BALANCE SHEET ........................................................................................................................ 11
13 USEFUL LINKS ..................................................................................................................................... 12
14 KEY ASSUMPTIONS ............................................................................................................................ 13

Pre-Feasibility Study Driving School
1 DISCLAIMER
This information memorandum is to introduce the subject matter and provide a
general idea and information on the subject. Although, the material included in
this document is based on data / information gathered from various reliable
sources; however, it is based upon certain assumptions which may differ from
case to case. The information has been provided on as is where is basis without
any warranties or assertions as to the correctness or soundness thereof.
Although, due care and diligence has been exercised to compile this document,
the contained information may vary due to any change in any of the concerned
factors, and the actual results may differ substantially from the presented
information. SMEDA, its employees or agents do not assume any liability for any
financial or other loss resulting from this memorandum in consequence of
undertaking this activity. The contained information does not preclude any further
professional advice. The prospective user of this memorandum is encouraged to
carry out additional diligence and gather any information which is necessary for
making an informed decision including taking professional advice from a qualified
consultant / technical expert before taking any decision to act upon the
information.
For more information on services offered by SMEDA, please contact our website:
www.smeda.org.pk



















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Pre-Feasibility Study Driving School
2 PURPOSE OF THE DOCUMENT
The objective of the pre-feasibility study is primarily to facilitate potential
entrepreneurs in project identification for investment. The project pre-feasibility
may form the basis of an important investment decision and in order to serve this
objective, the document / study covers various aspects of project concept
development, start-up, production, marketing, finance and business
management.
The purpose of this document is to facilitate potential investors in Driving
School by providing them with a general understanding of the business with the
intention of supporting potential investors in crucial investment decisions.
The need to come up with pre-feasibility reports for undocumented or minimally
documented sectors attains greater imminence as the research that precedes
such reports reveal certain thumb rules; best practices developed by existing
enterprises by trial and error, and certain industrial norms that become a guiding
source regarding various aspects of business set-up and its successful
management.
Apart from carefully studying the whole document, one must consider critical
aspects provided later on, which form basis of any investment decision.
3 INTRODUCTION TO SMEDA
The Small and Medium Enterprises Development Authority (SMEDA) was
established in October 1998 with an objective to provide fresh impetus to the
economy through development of Small and Medium Enterprises (SMEs).
With a mission "to assist in employment generation and value addition to the
national income, through development of the SME sector, by helping increase
the number, scale and competitiveness of SMEs" , SMEDA has carried out
sectoral research to identify policy, access to finance, business development
services, strategic initiatives, institutional collaboration and networking initiatives.
Preparation and dissemination of prefeasibility studies in key areas of investment
has been a hallmark of SME facilitation by SMEDA.
Concurrent to the prefeasibility studies, a broad spectrum of business
development services is also offered to SMEs by SMEDA. These services
include identification of experts and consultants and delivery of need based
capacity building programs of different types in addition to business guidance
through help desk services.

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Pre-Feasibility Study Driving School
4 INTRODUCTION TO SCHEME
Prime Ministers Youth Business Loan scheme, for young entrepreneurs, with
an allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide
subsidised financing at 8% mark-up per annum for one hundred thousand
(100,000) beneficiaries, through designated financial institutions, initially by the
National Bank of Pakistan (NBP) and the First Women Bank Ltd. (FWBL).
Youth Business Loans upto 2 million with tenure upto 8 years, inclusive of 01
year grace period and a debt : equity of 90 : 10 will be disbursed to SME
beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa,
Balochistan, Gilgit Baltistan, Azad J ammu & Kashmir and Federally Administered
Tribal Areas (FATA).
5 EXECUTIVE SUMMARY
This particular Pre-feasibility is for LTV Driving School. Driving is a skilful task
that needs proper training and knowledge of traffic laws and regulations. There is
a tremendous increase in the number of vehicles particularly in the urban cities of
Pakistan. Moreover, the government has been taking steps towards effective
implementation of traffic regulations. This has created a demand for formalized
driver training and provision of road safety information, thereby creating an
opportunity for establishing a Driving School for a prospective entrepreneur.
The project is proposed to be set-up in a suitable locality of any urban city such
as Lahore, Karachi, Sukkur, Hyderabad, Faisalabad, Sargodha, Multan, Quetta,
DI Khan, Nowshera and Peshawar. Keeping in view the nature of services, there
is a minimal requirement of establishing a formal office. The facility will comprise
of 3 vehicles and employ 4 individuals including the owner/manager. The total
capacity of the training service center will be to train 720 drivers annually. During
the sessions, trainees shall be familiarized with the basic rules of driving along
with traffic signal system, awareness about traffic rules and dealing with
emergencies and accidents.
Total investment in the project is Rs. 1.8 million with Rs. 1.6 million as capital
investment and Rs. 0.2 million as working capital. NPV and IRR of the project is
Rs. 8.07 million and 57% respectively with a payback period of 2.35 years.
6 BRIEF DESCRIPTION OF THE PROJECT
The proposed Driving School can be started as a home based business without
having any formal office set-up, with the legal status of Sole Proprietorship. The
facility will acquire three second hand vehicles for practical training and hire three
trainers / instructors for imparting training. The instructors will also brief trainees
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Pre-Feasibility Study Driving School
on traffic regulations and road safety information. The driving school will train 360
individuals in the first year.
7 CRITICAL FACTORS
The following significant factors may be taken into account while making
investment decision:
Hiring of quality trainers / instructors with a special focus on engaging female
drivers.
Effective marketing / awareness of the service particularly with traffic police &
drivers licensing section.
Competitive fee structure offering value for money.
Efficient utilization of idle capacity by offering Pick & Drop facilities to office
executives on need basis, as an additional business opportunity.
Timely and cost effective repair and maintenance of vehicles due to major /
minor accidents during the training.
8 INSTALLED & OPERATIONAL CAPACITIES
The facility will consist of 3 vehicles out of which two are 800 cc and one 1000 cc
vehicle. The Driving School will offer a 10 day training program.
The total capacity of the driving school will be to train 720 students annually. The
capacity of the facility is calculated on the basis of available vehicles, and drive
time of 40 minutes per trainee per day. In the first year, the training service will
operate at 50% capacity and will provide training services to 360 individuals.
9 POTENTIAL TARGET MARKET / CITIES
Due to development and expansion of roads and increase in the number of
vehicles, the Driving School can be started in any suitable area of a big city such
as Lahore, Karachi, Sukkur, Hyderabad, Faisalabad, Sargodha, Multan, Quetta,
DI Khan, Nowshera and Peshawar.
10 PROJECT COST SUMMARY
A detailed financial model has been developed to analyze the commercial
viability of a Driving School under the Prime Ministers Youth Business Loan
scheme. Various cost and revenue related assumptions along with results of the
analysis are outlined in this section.
The projected Income Statement, Cash Flow Statement and Balance Sheet are
attached as appendix
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Pre-Feasibility Study Driving School
10.1 Project Economics
The Driving School will train 360 drivers at 50% capacity in year one with three
vehicles and three trainers.
The following table shows internal rates of return and payback period.
Table 1: Project Economics
Description Details
Internal Rate of Return (IRR) 57%
Payback Period (yrs) 2.35
Net Present Value (NPV) Rs. 8,070,195

Returns on the investment and its profitability are highly dependent on trained
staff, marketing, and competitive fee structure. In case the Driving School is not
managed efficiently, it will not be able to capitalize on the potential market and
recover payments; hence cost of operating the business will increase.
10.2 Project Financing
Following table provides details of the equity required and variables related to
bank loan:

Table 2: Project Financing
Description Details
Total Equity (10%) Rs.180,000
Bank Loan (90%.) Rs.1,620,000
Markup to the Borrower (%age/annum) 8%
Tenure of the Loan (Years) 8
Grace Period (Year) 1
10.3 Project Cost
Following requirements have been identified for operations of the proposed
business.

Table 3: Total Project Cost
Capital Investment Amount (Rs.)
Vehicles 1,600,000
Total 1,600,000
Working Capital Amount (Rs.)
Cash in hand 200,000
Total 200,000
Total Project Cost 1,800,000

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10.4 Machinery Requirement
Following table provides list of machinery / equipment required for an average
drivers training service:

Table 4: List of Vehicles
Description Quantity Cost
Rs/unit
Total
Rs.
Suzuki Mehran 2 500,000 1,000,000
Suzuki Cultus 1 600,000 600,000
Total 3 1600,000

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

10.5 Raw Material Requirements
Fuel for vehicle(s) will be the only commodity required as a raw material in this
project.
Table 5: Cost of Fuel
Sr.
No
Unit
Fuel
Consumption
Km/ltr
Petrol
Rate / ltr
Total Km /
day /
vehicle
1 Suzuki Mehran Car (800 cc) 17 Rs. 109 90
2 Suzuki Cultus Car (1000 cc) 14 Rs. 109 90
10.6 Human Resource Requirement
Table 6: Human Resource Requirement
Description No. of
Employees
Salary per
month
Annual Salary
Owner 1 20,000 240,000
Driving Instructors 3 15,000 540,000
Total Salaries 4 780,000

The above table provides details of human resource required to run the Driving
School. Salaries of all employees are estimated to increase at 10% annually.
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10.7 Revenue Generation
Table 7: Revenue Details
Product Unit
Fee (Rs./Student) Rs. 6,000
Expected no. of Students First Year No. 360
Revenue 1
st
Year (Rs.) Rs. 2,160,000

11 CONTACT DETAILS OF GOVT. INSTITUTIONS / EXPERTS


Principal
National Logistics Cell (NLC) Driving
School
G. T. Road, Dina
Ph: 0544-631908

National Highways and
Motorway Police (NH&MP) Training
College
P.O. Box #16 General Post Office,
Sheikhupura
Ph: 056-3794601

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12 ANNEXURE
12.1 Income Statement


Income Statement
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Revenue 2,160,000 2,613,600 3,136,320 3,737,448 4,427,438 5,218,052 6,122,515 6,734,766 7,408,243 8,149,067
Cost of sales
Cost of goods sold (Fuel Cost) 21% 459,998 556,598 667,918 795,935 942,877 1,111,248 1,303,864 1,434,251 1,577,676 1,735,443
Operation costs 1(direct labor) 25% 540,000 592,575 650,269 713,580 783,055 859,295 942,957 1,034,765 1,135,511 1,246,066
Operating costs 2(machinery maintenance) 8% 162,000 196,020 235,224 280,309 332,058 391,354 459,189 505,107 555,618 611,180
Total cost of sales 54% 1,161,998 1,345,193 1,553,411 1,789,824 2,057,990 2,361,897 2,706,010 2,974,123 3,268,805 3,592,689
Gross Profit 998,002 1,268,407 1,582,909 1,947,624 2,369,448 2,856,156 3,416,505 3,760,644 4,139,438 4,556,378
General administration & selling expenses
Administration expense 11% 240,000 263,367 289,008 317,147 348,025 381,909 419,092 459,895 504,671 553,807
Communications expense(phone, fax, mail, inter 2% 43,200 52,272 62,726 74,749 88,549 104,361 122,450 134,695 148,165 162,981
Promotional expense 5% 108,000 130,680 156,816 186,872 221,372 260,903 306,126 336,738 370,412 407,453
Depreciation expense 7% 160,000 160,000 160,000 160,000 160,000 160,000 160,000 160,000 160,000 160,000
Subtotal 551,200 606,319 668,551 738,768 817,945 907,172 1,007,668 1,091,329 1,183,248 1,284,242
Operating Income 446,802 662,088 914,358 1,208,856 1,551,503 1,948,983 2,408,837 2,669,315 2,956,190 3,272,137
Earnings BeforeInterest & Taxes 446,802 662,088 914,358 1,208,856 1,551,503 1,948,983 2,408,837 2,669,315 2,956,190 3,272,137
Interest expenseon long termdebt (Project Loan) 134,459 123,099 108,167 91,997 74,484 55,517 34,977 12,731 - -
Subtotal 134,459 123,099 108,167 91,997 74,484 55,517 34,977 12,731 - -
Earnings BeforeTax 312,342 538,989 806,191 1,116,859 1,477,019 1,893,466 2,373,860 2,656,583 2,956,190 3,272,137
Tax - 13,899 43,429 90,029 144,053 226,193 322,272 386,646 461,547 540,534
NET PROFIT/(LOSS) AFTER TAX 312,342 525,090 762,763 1,026,831 1,332,966 1,667,273 2,051,588 2,269,938 2,494,643 2,731,603
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12.2 Cash Flow Statement

Cash FlowStatement
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Operating activities
Net profit 312,342 525,090 762,763 1,026,831 1,332,966 1,667,273 2,051,588 2,269,938 2,494,643 2,731,603
Add: depreciation expense 160,000 160,000 160,000 160,000 160,000 160,000 160,000 160,000 160,000 160,000
Deferred incometax - 13,899 43,429 90,029 144,053 226,193 322,272 386,646 461,547 540,534
Cash provided by operations - 472,342 698,989 966,191 1,276,859 1,637,019 2,053,466 2,533,860 2,816,583 3,116,190 3,432,137
Financing activities
Project Loan - principal repayment - (179,897) (194,829) (210,999) (228,512) (247,479) (268,019) (290,265) - -
Additions to Project Loan 1,620,000 - - - - - - - - - -
Issuanceof shares 180,000 - - - - - - - - - -
Cash provided by / (used for) financing activities 1,800,000 - (179,897) (194,829) (210,999) (228,512) (247,479) (268,019) (290,265) - -
Capital expenditure (1,600,000) - - - - - - - - - -
Cash (used for) / provided by investing activities (1,600,000) - - - - - - - - - -
NET CASH 200,000 472,342 519,092 771,362 1,065,860 1,408,507 1,805,987 2,265,841 2,526,319 3,116,190 3,432,137
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12.3 Balance Sheet
Balance Sheet
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Current assets
Cash & Bank 200,000 672,342 1,191,435 1,962,797 3,028,657 4,437,164 6,243,151 8,508,992 11,035,311 14,151,501 17,583,638
Total Current Assets 200,000 672,342 1,191,435 1,962,797 3,028,657 4,437,164 6,243,151 8,508,992 11,035,311 14,151,501 17,583,638
Fixed assets
Machinery & equipment 1,600,000 1,440,000 1,280,000 1,120,000 960,000 800,000 640,000 480,000 320,000 160,000 -
Total Fixed Assets 1,600,000 1,440,000 1,280,000 1,120,000 960,000 800,000 640,000 480,000 320,000 160,000 -
Intangible assets
Total IntangibleAssets - - - - - - - - - - -
TOTAL ASSETS 1,800,000 2,112,342 2,471,435 3,082,797 3,988,657 5,237,164 6,883,151 8,988,992 11,355,311 14,311,501 17,583,638
Current liabilities
Total Current Liabilities - - - - - - - - - - -
Other liabilities
Deferred tax - 13,899 57,327 147,356 291,409 517,602 839,874 1,226,519 1,688,067 2,228,601
Long termdebt (Project Loan) 1,620,000 1,620,000 1,440,103 1,245,274 1,034,275 805,762 558,284 290,265 - - -
Total Long TermLiabilities 1,620,000 1,620,000 1,454,002 1,302,601 1,181,631 1,097,171 1,075,886 1,130,138 1,226,519 1,688,067 2,228,601
Shareholders' equity
Paid-up capital 180,000 180,000 180,000 180,000 180,000 180,000 180,000 180,000 180,000 180,000 180,000
Retained earnings 312,342 837,433 1,600,196 2,627,026 3,959,992 5,627,265 7,678,854 9,948,792 12,443,434 15,175,037
Total Equity 180,000 492,342 1,017,433 1,780,196 2,807,026 4,139,992 5,807,265 7,858,854 10,128,792 12,623,434 15,355,037
TOTAL CAPITAL AND LIABILITIES 1,800,000 2,112,342 2,471,435 3,082,797 3,988,657 5,237,164 6,883,151 8,988,992 11,355,311 14,311,501 17,583,638
Liabilities & Shareholders' Equity
Assets
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13 USEFUL LINKS
Prime Ministers Office, www.pmo.gov.pk
Small and Medium Enterprise Development Authority, www.smeda.org.pk
National Bank of Pakistan (NBP), www.nbp.com.pk
First Women Bank Limited (FWBL), www.fwbl.com.pk
National Highway Authority (NHA)
Government of Pakistan, www.pakistan.gov.pk
Ministry of Industries & Production, www.moip.gov.pk
Ministry of Education, Training & Standards in Higher Education,
http://moptt.gov.pk
Government of Punjab, www.punjab.gov.pk
Government of Sindh, www.sindh.gov.pk
Government of Khyber Pakhtoonkhwa, www.khyberpakhtunkhwa.gov.pk
Government of Balochistan, www.balochistan.gov.pk
Government of Gilgit Baltistan, www.gilgitbaltistan.gov.pk
Government of Azad J ammu & Kashmir, www.ajk.gov.pk
Trade Development Authority of Pakistan (TDAP), www.tdap.gov.pk
Securities & Exchange Commission of Pakistan (SECP), www.secp.gov.pk
Federation of Pakistan Chambers of Commerce and Industry (FPCCI),
www.fpcci.com.pk
State Bank of Pakistan (SBP), www.sbp.org.pk

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14 KEY ASSUMPTIONS
Table 8: Project Assumptions
Projected Life of The Project in Years 10
Sponsors' Equity 10%
Debt Financing 90%
Annual Mark Up Rate (Short Term & Long Term) 8%
Debt Tenure (Years) 8
Grace period (Years) 1
General Inflation Rate 10%

Table 9: Operating Assumptions
No of Working Days in One Year 300

Table 10: Revenue Assumptions
Fee income per Student Rs 6,000
Course Duration 10 days
Expected Number of Students per year at 50%
Capacity
360
Sale price growth rate 10%
Production capacity growth rate 5%

Table 11: Depreciation Assumptions
Vehicles 10%

Table 12: Expenditure Assumptions
Communication expense 2% Of Sales
Promotional Expense 5% Of revenue


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