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Pre-Feasibility Study

(Catering and Decorating)




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
5
th
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 Catering and Decorating Services
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 PROJ ECT ................................................................................... 4
7. CRITICAL FACTORS ............................................................................................................ 5
8. INSTALLED AND OPERATIONAL CAPACITIES ............................................................ 5
9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT ........................................................ 6
10. POTENTIAL TARGET MARKETS ...................................................................................... 6
11. PROCESS FLOW ................................................................................................................... 6
12. PROJ ECT COST SUMMARY ............................................................................................... 6
12.1 Project Economics ......................................................................................................7
12.2 Project Financing ........................................................................................................7
12.3 Project Cost .................................................................................................................7
12.4 Space Requirement ....................................................................................................8
12.5 Machinery and Equipment .........................................................................................8
12.6 Human Resource Requirement ................................................................................9
12.7 Revenue Generation ..................................................................................................9
12.8 Other Costs ..................................................................................................................9
13. CONTACTS - SUPPLIERS .................................................................................................. 10
14. ANNEXURES ....................................................................................................................... 11
14.1 Annexure 1 Income Statement ............................................................................11
14.2 Annexure 2 Balance Sheet ..................................................................................12
14.3 Annexure 3 Cash Flow Statement ......................................................................13
14.4 Useful Project Management Tips ..........................................................................14
14.5 Useful Links ..............................................................................................................15
15. KEY ASSUMPTIONS .......................................................................................................... 16


Pre-Feasibility Study Catering and Decorating Services

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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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 Catering and
Decorating Services 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 shall form the 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, and
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 the 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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4. INTRODUCTION TO SCHEME

Prime Ministers Youth Business Loan program, 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).
Loans from Rs. 0.1 million to Rs. 2.0 million with tenure up to 8 years inclusive of 01
year grace period and a debt: equity of 90:10 will be disbursed to SME beneficiaries
across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwah, Balochistan, Gilgit
Baltistan, Azad J ammu & Kashmir and Federally Administered Tribal Areas (FATA).
5. EXECUTIVE SUMMARY

Catering and Decoration Services Business is proposed to be located in a middle
income area in cities like Karachi, Lahore, Rawalpindi, Hyderabad, Faisalabad, Multan
etc.
Services include catering of food & services to events such as weddings, mehndi &
mayun, corporate Events etc and decoration of event site (this service is to be
outsourced).
Capacity: Maximum 150 events per year and initial utilization upto 67%
Total Cost Estimates is Rs. 2.10 million with fixed investment of Rs. 1.37 million and
working capital of Rs. 0.74 million
Given the cost assumptions IRR and payback are 39 % and 3 years respectively
The most critical considerations or factors for success of the project are:
1. Procurement of Raw material
2. Location- proximity to marriage halls, business hubs etc
3. Quality Food
6. BRIEF DESCRIPTION OF PROJECT

Location: The recommended area for the proposed catering and decorating
service business is the middle income locality in cities like Karachi, Lahore,
Rawalpindi, Hyderabad, Faisalabad, Multan, Peshawar and Quetta etc. This
business can also be undertaken in all small 2
nd
tier towns in addition to
suburban towns of large cities.
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Product: The proposed project will offer high quality food & catering services to
events such as weddings, anniversaries and corporate events etc.
Target Market: Target customer for catering business would be event
management companies, corporate and individual clients, marriage hall & lawns
etc.
Employment Generation: The proposed project will provide direct employment
to 09 people. Financial analysis shows that the business shall be profitable from
the very first year of operation
7. CRITICAL FACTORS

Procurement of raw material
Location - proximity to marriage halls, business hubs etc
Quality of food, with precautionary measures of salient hygienic features
Strict management control
Professionalism and courteous customer service
Skilled Staff / Cooks
Planning & Organizing
Time Management
Contract with suppliers for decoration

8. INSTALLED AND OPERATIONAL CAPACITIES

For the proposed project, it is assumed that on an average 100 events will be catered
during a year with an average of 400 guests per event. The proposed business can also
serve up to 1,000 or more guests per event. Marquee and other decorative arrangement
for big events can be outsourced to multiple decorators.
Table 1: Project Economics
Events No. of Events in a Year %
Weddings 30 30
Mehndi & Mayun 30 30
Anniversaries 10 10
Corporate Events 07 07
Others 23 23
Total 100 100
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9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT

The Pakistani economy is becoming increasingly service-oriented and over the past
several decades the food service industry is growing substantially. There has been a
mushroom growth of marriage halls, event management complexes in the past decade
across all major cities and towns therefore there is a potential for proposed catering and
decorative service business to be established in cities like Karachi, Lahore, Rawalpindi,
Hyderabad, Faisalabad, Multan, Peshawar and Quetta etc.
10. POTENTIAL TARGET MARKETS

The recommended areas for the proposed business will be cities like Karachi, Lahore,
Rawalpindi, Hyderabad, Faisalabad, Multan, Peshawar and Quetta etc. This business
can also be done in all small 2
nd
tier towns in addition to suburban towns of large cities.
Target customers for the said business would be Corporate and Individual clients, Event
Management Companies, Marriage Halls & Lawns etc.
11. PROCESS FLOW

For a regular event, following process is to be followed:

Hiring and scheduling of Staff
Ordering and serving arrangements for menu items
Ordering equipment as needed from event rental companies
Obtaining licenses and permits, if needed, for use of the site etc.
Coordinating all ancillary services with the client and the vendors
12. PROJECT COST SUMMARY

A detailed financial model has been developed to analyze the commercial viability of
Catering & Decoration Service Business under the Prime Ministers Youth Business
Loan program. 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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12.1 Project Economics
All the figures in this financial model have been calculated for catering of 100 events in
a year, whereas decoration service for such events will be outsourced in order to control
the capital expenditure at initial stage. Revenue generated through such events is
based on given assumptions and calculated to be Rs. 19.20 million.

The following table shows Internal Rate of Return, Net Present Value and Payback
Period.
Table 2: Project Economics
Description Details
Internal Rate of Return (IRR) 39%
Payback Period (years) 3.0
Net Present Value (NPV) Rs. 3,855,365

Returns and profitability are highly dependent on regular occurrence of events, good
marketing practices, quality of services and more importantly good quality and taste of
food.
12.2 Project Financing
Following table provides details of the equity required and variables related to bank
loan;
Table 3: Project Financing
Description Details
Total Equity (10%) Rs.210,400
Bank Loan (90%.) Rs.1,893,600
Markup to the Borrower (%age/annum) 8%
Tenure of the Loan including Grace Period (Years) 08
Grace Period (Years) 01
12.3 Project Cost
Following requirements have been identified for operations of the proposed business.

Table 4: Capital Investment for the Project
Capital Investment Amount (Rs.)
Construction & Renovation 105,000
Machinery & Equipment 165,000
Office Equipment & Furniture 174,000
Advance Rent 150,000
Vehicles 675,000
Preliminary Expenses 100,000
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Total Capital Cost 1,369,000
Initial Working Capital 735,000
Total Project Cost 2,104,000
12.4 Space Requirement
Space required for Catering & Decoration Services Business is 750 sq. ft. Management
office will require 150 sq. ft. and 600 sq. ft. will be used for storage and cooking. It is
also assumed that preparation of Bar-B-Que items will be prepared on site as and when
required.
Table 5: Space Requirement
Area Required Area
(Sq. ft.)
Monthl y Rent
Charges (Rs.)
Yearl y
Rent(Rs.)
For Office & Storage 750 25,000 300,000
Total Rent 25,000 300,000
12.5 Machinery and Equipment
Following table provides list of machinery and equipment required for the proposed
Catering & Decoration Services Business.
Table 6: Machinery and Equipment
Description
Total
Rs.
Burners / Fittings / Others 40,000
Daigs / Kadhai / Others 20,000
Storage Racks 15,000
Deep Freezers 60,000
Other Kitchen Utensils 30,000
Total 165,000

Table 7: Office Equipment & Furniture Costs
Quantity Cost Amount
Computer & UPS 1 50,000 50,000
Printer 1 15,000 15,000
Tables 2 8,000 16,000
Chairs 6 3,000 18,000
Sofa Set 1 20,000 20,000
Split AC 1 45,000 45,000
Others 1 10,000 10,000
Total 174,000
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12.6 Human Resource Requirement
Table 8: Human Resource Requirement
Description Nos. Salary per
employee per
month (Rs.)
Total monthl y
Salary (Rs.)
Owner 1 25,000 25,000
Head Cook 1 20,000 20,000
Cooks / Karigars 2 15,000 30,000
Helpers 4 10,000 40,000
Driver 1 10,000 10,000
Total Staff 9 125,000

The table above provides detail of human resources required to run a Catering and
Decoration Services Business. Salaries of all employees are estimated to increase at
10% annually.
12.7 Revenue Generation
The revenues are based on assumption that 100 events/year with an average of 400
guests will be organized. The standard menu will be of two items only.
Table 9: Revenue Generation
Events Nos.
Sales
Price (Rs.)
Revenue (Rs.)
Banquet Arrangement (Per Head) 400 90 36,000
Shamiana / Kanats (Per Head) 400 15 6,000
Marquee Set up (Per Head) 400 90 36,000
Stage 1 20,000 20,000
Water (Per Head) 16 250 4,000
Food Standard Menu (Per Head) 400 225 90,000
Total Sales Revenue per event 192,000
Total Sales Revenue in a Year 19,200,000
12.8 Other Costs
An essential cost to be borne by the said business is the promotional expense to attract
more clients. Average monthly expenditure in this head is assumed to be Rs. 20,000.

Working Capital Requirements: It is estimated that an additional amount of
approximately Rs. 735,000 will be required as cash in hand to meet the initial working
capital requirements during operations. The requirement is based on the rent, utilities
and salaries expenses for at least four months. The following table gives the break up.

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Table 10 Working Capital Requirement
Month Monthl y Charges (Rs.)
Utilities 04 285,000
Salaries 04 375,000
Rent 04 75,000
Total 735,000
13. CONTACTS - SUPPLIERS

KITCHEN 'N' RESTAURANT SYSTEMS
102-A, Allama Iqbal Road Butt Lane, Garhi Shahu, Lahore, Punjab, Pakistan
Phone: +92-42-36366590 / 36305989
Fax: +92-42-36305989

KITCHEN CARE
#103, Golden Plaza F-7, Blue Area, Islamabad, Capital, Pakistan
Phone: +92-51-32875226
Fax: +92-51-32277176

PRESTIGE KITCHENS
Kehkashan Shopping Arcade Block-7, Clifton, Karachi 75600, Sindh, Pakistan
Phone: +92-21-35862978 / 35862839
Fax: +92-21-5871814








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14. ANNEXURES
14.1 Annexure 1 Income Statement



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14.2 Annexure 2 Balance Sheet












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14.3 Annexure 3 Cash Flow Statement

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14.4 Useful Project Management Tips

Technology
List of Equipment
Burners / Fittings / Others
Daigs / Kadhai / Others
Storage Racks
Deep Freezers
Other Kitchen Utensils

Energy Requirement: Should not be overestimated or installed in excess and
alternate source of energy for critical operations should be arranged in advance.
Equipment Suppliers: Should be asked for training/orientation and after sales
services under a contract with the suppliers.
Quality Assurance Equipment & Standards: Products/Service quality
standards need to be defined and a monitoring system for compliance to be
instituted. This will improve credibility.
Marketing
Product Development & Packaging: Expert's help may be engaged for
product/service and packaging design & development.
Ads & P.O.S. Promotion: Business promotion and dissemination through
banners and launch events is highly recommended. Brochures from good quality
Decoration Service Providers need to be obtained and kept for further use.
Price - Bulk Discounts, Cost plus Introductory Discounts: Price should never
be allowed to compromise on quality. Price during introductory phase may be lower
and used as a promotional tool. Product cost estimates should be carefully
documented before price setting.
Human Resources
Owner
Head Cook
Cooks / Karigars
Helpers
Driver

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Adequacy & Competencies: Skilled and experienced staff should be
considered an investment even to the extent of offering share in business profit.
Performance Based Remuneration: Attempt to manage human resource
cost should be focused through performance measurement and performance based
compensation.
Training & Skill Development: Encouraging training and skill of self &
employees through experts and exposure of best practices is route to success.
Least cost options for Training and Skill Development (T&SD) may be linked with
compensation benefits and awards.
14.5 Useful Links

Prime Ministers Office
www.pmo.gov.pk
Small & Medium Enterprises Development Authority (SMEDA)
www.smeda.org.pk
National Bank of Pakistan (NBP)
www.nbp.com.pk
First Women Bank Limited (FWBL)
www.fwbl.com.pk
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
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Government of Balochistan
www.balochistan.gov.pk
Government of Gilgit Baltistan
www.gilgitbaltistan.gov.pk
Government of Azad Jammu Kashmir
www.ajk.gov.pk
Trade Development Authority of Pakistan (TDAP)
www.tdap.gov.pk
Securities & Exchange Commission of Pakistan (SECP)
www.secp.gov.pk
Federation of Pakistan Chambers of Commerce and Industry (FPCCI)
www.fpcci.com.pk
State Bank of Pakistan (SBP)
www.sbp.org.pk
15. KEY ASSUMPTIONS

Description
Debt Equity Ratio 90:10
Interest Rate 8%
Loan Tenure (With 01 year grace period) 8 Years
Sales Price Growth Rate 10%
Depreciation Rate 10%
Weighted Average Cost of Capital 9.2%
Prepaid Rent Period 6 Months
Increase in Staff Salaries 10%
Increase in Office expense 10%



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