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PINACLE

LIQUID
DETERGENT

Business Plan to Establish Small Scale


Liquid Detergent Production and Sales

December, 2015

TABLE OF CONTENTS

I.

SUMMARY..........................................................................................................1

II.

PRODUCT DESCRIPTION AND APPLICATION...............................................2

III.

MARKET STUDY AND PLANT CAPACITY.......................................................3

IV.

MATERIALS AND INPUTS.................................................................................6

V.

TECHNOLOGY AND ENGINEERING................................................................7

VI.

HUMAN RESOURCE AND TRAINING REQUIREMENT..................................9

VII.

FINANCIAL ANALYSIS....................................................................................10

Appendix 7.A: FINANCIAL ANALYSES SUPPORTING TABLES..........................13

I.

SUMMARY

This profile envisages the establishment of small scale plant for the production of liquid
detergent with a capacity of 30 tons per annum. Liquid detergent is extensive used in
households, guest houses, hotels, canteens, hospitals, schools, higher institutions, offices, etc., as
a general cleaning agent.
The countrys requirement of liquid detergents is largely met through import. The present (2015)
demand for liquid detergents is estimated at 277 tons. The demand for liquid detergents is
projected reach 393 tons and 527 tons by the years 2021 and 2026, respectively.
The principal raw materials required are Sodium lauryl ether sulfate or SLES,
Cocodiethanolamide or CDEA, STPP, Cooking salt, Dye - water soluble and Synthetic
Fragrance. All raw materials can be obtained locally.
The total investment cost of the project including working capital is estimated at Birr 50,000.
Both fixed investment and initial working capital have equal 50% share.
The project is financially viable with an internal rate of return (IRR) of 252% and a net present
value (NPV) of Birr 438,000, discounted at 10%.
The project can create employment for 6 persons. The project will also create forward linkage
with the service sector such as hotels, restaurants and hospitals and back ward linkage with the
chemical manufacturing sub sector and also generates income for the Government in terms of
tax revenue and payroll tax.
II.

PRODUCT DESCRIPTION AND APPLICATION


A liquid detergent is a surfactant or a mixture of surfactants with "cleaning properties in dilute
solutions." These substances are usually alkyl benzene sulfonates, a family of compounds that
are similar to soap but are more soluble in hard water, because the polar sulfonate (of detergents)
is less likely than the polar carboxyl (of soap) to bind to calcium and other ions found in hard
water.
Liquid detergent finds extensive use in households, guest houses, hotels, canteens, hospitals,
schools and higher institutions, offices, etc. as a general cleaning agent. It is used to wash hands,
dishes, cooking and other household utensils, tiles, walls, kitchens, motor vehicles, furniture,
clothes etc. Industrially, liquid detergent is used in large quantities in manufacturing industries
where conveyor belts are employed in their production lines in order to lubricate the rolling
sections of the chains so as to allow easy and effective movement of the belts on these bearings.
Such industries include but are not limited to breweries, food processing, pharmaceutical,
beverage, chemical and allied industries, glass, etc.
III.

MARKET STUDY AND PLANT CAPACITY


A.

MARKET STUDY
1. Past Supply and Present Demand
The country`s requirement of detergents is largely met through import. Although some
brands of detergents in a limited quantity are locally manufactured, the data which is
published by the Central Statistical Agency on the survey of Medium and Large Scale
and Electricity Industries lumps together with soap. Hence, in order to analyze the
unsatisfied demand for detergents the data obtained from the Ethiopian Revenues and
Customs Authority on the import of detergents for the past nine years is presented for
analysis (see Table 3.1).
Table 3.1: IMPORT OF DETERGENTS
Value
Year

Volume (Tons)
(000 Birr)
2006
2007
2008
2009
2010
2011
2012
2013
2014

2,316.60

12,005.00

165.70

1,364.00

1,096.60

8,554.00

1,270.70

14,953.00

780.30

13,674.00

541.30

15,253.00

817.52

19,164.76

868.93

31,490.40

946.05

37,109.94

Source: Ethiopian Revenues and Customs Authority

As could be seen from Table 3.1, the imported quantity during the past nine years was
highly erratic, which ranges from the lowest 165.70 tons (year 2007) to 2,313.6 tons
(year 2006). In the absence of a clear trend in the data set the recent four years average is

believed to indicate the present demand. Accordingly, present demand (year 2015) for
detergents is estimated at 793 tons.
Since there is no disaggregated data on the amount of powdered and liquid detergents,
the views of knowledgeable people in the area have been collected. Accordingly, it was
learnt that about 65% of the total volume of imported detergents constitute powdered and
the remaining 35% liquid. Taking this as a base, the current demand for liquid detergent
is estimated at 277 tons.

2. Demand Projection
The factors that influence the future demand for detergents are numerous. Among the
major ones population growth, income rise, urbanization, and increase of awareness of
the population on sanitation can be cited. The population of the country in general is
growing at a rate of about 3.2% per annum. The urban population, which is the major
user of detergents, is also growing above 3.5%. Gross domestic product (GDP), which is
one of the measures of income, has been growing by more than 11% in the past
consecutive years and is forecasted to continue in the future. The sanitation awareness of
the whole population is increasing due to the efforts underway by the Ministry of Health
and other stakeholders. Hence, as the result of the above factors the demand for
detergents in the urban as well as rural areas will increase substantially. By considering
the combined effects of the above factors mentioned the future demand is forecasted to
grow by 6% per annum. The demand projection made based on this assumption is
presented in Table 3.2.
Table 3.2: DEMAND FORECAST FOR LIQUID DETERGENTS (TONS)
Year

Volume (Tons)
2016
2017
2018
2019

294.37
312.03
330.76
350.60

2020
2021
2022
2023
2024
2025
2026

371.64
393.93
417.57
442.63
469.18
497.33
527.17

The demand for liquid detergent will grow from 294 tons in 2016 to 393 tons and 527
tons by the years 2021 and 2026, respectively.
3. Pricing and Distribution
The selling price is based on "Cost-Plus Method". A profit markup of 25% over the total
product cost is very reasonable and competitive especially at this initial stage. Unit
product cost is estimated at Birr 12.00. Adding the 25% profit mark up, the price is Birr
15.00 whether delivered or walk-in.
The product can be classified as a consumer item. The end users of the product are
numerous and widely distributed throughout the country. Hence, the project plans to sell
the products to the retailers in Addis Ababa to reach the final consumers of the product.
B.

PLANT CAPACITY AND PRODUCTION PROGRAM


1. Plant Capacity
The market study shows that demand for liquid detergent increases from 294 tons in the
year 2016 to 527 tons in the year 2026. Based on the market study and capital constraint,
the envisaged plant capacity is 30 tons per annum on a single shift of 8 hours per day and
300 working days per year.
2. Production Program

In order to develop the operators skill in production and quality control, it is vital to
have a gradual capacity buildup. In addition to this, a period is required to penetrate to
the market. Hence, it is assumed that the plant will go into full capacity operation in four
years time starting with 70% capacity in the first year and progressively developing to
80%, 90% and 100% in the second, third and fourth year and then after respectively. The
production program of the envisaged plant is given in Table 3.3.
Table 3.3: PRODUCTION PROGRAMME OF THE ENVISAGED LIQUID
DETERGENT PLANT
No.

IV.

Item Description

1st Year

2nd Year

3rd Year

4th 10th

Production of liquid detergent (tons)

21

24

27

30

Capacity Utilization (%)

70

80

90

100

MATERIALS AND INPUTS


A.

MATERIALS

The principal raw materials required are Sodium lauryl ether sulfate or SLES,
Cocodiethanolamide or CDEA, STPP, Cooking salt, Dye - water soluble and Synthetic
Fragrance. All raw materials can be obtained locally. The total annual cost of raw material at full
capacity operation is estimated at Birr 126,450.00. The annual requirement of raw material and
their estimated costs are presented in Table 4.1.
Table 4.1: ANNUAL REQUIREMENT FOR RAW AND AUXILIARY MATEIRALS AND
THEIR COST
No.

Item Description

Quantity in tons

Cost (000 Birr)

Sodium lauryl ether sulfate or SLES


1

2.40

48.00

Cocodiethanolamide or CDEA
2

1.50

45.00

STPP
3

0.90

16.20

Cooking salt
4

1.50

7.50

Dye - water soluble


5

0.03

9.00

Fragrance - Synthetic
6

0.03

0.75

Total

B.

126.45

UTILITIES

Utilities required are electricity and water. The total annual cost of utilities is estimated at Birr
6,100. The annual quantities and cost of utilities are estimated as shown in Table 4.2.
Table 4.2: ANNUAL UTILITY REQUIREMENT AND COST
No.

Description

Quantity

Cost (000 Birr)

1Electric Power (kwh)

7,500

4.35

2Water (m3)

1,000

1.75

Total

V.

6.10

TECHNOLOGY AND ENGINEERING


A.

TECHNOLOGY
1. Production Process
The process of manufacture consists as follow:

Mix sodium lauryl ether sulfate and water. Add small amount of water and mix it
well.

Add coconut diethanol and mix it well using the stirrer. Continue mixing until it
become sticky. Add small amount of water while mixing to avoid creating
bubbles. Set aside the CDEA-SLES mixture when it turned cream.

In a separate mixing bowl, mix STPP. Set it aside.

Get your cream and mixed it again slowly. When the mixture bubbles, add slowly
the STPP mixture while mixing using the electric mixer.

In a separate mixing bowl, dissolve salt before adding it to the STPP and CDASLES mixture.

Let drops of fragrance to the mixture. Continue mixing using the electric mixer
until it become creamy.

Put it in a container and set aside. From time to time, scoop bubbles forming at
the top of the mixture.

When there is no bubble anymore, put the liquid detergent in a clean tank. You
can use the liquid detergent after 24 hours.

2. Environmental Impact Assessment


The process of production of liquid detergent involves simple mixing and packing and
does not have any adverse impact in the environment.

B.

ENGINEERING
1. Machinery and Equipment
The total cost of equipment is estimated at Birr 30,500.00, all of which is required in
local currency. The list of equipment required for the envisaged plant is given in Table
5.1.
Table 5.1: LIST OF EQUIPMENT AND THEIR COST

No.

Equipment

Safety Gear
1 A jacket or apron made of hard material
2 A pair of plastic or rubber gloves
3 A protective mask or scarf
4 A pair of rubber boots or covered shoes
5 A pair of protective goggles
Sub Total 1
Equipment
1 Water tank
2 Liquid detergent tank
3 Mixing tank with stirrer
5 Booster tank
7 Electronic scales for measurements
Sub Total 2
Grand Total

Unit

Quantity

Unit Price

Total Cost
(Birr)

Pcs
Pcs
Pcs
Pcs
Pcs

2
2
2
2
2
10

500.00
300.00
250.00
200.00
250.00

1,000.00
600.00
500.00
400.00
500.00
3,000.00

Pcs
Pcs
Pcs
Pcs
Pcs

1
1
1
2
1
6
16

3,000.00
5,000.00
10,000.00
500.00
3,000.00

3,000.00
5,000.00
10,000.00
1,000.00
3,000.00
22,000.00
25,000.00

2. Work Space
The total area required by the project is 50 m 2. For the purpose of this project renting of
work space from individual owner is planned. Accordingly, the total work space rent cost
at a rate of Birr 3,000.00 per month is estimated.
VI.

HUMAN RESOURCE AND TRAINING REQUIREMENT


A.

HUMAN RESOURCE REQUIREMENT

Total human resource required is 6 persons. The total annual cost of human resource is estimated
at Birr 129,000. The details of the human resource requirement and the estimated annual labor
cost including employees benefit are given in Table 6.1.
Table 6.1: HUMAN RESOURCE REQUIREMENT AND ESTIMATED LABOR COST
(BIRR)
No.

Description

1 Manager
2 Accountant and cashier
3 Operator
4 Assistant Operator
5 Guard
Sub Total
Employees benefit (25% of basic salary)
Grand total

B.

Head Count
1
1
1
1
2
6

Monthly Salary
2,500.00
2,000.00
1,500.00
1,000.00
1,600.00
8,600.00
2,150.00
10,750.00

Annual Salary
30,000.00
24,000.00
18,000.00
12,000.00
19,200.00
103,200.00
25,800.00
129,000.00

TRAINING REQUIREMENT

The production of liquid detergent is simple and involves simple mixing and does not need any
special training.
VII.

FINANCIAL ANALYSIS
The financial analysis of the liquid detergent project is based on the data presented in the
previous chapters and the following assumptions:Source of finance

100 % equity

Discount cash flow

10%

Accounts receivable

15 days

Raw material local

15 days

Work in progress

1 day

Finished products

10 days

Cash in hand

5 days

Accounts payable
A.

0 day

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 50,000.
Both fixed investment and initial working capital have equal 50% share each.
B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 328,000 (see Table
7.1). The cost of raw material account for 38.61% of the production cost. The other major
component of the production cost is administrative costs, which account for 43.81%. The
remaining 17.58% is the share of utility, direct labor, labor overhead, depreciation and marketing
cost. For detail production cost see Appendix 7.A.2.
Table 7.1: ANNUAL PRODUCTION COST AT FULL CAPACITY (YEAR FOUR)

Raw material
Utilities
Labour
Labour overhead costs
Administrative costs
Depreciation
Marketing costs

Cost
% share
( in 000 Birr)
126
38.61%
6
1.86%
30
9.16%
8
2.29%
143
43.81%
5
1.53%
9
2.75%

Total Production Cost

328

Items

100.00%

C.

FINANCIAL EVALUATION
1. Profitability
Based on the projected profit and loss statement, the project will generate a profit
throughout its operation life. Annual net profit after tax ranges from Birr 73 thousand to
Birr 89 thousand during the life of the project. Moreover, at the end of the project life the
accumulated net cash flow amounts to Birr 869 thousand. For profit and loss statement
and cash flow projection see Appendix 7.A.3 and 7.A.5, respectively.
2. Ratios
In financial analysis financial ratios and efficiency ratios are used as an index or
yardstick for evaluating the financial position of a firm. It is also an indicator for the
strength and weakness of the firm or a project. Using the year-end balance sheet figures
and other relevant data, the most important ratios such as return on sales which is
computed by dividing net income by revenue, return on assets (operating income divided
by assets), return on equity (net profit divided by equity) and return on total investment
(net profit plus interest divided by total investment) has been carried out over the period
of the project life and all the results are found to be satisfactory.
3. Break-even Analysis
The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, the
break-even point for capacity utilization and sales value estimated by using income
statement projection are computed as followed.
Break -Even Sales Value = .

Fixed Cost

= Birr 261,570

Variable Margin ratio (%)


Break -Even Capacity utilization = Break -even Sales Value X 100 = 58.13%
Sales revenue
4. Pay-back Period
The pay -back period, also called pay off period is defined as the period required
for recovering the original investment outlay through the accumulated net cash

flows earned by the project. Accordingly, based on the projected cash flow it is
estimated that the projects initial investment will be fully recovered within a year.
5. Internal Rate of Return
The internal rate of return (IRR) is the annualized effective compounded return
rate that can be earned on the invested capital, i.e., the yield on the investment. Put
another way, the internal rate of return for an investment is the discount rate that
makes the net present value of the investment's income stream total to zero. It is an
indicator of the efficiency or quality of an investment. A project is a good
investment proposition if its IRR is greater than the rate of return that could be
earned by alternate investments or putting the money in a bank account.
Accordingly, the IRR of this project is computed to be 252% indicating the viability
of the project.
6. Net Present Value
Net present value (NPV) is defined as the total present (discounted) value of a time
series of cash flows. NPV aggregates cash flows that occur during different periods
of time during the life of a project in to a common measuring unit i.e. present value.
It is a standard method for using the time value of money to appraise long-term
projects. NPV is an indicator of how much value an investment or project adds to
the capital invested. In principle, a project is accepted if the NPV is non-negative.
Accordingly, the net present value of the project at 10% discount rate is found to be
Birr 438 thousand which is acceptable. For detail discounted cash flow see
Appendix 7.A.5.
D.

FINANCIAL EVALUATION

The project can create employment for 6 persons. The project will generate Birr 296
thousand in terms of tax revenue. The project will also create forward linkage with the
service sector such as hotels, restaurants and hospitals and back ward linkage with the
chemical manufacturing sub sector and also generates income for the city administration
in terms of tax revenue and payroll tax.

VIII.

Appendix 7.A: FINANCIAL ANALYSES SUPPORTING TABLESAppendix 7.A.1


NET WORKING CAPITAL (in 000 Birr)
Description
1. Current assets
1.1 Accounts receivable (debtors)
1.2 Inventory
a) Materials
- Local materials
- Imported materials
c) Work-in-Progress
d) Finished Products
1.3 Cash-in-hand
2. Current liabilities
2.1 Accounts payable (creditors)
3. Working capital
3.1 Net working capital (1) - (2)
3.2 Increase in working capital

Days of
Coverage

15

15
90
1
10
5
-

Production Years
5
6
35
35
35
18
18
18
14
14
14

25
13
10

28
15
12

31
17
13

4
0
6
1
-

4
0
7
1
-

5
0
8
2
-

5
0
9
2
-

5
0
9
2
-

25
25

28
3

31
3

35
3

35
-

10

35
18
14

35
18
14

35
18
14

35
18
14

5
0
9
2
-

5
0
9
2
-

5
0
9
2
-

5
0
9
2
-

5
0
9
2
-

35
-

35
-

35
-

35
-

35
-

Appendix 7.A.2
PRODUCTION COST (in 000 Birr)
Cost item
Capacity utilization
I. Costs of Goods Manufactured
1. Direct & auxiliary materials
2. Utilities
3. Labour, direct
4. Factory Overheads
-Depreciation & amortization
II. Selling & Marketing Costs
-Marketing costs (% sales)
III. General & Adm. Expenses
Salaries & wages (+ benefits)
Rent payment
Transport
Miscellaneous
Total Operating Costs

Production years
1

10

70%

80%

90%

100%

100%

100%

100%

100%

100%

100%

124

141

158

175

175

170

170

170

170

170

89

101

114

126

126

126

126

126

126

126

26

30

34

38

38

38

38

38

38

38

112

122

133

143

143

143

143

143

143

143

64

73

82

92

92

92

92

92

92

92

36

36

36

36

36

36

36

36

36

36

242

271

299

328

328

323

323

323

323

323

Appendix 7.A.3
INCOME STATEMENT (in 000 Birr)
Description
Total Sales Revenue
Less Cost of Goods Sold
Gross Profit
Gross Profit Margin
Less Administrative Expenses
Profit (loss) before Interest, Sales Cost & Tax
Less Selling & Distribution Costs
Profit (loss) before Tax
Less Income Tax (30%)
Net Profit (Loss)
Cumulative Net Profit (Loss)
* Tax holiday period

Production Years
1
315

2
360

3
405

4
450

5
450

6
450

7
450

8
450

9
450

10
450

124

141

158

175

175

170

170

170

170

170

191

219

247

275

275

280

280

280

280

280

61%

61%

61%

61%

61%

62%

62%

62%

62%

62%

112

122

133

143

143

143

143

143

143

143

79

97

114

131

131

136

136

136

136

136

73

89

106

122

122

127

127

127

127

127

32

37

37

38

38

38

38

38

73

89

74

86

86

89

89

89

89

89

73

162

236

322

408

497

586

676

765

854

Appendix 7.A.4
BALANCE SHEET (in 000 Birr)
Description
Fixed assets
Fixed investment
Total Fixed Assets
Less acc. Depreciation
Net fixed assets
Current assets
Cash on hand & at bank
Debtors (receivables)
Stocks
Total current assets
less Current liabilities
Creditors (payables)
Overdraft
Total current liabilities
Total working capital
Total net assets
Financed by
Paid-up capital
Retained profits (Losses)
Total

Year
0

Production Years
5
6

10

25
25
25

25
25
5
20

25
25
10
15

25
25
15
10

25
25
20
5

25
25
25
-

25
25
25
-

25
25
25
-

25
25
25
-

25
25
25
-

25
25
25
-

79
13
10
103

170
15
12
197

246
17
13
276

334
18
14
367

425
18
14
458

514
18
14
547

603
18
14
636

692
18
14
725

782
18
14
815

871
18
14
904

25

103
123

197
212

276
286

367
372

458
458

547
547

636
636

725
725

815
815

904
904

25
25

50
73
123

50
162
212

50
236
286

50
322
372

50
408
458

50
497
547

50
586
636

50
676
725

50
765
815

50
854
904

Appendix 7.A.5
DISCOUNTED CASH FLOW (in 000 Birr)
Description

Year
0

Total Cash Inflow


1. Inflow of funds
Borrowing (long & med-term)
Borrowing (short term)
2. Inflow from operation
Profit after tax
Depreciation
3. Other income
Salvage value of assets
Recoverable asset
Total Cash Outflow
4. Investment
Fixed investment
Incremental working capital
5. Loan repayment
Long & med-term loan (Principal)
Short-term loan (Principal)
Net cash flow
Cumulative Net cash flow
Net present value (@ 10%)
Internal rate of return (IRR)
Note:

Book
Value
11

Production Years
1

10

25

78
78
73
5
25

94
94
89
5
3

79
79
74
5
3

91
91
86
5
3

91
91
86
5
-

89
89
89
-

89
89
89
-

89
89
89
-

89
89
89
-

89
89
89
-

35
35
35
-

25
-

25

(25)
(25)
438
252%

53
28

91
119

76
195

87
282

91
373

89
462

89
552

89
641

89
730

89
819

35
854

a. Salvage value of assets is taken to be the book value of fixed assets.


b. Recoverable asset is taken to be the net working capital.