FOR
GUITAR PRODUCTION
UNIT
PRESENTED BY
ARNAB BHATTACHARYA
ANIRBAN BHATTACHARYA
ARGHYADEEP MITRA
SHAMBO ROYCHOUDHURY
MANISH NEL CHATTERJEE
Indische Guitars
January 5, 2016
Contents
Purpose of Funding..................................................................................................... 3
Executive Summary.................................................................................................... 5
The Company................................................................................................................ 5
Corporate Plan.............................................................................................................. 5
Introduction................................................................................................................ 6
Industry......................................................................................................................... 6
Mission Statement........................................................................................................ 7
Goals & Objectives........................................................................................................ 7
Operations plan
..8
Workshop Hours............................................................................................................ 8
Location........................................................................................................................ 8
Floor Plan...................................................................................................................... 9
Business Cycles.......................................................................................................... 10
Average Business Day............................................................................................. 10
Average Business Week........................................................................................... 10
Average Business Month.......................................................................................... 10
Average Fiscal Year.................................................................................................. 11
Supply Analysis........................................................................................................ 11
Marketing plan
.12
Products & Services.................................................................................................... 12
Pricing......................................................................................................................... 12
Promotions.................................................................................................................. 12
Positioning, Targeting & Segmentation.......................................................................13
Specific Market Analysis............................................................................................. 13
Sales Strategy............................................................................................................. 13
Advertising.................................................................................................................. 14
Competitor analysis
.16
SWOT Analysis............................................................................................................ 16
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January 5, 2016
Financial plan
..19
Capital Budget............................................................................................................ 19
Product Cost Analysis.................................................................................................. 20
Table 1: Product Cost Break-up................................................................................ 20
Operating Expenses.................................................................................................... 20
Table 2: Estimated Monthly Operating Expenditures...............................................21
Table 3: Working Capital Requirements.......................................................................21
Table 4: Required Capital Expenditure........................................................................22
Profit Projections......................................................................................................... 23
Income Statement...................................................................................................... 23
Table 5: Projected Income Statement for the Year Ended 31.03.17............................23
Estimated 5 Year Profit & Loss Projections..................................................................24
Conclusion
..26
Notes
..27
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Purpose of Funding
Indische Guitars aims at being
founding/working partners namely:
Limited
Liability
Partnership
firm
Arnab Bhattacharya
Anirban Bhattacharya
Shambho Roychowdhury
Arghyadeep Mitra
with
According to preliminary research and estimation the total capital investment required
to launch the business is 2868100.00 (Twenty Eight Lakh Sixty Eight Thousand One
Hundred). This includes the initial expenditure required to get the business
incorporated and established and assets to kick start the production process. It also
covers average recurring monthly costs for a period of 6 months.
This capital contribution will help the business grow and will also provide
financial cover for the initial two years during which the business is expected to break
even (Please Refer Profit Projection). The estimated investment amount has been
arrived at by considering current costs of raw materials and parts required for
production as well as estimation of certain pre and post incorporation expenditures
such Incorporation expenses and monthly recurring expenditures like Advertising,
Telephone & Internet Charges and Rent etc.
The capital investment is proposed to be carried out in two phases:
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January 5, 2016
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January 5, 2016
Executive Summary
The Company
Indische Guitars aims to penetrate the Kolkata/India music and guitar market by
offering new style of quality guitars to hungry guitarists at competitive and affordable
prices. On being incorporated, this company will look to attract guitarists of all sorts of
ages and genres that are seeking a way to afford good quality guitars and their coveted
sounds.
Corporate Plan
Our goal is to supply the city/country with a guitar-specialized production unit that
provides uniquely produced guitars that are of exquisite look and sound to customers
while being affordable at the same time. We want to have our workshop in place by
second-quarter of 2016 in the location around suburbs of Kolkata. We would currently
be the only high-quality electric guitar manufacturer in the city, so it is important that
we start with a proper goal in mind.
The goal in the first couple of years is to remain feasible and operate with a positive
cash flow to sustain growth in the subsequent years. We will use different advertising
and promotional mediums to reach the desired target markets in the city. If the first few
years prove successful, then the company could look into expanding outside of just
guitar inventory and obviously shifting into other instrument inventories as well.
Financially, the business must provide the owners/managers with an income that is
greater than what their opportunity cost could be in doing what they are currently
doing. It must be worth the risk to them that there is solid chance of greater income in
this business. The strong predictions and financial models look favorable when
accompanied by sales and marketing experience.
The following is a plan that explains everything necessary to the business including
operations, marketing and key financial plans. It serves as a proposal to the business
and whether it is something worth pursuing. Financial models will be attached in
spreadsheet form to go along with this report.
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Introduction
Industry
The musical instrument industry in Kolkata covers a vast amount of area including
wind, brass, percussion and string instruments as well as their respective accessories
and sound equipment requirements. The guitar industry specifically narrows focus to
electric and acoustic guitars, guitar amplifiers, pedals and respective accessories
(strings, picks, cables and sheet music). Industry research done by us shows that
musical instrument retailers achieved a third consecutive quarter of sales growth in the
first quarter of 2015. This growth is being driven by guitars primarily due to its
explosion in becoming the instrument of choice for young musicians as well as for
musical schools. Figures compiled from all over India as well show growth in the
industry with increases of between 50,000 and 200,000 guitars purchased in 2015
compared to 2010. The growth of the sales of budget fretted instruments have risen
3.6% this past year. It is a strong sign for guitar and music retailers to see consistent
growth in the industry, especially for prospective small business entrepreneurs looking
to enter the market.
Lower average prices for guitars have sparked a growth in guitar purchases by both
ends of the age spectrum. More and more youth are starting out with guitars due to
influences such as Guitar Hero, and more young players have begun to form bands
once again since their school days. The reason for this being that these people now
have disposable income that allows for easier purchases of guitars and equipment than
a few years before. Demographics therefore have made for a larger and more
expansive market for opportunity.
Music and guitars have always been an intriguing and popular hobby, even profession
that has continued to attract both young and old to the art. Guitars have endured the
test of time and are still a necessity for almost all music genres. Rarely ever will a
person hear a track recording that has not included the work of a guitar to some extent.
Guitar is a skill that requires patience and work, with results that open the door for so
much musical opportunity. It is art that has many different styles and techniques that
an individual can discover on their own. Each guitarist is unique and can create his/her
unique sound for recreation, hobby or even profession. The endurance of these
instruments has made them a continuous powerhouse for instrument choice and
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continues to drive bands as well as music industry growth. There will always be those
both young and old who discover their love for the guitars catchy riffs and sweeping
solos, meaning a market that will continue to endure over time.
Mission Statement
Indische Guitars is committed to supporting the music sector within India by serving
its new and distinguished guitarists through the supply of uniquely produced budget
guitars, Exquisite custom made guitars and repair servicing. All of this through a
friendly and knowledgeable-local staff dedicated to providing the best service to our
customers.
Effectively establish an image and brand that is well respected and known
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Operations Plan
Indische Guitars will be both a direct sales company that will specialize in selling
uniquely produced budget guitars and custom made higher end instruments to the
established and prospective guitarists of Kolkata, India. Sales will be achieved through
both in-store, personal contacts and endorsements. Our staff will be very hospitable to
the customers as well as providing them with product knowledge and expertise. Our
instruments (be it budget or high-end) will aesthetically attract customers and close
sales through easy navigation and informative product descriptions.
Workshop Hours
Monday- Friday
10am 7pm
Saturday
10am 4pm
Sunday
Closed
We want to accommodate the high level of customer relations that Indische has aimed
to achieve and we shall do that by having at least two consistent employees working
during hours of operation. The work will be divided to individual expertise to act as
Luthier, providing sales, marketing and bookkeeping needs of the company. Each of our
unique backgrounds provides the skillset needed to effectively start-up and run the
business. With the need for excellent repair service for customers, another employee
with knowledge of guitar electronics and mechanics will be hired to conduct both
repairs and additional sales service.
Location
Indische Guitars will be located in the suburbs, Kolkata, at a commercial property. The
location will be a commercial space of 1500-2000 square feet that will be rented/leased
at current viable market rates per square foot including basic utilities. In total, the
monthly cost for lease will be around Rs. 30,000. We will choose this location based on
the following reasons:
1. Financial Flexibility The location should be relatively inexpensive for the area,
providing
adequate space and excellent positioning for the start-up all for a
price that will give the owner more flexibility in budgeting. The building should
provide the preferable size for inventories and space requirements as well.
2. Distance Relative to Competitors Indische Guitars will be situated at a minimum
15 kilometers from its nearest competitor.
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3. Instruments - The distance will allow for more freedom of movement in our
marketing strategies and customer relations as there is and will be an
established and developing customer base in that area of the city.
4. Convenience The workshop would be situated in a convenient location for
potential customers to visit and the area should provide the needed consumer
traffic for the businesss sales goals.
Floor Plan
Figure 1
The proposed floor plan for Indische Guitars is designed to have an appeal and feel that
well-suits production, finishing and setup experience. There will be a main production
space where inventories will be held and viewed allowing for a very smooth-flow of
production traffic on the floor as shown in Figure 1 above. There will also be places
where customers can test out guitars that they are interested in. This area will be
located in a partitioned section from the main area, containing guitars and amplifiers.
Raw materials like wood stocks will be held in racks for easy viewing and access. There
will also be a separate portioned room for spraying finishes. A separate room will be
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partitioned off to act as the setup and service area and a final room will be there to act
as the business office.
Business Cycles
Average Business Day
Typical business days at Indische will be very similar year-round. The owners/managers
will check over necessary inventory lists and store needs such as product placement.
The schedule and target for the week will be set on every Monday morning with a short
meeting. Production each day will commence with specific tasks involving choice and
sorting of wood to what hardware to be used with which finish and details of such
production targets will be put on specific tabulated forms to be displayed in the main
production area for convenience of each workstation. The daily stock and equipment
inventory will be maintained in promoting the sales of the inventory. All the employees
must know the ins and outs of each instrument produced as Guitarists will have more
respect for knowledgeable staff that are willing to spend time discussing the products in
question. Weekends will be of lower workload to provide the staff with better and
relaxed work environment. Accounting for everyday sales and purchases as well as
income and expenditure will be carried out for which records will be kept in the form of
daybooks and cashbooks.
Time for the other sales/repair work that will have been brought in on earlier occasions
will be allocated separately. The weekend will conclude with another small meeting to
update bookkeeping, marketing strategies and daily purchase orders for inventory as
well as handling sales duties if any are needed. The cleanup and preparation of the
work floor if necessary for the next day as well as making final inventory purchase
orders based on inventory sold during the day, will be done before closure.
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Supply Analysis
All inventory in the line will be purchased from respected manufacturers that have
strong reputation amongst the music and guitar industry. Woods will be purchased
specifically from reputed suppliers both local and overseas. All the required parts and
electronic components will be purchased in bulk from wholesalers to reduce costs. All
products will be purchased directly from manufacturers which eliminates middleman
costs. These manufacturers (suppliers) have been chosen based on brand, quality,
product availability and overall service level. New suppliers will be proposed and
analyzed by the staff to determine if they should become aligned with the company.
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Marketing Plan
Products & Services
Indische Guitars will be a unique value guitar manufacturer that will provide affordable
products, knowledgeable and engaging staff and excellent service in Kolkata. Indische
will sell to a specific market carrying uniquely creative guitars making models with high
quality configurations very affordable.
We will also provide the customers, custom designed high-end instruments with them
having complete control over creative decisions, wood, finishing, hardware and
electronics choices.
Pricing
Indische will be entering a competitive music and instrument retail industry within
Kolkata. In the city, there are a number of small music and guitar shops mostly located
in the North and Central areas of the city. Notable competitors include Hobmer, Givson,
Yemaha, etc. which provide an array of guitars as low-quality, low-budget instruments
to a large consumer base. Appendix B shows the current competitor analysis within
Kolkata.
Indische will look to target the influx of low-priced but branded (Squire, Epifone, Ibanez,
etc) instrument influx from Chinese manufacturers, using a mix between penetration
pricing and value-based pricing to enter the guitar retail industry in Kolkata. The
strategy is much different than almost all usual music and guitar retail stores because it
is based on the unique value of each guitar. Indische will be focused on selling uniquely
produced guitars for a price that will create lots of margin whilst still creating a lot of
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value to the customers. With the ability to produce these guitars as factory made highgrade low priced instruments, it is feasible to sell them at a cost-plus price. (i.e. sell at
a margin of 40%-50% over production costs). The advantage of using this strategy is
that guitarists especially take a personalized view to their guitars, and by providing
unique guitars for them to purchase, we will create value for them and profit for our
business. The feasibility of the business is centered on this concept.
The pricing strategy for repairs will be competitive pricing, as there are no lost margins
for repairs, we will charge prices that equal to or just below are industry averages for
repairs
Promotions
Indisches promotion strategy will be based on the specific pricing and services
strategies for the divisions of products. We aim to be to be recognized as a unique
guitar manufacturer that sells guitars that no one else will ever have, providing
knowledgeable service and repairs for its customers as well. We will focus on our
competitive advantage to get our name out to the market of guitarists and musicians.
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Sales Strategy
The objectives of Indisches sales and profits are respectively:
Reach monthly sales of at least 20 guitars by the end of the first year
Establish sales channels via local retailers and distributors by the end of first
year
Reach monthly sales of at least 20 guitars by the end of the first year
Earn an average owner compensation salary over the first 5 years, keeping in
mind the first years extra equity will eventually have to be paid off
Maximize sales by the end of 5th year
There are two channels of distribution for Indische Guitars, in-store purchasing and
through dealers and retailers. The in-store, direct model of purchasing will be the most
prominent for the business because customers will get to experience the quality of the
Indische instrument as well as being able to try out the guitars first-hand against
commonly available options.
Indische wants to establish itself as the new, unique and quality guitar manufacturer in
Kolkata. With the strategy and foreseen success for the business, new customers may
enter the market over time. The location and new selling strategy will place Indische in
a strong position within the market, which will have to be continuously evaluated in
order to maximize position on a consistent basis.
Indische can meet its objectives by achieving the forecasts shown in the financial
model. It must reach a sales level of 20 units per month by the end of the first year and
increase it to 50 units per month by the end of 5 th year. The sales predictions are fairly
conservative with the base case in the first year being 10 customers per fortnight
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January 5, 2016
spending 25000 each. This is made more achievable by the repairs sector of the
business. The advantage of a greater margin in guitars will be a strong advantage as
these margins are not attainable for comparably priced guitars from competitors.
Indisches different methods of selling guitars will distinguish it among competitors and
will be difficult to duplicate.
personal and knowledgeable customer service as well as our uniquely produced guitar
inventory provided to the customers.
Advertising
The main advertising objective in the first two years of business will be to create
awareness in the city and to persuade customers that we offer unique and quality
products as well as personalized customer service. In the following years, advertising
objectives will focus on cementing Indisches brand in the minds of the citys
consumers. The focus will also be to penetrate the markets in other prominent cities
and thus gain national exposure.
advertising methods have been focused on creating more and more awareness.
The different advertising channels that will be used will include:
Newspaper/Magazine Advertisements This type of advertising specifically in
newspapers and on newspaper sites that focus on the arts and music will reach some of
the market we are targeting although large responses from these are not expected
when compared to other mediums. These ads are inexpensive and can last for the
duration of the 5-year plan changing with new offerings and promotions done by our
store.
Website The internet is obviously the largest and fastest growing advertising channel
in the world. Consumers almost expect their prospective stores to have some sort of
web presence where they can scout and purchase possible products from their home.
Indische aims to set up a professionally designed profile that will display info, products
and promotions in an aesthetically appealing way. The page also serves the purpose of
boosting sales through the availability of online quotes and personalized chats.
Online Advertisements In addition to having a website, it will also be beneficial for
our business to purchase advertisements on popular guitar websites such as ultimateguitar.com where many guitarists from around the world can be exposed to the
awareness for our brand. Advertising by way of ads on Indian Youtube videos related to
music will also help the brand get recognition and increase awareness for the products.
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We intend to follow a similar strategy with Facebook, Twitter and others social
networking websites where our target audience can be easily reached.
Posters Posters provide unique one-on-one advertising in strategic places around
Kolkata. Our primary focus is to place them in music venues and bars around the city
where aspiring musicians and starter bands can learn about the new guitar store in the
city that wants to form a relationship with them. These posters will have eye-catching
graphics as well as basic information about the competitive advantages.
Sponsorships We will sponsor local musical events to create buzz. Events sponsored
will display our posters and hoardings and also enable us to promote our products
directly to the musicians and target audience. We will offer discounts on our products to
sort of kick start our business in Kolkata. We will promote this long before it happens in
order to have maximum awareness for the event.
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Competitor Analysis
SWOT Analysis
POSITIVE
INTERNAL
NEGATIVE
STRENGTHS
WEAKNESSES
Have
an
Lack
of
experienced
advantage
in
Marketing knowledge.
Small scale production
terms of pricing
size
currently
limits
as a result of
meeting an increasing
small
scale
demand
beyond
production
and
considered levels.
savings in overall
Small staff size. The 5
cost
of
partners will be carrying
production.
Ability to provide
out the all the duties from
production to sales, and
better
quality
marketing.
instruments with
superior
specifications at
a cheaper cost
than
the
competition.
Experienced
Luthiery
knowledge allows
for production of
guitars unique in
their
characteristics in
comparison
to
competition while
retaining quality
and performance
at or even above
par
to
the
competition.
Being among the
first Indian Guitar
Manufacturers to
provide
such
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January 5, 2016
unique
guitars
and the ability to
garner audience
responsive
to
Made in India
products.
EXTERNAL
OPPORTUNITIES
THREATS
Opportunity
to
Competitors
such
as
create a market
Ibanez, Fender, Cort have
base
among
an already established
customers
who
market
and
a
loyal
prefer
quality
customer
base.
Such
instruments
customers may be less
without having to
inclined to move away.
Low end segment guitar
spend too much
makers such as Hertz,
on them.
Ability to create a
Yemaha and Grayson may
dedicated
and
also may change pricing
loyal
customer
policies to avoid losing
base by providing
customers.
Too much of an increase
personal
in forex prices may push
assistance
and
the cost of importing
after-sales
electronic parts for the
service.
Can
garner
a
instruments thus leading
market space due
to increase in prices of
to being a one of
the products.
a kind Indian
Guitar
Manufacturer
providing
products
of
internationally
accepted.
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Therefore operating in such as a market is perfect for the firm as it is the aim to fill the
gap between these two extremes and in the process induce consumers to move
towards this new segment. However therein entails various risks and threats from the
competitors both from the low and high end but also brings prospects of opportunities
to explore. This has been on elaborated upon in the above SWOT Analysis Table.
Therefore some important analysis and observations based on the SWOT Analysis Table
are given below:
1. The firms strength lies in the skill of the partners to produce unique guitars
completely different from the competition at a cheap cost and therein the ability
to maintain a healthy profit margin from the start. Moreover this advantage
allows the firm to provide the local and the national audience to specialized
instruments having a unique character and superior build quality found in guitars
made abroad.
2. The Indian guitar market still is in a growing phase and this is an opportune
moment to introduce our products as the market demographic is mature enough
to distinguish between quality products and the cheaper copies but still do not
have huge spending ability to opt for quality products from premium
manufacturers. We can thereby bridge the gap and create a niche segment
which will be dominated by our brand without any competition at least for 3
years.
3. Being the first Indian guitar manufacturer to build guitars on such scale, level of
precision and quality will appeal to the audience both locally and nationally. It will
not only boost brand image and customer base but also create a better
perception of India as a strong Guitar Manufacturing hub, the world over in the
long term.
4. The inexperience of the partners with respect to marketing is a shortcoming
which needs to be addressed in the short term as the initial years will focus a lot
on marketing and brand promotion. To combat this for the first two years we
expect to hire services of marketing professionals to help promote brand image
and products. Subsequently the partners themselves can take over the
operations once they gain reasonable knowledge and experience in the field.
5. Small size of staff is also a drawback though only in the short term. To cut costs
and boost overall profitability the partners themselves will be directly involved in
production as well as managerial tasks. This though can be later remedied as
overall profitability increases by hiring required semi-skilled or non-skilled labor
as the situation presents.
6. Competitors in the premium guitar segment are truly the closest threat to the
firm, though only in the long run, due to their already established huge customer
base however at the current scale Indische Guitars will be functioning at, will
pose no threat to these manufacturers and therefore we do not expect any
reaction from them to our brand at least till the next 5 years.
7. The low end local guitar manufacturers are a form of indirect threat as they do
not possess the knowhow or the specialized labor to create similar products as
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those of Indische Guitars. They mainly thrive by supplying basic low end low
quality instruments which are cheap copies of international guitar models.
Thereby we do not expect any direct threat from this segment till the next five
years either.
8. Lastly, factors such as foreign exchange prices can affect our product prices
since various parts for the guitars will have to be imported from outside as there
is no manufacturer for such parts in the country. However cementing
relationships with foreign suppliers on account of constant dealings will price
down the cost of purchase thus to a great extent negating any adverse effects of
forex fluctuations.
Financial Plan
Capital Budget
The total capital requirement for Indische Guitars as mentioned previously is
2868100.00 (Twenty Eight Lakh Sixty Eight Thousand One Hundred). This cost includes
leasehold improvements for the space assumed, machinery, stock, including computer
equipment and custom design costs. It also includes cover for average monthly
operating expenses for a period of 6 months. This amount is kept aside to cushion the
business from uneven sales and thereby resulting revenue for the first 6 months when
the business is settling in. The detailed breakup in the funding amount and its
utilization can be found in Table 4 titled Required Capital Expenditure.
Inventories are estimated based on the selling price being 17017.00 (assuming a
profit of 43%) and averaging the prices for custom inventories. This inventory cost
breakdown can be found in Table 1 titled Product Cost Break-Up below. There will
be accounts receivable as sales made via retailers will be on credit basis. However
direct sales to end users will also be made which will be on cash-only basis. Such direct
sales made to the end users/customers will be done directly from the workshop so as to
strengthen sales initially and also give the end user a personal insight into what the
firm stands for and what we aim to achieve i.e. Premium Quality & Affordability.
Accounts payable will be maintained on the purchase of inventory from manufacturers.
This will include Raw Materials such as wood supply and semi-finished goods such as
electronics (pickups), bridges, tuners, etc.
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The liquidity value of these inventories after processing is much higher than their cost,
meaning that profits will increase high above purchase costs. For example, we foresee
high margins for the sale of guitars as we can increase price based on their cost to
purchase raw materials in bulk.
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COST (Rs.)
Body Blank
Neck Blank
Fretboard Blank
Pickups
Bridge (Floyd Licensed)
Machine Heads
Electronics
Misc. parts costs
Paint/Finish
Gig Bag
Electricity consumed (calculated as per 25 units produced
per month)
Logistics
Other incurred costs
TOTAL
Profit@ 43%
APPROXIMATE SALES VALUE
400.00
300.00
400.00
5000.00
1700.00
1300.00
250.00
1000.00
250.00
300.00
500.00
250.00
250.00
11900.00
5117.00
17017.00
The above table (Table 1) shows us the break-up of cost of sales of one unit/ product.
The above figures have been considered by taking a conservatively higher cost of each
individual component so as to cushion out any increase in the prices of individual
components as the prices of some components being imported from abroad will heavily
be depended upon the foreign exchange rates and/or the accompanying taxes and
duties.
However despite assuming a higher cost of sales the overall cost is still quite low and is
very beneficial from a pricing perspective as it helps to maintain a higher profit margin
and also allow the retailers to keep better margins for themselves all the while keep the
overall MRP from going beyond going over our target estimate of 25000 per guitar.
The profit margin has been currently assumed at 43% so as to allow for retailers to
keep a good profit margin for themselves all the while keeping the product at an
affordable cost. This strategy will also induce retailers to introduce and sell our
products more to their customers over those of the competition.
Operating Expenses
Indische will be open 6 days every week for 52 weeks a year excluding statutory
holidays. The estimated monthly operating costs are listed as follows in Table 2 titled
Estimated Monthly Operating Expenditures. Insurance will be necessary for the
inventories as there will always be risk of damage due to vandalism, accident or
weather conditions. It is anticipated that advertising expenses could rise if opportunity
to reach more customers presents itself. Parts and tools inventory supplies will be a
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continuous expense and will likely vary each month in connection with the amount and
nature of sales and orders.
In Table 2, the Operating Expenses is divided into two sections namely Fixed Costs and
Variable Costs. Fixed Costs will remain constant over the months irrespective of the
production process or quantity whereas the Variable Cost component will change
according to the change in production scale. It should be noted that the costs are all
estimated on a conservative approach so as to cover any fluctuations in costs and the
real world figures will be lower than the estimates shown below.
Estimated
Costs
FIXED COSTS
Building Rent
Insurance (Annual Prem/12 mts)
35000.00
3500.00
HR Expenses:
Employee Salaries
Employee Benefits (15% of Basic)
TOTAL FIXED COST
25000.00
63500.00
VARIABLE COSTS
Supplies (stains, paints, glues)
Office Supplies
Advertising, Consumables & Other Variable Costs
TOTAL VARIABLE COST
10000.00
1000.00
5000.00
16000.00
79500.00
PARTICULARS
TOTAL COST OF PRODUCTION
(11900*20)
Monthly Variable Expenses:
OF
GUITARS
238000.00
10000.00
1000.00
5000.00
16000.00
35000.00
3500.00
HR Expenses:
Employee Salaries
25000.00
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63500.00
317500.00
TOTAL
WORKING
REQUIREMENTS
63500.00
CAPITAL
381000.0
0
From the above table we can estimate that the working capital requirement of the
business will be 381000.00. However this amount to working capital will increase from
2nd year onwards when there is an increase in production scale. Therefore the above
working capital has been calculated keeping in mind production of 20 units on average
per month. Revenue from the sale of units will be reinvested to working capital for use
in the next cycle. This working capital requirements is included in the total fund
requirement though it will be a one-time investment.
AMOUNT
500000.00
30000.00
10000.00
8000.00
2000.00
15000.00
5000.00
20000.00
21700.00
18400.00
500000.00
50000.00
1180100.0
0
400000.00
250000.00
60000.00
5000.00
100000.00
5000.00
10000.00
830000.00
2010100.
Indische Guitars
January 5, 2016
00
MONTHLY RECURRING COSTS
FIXED COSTS
Rent
Insurance Premium
Internet& Telephone Charges
HR Expenses:
Employee Salary
Employee Benefits (15% of Basic)
Total Fixed Costs
35000.00
3500.00
25000.00
VARIABLE COSTS
Supplies (Stains, Paints, Glues, etc.)
Office Supplies
Advertising & Other Consumable Costs
Total Variable Costs
TOTAL MONTHLY RECURRING COSTS
25000.00
63500.00
10000.00
1000.00
5000.00
16000.00
79500.00
477000.00
381000.00
2868100.
00
Profit Projections
Income Statement
Table 5: Projected Income Statement for the Year Ended 31.03.17
PARTICULARS
SALES Revenue (Considering 20 Units p.m.) [17017*20]*12mts
Less: Cost Of Sales (11900*20)*12mts
AMOUNT
4084080.00
(2856000.00)
420000.00
42000.00
300000.00
47500.00
10800.00
120000.00
12000.00
60000.00
Indische Guitars
January 5, 2016
The Income Statement shown above is an estimate of the profitability for the first year.
The most important assumption here is that the sales is 20 units per month on an
average throughout the year. We anticipate the sales for the first 6 months to be slow
and below the threshold limit of 20 units p.m. for some months mainly due to lack of
brand exposure and product knowledge.
However towards the latter 6 months we should have made a decent awareness about
our brand and range of products among most retailers and a good number of
consumers and we anticipate that this will help push sales upwards thus getting an
overall average of around 20 units p.m. at the end of the first financial year.
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Indische Guitars
January 5, 2016
PARTICULARS
2016-17
2017-18
2018-19
2019-20
2020-21
SALES
4084080
4900896
5881075.
2
7057290.
24
8468748.
29
(2856000)
(2793510.
72)
(3352212.
86)
(4022655.
44)
(4827186.
53)
1228080
2107385.
28
2528862.
34
3034634.
80
3641561.
76
Rent
Insurance
Telephone &
Internet
Charges
Salaries
Depreciation Of
Machinery
Depreciation Of
Furniture
Maintenance Of
CCTV
System
Maintenance Of Fire
Extinguishers
420000
420000
420000
420000
420000
42000
42000
42000
42000
42000
300000
47500
300000
47500
300000
47500
300000
47500
300000
47500
10800
10800
10800
10800
10800
1200
1200
1200
1200
500
500
500
Supplies (Stains,
Paint,
Glues)
Office Supplies
Advertising,
Consumables
& Other Costs
120000
120000
120000
120000
120000
12000
60000
12000
60000
12000
60000
12000
60000
12000
60000
215780
1093885.
28
1514862.
34
2020634.
80
2627561.
76
Net Profit
The above table shows a prediction of yearly sales growth and the resultant net profit
over the period of 5 years. Some important observations are as follows:
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Indische Guitars
January 5, 2016
The amount of depreciation for furniture has been calculated by taking the entire
value of furniture at purchase and dividing the cost over its assumed lifespan
after deducting assumed scrap value of 10 percent of the cost price, i.e.
{[(60000-6000)/5]/12}.
The maintenance of CCTV system is free for first year and hence no cost has
been attributed. From 2nd year onwards a yearly charge of 1200 is attributed to
maintenance.
Similarly as above the first two years maintenance for Fire Extinguisher System
is provided free of cost after which a yearly charge of 500 will be incurred.
The profit projections provide an indication of the profitability of the business over a
comparatively long period of time. Though there are several costs that can fluctuate
over the years to come the business has a really strong potential to be a serious market
contender. The overall sales increase has been taken to be a steady growth of 20
percent year on year however according to the increase in demand by the end of the
second year the overall sales can increase well beyond the anticipated figures thus
pushing a higher net profit.
The projection growth are showcased in the line graph below.
4000000
3000000
2000000
1000000
0
2016-17
2017-18
2018-19
2019-20
YEAR ENDINGS
SALES
GROSS PROFIT
Page 28
NET PROFIT
2020-21
Indische Guitars
January 5, 2016
Page 29
Indische Guitars
January 5, 2016
Conclusion
The city of Kolkata is ripe for a specialized guitar manufacturer to enter its market.
Indische Guitars plans to change the scene by offering a unique type of guitar inventory
that will attract guitarists from all around. A detailed financial analysis of this proposed
business proves that Indische Guitars is feasible and has the opportunity to attain
profits and deliver a quality service and product line to its customers.
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Indische Guitars
January 5, 2016
Notes
Page 31