Pre-Feasibility Study

(Day Care Center)

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 3rd 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 REGIONAL OFFICE Sindh 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 35610572 helpdesk-khi@smeda.org.pk REGIONAL OFFICE Khyber Pakhtunkhwa Ground Floor State Life Building The Mall, Peshawar. Tel: (091) 111-111-456 Fax: (091) 5286908 helpdesk-pew@smeda.org.pk REGIONAL OFFICE Balochistan 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

Day Care Center

Table of Contents
1 Disclaimer ............................................................................................................................... 2 2 Purpose of the Document ........................................................................................................ 3 3 Introduction to SMEDA.......................................................................................................... 3 4 Introduction to Scheme ........................................................................................................... 3 5 Executive Summary ................................................................................................................ 4 6 Brief Description of Project & Product .................................................................................. 4 7 Critical Factors ........................................................................................................................ 5 8 Installed & Operational Capacities ......................................................................................... 5 9 Geographical Potential for Investment ................................................................................... 5 10 Potential Target Markets & Cities .......................................................................................... 5 11 Project Cost Summary ............................................................................................................ 6 11.1 Project Economics .......................................................................................................... 6 11.2 Project Financing ............................................................................................................ 7 11.3 Project Cost ..................................................................................................................... 7 11.4 Space Requirement ......................................................................................................... 7 11.5 Equipment Requirement ................................................................................................. 7 11.6 Furniture & Fixtures Requirement .................................................................................. 9 11.7 Human Resource Requirement ....................................................................................... 9 11.8 Revenue Generation ........................................................................................................ 9 11.9 Other Costs (Projected Growth Rates) .......................................................................... 10 12 Contact Details of Day Care Centre Equipment Suppliers ................................................... 10 13 Annexure ............................................................................................................................... 11 13.1 Income Statement.......................................................................................................... 11 13.2 Balance Sheet ................................................................................................................ 12 13.3 Statement of Cash Flow ................................................................................................ 13 13.4 Useful Project Management Tips.................................................................................. 14 13.5 Useful Links .................................................................................................................. 14 14 Key Assumptions .................................................................................................................. 15

Pre-feasibility Study

Day Care Center

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

Day Care Center

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, service delivery, marketing, finance and business management. The purpose of this document is to facilitate potential investors in Day Care Center business 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 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.

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)

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Pre-feasibility Study

Day Care Center

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 (1 year graceperiod inclusive) and a debt: equity of 90: 10 will be disbursed to SME beneficiaries+ across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).

5 EXECUTIVE SUMMARY
Day Care Center is proposed to be located in major cities such as Islamabad, Lahore, Karachi and Quetta etc. Life, today, is characterized by independent family systems, need for improved living standards, quality education for children, etc., resulting in increased pressure on working women to efficiently manage both their professions and domestic responsibilities. The demand for day care centers is on the rise, specifically by working mothers, and the service is deemed as a profitable entrepreneurship opportunity. The project features a facility and its ancillary services for children aged 6 months to 5 years in a hygienic and activity based educational environment, facilitated through trained and educated staff. The project can be used for a maximum of 40 enrolments, however, keeping in view the rationale and demand; calculations have been made on the assumption of 24 enrolments for the first year of operations. Total cost estimate of the project is Rs. 1.42 Million with fixed investment of Rs. 0.84 Million and working capital of Rs. 0.58 Million. Given the cost assumptions, IRR and payback are 55% and 2.18 years, respectively.

6 BRIEF DESCRIPTION OF PROJECT & PRODUCT

Techniques: This proposed center would be established with modern learning techniques and extracurricular activities. Location: The unit would be located in cities such as Lahore, Islamabad, Quetta, Peshawar, Karachi and smaller cities. Product: The Day Care Centre will offer a hygienic and efficiently managed care facility for children. Target Market: Working mothers, doctors, teachers, bankers and other professionals etc.

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Pre-feasibility Study

Day Care Center

Employment Generation: Direct employment to 06 people is estimated through the project. Financial analysis shows that the center shall be profitable from the very first year of operations.

7 CRITICAL FACTORS
Secured and hazard free environment. Location of the center in a commercial area. Frequent interaction between care provider and parent. Opening of admission at least one week prior to the ending of winter vacations, for proper promotion. Hiring of a well-trained / experienced care provider to ensure value added service delivery. Establishment of the Center in a rented building to reduce the project cost.

8 INSTALLED & OPERATIONAL CAPACITIES

It is proposed that infants of age more than 6 months and children of ages up to 5 years may be enrolled in the center. Initially, day care center utilization would be 60% in the first year, where 24 kids would be enrolled. This capacity is assumed to grow at a constant rate of 5% in subsequent years.

9 GEOGRAPHICAL POTENTIAL FOR INVESTMENT

The fast paced life of the cities is significantly influencing the life style of its inhabitants. Economic pressures are compelling both parents to work towards achieving and sustaining quality life standards. This has further added to complexity and competition of any metropolitan city. As a result of these social changes, the trend of sending children to Day Care Centers at a much earlier age is gaining rapid acceptance. Major cities of Pakistan have a good potential for this project, e.g. Karachi, Islamabad, Lahore, Peshawar, Quetta etc.

10 POTENTIAL TARGET MARKETS & CITIES

The Day Care Centers target market is working couple having infants of age more than 6 months to children of ages up to 5 years. The business community also has a positive response towards the idea of day care center due to their busy schedules and, therefore, can be targeted as potential customers. Keeping in view the economic and social factors, it is recommended that the proposed project may be established in major cities such as Islamabad, Lahore, Quetta, Karachi

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Pre-feasibility Study

Day Care Center

and Peshawar etc. However the project may also be opened in other cities and towns after careful market analysis.

11 PROJECT COST SUMMARY

A detailed financial model has been developed to analyze the commercial viability of Day Care Center 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 appendices. 11.1 Project Economics

The proposed intervention has the capacity of 40 enrolments, however, a target of 24 enrolments is assumed in year 01 of the proposed center. The following table shows internal rate of return and payback period. Table 1: Project Economics Description Internal Rate of Return (IRR) Payback Period (yrs) Net Present Value (NPV) Details 55% 2.18 4,059,387

Returns on the scheme and its profitability are highly dependent on the efficiency of operations, location, staff, hygienic environment, safety, curricular & extracurricular activities etc.

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Pre-feasibility Study

Day Care Center

11.2

Project Financing

Following table provides details of the equity required and variables related to bank loan; Table 2: Project Financing Description Total Equity (10%) Bank Loan (90%) Markup to the Borrower Tenure of the Loan (Years) Grace period (year) 11.3 Project Cost Details Rs.142,028 Rs.1,278,252 8% 8 1

Following requirements have been identified for operations of the proposed business. Table 3: Capital Investment for the Project Capital Investment Amount (Rs.) Building/Infrastructure Office Equipment 5,000 Furniture & Fixtures 483,000 Machinery & Equipment 274,000 Pre Operating Cost 78,280 Total Capital Costs 840,280 Initial Working Capital 580,000 Total Project Cost 1,420,280 11.4 Space Requirement It is recommended that the proposed project should be established in a rented building, preferably a one kanal (4,500 sq.ft.) house with two bedrooms and attached bath, one drawing, one dining room, one kitchen and a reasonable front / back yard. The rent for the building is estimated at Rs. 40,000 per month. Table 4: Space Requirement Description Building Covered Area Play Area / Grounds Total Building Area 11.5 Equipment Requirement Area (Sq .ft.) 2,000 2,500 4,500

The basic requirements for a day care center include activity based equipment for outdoor activities (slides, merry-go-round and swings etc.), equipment for indoor

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Pre-feasibility Study

Day Care Center

activities (soft boards, white boards, books, etc.), kitchen equipment (microwave, refrigerator), entertainment equipment (T.V., DVD player) and sleeping cots / beds, all of which are readily available in the local market. Details of the equipment are given as below, for a sum total of Rs. 274,000. Table 5-a: Center Equipment Equipment Details Slide (iron) Merry-go-round Swings (Outdoor) (3 seater) Monkey bar Baby eating seat Baby rocker / swing chair Sleeping cot Beds (single + mattress) White board Soft boards Cooking range / Burner stove Microwave Refrigerator Kitchen utensils Total Machinery & Equipment Table 5-b: Office Equipment Equipment Details Telephones / Cell phones Qty 1 Cost/Unit 5,000 Total Cost 5,000 Qty 1 1 2 2 2 2 3 5 5 5 1 1 1 1 Cost/Unit 15,000 20,000 30,000 10,000 8,000 4,000 10,000 10,000 1,500 1,500 3,000 7,000 25,000 5,000 Total Cost 15,000 20,000 60,000 20,000 16,000 8,000 30,000 50,000 7,500 7,500 3,000 7,000 25,000 5,000 274,000

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Pre-feasibility Study

Day Care Center

11.6

Furniture & Fixtures Requirement

Furniture & fixtures requirement for the project is detailed as under: Table 6: Furniture & Fixture Detail Qty Cost/Unit 2 1 2 24 2 2 2 2,000 1 1 1 4 5,000 10,000 10,000 2,000 10,000 5,000 15,000 30 5,000 40,000 10,000 55,000

Description

Total Cost (Rs.) 10,000 10,000 20,000 48,000 20,000 10,000 30,000 60,000 5,000 40,000 10,000 220,000 483,000

Office chairs Office table Sofa cum bed Seating chairs (children) Study table (indoor) Book rack (Library) Eating table (8 chairs) Carpeting (sq.ft.) Electric wiring & lighting Television DVD Player Air conditioners (1.5 ton window) Total Furniture & Fixtures 11.7 Human Resource Requirement

The manpower required for operating the Day Care Center is as follows: Table 7: Human Resource Detail Description Qty Salary Owner / Manager Nannies Guard Total 1 4 1 6 20,000 10,000 10,000 Total Monthly Salary (Rs.) 20,000 40,000 10,000 70,000

It is highly recommended that nannies should be qualified females so that parents can be assured of about their childs proper care and safety. The nannies should be at least matriculate and preferably trained for child care. 11.8 Revenue Generation

It is proposed that infants of more than 6 months of ages to children of 5 years of ages be enrolled in the center. The project would have a total capacity of 40 enrollments.

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Pre-feasibility Study

Day Care Center

However, keeping in view market research and analysis, it is assumed that project capacity would be 24 enrolments in year 01 of its operation. Table 8: Revenue Detail Fees / month (Rs./Unit) 9,000 Annual Revenue 11.9 First Year Enrolment 24 Monthly Revenue (Rs) 216,000 2,592,000

Other Costs (Projected Growth Rates)

The primary overhead cost of the project would be utilities comprising electricity, gas & water, whereas cost of fuel must be kept in mind for generator expenses. Table 9: Costs Projection Electricity Price Growth Rate Gas Price Growth Rate Water Price Growth Rate Salary Growth Rate Rent Growth Rate Fee Growth Rate 10% 10% 10% 10% 10% 10%

12 CONTACT DETAILS OF DAY CARE CENTRE EQUIPMENT SUPPLIERS

Below is the list of major suppliers of Children Toys for Day Care Center: Babyland Toys 1st Floor, Sheikh Innayat-Ullah Building, Liberty Market, Gulberg 3, Lahore, Pakistan Tel: 042-35757468, Mob: 0336-4050607 www.babyland.com Kaymu Toys Arfa Software Technology Park Ferozpur Road, Lahore, Pakistan Tel: 042 - 35972162 www.kaymu.pk

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13 ANNEXURE
13.1 Income Statement
SMEDA
Year 1 Revenue Cost of goods sold Gross Profit General administration & selling expenses Administration expense Rental expense Utilities expense Travelling & Comm. expense (phone, fax, etc.) Office vehicles running expense Office expenses (stationary, etc.) Promotional expense Insurance expense Professional fees (legal, audit, etc.) Depreciation expense Amortization expense Property tax expense Miscellaneous expense Subtotal Operating Income Other income Gain / (loss) on sale of assets Earnings Before Interest & Taxes Interest expense Earnings Before Tax Tax NET PROFIT/(LOSS) AFTER TAX Balance brought forward Total profit available for appropriation Dividend Balance carried forward 2,592,000 2,592,000 Year 2 2,948,400 2,948,400 Year 3 3,333,960 3,333,960 Year 4 3,750,705 3,750,705 Year 5 4,200,790 4,200,790 Year 6 4,686,506 4,686,506 Year 7 5,210,292 5,210,292 Year 8 5,470,806 5,470,806 Year 9 5,744,347 5,744,347 Rs. in actuals Year 10 6,031,564 6,031,564

Statement Summaries
Income Statement

840,000 480,000 480,000 51,840 76,200 15,656 60,000 2,003,696 588,304 588,304 106,094 482,210 482,210

924,000 528,000 528,000 58,968 76,200 15,656 66,000 2,196,824 751,576 751,576 97,130 654,446 654,446 482,210 1,136,656 1,136,656

1,016,400 580,800 580,800 66,679 76,200 15,656 72,600 2,409,135 924,825 924,825 85,349 839,476 839,476 1,136,656 1,976,132 1,976,132

1,118,040 638,880 638,880 75,014 76,200 15,656 79,860 2,642,530 1,108,175 1,108,175 72,589 1,035,586 1,035,586 1,976,132 3,011,717 3,011,717

1,229,844 702,768 702,768 84,016 76,200 15,656 87,846 2,899,098 1,301,692 1,301,692 58,771 1,242,921 123,128 1,119,793 3,011,717 4,131,510 4,131,510

1,352,828 773,045 773,045 93,730 76,200 96,631 3,165,479 1,521,027 1,521,027 43,806 1,477,221 233,288 1,243,934 4,131,510 5,375,444 5,375,444

1,488,111 850,349 850,349 104,206 76,200 106,294 3,475,509 1,734,783 1,734,783 27,598 1,707,184 261,235 1,445,949 5,375,444 6,821,393 6,821,393

1,636,922 935,384 935,384 109,416 76,200 116,923 3,810,230 1,660,577 1,660,577 10,046 1,650,531 291,612 1,358,919 6,821,393 8,180,313 8,180,313

1,800,615 1,028,923 1,028,923 114,887 76,200 128,615 4,178,162 1,566,185 1,566,185 1,566,185 324,542 1,241,642 8,180,313 9,421,955 9,421,955

1,980,676 1,131,815 1,131,815 120,631 76,200 141,477 4,582,614 1,448,950 1,448,950 1,448,950 360,762 1,088,188 9,421,955 10,510,143 10,510,143

482,210 482,210

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Day Care Center

13.2

Balance Sheet
SMEDA
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Rs. in actuals Year 10

Statement Summaries
Balance Sheet

Assets Current assets Cash & Bank Pre-paid building rent Total Current Assets Fixed assets Machinery & equipment Furniture & fixtures Office vehicles OEducational Tools Total Fixed Assets Intangible assets Pre-operation costs Legal, licensing, & training costs Total Intangible Assets TOTAL ASSETS Liabilities & Shareholders' Equity Current liabilities Total Current Liabilities Other liabilities Long term debt Total Long Term Liabilities Shareholders' equity Paid-up capital Retained earnings Total Equity TOTAL CAPITAL AND LIABILITI

540,000 40,000 580,000

1,041,024 44,000 1,085,024

1,510,089 48,400 1,558,489

2,114,958 53,240 2,168,198

2,863,470 58,564 2,922,034

3,763,500 64,420 3,827,921

4,814,284 70,862 4,885,146

6,032,186 77,949 6,110,135

7,186,504 85,744 7,272,248

8,501,598 94,318 8,595,915

9,825,796 9,825,796

274,000 483,000 5,000 762,000

246,600 434,700 4,500 685,800

219,200 386,400 4,000 609,600

191,800 338,100 3,500 533,400

164,400 289,800 3,000 457,200

137,000 241,500 2,500 381,000

109,600 193,200 2,000 304,800

82,200 144,900 1,500 228,600

54,800 96,600 1,000 152,400

27,400 48,300 500 76,200

78,280 78,280 1,420,280

62,624 62,624 1,833,448

46,968 46,968 2,215,057

31,312 31,312 2,732,910

15,656 15,656 3,394,890

4,208,921

5,189,946

6,338,735

7,424,648

8,672,115

9,825,796

1,278,252 1,278,252

1,278,252 1,278,252

1,136,305 1,136,305

982,576 982,576

816,088 816,088

635,782 635,782

440,511 440,511

229,032 229,032

142,028 142,028 1,420,280

142,028 413,168 555,196 1,833,448

142,028 936,724 1,078,752 2,215,057

142,028 1,608,305 1,750,333 2,732,910

142,028 2,436,774 2,578,802 3,394,890

142,028 3,431,110 3,573,138 4,208,921

142,028 4,607,408 4,749,436 5,189,946

142,028 5,967,675 6,109,703 6,338,735

142,028 7,282,620 7,424,648 7,424,648

142,028 8,530,087 8,672,115 8,672,115

142,028 9,683,768 9,825,796 9,825,796

Note: Total assets value will differ from project cost due to first installment of leases paid at the start of year 0
(0) -

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13.3

Statement of Cash Flow

(0) -

Statement Summaries
Cash Flow Statement
Year 0 Operating activities Net profit Add: depreciation expense amortization expense Pre-paid building rent Cash provided by operations Financing activities Change in long term debt Issuance of shares Cash provided by / (used for) financ Investing activities Capital expenditure Cash (used for) / provided by invest NET CASH Cash balance brought forward Cash available for appropriation Dividend Cash carried forward Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

SMEDA
Rs. in actuals Year 10

(40,000) (40,000)

413,168 76,200 15,656 (4,000) 501,024

523,557 76,200 15,656 (4,400) 611,013

671,581 76,200 15,656 (4,840) 758,597

828,468 76,200 15,656 (5,324) 915,000

994,337 76,200 15,656 (5,856) 1,080,336

1,176,297 76,200 (6,442) 1,246,055

1,360,267 76,200 (7,086) 1,429,381

1,314,945 76,200 (7,795) 1,383,350

1,247,468 76,200 (8,574) 1,315,093

1,153,680 76,200 94,318 1,324,198

1,278,252 142,028 1,420,280

(141,947) (141,947)

(153,728) (153,728)

(166,488) (166,488)

(180,306) (180,306)

(195,272) (195,272)

(211,479) (211,479)

(229,032) (229,032)

(840,280) (840,280) 540,000

501,024 540,000 1,041,024 1,041,024

469,066 1,041,024 1,510,089 1,510,089

604,868 1,510,089 2,114,958 2,114,958

748,513 2,114,958 2,863,470 2,863,470

900,030 2,863,470 3,763,500 3,763,500

1,050,784 3,763,500 4,814,284 4,814,284

1,217,902 4,814,284 6,032,186 6,032,186

1,154,318 6,032,186 7,186,504 7,186,504

1,315,093 7,186,504 8,501,598 8,501,598

1,324,198 8,501,598 9,825,796 9,825,796

540,000 540,000

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13.4

Useful Project Management Tips

Human Resources 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.

Marketing Ads & P.O.S. Promotion: Business promotion and dissemination through banners and launch events is highly recommended. Product broachers from good quality service providers

13.5

Useful Links Prime Ministers Office www.pmo.gov.pk Government of Pakistan www.pakistan.gov.pk Ministry of Industries & Production www.moip.gov.pk Ministry of Education, Training & Standards in Higher Education www.moptt.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 Securities and Exchange Commission of Pakistan (SECP) www.secp.gov.pk Federation of Pakistan Chambers of Commerce and Industry (FPCCI)

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www.fpcci.com.pk

14 KEY ASSUMPTIONS
Particular Sales Price Growth Rate Capacity Utilization Growth Rate Increase in Cost of Raw Materials Increase in utilities (Electricity/Water/Gas Debt / Equity Ratio Plant Building Machinery Office Furniture & Equipment Loan Period Loan installments Enrolment Capacity Enrolment Capacity Year 1 Financial Charges (Loan Rate) Assumptions 5 % per year 5 % per year 10 % per year 10 % per year 90 : 10 10 % per year 10 % per year 10 % per year 8 Years inclusive of 1 year grace period Monthly 40 24 8 % per year

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