![FOREVER FLORALS <br /> …Zindagi k liye<br /> <br /> <br />Project <br />For <br />Appraisal & Finance <br /> <br />Submitted to: Prof. B.K. Chadda <br />Submitted by: Manisha Arora<br />Enrollment No.: 08BS0001636 <br />Section: B<br />BUSINESS IDEA: ARTIFICIAL FLOWERS MAKING<br />EXECUTIVE SUMMARY <br />Forever Floral (FF) is a manufacturing firm which manufactures flowers and raw material for which is imported by artisans from Indonesia. Forever Floral’s main business is to convert this raw material of artificial flowers into permanent flowers and create a market for these flowers.<br />FF quality products are unique and exclusive, and its target consumers are women with upper-middle to upper-end incomes. FF's competitive edge is that the products are flowers with everlasting fragnance, unlike competitor's products. By this fact, the firm hopes to attract people that value the artistry of producing silk flowers. Since FF products are mostly silk flowers and silk hair accessories, it considers itself to be in the retail gift market, although some consumers purchase the product for themselves. <br />For the starting year 2010, the company plans to attract manufacturer representatives and retailers to distribute the products by attending the trade show in Delhi and Bangalore. This trade show is where suppliers of silk flowers and other silk products and buyers meet and arrange deals to sell the product. During this year, FF plans to open an exclusive gift shop for our product in Greater Kailash public Market, leasing for five years.<br /> For the next following years, the company plans to expand to direct mail catalog sales by being in an established catalog, with a similar target market. FF projects sales of Rs. 75 million in 2011. During the third year, Year 2012, FF plans to do both selling through suppliers, catalogs, and the exclusive gift store in Greater Kailash, projecting sales to be nearly Rs 100 million. <br />The FF family will expand in 2012 by adding 10 different kinds of flowers and flower arrangements. Maintaining an average gross margin of 30 percent is very realistic. The projected rate of annual growth in sales is 20 percent.<br />Why This Project? <br />Artificial flowers market segment has not been explored in India yet. A survey of Indian upper class women shows that there is a huge demand for Permanent flowers because they look very beautiful today and tomorrow and there is no need of changing flowers everyday in the morning. So these flowers add to the beauty of their drawing rooms and also saving their times. <br />The growing gift industry and silk flower and accessories industry imply that there is a growing demand for these products. Because there is no similar product currently available in the Indian market, FF has a huge opportunity in the silk accessory industry. With the increases in the standard of living of people, a trend of exchanging gifts on every small occasion which has given more boosts to this industry. In India, the permanent artificial flower market has not been explored yet. There exists a profitable opportunity in this particular sector.<br /> 1.1 FIRM DESCRIPTION <br />Forever Floral (FF) is a manufacturing firm which manufactures exclusively permanent fragnence flowers and raw material for which is imported by artisans from Indonesia. Forever Floral’s main business is to convert this raw material of artificial flowers into flowers and create a market for these flowers.<br />Product Description<br />Forever Floral will manufacture a variety of silk flowers and products. During the first two years, the product line will include: <br />Tulips and roses. <br />Two kinds of flower arrangements. <br />Silk scarf and silk hair accessories. <br />Seasonal bouquets. <br /> 1.2 OBJECTIVES<br />Achieve sales of Rs 65 million by 2010. <br />Open gift/floral shop in Greater kailash in Delhi with five-year lease. <br />Maintain gross margin of 30 percent and Establish annual growth rate of 25 percent. <br />Expand product family by adding 10 different kinds of flowers and flower arrangements in 2012. <br />1.3 STATEMENT OF MISSION<br />Forever Floral's mission is to become a recognized manufacturer of artisan quality silk gift items in India. The company guarantees 100 percent customer satisfaction and values friendly service. <br />FF's purpose is to increase customer appreciation of silk flowers and other silk products and to provide customers with beautiful unique artistic decorations.<br />2. DEMAND ANALYSIS <br />2.1 MARKET ANALYSIS <br />Artificial flowers market segment has not been explored in India yet. A survey of Indian upper class women shows that there is a huge demand for Permanent flowers because they look very beautiful today and tomorrow and there is no need of changing flowers everyday in the morning. So these flowers add to the beauty of their drawing rooms and also saving their times.<br />Currently, the market for permanent/Artificial floral products is rapidly expanding. According to 2008 statistics, the value of permanent floral products for the 2007 fiscal year in India was over Rs 150 billion, and it still continues to grow. <br />The gift industry is also growing, as households headed by 45- to 54-year-olds are the biggest gift purchasers. Now, there is a trend of exchanging gifts on every small occasion which has given more boosts to this industry.<br />2.2 MARKET TARGETING AND SEGMENTATION<br />Since Forever Florals, Inc. only deals with a few, select products, segmentation is minimal. Two segments currently exist: <br />Gift purchasers-mostly women over 30 years of age with a relatively large amount of discretionary income. <br />Floral collectors-same target as above, but with higher standards of quality. <br />Upper middle and High income level Population.<br />2.3 DEMAND ANALYSIS (PIE)<br /> Demand Analysis( Quantity)Potential CustomersGrowth20102011201220132014CAGRGift Purchasers6%275,000291,500308,990327,529347,1816.00%Floral Collectors4%250,000260,000270,400281,216292,4654.00%Other3%175,000180,250185,658191,28196,9653.00%Total4.56%700,000731,750765,048799,973836,6114.56%<br />There are two industries for Forever Florals: the gift market industry and the silk flower and accessories industry. <br />In 2008, the average Indian household gave 5.8 percent of its total spending to gifts, a 0.3 percent increase from 2007. Households headed by 45- to 54-year-olds are the biggest gift-givers. These consumers spend an average of Rs. 8000 – 10,000 on gifts. In addition, married couples without children are the most generous gift-givers. These households spend 48 percent more than average on gifts. Households with incomes of over Rs. 3,25,000 spent 135 percent more than average on gifts, while they also account for 58 percent of the glassware gift market and 62 percent of the plant and flower gift market. By the year 2015, it is estimated that households headed by 35- to 54-year-olds will account for 63 percent of the gift market. <br />In the silk flowers and accessories industry, flowers alone accumulated sales over Rs 115 billion in 2008. This category still continues to grow. <br />Considering the information and analysis of both industries, FF believes that its products have the opportunity to be successful in the market. The growing gift industry and silk flower and accessories industry imply that there is a growing demand for these products. Because there is no similar product currently available in the Indian market, FF has a huge opportunity in the silk accessory industry.<br />2.4 INDUSTRY PARTICIPANTS<br />There are currently no direct competitors in the silk hair accessories and artificial flowers market, and the silk flowers industry is very unconcentrated. Few wholesalers distribute directly to the consuming public, and the majority of retail stores only offer a minimal selection with varying quality. <br />Both industries, however, are predicted to develop further, while the gift industry also continues to grow. As the markets evolve, the key issue will be relations with suppliers. As there are few suppliers of silk flowers and accessories, competition is likely to increase substantially.<br />2.5 DISTRIBUTION PATTERNS<br />Distribution channels are currently relatively simple. There is one artist in Indonesia who provides all the raw products for FF. The products are shipped directly to FF facilities, which are then converted into finished goods and then sold to consumers. There are no significant obstacles to importing these products, and there are no import quotas. <br />2.7 MAIN COMPETITORS<br />Forever Florals, Inc. current competitors in the surrounding area are: <br />Domestic Flower markets. <br />Floral wholesalers. <br />Craft stores. <br />Gift shops. <br />2.8 STRATEGY AND IMPLEMENTATION <br />FF focuses on providing high-quality products to consumers with outstanding service. Customization of orders and specialization of services will create a competitive advantage. <br />FF is developing the organization by beginning with few employees to reduce costs. All current employees are very motivated, resulting in a positive and strong company culture. This culture will carry over to all new trainees, which is a prime objective for the expansion of FF. <br />The first year of service will be the most important, as FF plans to establish strong relations with both suppliers and buyers. These relationships will help FF to grow and evolve in this industry.<br />2.9 MARKETING STRATEGY<br />FF is focusing on silk flowers and accessories, targeting women with upper-end income as the end customers, and targeting sales representatives that distribute to exclusive gift retail stores and mail-order catalog companies. <br />FF plans to be an exhibitor at Silk Flower trade show 2010 in INDIA, having already collected all the necessary information at Silk Flower trade show 2009. This trade show is the largest international silk flower and accessories exhibition attended by multiple buyers including, but not limited to, catalog/mail-order, floral wholesalers, chain stores, craft stores and wholesalers, visual display companies, etc. This will be a good opportunity to start and get exposure to FF's product. FF plans to attract the right sales rep and mail-order company for its products through this trade show, which is realistic since Silk Flower trade show 2010 is the biggest and most reputable permanent and silk accessories trade show in the India.<br />For the first year, FF will both lease a space for a retail store at the Greater Kailash public market, New Delhi and supply its products to buyers that FF attains though Silk Flower trade show 2010. <br />FF will also advertise its products on internet. The purpose of this is to reach more customers while doing only minimal research. <br />2.10 COMPETITIVE COMPARISON<br />Forever Florals, Inc. products contain these features that distinguish them from those produced by competitors: <br />Raw material for FF products is imported from Indonesian artisans and then flowers are manufactured into India, which will be emphasized in all marketing efforts. <br />The quality of the silk flowers is obvious, even to the untrained eye. There is no use of plastic stems, which makes FF products look more realistic. <br />FF silk hair accessories are unique, and no similar product is available in the domestic market. These products will be protected by owning a patent. The product features beautiful embroidery on its edge, which will cost much more if it were to be produced in the India. <br />2.11 FUTURE PRODUCTS<br />Forever Floral’s Inc. plans to introduce new kinds of flowers and silk products every year for the first four years, with aggressive advertising at the beginning of each year that introduces these new flowers. <br />After establishing a firm reputation, FF plans to import products other that silk products, but all will still be related to flowers. These will be produced by Indonesian artisans in various cities in the original region, all managed by the same artist. The products will include silk jewelry boxes, mirrors, all with hand-painted flowers.<br /> 3.TECHNICAL ANALYSIS <br />3.1 COMPANY LOCATIONS AND FACILITIES<br />FF's headquarters are located in Greater Kailash, New Delhi. The building is taken at lease. It will also have a 600-square retail store at Bangalore, which will serve as both an outlet and test market. These locations are chosen because maximum target market is located in these places. <br />3.2 VENDOR/WHOLESALER SELECTION<br />For the first year of operation the distributors will be selected in NCR region .Archies Gallery, Good home, n Gift shops will be targeted. In the next year business will be expanded to other metro cities like Bangalore and Mumbai. <br />3.3 KEYS TO SUCCESS<br /> Keys to success for Forever Floral’s Inc. are: <br />Product quality. <br />Customer service. <br />Access to manufacturers and distribution channels. <br />Controlling fixed and variable costs during first two years.<br />4. IMPORTANT ASSUMPTIONS<br />Assumptions in FF's financial plan indicate the assumption of a stable economy without any major recessions or booms in both the Indian and Indonesian economies<br />Particulars/Year20102011201220132014Long-term Interest Rate16.00%16.00%16.00%16.00%16.00%Short-term Interest Rate20.00%20.00%20.00%20.00%20.00%Tax Rate30.90%30.90%30.90%30.90%30.90%Depreciation Charged15%WDV15%WDV15%WDV15%WDV15%WDV<br />KEY FINANCIAL INDICATORS<br />Key financial indicators for Forever Floral include: <br />Constant gross margins. <br />Sales on credit. <br />Net worth. <br />Return on equity. <br />4. PROJECTED FINANCIALS<br />4.1 SOURCES AND APPLICATIONS OF FUNDS<br />Start-upApplication of funds Start-up ExpensesIn Rs.Legal2,000,000Insurance2,500,000Rent50000Issue expenses5lacsOther Preoperative expenses(eg. Marketing and distribution, advertisement, Promotional sample distribution)18.5lacsMachines, Equipment and accessories15lacsworking capital requirement20 lacs Total Requirements100lacs Sources of Funds Investment External equity30lacsPromoter's Equity50lacsDebt funding (Long term @ 16%)20lacsTotal Investment100lacs<br />WORKING CAPITAL CALCULATION<br />Projected Working Capital Requirement 20lacsStock of finished material1,000,000Inventory of raw material kept (WIP)900,000Advance payable for sundry expenses50000Cash in hand/bank500,000recurring Expenses(like rent,wages,clerical staff etc. )400,000Creditors50000Working Capital required ( CA-CL )20lacs<br />REPAYMENT OF LOAN<br />A loan of 2000000 is taken @ 16% which will be paid in 15 years with equal principal paid. <br />Interest payment for 5 years are shown as :<br />Debt Amortization Table (in Rs.)YearLoan OutstandingInterest paid@16%Principal PaidInstallment12,000,000320,000 133333.3333453,333.33 31,866,667298,667 133333.3333432,000.00 41733333.333277,333 133333.3333410,666.67 51600000256,000 133333.3333389,333.33 <br />4.2 PRICING STRATEGY<br />FF sets standard prices for each product line. These prices are not expected to experience significant change over the next five years. <br />Tulips and Roses – Rs. 100 <br />Arranged Flower 1 – Rs 950 <br />Arranged Flower 2 – Rs. 2000<br />Silk Scarf - Rs 800<br />Other hair accessories - Rs 500<br />Other/Seasonal bouquet - Rs 3000<br />Catolog sales – Rs.112.5<br />These prices exhibit quality products at reasonable costs to consumers. <br />4.3 SALES FORECAST<br />Assuming that in the starting business we will be able to capture 2 % of the total demand and then growing at rate of 1% annually where the demand is increasing at a rate of 4 %<br />Sales ForecastUnit Sales20102011201220132014Tulips and Roses3,0004,0005,0006,5007,500Arranged Flowers 15006509001,2001,400Arranged Flowers 25006509001,2001,400Silk Scarf1,2001,4001,8002,2002,600Other hair accessories1,2001,6002,0002,4002,800Other/Seasonal bouquet1,0001,0001,4001,8002,200Catalog sales02,0003,00045006,000Total Unit Sales7,40011,30015,00019,80023,900<br />4.4 COST PER UNIT FLOWER:<br />Direct Unit CostsParticulars2,010.002,011.002,012.002,013.002,014.00Tulips and Roses70.0070.0070.0070.0070.00Arranged Flowers 1400.00400.00400.00400.00400.00Arranged Flowers 21,200.001,200.001,200.001,200.001,200.00Silk Scarf350.00350.00350.00350.00350.00Other hair accessories300.00300.00300.00300.00300.00Other/Seasonal bouquet2,000.002,000.002,000.002,000.002,000.00Catalog sales0.00112.50112.50112.50112.50<br />4.5 TOTAL COST OF FLOWERS:<br />TOTAL COSTParticulars/Year2,0102,0112,0122,0132,014Tulips and Roses210,000280,000350,000455,000525,000Arranged Flowers 1200,000260,040360,000480,000560,000Arranged Flowers 2600,000780,0001,080,0001,440,0001,680,000Silk Scarf420,000490,000630,000770,000910,000Other hair accessories360,000480,000600,000720,000840,000Other/Seasonal bouquet2,000,0002,000,0002,800,0003,600,0004,400,000Catalog sales0225,000337,500506,250675,000Subtotal Direct Cost of Sales3,790,0004,515,0406,157,5007,971,2509,590,000<br />4.6 PRICE PER UNIT OF FLOWERS:<br />Unit PricesParticulars2,010.002,011.002,012.002,013.002,014.00Tulips and Roses100.00100.00100.00100.00100.00Arranged Flowers 1949.50950.00950.00950.00950.00Arranged Flowers 21,999.502,000.002,000.002,000.002,000.00Silk Scarf799.50800.00800.00800.00800.00Other hair accessories499.50500.00500.00500.00500.00Other/Seasonal bouquet2,999.503,000.003,000.003,000.003,000.00Catalog sales0.00112.50112.50112.50112.50<br />4.7 TOTAL SALES OF FLOWERS:<br />Total SalesParticulars2,010.002,011.002,012.002,013.002,014.00Tulips and Roses300,000 400,000 500,000 650,000 750,000 Arranged Flowers 1474,750 617,595 855,000 1,140,000 1,330,000 Arranged Flowers 2999,750 1,300,000 1,800,000 2,400,000 2,800,000 Silk Scarf959,400 1,120,000 1,440,000 1,760,000 2,080,000 Other hair accessories599,400 800,000 1,000,000 1,200,000 1,400,000 Other/Seasonal bouquet2,999,500 3,000,000 4,200,000 5,400,000 6,600,000 Catalog sales0 225,000 337,500 506,250 675,000 Total Sales6,332,800 7,462,595 10,132,500 13,056,250 15,635,000 <br />4.7 PROFITABILITY STATEMENT<br />Profitability statementParticulars/Year2,0102,0112,0122,0132,014Sales6,332,8007,462,59510,132,50013,056,25015,635,000Direct Costs of Goods3,790,0004,515,0406,157,5007,971,2509,590,000Shipping etc.4003544260486885284757074 ------------------------------------ Cost of Goods Sold/Production38300354559300620618880240979647074Gross Margin25027652903295392631250321535987926Gross Margin %0.400.390.390.390.38Expenses: Payroll2160004000005400006000070000Sales and Marketing and Other Expenses400,000.00300,000.00300,000.00300,000.0030,000.00Depreciation225000191250162562.5138178.125117451.4063Rent600,000.00660,000.00720,000.00744,000.00780,000.00Total Operating Expenses1,441,000.001,551,250.001,722,562.501,242,178.13997,451.41Profit Before Interest and Taxes1,061,765.001,352,045.002,203,749.503,789,974.544,990,474.76Interest Expense(long term)320,000.00298,666.67277,333.33256,000.00234,666.67PBT741,765.001,053,378.331,926,416.173,533,974.544,755,808.09Taxes Incurred229,205.39325,493.91595,262.601,091,998.131,469,544.70PAT832,559.621,026,551.101,608,486.902,697,976.413,520,930.06<br />DEPRICIATION SCHEDULE<br />Depreciation ScheduleYearAmount to be depreciated@ 15% WDVDep. AmountYr 11500000225000Yr 21275000191250Yr 31083750162562.5Yr 4921187.5138178.125Yr 5783009.375117451.4063<br />Cash flows from various viewpoints will be calculated from the PAT calculated above in Profitability statement:<br />ASSUMPTIONS:<br />1. Short term borrowings has not been taken from as a source of finance so the long term cash flows and Total fund view point for cash flows is same.<br />2. The business is always made on ongoing concern so salvage value of any of the assets is not considered. The current assets and fixed assets have not been liquidated after 5 years.<br />3. The business is profitable and making losses from the very first year and this is the reason that the cash flows has been taken only for 5 years to make it more simple.<br />Cash flows from Equity Point of ViewYEAR20102011201220132014PAT8325601026551160848726979763520930Add : Depreciation225000191250162563138178117451Principal term loan amt. repaid133333133333133333133333133333Net cash flow9242261084468163771627028213505048<br />Cash flows from Long term Point of ViewYEAR20102011201220132014PAT8325601026551160848726979763520930Add : Depreciation225000191250162563138178117451Principal term loan amt. repaid320000298667277333256000234667Net cash flow13775611516470204838630921593873053<br />NPV from Equity Point of ViewYEARInitial Investment20102011201220132014Cash Inflows-20000009242261084468163771627028213505048PVIF@ 20% 0.83330.69440.57870.48230.4019Present Values 77015875305494774613035711408679Net Present Value31832083183208 <br />Modified NPV from Equity Point of ViewYEARInitial Investment20102011201220132014Cash Inflows-20000009242261084468163771627028213505048FVIF@ 18% 1.93881.6431.39241.181Future Values 17918891781781228035631893293505048Terminal Value12548402.83 Modified NPV3485022.526 <br />NPV from Long term Point of ViewYEARInitial Investment20102011201220132014Cash Inflows-200000013775611516470204838630921593873053PVIF@ 19.2% 0.8389260.7037970.5904340.495330.415546Present Values 11556721067287120943615316401609430Net Present Value4,573,465 <br />Modified NPV from Long term Point of ViewYEARInitial Investment20102011201220132014Cash Inflows-200000013775611516470204838630921593873053PVIF@ 19.2% 0.8389260.7037970.5904340.495330.415546Present Values 11556721067287120943615316401609430Net Present Value4,573,465 <br />Payback period and IRR from Equity Point of ViewYEARInitial Investment20102011201220132014cash flows-20000009242261084468163771627028213505048Cumulative cash flows 9242262008694364641063492319854279Discounted cash flow 77015875305494774613035711408679Cumulative Discounted cash flows 7701581523212247095837745295183208PAYBACK PERIOD2.991983124 PAYBACK PERIOD(DISCOUNTED)2.503075381 IRR64% <br />Payback period and IRR from Long term Point of ViewYEARInitial Investment20102011201220132014cash flows-200000013775611516470204838630921593873053Cumulative cash flows 137756128940304942416803457511907628Discounted cash flow 11556721067287120943615316401609430Cumulative Discounted cash flows 11556722222959343239549640356573465PAYBACK PERIOD2.410452883 PAYBACK PERIOD(DISCOUNTED)2.791097704 IRR83% <br />NBCR(NPV/Initial investment)Equity Cash flows1.591603987Long term cash flows2.28673269<br />RISK ADJUSTED COST OF CAPITAL<br />It consists of three components :<br />,[object Object]](https://image.slidesharecdn.com/flowersbusinessplan-100730040101-phpapp02/85/Flowers-business-plan-1-320.jpg)
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Flowers business plan
- 2. Premium for normal risk of the firm
- 3. Premium for extra or below normal risk of the project
- 4. For new projects Discount rate = cost of capita + 4%
- 5. For Equity 20 + 4 = 24%
- 6. For long Term 19.2 +4 = 23.4%
- 8. Let’s suppose these cash flows are perfectly correlated.
- 9. And the risk free rate of return is 8% (on the basis of 10 years maturity Government of India securities).
- 10. The cash flow remains same whether the cash flows are correlated or uncorrelated.
- 12. Concern for Savings: The project would help the employees to save more and more. Since the level of income would rise, the level of saving would rise along with the rise in the level of consumption and a rupee of benefits saved is deemed more valuable than a rupee of benefits consumed. So the concern of society is duly reflected in the project. The more the employees save, the more they would be investing in the betterment of themselves and their children
- 13. Merit Wants: These are also important from the social point of view. Our project proposes to produce a micro refrigeration system that would help in saving a lot of food which otherwise is wasted, thus making it available for others.
- 14. Clean environment: The manufacturing of these artificial flowers does not involve emission of any dangerous gases like Clorofloro carbons, CO2 etc. Hence contribute to the Clean and Green environment.
- 15. Other Concerns: The flowers which are manufactured are long lived and hence does not require the user to change it after every month or so. So there be less of waste products and hence less problem of dumping the waste products.