Business Plan For Candle Business In Nigeria Commerce Essay

Business Plan For Candle Business In Nigeria Commerce Essay Candles have been in existence for many years. At one time, people depended on them to light as well as heat their homes. Archaeologists have found proof of the existence of ancient candles in caves all over the world, most recently in France. The theory is that cavemen used candles as a source of light for etching their stories and charts on the walls of their homes. These candles were most likely created from fat derived from animals that were killed for food and fur. Even the ancient Egyptians created and used candles. Regardless of what material the candle is made of, to burn and provide adequate light and heat it has to have plasma, solids, gasses, and liquids. In todays modern world, we create candles for our own personal enjoyment, as crafts and hobbies for most people. Some people enjoy making candles so much that they turn their craft into a profitable business. With a little creativity, you can make some truly unique candles, simply by adding your own designs and skills. It is possible to make candles in every shape and size that you can imagine, and in any colours you can create. You can even add essential oils and fragrances to your candles, so that they not only provide decorative light, but a beautiful scent as well. Most of todays modern candles are made primarily out of paraffin wax, but some are also made of beeswax as well. Paraffin wax is a wax that is derived from plants, found naturally all over the world. Strict safety precautions should be followed when making your candles. It could be very easy to make a small mistake and suffer serious burns from the wax, not to mention the very real danger of fire, when using or creating candles. There should be separate area in your home or workshop especially for candle making, with fire extinguishers readily available in case of emergency. For a new candle making, it will be best to start with simple candle designs, then increase the difficulty as your skill increases. The basic techniques of candle making, have to be learn and setup your work area appropriately. Pay attention to temperatures, and make certain that you are careful to follow safety rules. Candle making is fairly easy once when understanding the basics and perfect techniques. The good news is that the supplies needed in candle making are fairly inexpensive, so no worry about wasting money if ruin along the way. 1.2 OBJECTIVE OF THE STUDY The broad aim of the study is to introduce candle manufacturing business into Nigeria market in other to improve their standard of living. Along this broad aim emerges the following specific objectives which are: To determine the viability of Candle manufacturing business in Nigeria market. To determine the feasibility of Candle manufacturing business in Nigeria market. To determine the market trends for Candle business. CHAPTER TWO MARKET SURVEY / ANALYSIS 2.1 MARKET The end users of candle are mainly householders. It is their source of lightening during power outage. As earlier mentioned white garment churches (the celestial and cherubim and seraphim) are the other end users of candle for making supplication to celestial bodies. Survey of candle making businesses revealed that there are also other major manufacturer of candle such as Candle Royal, Chem.-Bold, BBC Candle, star candle, China candle, to mention a few. This is a plethora of small scale manufacturers. The market for candle stick is relatively large, given the frequency of power outage and the high cost of generating plants and fuel, which is a substitute for power supply. While power outage and interruption is common place in the urban centres, the rural electrification schemes of the government are gradually taking off but not yet sufficient to provide alternative power. Consequently, the market for candle sticks is a promising one while the project stands a good chance of success. Presently the types of candle stick produced by the aforementioned manufacturers have been found to burn out relatively faster than expected. From experience and research they take between 3 to 5 hours to burn- off. Reasons adduced for this is mainly the interior content/ concentration of the melt paraffin wax and the size of the candle sticks. This limitation and weakness has resulted in the inability to satisfy existing demand satisfactorily. The situation would be much more precarious when importation of candles is stopped and demand is now concentrated on local candles. To improve on these weaknesses, our own candle is being strengthened with high concentration of good, tested and quality melt paraffin wax. We are also planning to make varied sizes of these white and coloured candle sticks to cater for various users. Also, the effect of these competitors has been examined by sensitising the price of the products at 5 and 10 percent reduction. 2.2 MARKET TREND Given all the above it has been extremely difficult to determine accurately substantial data which could be interpreted to reveal the trend of demand for candle sticks at the range in this study for obvious reasons: One, the candle making industry in Ibadan, Oyo state is relatively young and competitors unwillingness to part with their company data Secondly, the type of candle we envisage both in size and content is different from other competitors. Nevertheless, estimated existing production figure for all these competitors for 2008 is 2,112,000 units in Ibadan However this figure is inconclusive if the object was for a detailed analysis. Because of these limitations, one is constrained to look at the consumption trend. 2.3 PROJECTION OF DEMAND As earlier stated, because of the power outage, high cost of generating plants and fuel used, candle has readily become a good alternative. Also considering the unique size and content of our candle, we are of opinion that the project will have no problem in gaining access to the market. Information of candle consumption revealed that in 1998, Oyo state with a population of about 3.5 million people has an estimated demand of 3 million candles There is therefore a shortfall of 888,000 units which if imported candle takes 300,000 units would leave an existing demand of 588,000 units. This project is therefore assured of patronage with adequate promotion of the product by the promoters. THE MICRO ENVIRONMENT OF BUSINESS LOCATION THE ECONOMY: The Nigeria economy was shaped, and greatly influenced by the character of the colonial economy which was purely exploitative. The major impulse of colonial rule was the search for cheap and steady supply of raw materials for the bargaining industries in Europe foreign market for the massively produced goods outlet for surplus capital and employment of cheap labour (Gann and Digman (eds), 1969). The raw materials in keen demand included cotton for textile factories, rubber for types and other products, palm oil, hides and skin or leather products, timber for furniture, as well as mineral resources like Tin, Bauxite, Coal to mention a few. The mineral and agricultural endowments of the colonial territories, Nigeria in particular, were massively tapped and exploited for use in Western Europe and North America, an exploitation rationalized in terms of the advantage in primary products.(Onimode, 1981).The a kind of symbolic relations between colonial territories and metropol is was enacted which favoured the metropolis. This process was further reinforced by the export of the surplus capital necessary by the need to sustain the rate of profit and capitalist accumulation in Europe. Consequently Nigeria large internal market became a major dumping ground for equipment and a host of other consumer goods (Dike 1956).Successive indigenous governments in the country have tried to grapple with the constrains created by the colonial economy. However the massive wealth generated from the sales of crude oil has made the economy monoculture depending as it were on crude oil. Since oil has become a major political tool in the hand of world powers the price per barrel of crude oil has become vulnerable. This trend has serious implications on national economic growth and development. The dependency on crude oil also gives rise to other economic adversities. Nigerian economy, which was agrarian and self-reliant, has become dependent on food baskets from Western Europe and North America. Thus the country has become a dumping ground for all sorts of goods consumers and capital goods from these foreign countries. It was against this backdrop that the structural adjustment programme (SAP) was launched in September 1986 by the Federal Military Government. The specific and major objectives of SAP are; (1). To restructure and diversify dependence on the oil sector and economy in order to reduce dependence on the oil sector and on exports. (2). To achieve fiscal and balance of payment viability over the period. (3). To lay the basis for a sustainable non inflationary or minimal inflationary growth. (4) To lessen the dominance of unproductive investment in the public sector improve the sectors efficiency and intensify the growth of the private sector. POPULATION AND LABOUR (MAN POWER) MATTERS Aside her strong economic base Nigeria is blessed with abundant human resources. Going by 1991 population Census Nigeria has a population of over 88 million with balanced demographic distribution. Nigeria population in absolute and qualitative terms is indeed appreciable compared to the rest of African. Thus there is abundant supply of semiskilled and unskilled in particular as well as skilled labour. This has downward implication for the cost of labour which has been one of the attractions for investors (both foreign and indigenous). However worth salary and wage regulation effected in 2007, which put the minimum basic salary at N8, 500.00 for federal employees and N9, 500.00 for state and local government employees the prices of various categories of labour are rising. 2.5 LEGAL AND SOCIAL MATTERS Candle making business is not in the list of prohibited or government monopolies. Therefore an investor is free to start off the business upon completing some legal requirement. Business premises registration levies which involved a minimum of =N=10, 000.00 and =N=5, 000.00 for renewal per annum have to be met. Similarly, women should be adequately represented in the firms employment given the campaign for gender equality following Beijin conference of 1991. Grassroots participation in the manufacture of candle sticks should be given a pride of place. 2.6 THE POLITICAL ENVIRONMENT The Nigeria political history is a chequered one, characterized by military intervention in the power politics of the country. The first republic which commenced in October 1, 1960, operated a parliamentary system headed by Sir Abubakar Tafawa Balewa. The government was sacked in January 15, 1966, paving way for military regime for some thirteen years regime that fought civil war (1967 1970) and marked by intra military change. On October 1, 1979 the military regime handed over political power to civilian political authority headed by Alhaji Shehu Shagari under a presidential system of government. By December 1983 the military junta intervened once again in the politics of the county and this lasted till May 29, 1999 when the political power was transferred to the civilian political authority headed by Chief Olusegun Cbasanjo under a presidential system of government in the model of Second Republic. The Nigeria masses are highly mobilized and militant which was a fallout of the annu lment of June 12 presidential election won by Late Chief Abiola of the south west Nigeria. The annulment of the election result created socio-economic even political crises in the country. Be that at it may Nigeria political climate is becoming predictable and stable and the national questions are being finally addressed. A regime of socio-political stability and economic progress is guaranteed under the democratic political dispensation. CHAPTER THREE TECHNICAL ANALYSIS ENGINEERING DESIGN AND FABRIACATION The engineering design and fabrication of candle making equipment can be handled locally. Indisputably, the cost saving element is a big advantage to a new entrants into the business, with modest capital. The design and fabrication can be raised in size and sophistication depending on the capital available to the buyer. Machinery and other equipment necessary for the manufacturing of candle sticks are listed below. Candle moulding machine Water pumping machine( electrical) Overhead water tank Melting pot Pail or container to pour the melted wax into the moulding machine Scrapper Parking table The materials required for candle making are as follows: Paraffin wax ( by- product of petroleum product) Candle thread Cooking gas or coal pot Vegetable oil Water Nylon Labels Empty cartons Tape/ tape cutter OTHER CAPITAL ITEMS office furniture and equipment and fittings pick up van ( car) Standby generator CHAPTER 4 4.1 RESOURCES PLANNING AND COST MANAGEMENT AND ORGANISATION In order to ensure effective management of operation, provision should be made for the following organisational arrangements: MANAGING DIRECTOR As the owner of the business, he co-ordinates all facets of the business and ensure the smooth running of the business in all ramifications. PRODUCTION / QUALITY CONTROL MANAGER He/ she is responsible for the production of candle sticks , to meet specification and standards. He/she should be able to undertake repair function if and when it breaks down. It is recommended that the holder of the position should have HND or B.SC in Mechanical Engineering COMPANY SECRETARY/ ACCOUNTANT The accountant will be the financial offer of the company as well as the company secretary. He will among other duties, be responsible for the following matters: Maintance of proper books of accounts Credit control Budget preparation, monitoring and review Banking and Assistance to auditors It is recommended that the holding of the position should hold a B.Sc. Degree or HND in Accountancy or a professional qualification with at least five (5) years corporate experience. CONFIDENTIAL SECRETARY Should possess certificate in secretarial Administration preferably Ordinary National Diploma (O.N.D) with proficiency in computer application software e.g. word processing etc and would be responsible for the typing jobs of the company and other assigned duties MACHINE OPERATOR Should possess certificate in production engineering preferably an Ordinary National Diploma (O.N.D). he would be responsible for actual production of the candle with adequate Supervision by the Production Manager. SALES MEN Should possess academic qualification in marketing preferably an Ordinary National Diploma with experience in selling same or related products. ORGANISATION CHAT MANAGING DIRECTOR COMPANY ACCOUNTANT SECRETARY PRODUCTION/QUALITY CONTROL MANAGER CONFIDENTIAL SECRETARY SALES MEN MACHINE OPERATOR CLERK DRIVER OPERATION OF THE COMPANY PRODUCTION: Production planning and control Production engineering Production design and Production auxiliaries ACCOUNTING AND FINANCE Accounting Policies Companys financial situation and Credit control system MARKETING: Product; Pricing system; Distribution system; Promotion; and Other processing PURCHASING: Raw material; Parts and components Work in progress Sub assemblies Maintenance and repair supplies and Other operating supplies PERSONNEL: Quality of staff Recruitment and selection Staff development and promotion Staff welfare Settling disputes/ complaint and Staff discipline 4.2 PROJECT COST AND FINANCING The estimated cost of candle manufacturing firm is =N= 2,087,000.00. This is inclusive of the cost of land and buildings, equipment, and other capital items and working capital. TABLE 1 PROJECT COST SUMMARY Land and Building COST IN NAIRA Land acquisition and development including Drainage, landscaping and other development 250,000 Office and Factory Building 400,000 Sub total 650,000 Plant and Machinery Machines, tools and equipment for manufacturing Water cooling system 250,000 Standby generator 120,000 Contingency cost 10% 37,000 Sub total 407,000 Other capital items Office furniture equipment and fitting 100,000 Motor van and Cars 600,000 Preliminary expense 80,000 Subtotal 780,000 Working Capital 250,000 GRAND TOTAL 2,087,000 LAND AND BUILDING Land requirement is approximately 1,200 sq.m for a building of 800 sq.m which provide for manufacturing, Office maintenance shop and raw materials plus finished goods storage. It is expected that the modest amount is expected to build the factory and office complex an inexpensive location. PLANT AND MACHINERY The cost of machinery to fully produce at 80% capacity has been approximated at =N=407,000. This includes the fabrication of the candle making machine, water pumping machine and overhead water tank and the melting pot and drum. Provision is made also for a standby generator to forestall the inadequacies in countrys power supply at =N= 120,000. A 10% contingency is also provided for to take care of increases in price. OTHER CAPITAL ITEMS Provision has been made for office furniture, equipment and fittings at a cost of =N= 100,000 and =N= 600,000 for the purchase of two vehicles i.e. =N= 350,000 for a second hand van and =N= 250,000 second hand car for running around. A provision of =N=80,000 is made for preliminary expenses like cost of registration of business with the government etc. WORKING CAPITAL Provision has been made for working capital to cover the following items Stock of raw materials 6 months Stock of finished goods 2 weeks Account receivable 2 weeks Operating Cost 1 month PROJECT FINANCING It is proposed that the total project cost of =N=2,087,000 be financed as follows NATURE STRUCTURE AMOUNT % Equity Shareholder 750,000 35.93 Working Capital commercial bank 250,000 11.97 Long term loan Development bank 1,087,000 52.10 2,087,000 100.00 SHAREHOLDERS EQUITY The required equity of =N= 750,000 represents 35.93% of the total project cost. This is expected to be contributed by the company promoters. WORKING CAPITAL The working capital requirement varies from =N=250,000 in the first year to =N=550,000 in the fifth year. This estimate is based on the following assumptions That 6 months stock of raw materials will be available That at any one time 2 weeks stock of finished goods will remain That accounts receivable will or average 2 weeks sales That operating cost for one month will be met. See calculation of working capital requirement. LONG TERM LOAN =N= 1,087,000 is the long term requirement which is expected to be obtained from a development bank for small scale enterprise (SME). This is expected to meet the cost of plant and machinery and to complete the factory and office buildings. INTEREST RATE Interest rate calculation was based on the notion that arbitrage will be =N=7.00 between deposit rate and lending rate coupled with the enforcement of senate motion that lending rate should come to 15% COMMERCIAL VIABILITY I have examined the proposals to establish the candle making factory in Ibadan, Oyo state and confirm that the company is economical and commercially viable as shown in the financial projections. The projection are based on the following assumptions Sale forecast and sales revenue Projected income statement Projected cash flow statement Projected balance sheet + The following are the highlights SALES REVENUE Net sales are projected to increase from =N=1,200,000 in the first year to =N=1,458,600 in the fifth year. In line with the increase in planned production from 480,000 units of candle in the first year to 583,440 units in the fifth year INCOME STATEMENT Profit before tax increases from =N=408,700 in the first year to =N=564,118 in the fifth year. This is a modest increase envisage in view of the newness of the business and stiff competition from other companies in the same business. TABLE 2 No. Required Recommendation =N= Production/Quality control manager 1 72,000 Coy Accountant/secretary/admin Mgr 1 60,000 Sales Men 1 36,000 Confidential Secretary 1 30,000 Machine Operator 2 48,000 Clerk 1 18,000 Driver 1 21,600 TOTAL 8 285,600 TABLE 3: SALES FORECASTS AND SALES REVENUE 4.3 ECONOMIC ANALYSIS I have been able to confirm that the project is economically viable based on my estimation and with economy condition of Nigeria. I have endeavoured to use the basics tools of economic analysis in the form of Benefit/ cost Ratio, Net present Value and internal Rate of Return ( IRR) sense but the actual net inflow of funds which will accrue to the firm as a result of undertaking this project i.e. all revenue from sales minus all cost, including any investment takes place. No deductions are made for depreciation. NET PRESENT VALUE The project shows a positive Net Present Value of when discounted at 15%. This shows that investment in this project gives profit greater than could be got by investing the same amount at the Firms Marginal Investment rate. (It is assumed that profit realised are withdrawn for use by the firm in any way it chooses) BENEFIT/ COST RATIO The benefit/ cost ratio which is the ratio of the discounts streams of benefit to the discounted streams of costs this shows that the benefits divisible from the project outweighs whatever costs incurred if all benefits and costs are discounted to present Values INTERNAL RATE OF RETURNS The internal rate of return on the other hand is the rate of return that is being earned on Capital tied up while it is tied up after allowing for recoupment of initial investment. This was found to be 24.6%. Given that we discounted at 15% i.e. we assumed the cost of Capital (interest) was 15%, the project would still earn a surplus of 9.6% over and above the cost of Capital while allowing for all the recoupment of the initial investment. In effect, if the rate of interest were increased by an additional 5%, the investment project will still be economically viable 5.3 SUMMARY, RECCOMMENDATION AND CONCLUSION From the five year projection made and analysis carried out, we have found that this investment in the candle making business here at Ibadan would be a worthwhile one. In the first instance, considering the consumption nature of the city of Ibadan coupled with the larger population of people in the city, the product is assured of a ready market. In the second instance, having made a market survey showing that despite the fact that many similar products are available in the market, there is still an untapped market of about 25%. The acute power outage and interruption in the face of assurances by the power and steel Minister to rectify it, not withstanding, the product is assured of regular demand Meanwhile we have designed some marketing strategies like increasing the number of candles in the packet to 12 instead of the number 8 or 10 while still proposing to sell at N20.00, a price considered very cheap compared to other substitutes going for N40 or thereabout Other strategy is to use the company sales van to go round the state in the sales promotion, i.e. going from one town to the other with mounted speaker to create awareness and sensitise the public. We are equally envisaging going on air using the state media e.g. Television, radio and Newspaper to promote the product. On the return aspect of the project, the promoters and the financiers of the project e.g banks are assured of adequate and compensating returns on their investment. With a constant cash flow coupled with profit every year for the next five years, the company is projected to be on the right pedestal to carve a niche in the sector and be a potential leader in the candle making business. RECOMMENDATION We are however recommending that government give incentives to cottage industries like our own by providing the enabling environment e.g. provision of good network of roads, free flowing un-interrupted water and electricity supply to enable constant and peak production at all times. The interest rate could also be reviewed down through good fiscal policies by the financial regulatory bodies to reducing cost of financing. As usual, government should enforce the strict adherence to lending houses commitment to small scale manufacturing concerns Inflation rate should also be reduced or regulated to ensure growth of small companies CONCLUSION This candle making project from the foregoing study no doubt is a worthwhile investment and is recommended for financing.