1.

Startup cost and capitalization

A. Equipment Needs
The following list of equipment will be needed to launch the business:
S.N.
1.

Equipment
Conveyor belt

Quantity
25 meters

Per unit cost (Rs)

350/m

Total Cost (Rs)

8750

2.

2 Conveyor belt

2,00,000

2,00,000

3.
4.

transporter
Cutting machine
Automatic Clothes

1
1

3,00,000
3,00,000

3,00,000
3,00,000

2,97,000

2,97,000

Folding machine
5.

Garment Shredding
machine

6.

Carding machine

85,500

85,500

7.

Compressing machine

1,62,000

1,62,000

8.

Sewing machine

10

10,000

1,00,000

9.
10.

Bins
General tools
Grand total

50

1500

75,000
10,000
Rs. 15, 38,250

B. Factory Premises

The factory premises will be acquired in rent. The initial down payment of Rs.50,000 will be
made to the land lord. The rent per month for the premises will be Rs.30,000 for a year
(warehouse and factory premises) and will be adjusted on the basis of the contract made with the
land lord subsequently.

C. Other Startup costs

The other startup costs for legal requirements, licensing, documentation and other preliminary
expenses will amount to Rs.30,000.

D. Startup Funding
The business would require an initial capital of Rs. 16,68,250. This will be funded partially by
the shareholders and by the bank loan taken. Shareholders equity capital would amount to Rs.
720,000 and a bank loan of Rs.10,00,000. The remaining amount of Rs. 51,750 will be kept in
the bank account in the name of the factory. This amount will be subsequently used for working
capital management.

2. Financial plan

Earned Revenue Projections for Year One

Month Total
clothe
s (kg)

Clothes
Resale
(kg)

@ wiping
Rs.40/kg rags(kg)

fiber
@ industry
Rs.27/kg (kg)

@
Rs.25/kg

900

300

12000

300

8100

300

7500

1050

350

14000

350

9450

350

8750

1200

400

16000

400

10800

400

10000

1350

450

18000

450

12150

450

11250

1500

500

20000

500

13500

500

12500

1650

550

22000

550

14850

550

13750

1800

600

24000

600

16200

600

15000

1950

650

26000

650

17550

650

16250

2100

700

28000

700

18900

700

17500

10

2250

750

30000

750

20250

750

18750

11

2400

800

32000

800

21600

800

20000

12

2550

850

34000

850

22950

850

21250

276040

186327

172525

The first month, the business will be able to accumulate 900 kgs of raw materials which will
subsequently grow by 150 kgs every following month. One third of the product will be sent for
the sale in retail clothes market, the other one third will be sold to the industry producing wiping
rags and rest of the product will be sold to the fiber industries. The price charged would be Rs
25/kg to the fiber industry, Rs.27/kg to the wiping rag market and Rs. 40/ kg to the clothes retail.
The total projected annual revenue will be Rs. 6,34,892.

3. Financial Projection for year 1

Particulars
Total revenue
Less: Direct costs
Less: Administration and
office expenses
Net profit before tax
Less: Tax @ 25%
Net profit after tax

Amount

Amount
634892

(84,000)
(480,000)
70892
(17723)
53169

The direct costs amount to Rs. 7000 per month as the raw material costs are pretty low. The
administration expenses amount to Rs. 40,000 per month. The net profit after tax amounts to Rs.
53,169 annually. Thus, the return on investment for year one is 3.09%. The revenue, profit and
return on investment is predicted to grow more from year 2 and the subsequent years as the
business slowly flourishes .