Business Development Plan on

“Western Liquors Pvt. Ltd.”

Submitted to:
Mr. Kishore Dhungana
Course Facilitator
Apex College
Pokhara University

Submitted by:
Mr. Hement Pandey
Section: - Luminous
Examination Roll Number: 20220195

Submitted for the requirement of the course ‘Business Development Plan: Graduate Seminar’.

Date: 21 April, 2022

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 ACKNOWLEDGEMENT
I would like to express my deep and sincere gratitude to Apex College for providing me an
opportunity that has given me practical exposures and the real time experience to various
activities in practical setting which will be fruitful and beneficial for my upcoming future.
First of all, I would like to extend my heartfelt gratitude to Dr. Kishore Dhungana from whom I
got immense inspiration to do this Business Development Plan. With the active participation I
have completed this Business Development Plan and have tried to do my best in providing the
relevant information. Further, I would like to express my immense gratitude to Mr. Ajay Pandey
for providing me with the sufficient and timely information and details of the liquor business.
Without his support, it would have been a hard nut to crack for me. I am highly obliged to the
seniors and all those who have helped me in preparing this report.
Last but not the least; I would like to utter my heartfelt appreciation to all directly and indirectly
support providers or facilitators in this study.

………………………..
Sincerely,
Hement Pandey, Luminous

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 DECLARATION
I, student of MBA, hereby declare that the project titled “BUSINESS DEVELOPMENT PLAN
ON WESTERN LIQUORS PRIVATE LOMITED” for the subject BUSINESS
DEVELOPMENT PLAN submitted by me for 4th trimester of the academic year 2022, is based
on the actual work carried out by me under the guidance and supervision of Course Facilitator
Dr. Kishore Dhungana. I further state that this work is original and not submitted anywhere else
for any examination.

Date:

…………………………..
Hement Pandey, Luminous
Name & Signature of Student

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 EXECUTIVE SUMMARY
The geography of Far Western represents all Tarai, Hilly, and Mountain regions. Similarly, the
population represents mainly Tharu (in Tarai), Brahmin and Kshetri (in Hilly and Mountain
region), and other casts with so many cultural background and also different economic class of
people. The people in Far Western consume liquor for so many purpose such as self-
consumption, gifting others, festival celebrations, get together, regular consumption, birthday
and other parties, and many more. Western Liquors is being established with the aim of being a
distributer of different brands of alcoholic products in the Far Western Nepal. It will be situated
in Dhangadi, Kailali. Western Liquors is planning to penetrate in the 50UP and 70UP alcohol
brands market in western part of Nepal.
Western Liquors is going to be the distributor of the liquor brands such as Live Music Level,
Western Delicious, Live Diamond, Western Russian, Punte Saufi, Western Saufi, Satasat Saufi,
and many more. The major difference between these two categories of products (50UP & 70UP)
is the level of alcohol they possess the quality and purity they have, and the pricing. Western
Liquors Pvt. Ltd. is adding value to the lives of lower-income people by offering them alcoholic
products that they can afford and celebrate their cultures, occasions and daily life.
The business will mainly focus in the village part of Kailali and Mahendranager and 3 hilly
districts Dadeldhura, Baitadi, and Darchula. This is a big market for the 50UP and 70UP liquor
products as majority fall in the category of BOP (Bottom of the Pyramid). Western Liquors will
not be the only in the market since there are already established market shareholders of 50UP
and 70UP alcohol brands in Dhangadi and Mahendranager.
As per the Liquor Act 2031 (1974) of Nepal, a person who intends to produce, sell, distribute,
export or import liquor has to make an application in such a form and to such authority as may
be prescribed to obtain the license. Most of the internal as well as external environmental factors
are in the favor of Western Liquors.
Western Liquors Private Limited Company will be started with an initial investment of Rs.
5,260,092 The equity capital will be contributed by the single owner. This financing can be
further break down to funding of total debt of 55.88% and total equity of 44.12%. The sales
revenue for the first year is Rs. 75,000,000 and it is expected to grow by 20% each year until
year 5. The start-up long term loan is taken at 12% annual interest rate from a bank. It will be
fully reimbursed within the loan period of 5 years.
The profit for Year 1 is 2,838,740 and it is increasing every year. The opening cash flow of
Western Liquors shows the net cash balance of Rs. 746,333 at the beginning year 1 and balance
of Rs. 20,040,461 at the end of year 5. The financial ratios such as Liquidity Ratios, Profitability
Ratios, Efficiency Ratios and Solvency Ratios are calculated and most of them seem in favor of
the company.

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Currently, we are trying to focus only in few locations of Far Western and few customers but
after operating few years and increment in capacity we will expand the business in whole of Far
West, i.e. Doti, Bajura, Achham, and Bajhang. With the passes of time and success, Western
Liquors will even penetrate other higher value brands of alcohols. We even have plans to partner
with the liquor producing industries by purchasing the shares if our profitability goes as per the
plan.
Managers should always be prepared for any types of situations and conditions that will hamper
the business and need to prepare various exit strategies to change the unfavorable scenario of the
business. Out of several exit strategies such as diversification, selling, liquidation, Western
Liquors can go for any of them based on the existing scenario.

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 TABLE OF CONTENTS

Contents
CHAPTER 1: INTRODUCTION.............................................................................................................8
1.1 Background.......................................................................................................................................8
1.2 Vision, Mission and Objectives.........................................................................................................9
1.3 Organization and Management Team................................................................................................9
1.3.1 Organizational Structure.............................................................................................................9
1.3.2 Management Team...................................................................................................................10
1.4 Implementation Plan: Gantt Chart...................................................................................................10
CHAPTER 2: PRODUCTS AND SERVICES......................................................................................11
2.1 Products/Services.............................................................................................................................11
2.2 Costumer Value...............................................................................................................................11
2.3 Costing............................................................................................................................................11
CHAPTER 3: MARKET AND COMPETITION.................................................................................12
3.1 Industry and Business Outlook........................................................................................................12
3.2 Market Size......................................................................................................................................12
3.3 Market segmentation.......................................................................................................................12
3.4 Target Market..................................................................................................................................12
3.5 Market Competition.........................................................................................................................13
CHAPTER 4: MARKETING AND SALES PLAN..............................................................................14
4.1 Marketing Mix and Sales Strategy...................................................................................................14
4.2 Additional Marketing strategies.......................................................................................................14
CHAPTER 5: LEGAL FRAMEWORK, ENVIRONMENTAL, AND SOCIAL FACTORS............15
5.1 Approval and Licensing Requirements............................................................................................15
5.2 Environmental Analysis...................................................................................................................15
5.3 SWOT Analysis...............................................................................................................................16
CHAPTER 6: FINANCIAL PLAN........................................................................................................17
6.1 Assumptions....................................................................................................................................17
6.2 Financial Details of Start Up Expenses............................................................................................17
6.3 Sales Revenue..................................................................................................................................17
6.4 Loan Repayment Schedule..............................................................................................................17

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 6.5 Projected Income Statement............................................................................................................18
6.6 Projected Balance Sheet..................................................................................................................18
6.7 Projected Cash Flow Statement.......................................................................................................18
6.8 Financial Ratios...............................................................................................................................18
6.8.1 Profitability Ratios....................................................................................................................18
6.8.2 Liquidity Ratios........................................................................................................................19
6.8.3 Asset Management Ratios/Efficiency Ratios............................................................................19
6.8.4 Solvency/Debt Management Ratios..........................................................................................20
6.9 Breakeven Analysis.........................................................................................................................21
6.9.1 NAV and IRR...........................................................................................................................21
6.9.2 Payback Period.........................................................................................................................21
6.9.3 Discounted PBP........................................................................................................................21
6.9.4 MIRR........................................................................................................................................21
CHAPTER 7: FUTURE PLAN AND EXIT STRATEGY....................................................................22
7.1 Future Plans.....................................................................................................................................22
7.2 Exit Strategy....................................................................................................................................22
ANNEX.....................................................................................................................................................23

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 CHAPTER 1: INTRODUCTION
1.1 Background
Far Western Nepal has a diversified geographical, cultural, and economic scenario. The
geography of Far Western represents all Tarai, Hilly, and Mountain regions. Similarly, the
population represents mainly Tharu (in Tarai), Brahmin and Kshetri (in Hilly and Mountain
region), and other casts with so many cultural background and also different economic class of
people. According to the census 2078, Far West Province has the population of 27,11,270, which
is 9.29% of total population of Nepal. The people in Far Western consume liquor for so many
purpose such as self-consumption, gifting others, festival celebrations, get together, regular
consumption, birthday and other parties, and many more.
The majority of population in Far Western falls in the lower-class and lower-middle class
economic group. If we observe the alcohol drinking habit of this class of people, we find that this
group consumes alcohol in a regular basis and in more quantity than other class of people.
However, this market is not tapped by the liquor producers and thus this group is forced to
consume the local liquor that they produce in their homes. Along with this, Nepal Government
has also tightened the sale of liquor by imposing heavy tax, due to which, this group of people
face problem in purchasing liquor and it has reduced their alcohol consumption. Western Liquors
Pvt. Ltd. is established with the aim of serving this lower-income population group of Far
Western Nepal by becoming the distributor of 50UP and 70UP (relatively lower-priced alcohol)
liquor products.
This BDP is based on a liquor trading business named as’ Western Liquors Pvt. Ltd.’. Western
Liquors is being established with the aim of being a distributer of different brands of alcoholic
products in the Far Western Nepal. It will be situated in Dhangadi, Kailali. Western Liquors is
planning to penetrate in the 50UP and 70UP alcohol brands market in western part of Nepal.
The reason behind choosing the Far Western region for this business is that the owner himself is
the resident of that region and knows the basic market structure on that region. Similarly, the
region behind choosing the low-priced alcohol brand (50UP and 70UP) is that majority of
population in Far Western is lower-class and lower-middle class with higher alcohol
consumption pattern. If Western Liquors can penetrate and capture this market, the probability of
business success and growth is very high. The competition in this segment of market is also
relatively low and easy.

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1.2 Vision, Mission and Objectives
Vision Statement: “To make the struggling lives more joyful”
Mission Statement: “To become the market leader in the lower-priced liquor market segment of
Far West Nepal by making the lives of lower-income people joyful.”
Objectives:
 To serve the lower-income people with the lower-priced liquor products.
 To make celebrations of people more joyful.
 To capture the 50UP and 70UP liquor brand market of Far West Nepal.

1.3 Organization and Management Team

1.3.1 Organizational Structure

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1.3.2 Management Team
Western Liquors is a private limited retailing company and hence it will require 2 retailing and
marketing persons and 1 warehouse management person. The owner himself will work as a
manager of the company. Mr. Dipak Chaudhary and Mr. Lok Raj Paneru are the marketing staff.
They will visit the market in each delivery time in different places. Mr. Narendra Bhatt will look
after the logistic and warehouse. Mr. Hemant Pandey, the owner is himself the manager and his
elder brother Mr. Ashish Pandey will look after the finance and accounting.
Before starting Western Liquors, Mr. Hemant Pandey has worked for a liquor wholesaler (RP
Traders) and gained good experience in accounting and marketing. Mr. Dipak Chaudhary has 3
years’ experience in marketing and sales in a competing liquor brand. Similarly, Mr. Lok Raj
Paneru has entered the liquor market just 1 years ago as a factory supervisor. He accepted the
offer made by the Western Liquors. Narendra Bhatt has good experience in logistic and
warehouse as he used to work at a grocery wholesale business. Mr. Ashish Pandey is a BBS
graduate and he will learn the real business accounting as he works.

1.4 Implementation Plan: Gantt Chart

Activities Weeks in a Month
1st 2nd 3rd 4th
Space Search and Renting
Registration
Fixed Asset Acquisition
Office Decoration
Utility Connections
Human Resource Acquisition
Contact with Supplier
First Batch Liquor Warehousing
Marketing

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 CHAPTER 2: PRODUCTS AND SERVICES
2.1 Products/Services
There are two major categories of product brands, 50UP brands and 70UP brands.

50UP Liquor Brands 70UP Liquor Brands

1. Live Music Level 1. Punte Saufi

2. Western Delicious 2. Western Saufi

3. Live Diamond 3. Satasat Saufi

4. Western Russian 4. Safar Brand Saufi

5. Relax Brand Saufi

The major difference between these two categories of products is the level of alcohol they
possess the quality and purity they have, and the pricing. 50UP brands are relatively higher
priced brands with less more alcohol level and better quality. However, 70UP brands are the
lowest-priced brands with relatively lower quality and lowest level of alcohol.

2.2 Costumer Value

This is the era where most of the businesses are focusing on tapping and serving the upper-class
population with the premium products. There is less consideration of the market called BOP
(Bottom of the Pyramid) or the lower-income people. Western Liquors Pvt. Ltd. is adding value
to the lives of lower-income people by offering them alcoholic products that they can afford and
celebrate their cultures, occasions and daily life.

2.3 Costing
The cost of the product initially is at the market price as the business needs to survive but when
Western Liquors achieves its mission, the price would be even more affordable. The prices will
be little bit higher for the customers in the hilly regions as there occurs the transportation cost.

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 CHAPTER 3: MARKET AND COMPETITION
3.1 Industry and Business Outlook
Liquor industry, especially in Nepal is doing really well. It is because of very minimal legal
restrictions in sales of liquor. From small tea shops to big malls, we can find alcohol sold freely.
Probably Nepal is the one of very limited countries where liquor sales have very less restrictions
and the existing restrictions are also not followed by the people. When we talk about lower-
priced liquor products, they are everywhere form small restaurants and shops to the authorized
dealers. So, Western Liquors has less difficulties in the sales of its products.
The main objective of commencing any business is to serve customers and earn profit. They
work at establishing a profitable relationship with the stakeholders. Customers and the markets is
the center for any business. The businesses identify their segment of customers from the market.
The businesses analyses these customers, identify the needs and requirements of these customers,
and offer the products and services to these customers to fulfil these requirements of the
customers.

3.2 Market Size

The market size of proposed liquor products is huge in the proposed area. Out of 27 lakh people,
almost 1.5 million people fall under the targeted market. The business will mainly focus in the
village part of Kailali and Mahendranager and 3 hilly districts Dadeldhura, Baitadi, and
Darchula. This is a big market for the 50UP and 70UP liquor products as majority fall in the
category of BOP (Bottom of the Pyramid).

3.3 Market segmentation

The market is segmented based on the several aspects such as;
1. Income Based Segmentation: The business has segmented the market based on the
economic class of the people. Lower-class and lower-middle class population is the
segmented.
2. Geographical Segmentation: The segmentation is also based on the geography as Two
districts of Tarai; Kailali and Kanchanpur and 3 districts of hilly region; Dadeldhura,
Baitadi, and Baitadi are targeted from the Far Western Region.

3.4 Target Market

As a distributor of the different brands of alcoholic products, Western Liquors cannot be limited
to a small market of Dhangadi only. Since we are the distributor of 50UP and 70UP alcohol
brands, which fall under the lowest price alcohol brands, our target customers are the low income
people and lower-middle class people. The major target market area would be village area of

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Dhangadi and Mahendranagar and 3 hilly districts of Far Western Nepal, i.e. Dadeldhura, Baitadi
and Darchula.

3.5 Market Competition

Western Liquors will not be the only in the market since there are already established market
shareholders of 50UP and 70UP alcohol brands in Dhangadi and Mahendranager.
The major competitor brands are,
70UP: Pukar Saufi, Karnali Saufi, Dhukuti Saufi, 20-20, Mahakali Saufi & Rahar Saufi
50UP: Swift, Bhir, Babai Diamond, Genia
The major competitor firms are,
1. PB Traders, Dhangadi
2. New Seti Suppliers, Dhangadi
3. Dinesh Concern Pvt. Ltd., Dhangadi
4. Janaki Suppliers, Mahendranagar
5. GARS Trading Concern Pvt. Ltd., Mahendranagar
6. Awasthi Trading Concern, Dhangadi

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 CHAPTER 4: MARKETING AND SALES PLAN

To penetrate, survive, and grow in any market, every business needs to have certain plans,
strategies, and actions that will make sure that the business is running successfully. The major
strategy among all is the marketing strategy that includes the evaluation and strategy formulation
for every marketing mix.

4.1 Marketing Mix and Sales Strategy

I. Product: Western Liquors is planning to offer the 50UP and 70UP alcohol products to
the people. Since most of the dealers have already captured the superior liquor brands and
there is a huge market opportunity in these 50UP and 70UP alcohols. These products are
mainly targeted to the lower income people and there is a huge mass of people who prefer
these alcoholic brands.
II. Price: Since the product itself is a low priced liquor product brand, pricing has been set
by considering the suppliers’ rules and ongoing market rate. This pricing will attract more
low income customers of competitor.
III. Place: The location of the business is set at Dhangadi. It is because there are major 2
factories of our product brands and buying products and maintaining the inventory would
be easier. Another reason behind this location is that our major market will be the hilly
districts of Far Western such as Dadeldhura, Baitadi, and Darchula. All of the customers
from these regions order the liquor products from either Dhangadi or Mahendranagar.
There is also a huge papulation of the low income people in the village areas of Dhangadi
and Mahendranagar who prefer our products.
IV. Promotion: Since company is the trader of the product not the manufacturer, so producer
itself will make huge investment in the product promotion and the company has nothing
more to do. But as a distributer, company’s major promotional tool would be personal
selling. Two of the company’s marketing and selling staff will promote the company by
visiting the customers personally and working on personal relation with them. Marketing
staff will brief them about the company scheme, credit provisions, and pricing.

4.2 Additional Marketing strategies

Along with the marketing mix strategies, Western Liquors will also apply certain other
marketing strategies that will help to boost the market image, attract the customers and capture
more market.
The additional strategies are;
 Motivating customers for digital payment/cashless payment
 Providing glasses, calendars, T-shirts, and gifts in the occasions
 Advertising Western Liquors with the posters on the transport trucks and customer shops

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CHAPTER 5: LEGAL FRAMEWORK, ENVIRONMENTAL, AND SOCIAL
FACTORS
5.1 Approval and Licensing Requirements
Based on the nature of the business, Nepal Government has applied approval and licensing
requirements for different kind of businesses such as hotels, industries, tourisms, cigarette
industry, etc. and liquor business is also one of them. As per the Liquor Act 2031 (1974) of
Nepal, a person who intends to produce, sell, distribute, export or import liquor has to make an
application in such a form and to such authority as may be prescribed to obtain the license. The
application includes;
 Name and address of the owner
 Name and address of the liquor business
 Nature of business (Production or sales of liquor)
 Documents; Citizenship and PAN, registration certificate, VAT number of the business
 Disclosure of financial sources for the investment
 Etc.

5.2 Environmental Analysis

I. Political Environment
In Nepal, we can often see the changes in the political positions, governmental
leadership, and ministry changes or we can say Nepalese political situation is not stable.
However, whatever the political ideology of the ruling party, we can see the similar
mindsets and policies towards the businesses. In the recent years, the business
environment of Nepal has uplifted to a certain level than previous years but still not at
apex. For instant, strikes, business targeting, protests have relatively less impacts on the
business these days.

II. Economic Environment

Nepalese economy has improved gradually and Nepal is in the process of LDC
graduation as it meets the criteria of Economic Vulnerability Index and Human Asset
Index. The per capita index (PCI) is also around USD 1196. After the COVID-19, the
inflation has raised the prices of most of the consumable goods, however it cannot stop
the consumption of liquor. However, from past few years, Nepal Government has
adopted the economic policies that has tightened the liquor production and even taxes are
higher.

III. Technological Environment

Technology growth is at the peak in Nepal. Whether it is use of digital payment system,
or use of advanced machineries for the production of goods and services, Nepalese has
adapted to all. As a distributor of liquor, Western Liquors gets less affected by the

15
 technological change. All that matters to us right now is the use of digital payment
system and use of advanced technologies for manufacturing by the suppliers. Both of
them are in our favor.

IV. Socio-cultural Environment

Nepal is country of mixed culture and religious people as we can see the existence of
Hindus, Muslims, Christians, Bauddhas and few other religions. This gives businesses a
great opportunity to learn about the business culture and apply the effect measures to
harmonize the social and cultural business environment. Even Socio-cultural environment
has less impacts on the liquor business as all people celebrate each other’s festivals and
occasions together.

V. Legal Environment
There are certain strict legal provisions and requirements for the liquor businesses and
industries but the legal environment is supportive to the growth and prosperity of the
business economy.

5.3 SWOT Analysis

I. Strength
Strengths are the internal favoring factors of the business. Western Liquors has the
strengths such as professional and qualified workforce, business location at the center of
the city, personal contacts and relationships of the owner, better understanding of the
market as owner is the local residence.

II. Weaknesses
Weaknesses are the internal lacking and non-favoring factors of the company. The major
weakness company has is the lack of sufficient funds and new to the market.

III. Opportunities
Opportunities come from the external environment that can be tapped and capitalized by
the company. The major opportunity is the unserved market of villages of Far West Tarai
Area and hilly districts. The majority of population that falls in BOP also creates big
opportunity in sales and marketing.

IV. Threat
Threat include anything that can negatively affect your business from outside, such as
supply chain problem, existence competition, etc. The company has major threat form the
already existent big competitors of the market and also from the potential new entrants.

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 CHAPTER 6: FINANCIAL PLAN
6.1 Assumptions
The financial plan of the company is based on the certain assumptions that are listed as follows;
 Salary will be increased by 5% every year.
 Accounts Receivables are expected to be collected within 20 days.
 Accounts Payables are expected to be paid within 30 days.
 Inventory will be kept sufficient for 15 days.
 All the utility expenses are on monthly basis.
 Depreciation of fixed assets is based on diminishing balance method.
 Sales and purchases are expected to increase by 20% every year.
 Vehicles will be depreciated at 20% yearly.
 Tax rate is 25%.
 Investor’s Required Rate of Return is 12%.

6.2 Financial Details of Start Up Expenses

Western Liquors Private Limited Company will be started with an initial investment of Rs.
5,260,092 The equity capital will be contributed by the single owner. This financing can be
further break down to funding of total debt of 55.88% and total equity of 44.12%. the Short-term
debt and equity are 50/50% of the working capital. The start-up cost will consist of preliminary
expenses and fixed cost. The detail of the startup expenses is shown in Annex 1.

6.3 Sales Revenue

The sales revenue for the first year is Rs. 75,000,000 and it is expected to grow by 20% each
year until year 5. It is shown in Annex 2.

6.4 Loan Repayment Schedule

The start-up long term loan is taken at 12% annual interest rate from a bank. This loan will be
taken from the bank by keeping the collateral. The annual payment of this loan is supposed to be
paid by preparing loan amortization schedule with quarterly discounting. It will be fully
reimbursed within the loan period of 5 years. The detail of annual interest payment with principal
amount repayment is shown in Annex 3.

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6.5 Projected Income Statement
Pro forma income statements are an important tool for planning future business operations. If the
projections predict a downturn in profitability, we can make operational changes such as
increasing prices or decreasing costs to have profitability in business. The pro forma income
statement of Western Liquors shows appropriate profit for the periods of projection, and the pro
forma income statement show the increasing profit. The profit for Year 1 is 2,838,740 and it is
increasing every year. The detail of pro forma statement of this store is shown in Annex 4.

6.6 Projected Balance Sheet

A pro forma balance sheet discloses a business’s assets, liabilities, and equity at a specific point
in time. The opening balance sheet of Western Liquors shows R.s. 1,367,800 of total assets with
same level of liabilities and equity and the total balance at the end of year 5 is Rs 33,128,267.
The overall pro forma balance sheet of Western Liquors for five years is disclosed in Annex 5.

6.7 Projected Cash Flow Statement

A pro forma cash flow statement shows the total net cash inflow or outflow at a specific point of
time. It shows the cash generated from operating, investing and financing activities. The opening
cash flow of Western Liquors shows the net cash balance of Rs. 746,333 at the beginning year 1
and balance of Rs. 20,040,461 at the end of year 5. The pro forma cash flow statement of
Western Liquors is disclosed in Annex 6.

6.8 Financial Ratios

Financial Ratios consist of ratios such as liquidity ratio, profitability ratio, efficiency ratio and
solvency ratio. The ratio calculation is shown in Annex 7.

6.8.1 Profitability Ratios

Profitability ratios measure the company's use of its assets and control of its expenses to generate
an acceptable rate of return. The details are shown in Annex 7
I. Gross Profit Margin:
Western Liquors maintained its gross profit margin up to the 10% throughout the years of
operation. The margin is consistent during the five years’ period.
II. Net Profit Margin:
Initially, the profit margin is 4%%. It is same in year 2 and then increases to 5% and
reached to 6%% at the end of 5 years.

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III. Return on Asset:
The return on asset is 29% in the first year. The ROA increased and reached up to 35% at
the end of 5th year.
IV. Operating Profit Margin:
The operating profit margin is 5% in the first year and has increased to 7% at the end of
the 5th year.
V. Return on Equity:
The return on equity is 85% in the beginning o and has decreased to 56% in the 5th year.
VI. Dividend Pay-Out:
The dividend is distributed on the basis of the capital and the income earned. At first 15%
dividend is declared and it increases every year and reaches up to 80% in the 5th year.

6.8.2 Liquidity Ratios

Liquidity ratios show the position of cash and cash equivalents in the organization. The details of
liquidity ratios are shown in Annex 7.
I. Current Ratio:
The current ratio started with 1.35 in the first year and increased to 1.85 within 5 years.
The ratio is quite favorable with no sharp increase showing Western Liquors has used its
cash effectively and sensibly as having too much or too few cash is also not favorable.

II. Quick Ratio:

The quick ratio of the company is quite similar to current ratio as there is minimal
inventory of the firm. The Quick ratio at the beginning year is 1.01 and expected to grow
upto2.5. This is one of the benefits of the firm as it requires low inventory for its
operation.

6.8.3 Asset Management Ratios/Efficiency Ratios

Efficiency ratios show if the company is able to effectively manage its assets and liabilities to
gain maximum revenue. The details of efficiency ratios are shown in Annex 7.

I. Inventory Turnover Ratio:

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 The inventory turnover ratio is 21.6 times every year, i.e. inventories are turned into sales
21.6 times. They are equal every year as the COGS is increased on the basis of sales as
well as the inventory is also increased as sales revenue is increased.

II. Fixed Assets Turnover Ratio:

The total assets turnover ratio is 229.1125 times at first and has increased to 1216.84. It
shows that the total asset has increased in the next 5 years but sales increases in much
more amount so the ratio has increased in the coming years.

III. Total Assets Turnover Ratio:

The fixed assets turnover ratio is 5.8242 times in first year and has fluctuated during
other years and at the end of 5th year it will become 4.6944 times.

IV. Days Sales Outstanding

DSO is 15 and remained same for the 5 years.

V. Payable Period
Payable period is the number of days company has to pay to the suppliers. It is 45 days in
all 5 years.

6.8.4 Solvency/Debt Management Ratios

Solvency ratios depict whether firm is solvent i.e. whether it is able to pay the liabilities with the
revenue generated and also the position of debt and equity in an organization. The details of
solvency ratios are shown in Annex 7.
I. Debt Equity Ratio:
The debt equity ratio is 2.8489 times in the first year and has decreased in the next 5
years as the debt has decreased in the next 5 years and equity has not changed in next 5
years as well.

II. Total Asset to Equity Ratio:

The total asset to equity ratio is 3.8489 times at the beginning and has decreased to
2.1358 times in the next 5 years. This shows a good balance between assets and equity as
the assets are just higher than equity.

III. Time Interest Earned Ratio

The TIE ratio is 77.8832 times in the 1st year and has increased to 1399.3178 in 5th year.

IV. Debt Service Coverage Ratio:

20
 The debt service coverage ratio is 33.5292 times in the beginning and has increased to
99.2556 times in the next 5 years. It is due to decrease in debt in the next 5 years and
increase in revenue in the next 5 years.

6.9 Breakeven Analysis

The Breakeven analysis calculations are shown in Annex 8.

6.9.1 NAV and IRR

NPV can be described as the “difference amount” between the sums of discounted: cash inflows
and cash outflows. It compares the present value of money today to the present value of money
in the future, taking inflation and returns into account. IRR is the discount rate at which the
present value of all future cash flow is equal to the initial investment or in other words the rate at
which an investment breaks even. The projected NPV shows the total value of Rs.
$12,237,456.95 and IRR of 75%.

6.9.2 Payback Period

The pay-back period of Western Liquors is 2 years. It means that the initial investment will be
recovered within the two years of operation.

6.9.3 Discounted PBP

The Discounted Pay Back Period for the company is 3.067 years. This means initial investment
after considering time value of money will be recovered within 3.067 years.

6.9.4 MIRR
The modified internal rate of return of this project is 45%. This rate can be realized when the
cash flows from the business are reinvested at a rate equal to its cost of capital i.e. 10%.

21
 CHAPTER 7: FUTURE PLAN AND EXIT STRATEGY

7.1 Future Plans

The future plans of Western Liquors are as follows:
 Currently, Western Liquors is trying to focus only in few locations of Far Western and
few customers but after operating few years and increment in capacity it will expand the
business in whole of Far West, i.e. Doti, Bajura, Achham, and Bajhang.
 Initially Western Liquors has planned to specialize only in the 50UP and 70UP category
of liquor, but with the passes of time and success, it will even penetrate other higher
value brands of alcohols.
 We even have plans to partner with the liquor producing industries by purchasing the
shares if our profitability goes as per the plan.

7.2 Exit Strategy

As the environment for business is dynamic and uncertain, there might come any unfavorable
business situation in the future. So, the manager should always be prepared for those types of
situations and need to prepare various exit strategies to change the unfavorable scenario of the
business. The Western Liquors will be following one of the following exit strategies:
 Diversification: The business can start its own subsidiary of different business to have
different source of revenue and be ready to exit in the worst case scenario.
 Selling: If the environment is very unfavorable then the business should think of
being sold to others. The business will be sold to another party who is interested in
conducting the investment business.
 Liquidation: If there is no hope of success and no any chance of growing, the
company can be liquidated

22
 ANNEX
ANNEX 1: Startup Expenses
Start Up Expenses
S.N. Particulars Quantity Rate Amount
A Fixed Costs      
1 Furniture and Fixture      
  Table 1 10000 10000
  Decoration     10000
  Manager's Chair 1 8000 8000
  Document Rack 1 8000 8000
  Sofa 1 12000 12000
  Rack 2 20000 40000
2 Plastic Chairs 3 600 1800
  Vehicle      
  Motorcycle 1 255000 255000
3 Electronics      
  Laptop 1 60000 60000
  Miscellaneous FA 1 10000 10000
  Total FC     414800
B Preliminary Expenses      
  Insurance Expenses     4667
  Utility Expenses     4000
  Prepaid Rent Expenses     30000
  Fuel Expenses     5000
  Registration Fee     25000
  Exercise Permit     3000
  Salary     50000
  Labor Wages     20000
  Printing and Stationery     5000
  Permit License Expenses     40000
  Miscellaneous Expenses     20000
  Total Preliminary Expenses     206667

23
  TFC + TPE     621467
  Initial Working Capital     4638625
  Total Project Cost     5260092

ANNEX 2: Sales Revenue

Sales Revenue and COGS
  Year 1 Year 2 Year 3 Year 4 Year 5
Sales Revenue 75000000 90000000 108000000 129600000 155520000
COGS 67500000 81000000 97200000 116640000 139968000

ANNEX 3: Loan Repayment Schedule

Ending
Year Quarter Beginning Balance PMT Interest Principal Balance
0           435026.90
1 1 435026.90 29240.64 13050.81 16189.83 418837.07
  2 418837.07 29240.64 12565.11 16675.53 402161.54
  3 402161.54 29240.64 12064.85 17175.79 384985.74
  4 384985.74 29240.64 11549.57 17691.07 367294.67
2 1 367294.67 29240.64 11018.84 18221.80 349072.87
  2 349072.87 29240.64 10472.19 18768.45 330304.42
  3 330304.42 29240.64 9909.13 19331.51 310972.91
  4 310972.91 29240.64 9329.19 19911.45 291061.46
3 1 291061.46 29240.64 8731.84 20508.80 270552.66
  2 270552.66 29240.64 8116.58 21124.06 249428.60
  3 249428.60 29240.64 7482.86 21757.78 227670.82
  4 227670.82 29240.64 6830.12 22410.52 205260.30
4 1 205260.30 29240.64 6157.81 23082.83 182177.47
  2 182177.47 29240.64 5465.32 23775.32 158402.15
  3 158402.15 29240.64 4752.06 24488.58 133913.57
  4 133913.57 29240.64 4017.41 25223.23 108690.34
5 1 108690.34 29240.64 3260.71 25979.93 82710.41
  2 82710.41 29240.64 2481.31 26759.33 55951.08
  3 55951.08 29240.64 1678.53 27562.11 28388.97
  4 28388.97 29240.64 851.67 28388.97 0.00

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 Yearly Interest Payment
Year 1 2 3 4 5 Total
Interest Expenses 49230.34 40729.35 31161.41 20392.60 8272.22 149785.92
Principal Payment 67732.23 76233.22 85801.16 96569.96 108690.34 435026.90

ANNEX 4: Projected Income Statement

Income Statement
Colum
n1 Particulars Year 1 Year 2 Year 3 Year 4 Year 5

75,000,00 90,000,00 108,000,00 129,600,00 155,520,00

  Sales Revenue 0 0 0 0 0

67,500,00 81,000,00 116,640,00 139,968,00

Less: Cost of Goods Sold 0 0 97,200,000 0 0

  Gross Profit 7,500,000 9,000,000 10,800,000 12,960,000 15,552,000

Less: Operating Expenses:          

  Salary and Wages 1,320,000 1,386,000 1,455,300 1,528,065 1,604,468

  Building Rent 360,000 360,000 360,000 360,000 360,000

  Vehicle Rent 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000

  Fuel and Repair 80,000 160,000 160,000 160,000 160,000

  Utility Expenses 55,000 55,000 55,000 55,000 55,000

  Insurance Expenses 56,000 56,000 56,000 56,000 56,000

  Depreciation Expenses 87,450 68,838 54,228 42,751 33,727

Amortization of
  Preliminary Exp. 41,333 41,333 41,333 41,333 41,333

  Excise Permit Expenses 36,000 36,000 36,000 36,000 36,000

  Marketing Expenses 30,000 30,000 30,000 30,000 30,000

  Miscellaneous Expenses 100,000 100,000 100,000 100,000 100,000

Total Operating
  Expenses 3,665,783 3,793,171 3,847,862 3,909,149 3,976,529
  EBIT

25
 3,834,217 5,206,829 6,952,138 9,050,851 11,575,471

Less: Interest Expenses 49,230 40,729 31,161 20,393 8,272

  Net Income Before Tax 3,784,986 5,206,829 6,952,138 9,050,851 11,575,471

Less: Tax Expenses (25%) 946,247 1,301,707 1,738,035 2,262,713 2,893,868

  Net Income After Tax 2,838,740 3,905,122 5,214,104 6,788,138 8,681,603

Less: Dividend Rate 15% 20% 25% 50% 80%

  Dividend Amount 425,811 781,024 1,303,526 3,394,069 6,945,283

  Retained Earning 2,412,929 3,124,097 3,910,578 3,394,069 1,736,321

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ANNEX 5: Projected Balance Sheet
Balance Sheet
Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Assets            
Current Assets:            

Cash 746,333 6,134,615 9,073,661 13,533,062 17,561,520 20,040,461

Accounts Receivable   3,125,000 3,750,000 4,500,000 5,400,000 6,480,000

Inventory   3,125,000 3,750,000 4,500,000 5,400,000 6,480,000

Total Current Assets: 746,333 12,384,615 16,573,661 22,533,062 28,361,520 33,000,461

Fixed Assets:            
Vehicles:            

Motorbike 255,000 204,000 163,200 130,560 104,448 83,558

Furniture and Fixture 89,800 67,350 50,513 37,884 28,413 21,310

Electronics 70,000 56,000 44,800 35,840 28,672 22,938

Total Fixed Assets 414,800 327,350 258,513 204,284 161,533 127,806

Preliminary Expenses 206,667 165,334 124,000 82,667 41,333 -

Total Assets 1,367,800 12,877,299 16,956,174 22,820,013 28,564,387 33,128,267

Capital and Liability:            
Current Liabilities:            

Accounts Payable   8,417,969 10,195,313 12,234,375 14,681,250 17,617,500

Short Term Loan   746,333        

Total Current
Liabilities   9,164,302 10,195,313 12,234,375 14,681,250 17,617,500
Long-term Liability:            

27
Long-term Debt 435,027 367,295 291,061 205,260 108,690 0
Total Long-term
Liability 435,027 367,295 291,061 205,260 108,690 0

Total Liabilities 435,027 9,531,597 10,486,374 12,439,635 14,789,940 17,617,500

Shareholder's Equity:            

Owner's Equity 932,773 932,773 932,773 932,773 932,773 932,773

Retained Earning   2,412,929 5,537,026 9,447,604 12,841,673 14,577,994

Total Equity 932,773 3,345,702 6,469,800 10,380,378 13,774,446 15,510,767

Total Liability and
Equity 1,367,800 12,877,299 16,956,174 22,820,013 28,564,387 33,128,267

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ANNEX 6: Projected Cash Flow Statement
Cash Flow Statement
Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
A) Cash From Operating
Activities:            

3,905,12
Net Income   2,838,740 2 5,214,104 6,788,138 8,681,603
Adjustments:            

Depreciation   87,450 68,838 54,228 42,751 33,727

Preliminary Expenses
Amortization   41,333 41,333 41,333 41,333 41,333

Cash Flow Before Change 4,015,29

in Working Capital   2,967,523 3 5,309,665 6,872,222 8,756,664
Change in Working Capital:            

Increase/decrease in (3,125,000 (1,080,000

Inventory   ) (625,000) (750,000) (900,000) )

Increase/decrease in A/c (3,125,000 (1,080,000

Receivable   ) (625,000) (750,000) (900,000) )
Increase/decrease in
Income Tax Payable   946,247 355,461 436,327 524,678 631,155

Increase/decrease in A/c 1,777,34

Payable   8,417,969 4 2,039,063 2,446,875 2,936,250
Increase/decrease in Short-
term Debt   746,333 (746,333)      

Net Cash from Operating 3,796,30

Activities (A)   5,881,825 3 5,848,728 7,519,097 9,532,914
             
B) Cash from Investing
Activities:            

29
Purchase of Fixed Assets (414,800)          

Preliminary Expenses (206,667)          

Net Cash from Investing (621,467

Activities (B) )          
             
C) Cash from Financing
Activities:            
Increase/decrease in Long-
term debt 435,027 (67,732) (76,233) (85,801) (96,570) (108,690)

Increase/decrease in Equity 932,773          

(1,303,526 (3,394,069 (6,945,283

Dividend Paid   (425,811) (781,024) ) ) )

Net Cash from Financing 1,367,80 (857,258 (1,389,327 (3,490,639 (7,053,973

Activities © 0 (493,543) ) ) ) )

2,939,04
Net change in cash 746,333 5,388,282 6 4,459,401 4,028,458 2,478,941

6,134,61 13,533,06 17,561,52

Add: Opening Cash Balance   746,333 5 9,073,661 2 0

9,073,66 13,533,06 17,561,52 20,040,46

Ending Cash Balance 746,333 6,134,615 1 2 0 1

ANNEX 7: Financial Ratios

Ratio Analysis
Ratios Formula Year 1 Year 2 Year 3 Year 4 Year 5
Liquidity Ratios
Current Ratio TCA/ TCL 1.351398 1.625616 1.841783 1.931819 1.873164
(TCA-Inventory-Prepaid)/
Quick Ratio TCL 1.0104 1.2578 1.473967 1.564003 1.505348
             
Efficiency Ratios
Inventory Turnover
Ratio COGS/ Inventory 21.6 21.6 21.6 21.6 21.6
Fixed Asset Turnover
Ratio Sales Revenue/ NFA 229.1126 348.1456 528.6748 802.3114 1216.845
Days Sales Outstanding (AR/Sales Revenue)* 360 15 15 15 15 15
Payable Period (Accounts 44.89583 45.3125 45.3125 45.3125 45.3125

30
 Payable/COGS)*360
Total Asset Turnover
Ratio Sales Revenue/ TA 5.824203 5.307801 4.732688 4.537118 4.69448
             
Profitability Ratios
Gross Profit/ Sales
Gross Profit Margin Revenue 10% 10% 10% 10% 10%
Net Profit Margin NIAT/ Sales Revenue 4% 4% 5% 5% 6%
ROA NIAT/ TA 29% 31% 30% 32% 35%
ROE NIAT/ TE 85% 60% 50% 49% 56%
Dividend Payout Ratio Dividend/ NIAT 15% 20% 25% 50% 80%
Operating Profit EBIT/Sales revenue 5% 6% 6% 7% 7%
             
Solvency (Leverage) Ratios
Debt to Equity Ratio TL/ TE 2.848908 1.620819 1.19838 1.073723 1.135824
Time Interest Earned EBIT/ Interest Expenses 77.88321 127.8397 223.1009 443.83 1399.318
Total Asset to Equity
Ratio TA/ TE 3.848908 2.620819 2.19838 2.073723 2.135824
Debt Service Coverage (EBIT + Dep)/ (Interest +
Ratio Principal) 33.52925 45.1056 59.90264 77.74797 99.25568
ANNEX 8: Breakeven Analysis
Calculation of PBP, NPV, IRR, MIRR
Year Cash PVIF
s Flow Cumulative Cash Flow @10% Discounted CFAT Cumulative Discounted CFAT
-
0 5260092 -5260092 1 -5260092 -5260092
1 2967523 -2292569 0.9091 -2084174 -7344266
2 4015293 1722724 0.8264 1423659 -5920607
3 5309665 7032389 0.7513 5283434 -637173
4 6872222 13904612 0.683 9496850 8859676
5 8756664 22661276 0.6209 14070386 22930062

Payback Period (PBP) 2

Discounted PBP 3.067093135
IRR 75%
MIRR 45%
NPV $12,237,456.95

ANNEX 9: Working Capital Assessment

Working Capital Assessment
Particulars Amount
Inventory 2968750

31
Accounts Receivable 4166666.667
Cash 294750
Advance Rent 300000
Gross Working Capital 7430166.667
Less: Accounts Payable 5937500
Net Working Capital 1492666.667

Debt/Equity Composition
Particular Percent (%) Amount
Long Term Debt (LTD) 70% 435026.9
Long Term Equity (LTE) 30% 186440.1
Short Term Equity (STE) 50% 746333.3333
Short Term Debt (STD) 50% 746333.3333
Total Debt 55.87916469 1181360.233
Total Equity 44.12083531 932773.4333
Total Capital and Liabilities 100 2114133.667

ANNEX 10: Operating Expenses (Year 1)

Operating Expenses (Year 1)
Particulars Amount
Salary and Wages 1320000
Building Rent 360000
Vehicle Rent 1500000
Bike Fuel and Repair 80000
Utility Expenses 55000
Insurance Expenses 56000
Excise Permit Expenses 36000
Marketing Expenses 30000
Miscellaneous Expenses 100000
Total Operating Expenses 3537000

ANNEX 11: Depreciation Schedule

Depreciation Schedule
Items Motorbike (20%) Furniture (25%) Electronics (20%)  

Initial Value 255,000 89,800 70,000 414,800

Dep 1 51,000 22,450 14,000 87,450

Book Value 1 67,350 56,000

32
 204,000 327,350

Dep 2 40,800 16,838 11,200 68,838

Book Value 2 163,200 50,513 44,800 258,513

Dep 3 32,640 12,628 8,960 54,228

Book Value 3 130,560 37,884 35,840 204,284

Dep 4 26,112 9,471 7,168 42,751

Book Value 4 104,448 28,413 28,672 161,533

Dep 5 20,890 7,103 5,734 33,727

Book Value 5 83,558 21,310 22,938 127,806

ANNEX 12: Preliminary Expenses Amortization

Preliminary Expenses Amortization
  20% 41333.4        
Year 0 1 2 3 4 5
  206667 165333.6 124000.2 82666.8 41333.4 0

33