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SOAP FACTORY
TABLE OF CON TEN TS

1 EX ECU TI V E SU M M ARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 2
2 PROJECT D ESCRI PTI ON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.1 FACI LI TI ES AND BEGI NNI NG I NVENTORI ES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 2
2.2 STAFFI NG STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 3
3 PROD U CT STRATEGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 3
3.1 SHAPES AND SCENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 3
3.2 PRODUCTI ON PROCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . 6
4 M ARKET AN ALYSI S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 7
4.1 SOAP MARKET OVERVI EW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 7
4.2 MAI N COMPETI TI ON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 7
4.3 T ARGET MARKET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . 7
4.4 SWOT ANALYSI S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 8
5 M ARKETI N G PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 9
6 FI N AN CI AL PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 9
6.1 I NI TI AL I NVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 9
6.2 MAJOR ASSUMPTI ONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 10
6.3 PROJECTED I NCOME STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.4 PROJECTED BALANCE SHEET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 14
6.5 PROJECTED CASH FLOWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 15
6.6 RATI O ANALYSI S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 16
6.7 BREAK- EVEN ANALYSI S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 17
6.8 SENSI TI VI TY ANALYSI S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 17
7 RECOM M EN D ATI ON S AN D KEY SUCCESS FACTORS. . . . . . . . . . . . . . . . . . . . . . 1 8
8 ECON OM I C I M PACT EVALU ATI ON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 1 8
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1 Ex e cut ive Sum m a r y

The proposed proj ect consist s in est ablishing a soap fact or y i n Hasbaya caza. The fact ory will
produce nat ural and laurel soaps.

The init ial invest m ent is at $8 1 ,165 , which includes $48,320 i n equipm ent s, and $32,845 in
working capit al needs ( including beginning invent ories) .
The m ain assum pt ions are conservat ive and consider an average yearly sale of 31.2 t ons of
nat ural soaps and 31.2 t ons of laurel soaps, which is equivalent t o a t ot al of 1 t on per week
( 500 Kg of each t ype) .

The proj ect ions are t aken over a period of 5 years. The soap fact ory is expect ed t o provide an
average annual net profit of $4 1,373. The owners will be able t o wit hdraw 90% of net profit s
st art ing in year 2 .
The soap fact ory will provide an int ernal rat e of ret urn ( I RR) of 46. 3% and a payback period
of 3 years and 9 m ont hs. These result s show t hat t he proj ect is feasible.

A w o r st case scenario was developed wit h t he assum pt ion t hat t he fact ory would produce an
average of 800Kg per w eek inst ead of 1 t on per w eek. These assum pt ions gave an I RR of
2 6 % and a payback period of 5 years and 10 m ont hs.

A b e s t - case scenario was based on t he product ion of 1.4 t ons per week. This scenario
provided an I RR of 73 % and a payback period of 2 and years 11 m ont hs.

I n order t o achieve sat isfact ory result s, t he plant should be w ell m anaged w it h int ensive
m arket ing effort s, high qualit y soaps, excellent service, as w ell as t ight cont rol over
receivables.
The soap fact ory will offer 5 j ob oppor t u n it ie s and will cont ribut e t o t he developm ent of t he
econom ic and social environm ent in t he region.

2 Pr oj e ct de scr ipt ion

The proj ect aim s at est ablishing a soap fact ory in Hasbaya caza. The fact ory will be m ainly
specialized in producing nat ural soaps as well as laurel soaps

2 .1 Fa cilit ie s a n d be gin n in g in ve n t or ie s

I t is assum ed t hat t he fact ory area is 400 m 2 and is rent ed at an annual budget of $2,400.
The following t able shows t he proj ect ed equipm ent and init ial invest m ent requirem ent s. The
t ot al invest m ent required includes t he cost of equipm ent , t ransport vehicle as well as working
capit al requirem ent s.

INITIAL INVESTMENT OF SOAP FACTORY

Cost Items Quantity Unit cost Total cost
Insulated pan with coils 1 4,800 4,800
Reservoirs for caustic soda, salt, water 3 840 2,520
Boiler for steam generation 1 8,400 8,400
Installation 1 4,800 4,800
Generator incl. connections 1 7,800 7,800
Van 1 12,000 12,000
Office Equipment (computer, phone, fax…) 1 3,000 3,000
Office Furniture 1 3,000 3,000
Establishment Costs 2,000
Total Fixed Assets 48,320
Working capital needs 32,845
Total initial investment 81,165

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2 .2 St a ffin g st r u ct u r e

The plant will have 5 em ployees dist ribut ed as follows:

General m anager: 1
Sales represent at ive / driver: 1
Workers: 3

3 Pr oduct st r a t e gy

Th e Hasbaya soap fact ory will seek t o deliver high qualit y nat ural soaps.

I n sim ple words, soap is a salt produced by m ixing an acid ( fat t y acids of t he oils) wit h an
alkali solut ion ( sodium hydroxide) . Ev er y oil has different fat t y acids in it s st ruct ure and
t her efor e, it s benefit s t o hum an skin are different . Also, every oil needs different am ount s of
a lkali solut ion t o have a com plet e saponificat ion process.

There are m any different kinds of soaps in t he m arket t oday. The m aj orit y is t he com m ercial
“ b eau t y " or " t oilet " soaps. Having different brands, shape, color, scent and packaging, t hey
ar e so m et i m es called " det ergent s" due t o t heir cont ent of various chem icals, art ificial
colorant s, scent s and ot her art ificial preservat ives. They have no curing effect on hum an skin
and t hey are m ainly used for cleaning purposes. Besides, som e st udies have proven t hat such
chem icals are absorbed by t he body cells and t ransferred int o t he blood circulat ion syst em ,
causing som e healt h problem s in t he long run. For t his reason, t he t rend t ow ards t he
consum pt ion of " cold process" nat ural soaps is increasing day by day.

3 .1 Sh a pe s a n d sce n t s

Nat ural soaps can have different shapes and scent s.

The rounds

The ovals

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The squares

The bat h bars

As for t he scent s, soaps could offer t he following variet ies:

CED AR OF LEBAN ON : t he scent of cedar wood is fam ous for it s calm ing, rest ful effect on t he
m ind and t he body.

Rose of D a m a scu s:

La ve n de r : t he lavender is known for it s soot hing and calm ing effect .

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Te a Tr e e : Thanks t o it s m edicinal propert ies t hat encourage t he nat ural healing act ion of t he
epiderm is; it is part icularly effect ive for problem at ic skin. This soap is also a welcom e rem edy
for insect bit es.

Am be r : it has a light m usky scent .

Oliv e : This soap is well known t o nourish t he skin wit h vit am ins, m inerals and prot eins.

M a st ic: I t is m ade wit h t he arom at ic resin of t he pist acia lent iscus , t his soap is known for it s
ant ibact erial and ast ringent propert ies.

Tube r ose :

Or a n ge Blossom :

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H on e y : t his kind of soap seem s t o be very pow erful in rem oving im purit ies from t he skin's
surface. I t fort ifies t he skin against environm ent al aggression.

Alm on d Ex folia n t : This soap is rich in prot ein and vit am in E. I t is com posed of oat grain and
w heat germ t hat are know n for t heir energizing and healing act ion as w ell as rem oving
im purit ies. Pure alm ond essent ial oil is also a com ponent of t his soap.

La u r e l: T h e lau r u s n ob ilis is a plant t ypical of t he Medit erranean region t hat has been
celebrat ed since ant iquit y for it s renowned healing virt ues.

Alghar is a m em ber of t he Laurel fam ily of evergreen t rees, also known as Bay t rees. Laurel
has been used as a sym bol of pow er and vict ory t hroughout hist ory; Julius Caesar w ore a
crown of laurel.

Cleopat ra was also known t o use laurel in her beaut y regim en. Laurel bot anicals have been
used in soaps and beaut y enhancers for cent uries and t he t radit ion of using laurel ext ract s in
sham poos, soaps and cosm et ics cont inues t o t his day.

Laurel soap is considered an effect ive ant isept ic; laurel relieves t ired m uscles and st im ulat es
t he circulat ion, easing art hrit is pains. Oft en, t hese t ypes of soaps are sold in pharm acies for
t heir healing effect s.

3 .2 Pr od u ct ion Pr oce ss

1. The oils are em pt ied in t he pan t hat is already filled wit h a lit t le bit of wat er.
2. Wat er and caust ic are added and t he pan is brought t o a boil
3. Dilut ed salt is added every day over a period of 3 days
4. On t he 4 t h day, t he bot t om of t he pan is opened and t he nigger ( black soap) is t hrown
away. The rem ainder is clean soap and is left t o dry.
5. Hand cut t ing is feasible t o obt ain crude shaped soaps. Fo r properly shaped soap, a
plodder is needed as well as a st am per.

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Vapor Coil

Boiler Caustic Salt Water

4 M a r k e t Ana lysis

4 .1 Soa p m a r k e t ove r vie w

Nat ural soaps are becom ing very t rendy in t he m ost dist inguished regions of Beirut , w here
som e st ores are becom ing specialized in t he sale of t hese it em s. Moreover, t he well- k n ow n
Tripoli Souk as well as Saida’s soap m useum are an im port ant dest inat ion for all t hose seeking
n at u r al soap s.
Ther e ar e only 2 soap m anufact urers in Hasbaya caza; a plant : Al Anwar for Soap and anot her
inform al m anufact urer who produces t he soap at his hom e.

Hasbaya caza would be in ideal place t o est ab lish a Soap fact ory since t he area provides all
t he raw m at erials needed for soap m anufact uring, w hich are known for t heir high qualit y.
Th er ef or e, qu alit y of raw m at erials and lower t ransport at ion cost s t o all neighboring cazas
would offer t he Soap fact ory a com parat ive advant age.

4 .2 M a in com pe t it ion

The m ost serious com pet it ors for nat ural and laurel soaps rem ain t he com m ercial soaps t hat
have a st rong presence in t he m arket .
I n general, t he known brands represent 76% of t he m arket including Le Chat , Lux, Zest ,
Palm olive, and Dove Cream , and ot her branded soaps.

The nat ural soaps present on t he Lebanese m arket are not very num erous, am ong t hem :
Br and W e ight Pr ice in LBP Equ iv. in USD
Al Koura ( green) 9 0 0 gr . 2 ,9 0 0 1 .9 3
Al Koura ( whit e) 9 0 0 gr . 3 ,8 5 0 2 .5 7
Al Wazir ( green) 9 0 0 gr . 2 ,5 0 0 1 .6 7
Souayfan ( Misk scent ) 5 0 0 gr . 3 ,1 0 0 2 .0 7
Laur el 9 0 0 gr . 5 ,5 0 0 3 .6 7
Kobayt er ( whit e) 9 0 0 gr . 4 ,8 7 5 3 .2 5
Non - branded laurel 9 0 0 gr . 4 ,0 0 0 2 .6 7
Baladi ( non- branded) 1 ,0 0 0 gr . 5 ,5 0 0 - 7 ,5 0 0 3 .6 7 -5

4 .3 Ta r ge t m a r k e t

The soap fact ory will produce nat ural soaps t hat can be sold t o Hasbaya caza’s fam ilies but
also everywhere in Lebanon.
Nat ural soaps were m ainly used by conservat ive fam ilies. However, nowadays, it is
increasingly gaining in popularit y am ong t he t rendiest people.

Wom en seem t o be m ore sensit ive t o t he im port ance of nat ural soaps for an est het ic use.
On t he ot her hand, laurel Soaps are used for m edicinal reasons as t hey can cure som e
illnesses such as rheum at ism .

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4 .4 SW OT An a lysis

STREN GTH S W EAKN ESSES

Nat ural soaps are generally preferred in Soap product ion can be a seasonal
m ost villages. act ivit y t hat increases m ainly in
sum m er as t he dem and for soap
Olive oil soaps are wit nessing an increasing increases at t his period of t he year.
dem and in Lebanon for est het ic and beaut y
care reasons. The com m ercial soaps represent t oday
t he largest share of t he m arket and are
Laurel soaps are highly dem anded for t heir present everywhere.
m edical virt ues.
Laurel soaps are m ore expensive t han
Laurel t rees are widely available in ot hers, so addit ional m arket ing effort s
Hasbaya. will be needed, focusing on t he
num erous advant ages of t his soap in
Low product ion cost s since Hasbaya caza order t o j ust ify t heir elevat ed price.
has high qualit y raw m at erials t h at ar e
needed for t he m anufact uring of t he soap.
OPPORTUN I TI ES TH REATS

The nat ural soaps are wit nessing a growing The bigger share gained by com m ercial
dem and in Lebanon, especially soaps can represent a t hreat t o t he
sop h ist icat ed n at u ral soaps wit h exot ic sale of nat ural and laurel soaps.
scent s such as orange blossom , lau r el,
lavender, j asm ine… The polit ical sit uat ion is st ill relat ively
unst able in t his region.
The soap product ion process can offer j ob
opport unit ies to wom en who can
part icipat e act ively in soap m aking.

Branding and at t ract ive packaging along

wit h successful m arket ing st rat egies can
help in prom ot ing Hasbaya soaps t hat
could gain a decent reput at ion.

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5 M a r k e t ing Pla n

The soap fact ory’s m ain m arket ing obj ect ives involve:

I nt ensive public relat ions effort s, t hrough direct cont act s wit h t he superm arket s and
m ini m arket s of t he region, t o build a reput at ion of reliable and qualit y supplier of
nat ural and laurel soap not only in t he caza but also all over Lebanon.

Building a loyal client ele by offering good reliable services ( delivery on t im e) and
qualit y product s.

Pricing t he product s according t o m arket levels, while offering discount s ( 2 t o 5% ) for

cash paym ent s.

Preparing at t ract ive packaging and labeling t o give at t he sam e t im e a nat ural and
m odern look as I t is im port ant t o develop sales on a wide-scale basis.

Developing cont act s wit h expat riat es for t he possibilit y of export ing t he soaps.

6 Fina ncia l Pla n

This sect ion det ails t he calculat ions, assum pt ions and m et hodology used as a basis for t he
proj ect ions of t he expect ed financial perform ance of t he soap fact ory.

6 .1 I n it ia l I n ve st m e n t

INITIAL INVESTMENT OF SOAP FACTORY

Cost Items Quantity Unit cost Total cost
Insulated pan with coils 1 4,800 4,800
Reservoirs for caustic soda, salt, water 3 840 2,520
Boiler for steam generation 1 8,400 8,400
Installation 1 4,800 4,800
Generator incl. connections 1 7,800 7,800
Van 1 12,000 12,000
Office Equipment (computer, phone, fax…) 1 3,000 3,000
Office Furniture 1 3,000 3,000
Establishment Costs 2,000
Total Fixed Assets 48,320
Working capital needs 32,845
Total initial investment 81,165

The above t able shows t he various equipm ent s needed for t he est ablishm ent of t he soap
fact ory.

The insulat ed pan wit h coils is t he equipm ent where all t he raw m at erials will be added. This
m achine has a cost of $4,8 00.

3 reservoirs will cont ain respect ively caust ic soda, salt and wat er. Each one of t hese reservoirs
will have a cost of $840. Moreover, a boiler whose cost is approxim at ely $8 ,4 00 is an
im port ant equipm ent for t he product ion process.

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Moreover, a generat or w ill have t o be provided in case of elect ricit y pow er failure. I t is
expect ed t o have a cost of $7 ,8 00. I nst allat ions and piping will cost approxim at ely $ 4,8 00.

I n order t o m arket it s product s and ensure t heir dist ribut ion all over t he Lebanese m arket , a
van, wit h a cost of $1 2 ,000, will be needed.

Finally, we can consider a budget of $3,000 for t he office equipm ent such as a com put er, a
p h on e lin e and fax, a budget of $3 ,000 for t he office furnit ure, and a budget of $2,000 for
est ablishm ent cost s.

The t ot al asset s cost is $ 4 8,320 while t he t ot al invest m ent is evaluat ed at $ 81,16 5 . This last
figure includes, besides t he cost of equipm ent s, t he w orking capit al needs at t he st art of
operat ions. Working capit al needs are calculat ed by adding beginning invent ories t o expect ed
receivables over a period of 4 m ont hs and deduct ing t he expect ed payables over a period of 1
m ont h.

Beginning inventory Tons Unit cost Total cost

Olive kernel oil 5 1,000 5,000
Laurel 1 13,200 13,200
Salt 1 250 250
Caustic soda (concentration 100%) 1 500 500
Packaging (nylon bags) 300 300
Total beginning inventory 19,250

Source: Les Fils De Cham el Nasr, Savonnerie Orient ale.

Soap fact ory- Houla

The above t able shows t he beginning invent ory needed t o st art t he business.

6 .2 M a j or a ssu m pt ion s

The assum pt ions are conservat ive and are based on m arket achievable levels.

The prices of nat ural and laurel soaps are shown in t he following t able:
prices
Price of 1Kg of Laurel Soap $4.64
Price of 1 ton (1000Kg) of Laurel Soap $4,643
Price of 1 Kg of Natural Soap $2.65
Price of 1 ton (1000 Kg) of Natural Soap $2,653
Source: soap fact ory- Houla

The product ion cost s are figured out in t he t able below:

Production of 1 ton of Laurel soap Kgs needed Cost of 1 Kg (in $) Total Cost (in $)
Olive oil kernel 720 1 720
Laurel 160 13.20 2,112
Salt (16%) 128 0.25 32
Caustic soda (concentration 100%) 120 0.5 60
Total 2,924
Source: Les Fils De Cham el Nasr, Savonnerie Orient ale, S.A.R.L.

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Sa le s a ssu m pt ion s

Laurel Soaps Production

Daily production of Laurel Soaps (in tons) 0.1
Monthly production of Laurel Soaps (in tons) 2.6
Yearly Production of Laurel Soaps (in tons) 31.2
Yearly production of Laurel Soaps (in Kgs) 31,200

Natural Soaps Production

Daily production of Natural Soaps (in tons) 0.1
Monthly production of Natural Soaps (in tons) 2.6
Yearly Production of Natural Soaps (in tons) 31.2
Yearly Production of Natural Soaps (in Kgs) 31,200

The above assum pt ions consider t hat 0.5 t on of laurel and nat ural soaps are produced every 5
days. I t is assum ed t hat all t he product ion will be sold.

I t is assum ed t hat laurel and nat ural soaps revenues will grow by 5% in year 2, by 5% in year
3, by 3% in year 4, and 2% in year 5. The daily sales of laurel soaps and nat ural soaps will
grow as follow:

Year 1 Year 2 Year 3 Year 4 Year 5

Forecasted growth per year 10% 5% 3% 2%
Tons of Laurel Soap / day 464 511 536 552.41 563.46
Tons of Natural Soap / day 265 292 306 316 322

Ot h e r a ssu m pt ion s

The follow ing t able show s t he m ain assum pt ions for t he incom e st at em ent . The m arket ing
expenses are assum ed t o be 2% of annual revenues. An annual increase in general expenses
of 2% is t aken int o account for inflat ion fact ors. The m aint enance expenses are t aken as 3%
of t ot al fixed asset s while t he annual increase in salaries is assum ed to be of 2% annually. The
increase in rent al expenses is est im at ed t o be of 5 % every 3 years.

Ot her assum pt ions include t he cost of packing, which is of $50 for every t on of soap, as well
as t he energy cost est im at ed at $30 for every t on of soap produced.

Income Statement Assumptions

Packaging cost 70 per ton of soap
Energy cost (electricity) 50 per ton of soap
Marketing expenses 2% of revenues
Annual increase in general expenses 2%
Maintenance expenses 3% of fixed assets
Annual increase in salaries 2% annually
Increase in rental expenses 5% every 3 years
Income Tax Rate 2%

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The following t able shows t he balance sheet assum pt ions:

Balance Sheet Assumptions

Accounts Receivable 3 months of sales
Inventories 2 months of cost of sales
Accounts payable 1 months of cost of sales
Expenses payable 20% of general expenses

The follow ing t able show s t he depreciat ion rat es, w hich follow int ernat ional account ing
st andards:

DEPRECIATION RATES
Equipment 10%
Vehicles 12%
Office Equipment 20%
Furniture 7.5%
Establishment Costs 33%

According t o professionals in t he caza, a budget of $2,400 is needed for annual rent for t he
warehouse.
Warehouse to be rented
Warehouse area 400
Annual rent 2,400

I n order t o ensure t he proper dist ribut ion of soap all over t he Lebanese t errit ory, t he soap
fact ory should t ake int o account t he t ransport expenses.

Transport expenses
Transport expenses (gas) $2,057.14 per month (50 km per day)
Maintenance on vehicle $50.00 per month

St a ff st r u ct u r e

The soap fact ory will creat e 5 j ob opport unit ies.

STAFF STRUCTURE
Number of
employees
Management & Sales
General manager 1
Sale Representative 1
Workers 3
TOTAL 5

The General Manager’s t asks consist in direct ing t he product ion t eam , developing new
m arket ing st rat egies and est ablishing cont act s wit h client s.

The sales represent at ive will handle sales and delivery. He is expect ed t o have frequent t rips
in order t o prom ot e t he soap product s over all t he Lebanese t errit ory.

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Moreover, t he soap fact ory will need t hree workers.

Thus, t he t ot al m ont hly salaries are around $2,237, including Social Securit y Charges.

6 .3 Pr oj e ct e d I n com e St a t e m e n t

The following incom e st at em ent is based on conservat ive assum pt ions of revenues as well as
cost s.

SOAP FACTORY
Projected Income Statement Year 1 Year 2 Year 3 Year 4 Year 5
Forecasted growth per year 5% 5% 3% 2%
Sales laurel soaps 144,876 152,119 159,725 164,517 167,807
Sales natural soaps 82,786 86,925 91,272 94,010 95,890
Total Revenues 227,662 239,045 250,997 258,527 263,697
COGS (laurel soaps) 91,229 95,790 100,580 103,597 105,669
COGS (Natural soaps) 25,334 26,601 27,931 28,769 29,344
Cost of Packaging of soap 4,368 4,586 4,816 4,960 5,059
Utilities:Electricity 3,120 3,276 3,440 3,543 3,614
Salaries-production 10,800 11,016 11,236 11,461 11,690
Transport and vehicle -expenses 25,286 25,791 26,307 26,833 27,370
Depreciation-factory 4,272 4,272 4,272 4,272 4,272
Total cost of sales 164,409 171,333 178,582 183,436 187,019
Gross margin 63,253 67,712 72,415 75,091 76,678
Gross profit margin% 28% 28% 29% 29% 29%
Expenses
Rental of center 2,400 2,400 2,400 2,520 2,520
Marketing expenses 4,553 4,781 5,020 5,171 5,274
Maintenance 1,390 1,417 1,446 1,475 1,504
Salaries-Administrative 16,038 16,359 16,686 17,020 17,360
Supplies 600 630 662 681 695
Depreciation-administrative 1,492 1,492 1,492 1,025 1,025
Other expenses 1,200 1,260 1,323 1,363 1,390
Total General & Administrative Exp 27,673 28,339 29,028 29,254 29,768
EBIT 35,580 39,373 43,387 45,837 46,910
Operating Profit Margin 16% 16% 17% 18% 18%

Tax expenses 712 787 868 917 938

Net Income 34,869 38,585 42,519 44,920 45,972
Net profit Margin 15% 16% 17% 17% 17%

The incom e st at em ent shows sat isfact ory incom e levels wit h an average net profit m argin of
17% .

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6 .4 Pr oj e ct e d Ba la n ce Sh e e t

The balance sheet shows t he proj ect ed asset s and liabilit ies of t he com pany.

SOAP
Projected Balance Sheet Year 1 Year 2 Year 3 Year 4 Year 5
Cash & Equivalents 14,494 21,024 27,790 34,490 43,022
Accounts Receivable 56,915 59,761 62,749 64,632 65,924
Inventory 15,205 15,965 16,763 17,266 17,612
Current Assets 86,615 96,750 107,303 116,388 126,558
Equipment 28,320 28,320 28,320 28,320 28,320
Vehicle 12,000 12,000 12,000 12,000 12,000
Office Equipment 3,000 3,000 3,000 4,000 4,000
Office Furniture 3,000 3,000 3,000 3,000 3,000
Establishment Costs 2,000 2,000 2,000 2,000 2,000
Accumulated Depreciation 5,764 11,527 17,291 22,588 27,885
Net Fixed Assets 42,556 36,793 31,029 26,732 21,435
Total Assets 129,171 133,543 138,332 143,120 147,993
Accounts payable 7,602 7,983 8,382 8,633 8,806
Expenses payables 5,535 5,668 5,806 5,851 5,954
Total Liabilities 13,137 13,650 14,187 14,484 14,759
Invested Capital 81,165 81,165 81,165 81,165 81,165
Retained Earnings 34,869 38,727 42,979 47,471 52,068
Owners' Equity 116,034 119,893 124,144 128,637 133,234
Total Liab. & Owners' Equity 129,171 133,543 138,332 143,120 147,993

Stat. Of Retained Earnings Year 1 Year 2 Year 3 Year 4 Year 5

Begin. Retained Earnings - 34,869 38,727 42,979 47,471
Net income 34,869 38,585 42,519 44,920 45,972
Withdrawals by Owners 34,727 38,268 40,428 41,375
Ending Retained Earnings 34,869 38,727 42,979 47,471 52,068

The owners can st art wit hdrawing around 90% of net profit s annually st art ing in year 2.

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6 .5 Pr oj e ct e d Ca sh Flow s

The following t able shows t he proj ect ed cash flows of t he hot el.

SOAP
STATEMENT OF CASH FLOWS Year 1 Year 2 Year 3 Year 4 Year 5

Net income 34,869 38,585 42,519 44,920 45,972

Adjustments to reconcile net income
to cash provided by operating activities
Depreciation 5,764 5,764 5,764 5,297 5,297
Changes in accounts receivable (56,915) (2,846) (2,988) (1,882) (1,293)
Changes in inventory (15,205) (760) (798) (503) (345)
Changes in accounts payable 7,602 380 399 251 173
Changes in expenses payable 5,535 133 138 45 103
Total Adjustments (53,220) 2,671 2,514 3,208 3,935
Cash provided by operating activities (18,351) 41,256 45,034 48,129 49,907

Cash Flow from Investing Activities

Capital expenditures
Investment in fixed assets (48,320) - - (1,000) -
Net cash used in investing activities (48,320) - - (1,000) -

Cash flow from financing activities

Net Investment by owners 81,165
Dividends distributed - (34,727) (38,268) (40,428) (41,375)
Cash provided by financing activities 81,165 (34,727) (38,268) (40,428) (41,375)

Cash at beginning of year - 14,494 21,024 27,790 34,490

Changes in cash 14,494 6,530 6,766 6,700 8,532
Cash at end of year 14,494 21,024 27,790 34,490 43,022

The proj ect ed cash flows show t he init ial net invest m ent in fixed asset s. I t also shows t he net
invest ed capit al by t he owners. The owners' wit hdrawals are shown st art ing in year 2 .

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6 .6 Ra t io a n a lysis

Ratio Analysis Year 1 Year 2 Year 3 Year 4 Year 5 Average

Liquidity Ratios
Current Ratio 6.59 7.09 7.56 8.04 8.57 7.57
Quick Ratio 5.44 5.92 6.38 6.84 7.38 6.39
Working Capital 73,478 83,100 93,115 101,905 111,799 92,679
Profitability Ratios
Gross Profit Margin 28% 28% 29% 29% 29% 29%
Operating Profit Margin 16% 16% 17% 18% 18% 17%
Net Profit Margin 15% 16% 17% 17% 17% 17%
Financial Strength
Total Debt to Owners' Equity 11% 11% 11% 11% 11% 11%
Management Effectiveness
Return on Assets=ROA 27% 29% 31% 31% 31% 30%
Return on Equity=ROE 30% 32% 34% 35% 35% 33%
Return on Investment = ROI 82% 105% 137% 168% 214% 141%
Sales / Business Days (360) 632 664 697 718 732 688.85
Asset Management (Efficiency)
Total Assets Turnover: Sales/tot
assets 176% 179% 181% 181% 178% 179%
Total Debt to Total Assets 10% 10% 10% 10% 10% 10%
Working Capital Cycle
Days Sales Outstanding 90 90 90 90 90 90
Days of Inventory 60 60 60 60 60 60
Days of payables 30 30 30 30 30 30
Working Capital Turnover=Sales/Working Capital
3.1 2.9 2.7 2.5 2.4 2.71

The current rat io, which is com put ed by dividing current asset s by current liabilit ies, wit nesses
a m aj or increase over t he years led by higher levels of invent ories and receivables.

The quick rat io, w hich is t he sam e as t he current rat io except t hat it excludes invent ories
increases rapidly over t he years as account s receivable increase. The current and quick rat ios
dem onst rat e t he capabilit y of t he com pany t o quickly m eet it s short t erm liabilit ies.

The gross profit m argin increases and st abilizes at 29% in year 3. The operat ing m argins and
t he net profit m argins increase slowly as well and reach an average of 17% .

The ret urn on average asset s, which is com put ed by dividing net profit s by t ot al asset s, shows
how m uch profit t he com pany is able t o achieve from t he use of it s asset s. This rat io reaches
an average of 3 0 % .

The ret urn on average invest m ent shows healt hy levels fueled by t he growt h in profit abilit y.
The rat io shows increasingly high levels t hat reach 214% in year 5.

The t ot al asset s t urnover shows how well t he m anagem ent is m aking use of it s asset s. The
asset s t urnover is com put ed by dividing sales over t ot al asset s. This rat io increases rapidly t o
reach 179% in year 5.
The int ernal rat e of ret urn is 46% and t he payback period, which is t he period necessary t o
pay back t he invest m ent , is 3 years and 9 m ont hs.

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6 .7 Br e a k - e ve n a n a lysis

The following t able shows t he annual revenue levels needed for t he plant t o break even. Thus,
an average of $155,222 per year is a m inim um level of revenues for t he soap fact ory.

BREAK-EVEN ANALYSIS Year 1 Year 2 Year 3 Year 4 Year 5

Total Revenues 227,662 239,045 250,997 258,527 263,697

Total Variable Costs 124,051 130,254 136,766 140,869 143,687
Total Fixed Costs 68,030 69,418 70,843 71,820 73,100

Break-even revenues 149,482 152,531 155,663 157,810 160,622

6 .8 Se n sit ivit y a n a lysis

A w or st ca se sce n a r io is t aken by assum ing t hat t he daily product ion of nat ural soaps and
laurel soaps is of 800Kg/ w eek, t hus t he yearly product ion is of 24.96 t ons for each t ype of
soaps.

I n t his case, t he soap fact ory has an average profit abilit y of $ 20,225 annually. The int ernal
rat e of ret urn is 26% . The payback period is 5 years and 10 m ont hs.

A be st - ca se sce n a r io is developed considering t hat 104 t ons will be produced weekly. These
assum pt ions will give as a result a yearly product ion of 43.68 t ons for each t ype of soap.

This scenario gives an average profit abilit y of $ 83,670 annually. The int ernal rat e of ret urn is
73% and t he payback period is 2 years and 11 m ont hs.

Worst-case Most likely Best-case

Yearly Production Laurel Soap (in tons) 24.96 31.20 43.68
Yearly Production Natural Soap (in tons) 24.96 31.20 43.68

Average net income 20,225 41,373 83,670

Average net profit margin 10% 17% 24%

Internal rate of return 26% 46% 73%

Payback period in years 5 yrs 10 months 3 yrs 9 months 2 yrs 11 months

These result s confirm t he viabilit y of t he proj ect , especially if it is well- m anaged providing
qualit y soaps at affordable prices.

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7 Re com m e nda t ions a nd k e y succe ss fa ct or s

I n order t o achieve sat isfact ory result s, t here are som e key success fact ors t hat should be
highlight ed:

The soap fact ory should focus on delivering qualit y soap product s.

I nt ensive m arket ing effort s should be deployed in order t o gain m arket share. I t is
also necessary t o develop public relat ions and direct cont act s wit h superm arket s,
m ini- m arket s, specialized ret ailers for nat ural soaps, et c… Also, advert ising in local
cooperat ives could be a good t ool t o at t ract new client s.

Prices should be equal or less t han t he com pet it ion. I n fact , discount s should be
applied for cash paym ent s, in order t o m anage cash flows. Discount s of 2% t o 5%
could be provided t o t hose cust om ers t hat pay in cash.

Event ually, t he soap fact ory should develop cont act s wit h expat riat es t o t ry t o open up
new m arket s abroad.

8 Econom ic I m pa ct Eva lua t ion

The soap fact ory is expect ed t o deliver very sat isfact ory result s, cont ribut ing in prom ot ing t he
Hasbaya soap product ion int o ot her m arket s.

Mor eover, it will cr e a t e 5 n e w j obs, t hereby cont ribut ing posit ively t o societ y by offering new
opport unit ies t o young Hasbaya cit izens and discouraging t hem from em igrat ing. Also, t he
soap fact ory can offer j ob opport unit ies for wom en as t hey can cont ribut e effect ively in t his
kind of product ion.

On t he ot her hand, it will help in revit alizing t he indust rial sect or of Hasbaya. The soap fact ory
will cont ribut e in propping up t he soap product ion as well as t he dem and for t he local soap.

This will pave t he way for furt her new developm ent s in Hasbaya as t he success of t he soap
indust ry can encourage ot her invest m ent s in new indust ries. I t can prom ot e also t he export of
Hasbaya soaps t o Arab count ries and som e European count ries in t he long run.

Besides it s expect ed business perform ance, t he soap fact ory will be seen as an organizat ion
t hat is cont ribut ing t o enhance t he social good of Hasbaya.

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