1.

Executive summary

This project proposal focuses on leather business. As our country is a home of populous
livestock, it is inviting to exploit the untapped potential and it induces to supply best origins of
Ethiopian skins and hides to the local leather market.

It has a vision of becoming largest and well known leather product producer and seller in
Ethiopia by providing quality product to the potential customers. Leather industries contribution
towards exports is always essential part of the exports’ share but this project proposal covers the
local market. Currently, Competition within the market of Ethiopian is not intense but facing
difficulties as new players like China, Turkeys, India and South Korea come to our country to
produce and sell leather products this may leads to intense competition. The project will produce
Ladies handbags, Leather shoes, Leather belts and Leather wallet for the local market.

We believe our business strategy greatly deals with customer according to customer demand and
we will focus on quality product productions for our business customers. These two strategies
give us competitive edge over our competitors. Our Market will be segmented as individual/
single consumer and business customers. The past trend shows that there be no shortage of raw
materials and supply of live stock so leather industry could get the advantage by utilize this
opportunity, at the same time market demand is gradually increasing in local market. We are
ready to run in the field of entrepreneur and ready to take the risk. The initial investment of the
project is 824424 birr and its location will be located around Romanat square. Based on the
different project selection criteria the project is feasible for instance, the project will recover the
initial investment within two years and nine month and also the NPV of the project is positive.
This indicates that the project is acceptable.

Project proposal- Page 1

2. Introduction
2.1 Title of the project

D’avenir Leather Shop Project Proposal at mekelle city

2.2 Back ground of the organization

D’aviner Leather shop will be established in 3rd quarter of 2004 E.C with the initial investment 824,424

birr by six partners. It will serve as employment opportunity for 16 citizens. In addition to this, it will
exert its maximum efforts to generate profit for the share holder and to ensure as pillar of development
partner in the country. The shop is located in Northern part of Ethiopia known as Mekelle, the capital city
of the Tirgay region particularly around Romant square. Because this can enable to get the gaze of

product for pedestrian peoples who walk at day and evening. The shop will produce Ladies handbags,

Leather shoes, Leather belts and Leather wallet for the local market. So, we are well-organized to
satisfy our customers all the way through our quality leather products.
2.3 Vision
Becoming the Ethiopian’s largest and well known producers and seller of quality leather
products.
2.4 Mission
To provide best leather products to the local market through maximum utilization of the
country's hides & skins with continuous generation of wealth to the share holders thereby
contribute its share to the regional & national economy.
2.5 Objective
 To meet unsatisfied need of the ultimate customer by providing quality leather
products
 To get profit by capturing high market share
 To create job opportunity to the citizens
2.6 Core values
 Executing all works in a genuine, transparent and accountable manner.
 Giving full customer satisfaction and strive to exceed their expectations.
 Working hard to be best in class and lead the way for quality.
 Building sustainable, closer, long-lasting relationship with our customers and
partners.

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  Giving maximum respect to our employees, customers and partners.
 Developing brotherhood among employees.
 Always ensuring safe working conditions to all employees.
2.7 Project deliverable and outcomes
The project will be accomplished within three years from the start date of the project. The
following will be delivered:

 Ladies handbags, Leather shoes, Leather belts and Leather wallet.

Successfully delivering of the above output enables the project meets the interest of
the owner and fulfillment the unsatisfied needs of the customers
2.8 Justification of the project

The basic motives for the establishments of this project:

 There is high demands of leather products

 High access of raw materials and semi finished product from suppliers
 There is untapped potential resources( hide and skin)
2.9 Expected beneficiaries
 Customers
 Owners of the project
 Government
 Suppliers
 Employees and others stake holders
2.10 Form of ownership and responsibility
Form of ownership: It is partnership among 6 members with equal investment, loss and profit.
Every partner will perform duties according to assigned tasks.
Name of business owners:
 Mr. Habtamu Abebaw
 Mr Jemal Ali
 Mr.. Muluken Ayalew
 Mr. Solomon Kidane
 Mr Teklay Berhie

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  Mr..Zeleke Wale
Identification of partners or principal authority
We have six partners in this business with equal investment of 30000/ each. The principal
authority is given to Mr. Habtamu Abebaw.
Management team background
All the members will perform their duties according to their assigned tasks. Every member has
knowledge of marketing, finance, operation and human resource; their duties will be assigned as
follows:
Roles and responsibilities of members of organization
1. Mr. zeleke wale will deal in marketing department along with Mr. Jemal Ali; they will
perform all marketing activities like pricing, promotion, public relations and product forecast.
2. Mr. Solomon kidane will perform the human resource functions Recruitment & selection,
compensation, training and planning are the basic duties of him.
3. Mr. Teklay berhe will perform finance functions as costing, budget allocation, making
invoices and preparing financial statements.
4. Mr. Muluken Ayalew will perform operational activities and he will assist the labor at any
problem.
5. The other members of the organization will assign to other tasks and duties of the
organization.
2.11 Nature of business
It is a small manufacturing business of leather products like ladies hand bags, shoes, belts and
wallet. We will be purchased semi-finished leather products from Sheba Leather Company and
different suppliers then produce different products mentioned above according to the customers
demand. At early stage of business we will focus on belt, wallet and handbags, with the passage
of time we will expand our product line.
3. Project analysis
3.1 Market /demand analysis /
3.1.1 Industry analysis
In Ethiopia there are more five Leather industries like, Tikur abay, Ambessa and sheba and many
other small competitors Those industries cover the lion share of total market in Ethiopia.

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 3.1.2 Business trend/ future need
Now days, Leather product become a fashion symbol for teenager and youth generation in the
world. Now in these days every business is facing decline due to the global crisis but in
future it is predicted that the summer season period is increasing as compare to the winter.
Leather products are treated as fashion symbol and to protect the bodies a g a i n s t c o l d . S o
we have forecast that the future need/trend is bright due to the above two
reasons.
3.1.3 Total Market Size
Most Ethiopian leather industry targeted towards to export their finished and semi- finished products to other
foreign country. But our focus is to cover local markets in order to satisfies, increase local consumption of leather
products and to display the culture of the country through the product.
3.1.4 Target Customers
Local market is the primary market for a leather product. In the local market, major customer are
both male and female including all ages .The business is done either directly to the buyers or
through middlemen.
3.1.5 Competitor’s analysis
It is very important to analyze the competition environment of the industry in order to compete
successfully. It is good for strategy making to identify the strengths and weakness of competitors
and try to differentiate itself from them
Our main focus to covers local market leather products in Ethiopia. Meskerem leather shop, tikur
abay , ambessa and sheba leather companies are o u r r i v a l s b e c a u s e t h e y h a v e h i g h
m a r k e t s h a r e a n d e x p e r i e n c e d i n l e a t h e r p r o d u c t s . In our business, customers
and our designing department are the main innovators and designer of the products;
they can customize their products through customer specification and their order
along their own designs.

3.1.5.1 Direct competitors

It includes the following local competitors. In Ethiopia there are many small and
larger producers are competing our products as
 Sheba Ltd.
 Tikur Abay Ltd

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  Ambessa Ltd.
We have international competition through exporting their leather products in our country. Such
as
 China
 South Korea
 India
 Turkey
3.1.5.2 Indirect competitors
Those companies that produce other product that substitute leather products like
sinker, shera (shoes, bags, belts) makers are also main competitors in the national
market.
3.1.6 Market segmentation
Market is segments as:
•Individual/ single consumer: Individual consumers are those who will purchase
small amount of items for their personal use
•Business customers: business customers cover all the wholesalers, retailers and others
business who will sell them to their customers.
3.1.7 Description of Venture
3.1.7.1 Product
We will produce leather products including
•Ladies handbags
•Leather shoes
•Leather belts
•Leather wallet
3.1.7.2 Service
We will give direct sale services and through middlemen for its customers to access the product
of our company. Through passages of times our Customers can order through company website
for customize their products. And we will also provide shipping facility or service for the
delivery of goods on behalf of customers.

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 3.1.8 Product forecasts
There will be increasing demand in leather product in a local market because leather product is
fashionable and the local customer is highly interested to purchase local product of leather
products.
3.2 Technical analysis
3.2.1 Size of business
The business size of the D’AVENIR Leather will have 16 employees including 6 partners.
Following is the details of the employees. It is small size of business having annual capacity of
leather 60,000 units per annum having marketing department, finance, human resource, IT and
operation department. We will reinvest our net profit
Job /position Number of employees
Cutting master 2
Packaging master 1
Fusion master 1
Skilled stitchers 5
Sweeper 1
Guard 1
Finance employees 1
Human resource 1
Marketing 2
IT 1
Total 16

3.2.2 Office equipment

There are the following office equipments
Equipment Amount/number
Office tables 4
Computers 2
Printers 1
Landline number & phone 1

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Office Stationery According to need
Office chair 4

3.2.3 Physical plant

In our physical plant, Company operations require one building block having 6 to 7 rooms.
Details is given below
•Raw Materials Store
•Cutting and matching room
•Stitching room
•Fusing or finishing room
•Packing room
•shop office
•Wash room
3.2.4 Utilities Requirements
•Electricity
•Telephone
•Water
3.2.5 Machinery and plant
Mostly Japanese stitching machinery is used in the leather industry. Although, the Japanese
machinery is expensive but it has an established market share, because of the easy and speedy
availability of spare parts and machine mechanics.
There are the following machinery is required for the operations

Name of machine No/amount

Sewing machine ( flat and post bed) 2
Stitching machinery 5
Cutter 2
Scissors 2
Factory tables 6
Scales 2
Puncher 1

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Last for boys and ladies 2
Delast machine 1
Small and big dynamo 2
Folding machine 1
Skiving machine 1
Metal board 2
Total 29

3.2.6 Names and suppliers of raw materials:

sheba leather industry is the main supplier of raw materials and semi finished products to our leather shop and we
will purchase thread, buttons, size label, care label and zip from local supplier of sheba. In
addition to these used machineries also available at reasonable price.
3.2.7 Operational Plan
Basically operation plan include description of the project operation
Description of company’s operation
In this project we will perform overall our activities with respect of following functions
•HRM department
•Finance department
•Operation department
•Marketing department
•IT department
Human Resource
We will categorized the functions of human resource into selected field as requirements
Recruitment & selection
Compensation
Training
Performance appraisal
Finance department
Finance department will perform all those functions according to the need
o f t h e b u s i n e s s including
Budgeting

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Payrolls
Financing
Preparing statements
To issue the credit to other departments after documents
To put check and balance on capital
Operation department
Our operation activities are based on supply chain management system for our product, name
&number of suppliers which are concerned in our project and process of manufacturing as a
whole. The connection with customers is also a major function of our operation plan.
Here we make a proper direct to our suppliers as well as our customers. The overall activities
regarding product manufacturing to supply toward customer is associated with this function and
to select the appropriate suppliers.
Marketing department
It is very critical department of our business because; it is very important how to reach the
customers, so marketing department will perform the following functions.
Pricing
Promotion
Distribution
Demand forecasting
IT department
It will perform the following functions:
 Customers & suppliers contact via email
 Support product designing
3.2.8 The planning of the project using Gantt chart is as follows:

To illustrate the work break down of the proposed project, we have used GANTT chart. A Gantt chart is a
matrix, which lists all the tasks to be performed on the vertical axis. The horizontal axis is headed by
columns indicating estimated task duration and the vertical axis indicates the list of activities to be
performed. In this case each period is expressed in days. The project proposal title selection has been
selected on November 2/ 2004 E.C. The schematic representation of time break down of major activities
of the proposed project is given below.

Activity Duration seen on shaded area (days)

Project proposal- Page 10

Title selection 7

Need assessment 25

Technical feasibility 22

Financial analysis 20

Risk analysis 14
Obtaining Loan 15

Purchase of raw 30
materials

Installation of utility 15
( water &power

Implementation 20
(producing a product)

Prototype 10

Feedback and 20
commercialization

3.3 Financial Analysis

3.3.1 Cost of project
 Cost of plant and machine
 Sewing machine flat bed……………………………………1*20000= 20000
 Sewing machine post bed …………………………………1*20000= 20000
 Skiving machine…………………………………………...1*15000= 15000
 Stitching machine ……………………………………..……5*1500=7500
 Folding machine …………………………………….……1*15000= 15000
 Puncher machine…………………………..………………1*10000= 10000
 Delast machine ……………………………………………1*10000= 10000
 Small dynamo……………………………………….……1*2000= 2000
 Big…………………………………………………………1*2500= 2500
 Last for lady (35-39)………..……………………………5*350= 1750
 Last for boys(39-43)…………..……………….…………5*350= 1750
 Cutter ………………………….……………………………2*60= 120
 Scale ……………………………..…………………………2*200= 400
 Scissors ……………………………………………………..2*100=200

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  Metal board …………………………………….….……2*1000= 2000
Subtotal…………………………………………………….……108,340
 Technical knowhow fees.......................................................................5000
 Miscellaneous fixed assets ………………………………………......….20000
 Preliminary expenses…………………………………………………...…1000
 Pre operative expenses(Rent, tax, interest rate and other………….…....50000
 Initial cash losses……………………..……………………………………1500
 Provision for contingency(10%)…………………………………………18584

Total cost of the project …………………………………………………………..........204424

3.3.2 Means of financing

In order to finance the project cost, the project will use combination of the following sources;

1. Owner contribution ( 180000 birr)

2. Loan from Dedebit micro finance ( 544424 birr)

Loan Repayment Plan

The loan repayment plan shall describe repayment sources, repayment order and time. There are
two kinds of repayment of capital and interest:
A. Equal repayment of capital and interest. The yearly repayment sum of capital and interest
that is different each year is equal. Repayment of capital increases while paying interest
decreases year by year.
B. Equal repayment of capital. The yearly repayment sum of capital and interest is not equal,
but yearly repayment of capital is equal. The interest will decreases with repayment of
capital year by year.
For this proposed project, we have employed the second method, equal repayment of
Capital, but the yearly repayment sum of capital and interest is not equal. The repayment
will be within four years from the fourth year up to the seventh year.
3. Deferred credit ( Purchase of goods on credit)= 100000 birr

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 3.3.3 Working capital and initial investment

Working capital

 Cash on hand……………………………………………25000 birr

 Bank balance ……………………………………………45000 birr
 working in process……………………………………….550000 birr
Total =620000 birr

Initial investment

Total working capital + total project cost

620000 birr + 204424= 824424 birr

3.3.4 Estimation of Sales ,production and profitability

First year

The company will produce 40% of its capacity in the first year of operation (40%*
60000=24000).

 Ladies handbags=1000 units*500 birr =500000 birr

 Leather shoes=1500 units *450 birr =675000 birr
 Leather belts=10000 units *90 birr =900000 birr
 Leather wallet=11500 units* 65 birr =747500 birr
Total = 2822500 birr

Cost of production
Given the estimated production, the cost of production will be worked out. The major
components of cost of production are:

 Material cost for

- Ladies handbags=1000 units*350 birr =350000 birr
- Leather shoes=1500 units *325 birr =487500 birr
-Leather belts=10000 units *70 birr =700000 birr
- Leather wallet=11500 units* 45 birr =517500 birr
Total = 2055000 birr
 Labor cost ………………………………………………….420000 birr

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  Utilities Cost ( Power, water, telephone and fuel)………….80000 birr
 Factory overhead cost (Repairs and maintenance,
Rent, taxes, insurance on factory assets, etc)………………..122000 birr
Total cost of production =2677000 birr

Profitability of the project

The estimates of profitability will be prepared along the following lines:
A. Expected Sales …………………………………………………………………………………
2822500 birr

B. Cost of production ………………….. ………. ………………… 2677000 birr

C. Gross profit (A-B)……………………………………………….... 145500 birr
D. Total Operating Exp ( Selling +Adm exp)………………………….(45000) birr
E. Operating profit (C-D)…………………………………………….. ..100500 birr
F. Other Income…………………………………………………………..5000 birr
G. Interest (544424 birr * 15%) ………………………………………….(81663.6 birr)
H. Profit/loss before taxation (E+F – G )…………………………….. …. 23836.4 birr
I. Provision for taxation (H x tax rate 20%)………………………………(4767.28 birr)
J. Profit after tax ( H-I) ……………………...……………………………..19069.12 birr
K. Dividends…………………………………………………………............ (0 birr)
L. Retained earnings) ( J-Dividends)……………………………….. ………19069.12 birr
M. Net cash accrual (19069.12 birr +2350birr (Depreciation)…………..........21419.12birr

Second year

The company will produce 60% of its capacity in the second year of operation (60%*
60000=36000)

 Ladies handbags=3000 units*513 birr =1539000 birr

 Leather shoes=4000 units *457 birr =1828000 birr
 Leather belts=13500 units *90 birr =900000 birr
 Leather wallet=15500 units* 68 birr =1054000 birr
Total = 5321000 birr

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Cost of production
Given the estimated production, the cost of production will be worked out. The major
components of cost of production are:

 Material cost for

- Ladies handbags=3000 units*350 birr =1050000 birr
- Leather shoes=4000 units *325 birr =1300000birr
-Leather belts=13500 units *71 birr =958500 birr
- Leather wallet=15500 units* 50 birr =775000 birr
Total = 4083500 birr
 Labor cost ………………………………………………….420000 birr
 Utilities Cost ( Power, water, telephone and fuel)………….85000 birr
 Factory overhead cost (Repairs and maintenance,
Rent, taxes, insurance on factory assets, etc)………………..130000 birr
Total cost of production =4718500 birr

Profitability of the project

The estimates of profitability will be prepared along the following lines:
A. Expected Sales …………………………..……………………………5321000 birr
B. Cost of production ………..………….. ………. ………………… 4718500 birr

C. Gross profit (A-B)……….……………………………………….....602500 birr

D. Total Operating Exp ( Selling +Adm exp)…………………………..(60000) birr
E. Operating profit (C-D)…………………………………………….. ..542500 birr
F. Other Income…………………………………………………………..10000 birr
G. Interest (544424+81663.6 birr * 15%) ……………………………….(93913.14 birr
H. Profit/loss before taxation (E+F – G )…………………………….. …. 458586.86 birr
I. Provision for taxation (H x tax rate 35%)……………………………… (160505.4birr)
J. Profit after tax ( H-I) …………………….……………………………..298081.46 birr
K. Dividends…………………………………………………………............ (0 birr)
L. Retained earnings) ( J-Dividends)……………………………….. ……..298081.46 birr
M. Net cash accrual (298081.46 +4000birr (Depreciation)…………..............302081.46birr

Project proposal- Page 15

Third year

The company will produce 80% of its capacity in the third year of operation (80%*
60000=48000).

 Ladies handbags=5500 units*515 birr =2832500 birr

 Leather shoes=6500 units *458 birr =2977000 birr
 Leather belts=16500 units *92 birr =1518000 birr
 Leather wallet=19500 units* 70 birr =1365000 birr
Total = 8692500 birr

Cost of production
Given the estimated production, the cost of production will be worked out. The major
components of cost of production are:

 Material cost for

- Ladies handbags=5500 units*360 birr =1980000 birr
- Leather shoes=6500 units *340 birr =2210000birr
-Leather belts=16500 units *80 birr =1320000 birr
- Leather wallet=19500 units* 55 birr =1072500 birr
Total = 6582500 birr
 Labor cost ………………………………………………….600000 birr
 Utilities Cost ( Power, water, telephone and fuel)………….100000 birr
 Factory overhead cost (Repairs and maintenance,
Rent, taxes, insurance on factory assets, etc)………………..170000 birr
Total cost of production =7452500 birr

Profitability of the project

The estimates of profitability will be prepared along the following lines:
A. Expected Sales ……………………………………………………… 8692500 birr

B. Cost of production ………………….. ………. ………………… . 7452500 birr

C. Gross profit (A-B)……………………………………………….... 1240000birr
D. Total Operating Exp ( Selling +Adm exp)………………………….(115000) birr

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 E. Operating profit (C-D)…………………………………………….. ..1125000 birr
F. Other Income…………………………………………………………12000 birr
G. Interest (626087.6 birr +93913.14 * 15%) ……………………………(108000.11 birr)
H. Profit/loss before taxation (E+F – G)…………………………….. … 1028999.9birr
I. Provision for taxation (H x tax rate 35%)………………………………(360149.96 birr)
J. Profit after tax (H-I) ……………………………………………………..668849.94 birr
K. Dividends…………………………………………………………............ (0 birr)
L. Retained earnings) (J-Dividends)……………………………….. ………668849.94 birr
M. Net cash accrual (668849.94 birr +6000birr (Depreciation)………….........674849.94birr

CASH FLOWS OF THE PROPOSED PROJECT ( in birr)

Item 0 1 2 3
1. Fixed asset (204424 ) - - -

2. Working capital (620000) - - -

3. Sales revenue 2822500 5321000 8692500
4. Operating cost 45000 60000 115000
5. Depreciation 2350 4000 6000
6. Interest 81663.6 93913.14 108000.11
7. Profit before tax 23836.4 458586.86 1028999.9
8. Tax 4767.28 160505.4 360149.96
9. Profit after tax 19069.12 298081.46 668849.94
10. Initial investment (824424 ) - - -
(outlay)
11. Operating cash 21419.12 302081.46 674849.94
inflow( 5+9)
12. Net cash flow (824424) 21419.12 302081.46 674849.94

Payback period

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It is defined as the number of years expected to take from the beginning of the full provision of
services of the proposed projected until the sum of its net earnings (receipts minus operating
costs) equal the projects initial capital investment.
Year Initial out lay(1) Cash inflow(2) Balance=2-1
0 (824424) -
1 21419.12 (803004.88)
2 302081.46 (500923.42)
3 674849.94 173926.52

According to the Payback Period criterion, the length of time to recover its initial investment cost
is estimated to be two years and ninth months.

The Net Present Value (NPV)

According to the net present value criterion project proposal is promising or selected for
implementation if the sum of the present values of all cash flows that are expected to occur over
the life cycle of the project is greater than or equals to Zero.
Year Cash flow PV discount factor at Present value
7%
0 (824424) 1 (824424)
1 21419.12 0.9346 20018.31
2 302081.46 0.8734 263837.95
3 674849.94 0.8163 550880.01
NPV 10312.27

From The Above Table, The NPV Of The Project Is Greater Than Zero. There Fore It Is
Acceptable.
3.4 Assessment of risk
Risk assessment and management is gaining significance and importance due to:

 increasing market competition,

 increasing technology and
 an increasing rate of change
Evaluate weaknesses of business
•Requirement of high working capital, this will lead us incurring high interest rate.

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•we may face difficulties of achieving economies of scale because the project will have small
capacity, which means higher cost, and these results in decreasing competitiveness in the nation
markets.
•Wastage due to unskilled labor

New technologies
New technology has great impact on every business same case with leather in which
tanning process might be more affected by any new innovation. Our operation might be
influenced (cutting, stitching and finishing) by new technology.
Contingency plans
We planned that in case of failure we will go to the option that is selling machines and other
equipments less than market price; the reason is to exit from the business as early as possible to
save our time.

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 Reference

 internet
 project management book

Project proposal- Page 20