Luna Neupane (House of Bakery) BDP Report

A Business Plan of House Of Bakery POKHARA UNIVERSITY Submitted By Miss Luna Neupane (22575033) Submitted To Dr. Bal Ram Bhattarai (In partial fulfillment of Requirements for MBA) Pokhara University – School of Business 10th April, 2024.

ii ACKNOWLEDGEMENT It was great experience and a great pleasure for me to complete this proposed business development plan in the form for the in-partial fulfillment of the requirement for the degree of Master of Business Administration. I am thankful to all people from different sectors that helped me to get this plan into a final shape. First of all, I would like to extend my deep gratitude to Dr. Bal Ram Bhattarai for his valuable time, suggestions, guidance and inspiration to prepare this plan report. I am grateful to all my friends and respondent who provided me the necessary information’s and data required for the report. Finally, it is my great privilege to offer thanks to Pokhara university family for providing such essential and crucial requirements. Luna Neupane MBA 4th trimester Pokhara University.

iii Executive summary The House Of Bakery is set to be established as a private company registered under the office of company Registrar under the Company Act 2063(with 50 lakh investment).This company is being established as a domestic bakery producing firm which initially focus in Pokhara valley, although it will sell it’s items outside the valley also. House of Bakery expects to catch the interest of a regular loyal customer base with its broad variety of coffee and pastry products. The company plans to build a strong market position in the town, due to the partners' industry experience and mild competitive climate in the area. House of Bakery aims to offer its products at a competitive price to meet the demand of the middle-to higher-income local market area residents and tourists. It will also aim at producing and selling bakery items that price is lower than its other competitor. The company will do so by minimizing cost of production through the less use of machinery and keeping the production process very simple and labor intensive. Offering many bakery items like pastries in affordable price so that it can be consume by every level worker of the valley is the main aim of House of Bakery. The raw material use in bakery items are based on what kind of items consumer want to consume. It will focus on providing the better quality bakery items. House of Bakery catch to all of its customers by providing each customer coffee and espresso products made to suit the customer, down to the smallest detail. The bakery provides freshly prepared bakery and pastry products at all times during business operations. Six to eight moderate batches of bakery and pastry products are prepared during the day to assure fresh baked goods are always available..

TABLE OF CONTENTS Particular Page No Acknowledgement ii Executive summary iii CHAPTER 1: BUSINESS AND ORGANIZATIONAL STRUCTURE 1-4 1.1 General Description of Business 1 1.2 Mission Statement 2 1.3 Objectives of Business Organization 2 1.4 Forms of Business Organization 2 1.5 The Organization Structure 2-3 1.6 Management Team 3 1.7 Location 3-4 1.8 Human Resource Management 4 1.9 Procureent Management 4 CHAPTER 2: PRODUCTS AND SERVICES ANALYSIS 5-7 2.1 The Product and Services 5 2.2 Location and Layout 5 2.3 Production Equipment and Material 5-6 2.4 Enterprise Resource Management 6 2.5 Production and Operational Plan 6-7 CHAPTER 3: ENVIRONMENTAL ANALYSIS 8-11 3.1 Business Scenario Analysis 8 3.2 SWOT Analysis 8-9 3.3 FIVE Forces Analysis 9-11 CHAPTER 4 :MARKETING PLAN 12-14 4.1 Market Analysis 12 4.2 Competitor Analysis 12-13 4.3 Pricing Strategies 13 4.4 Promotion Strategies 13-14 4.5 Supply Chain Management 14 4.6 Sales Forecasting 14.

CHAPTER 5: FINANCIAL PLAN 15-20 5.1 Investment Plan 15 5.2 Financial Plan 15 5.3 Projected Income Statement 15-16 5.4 Projected Balance Sheet 16-17 5.5 Projected Net Working Capital 17 5.6 Projected Cash flow 17-18 5.7 Break Even Sales 18 5.8 Key Financial Ratios 19 5.9 Capital Budgeting Decisions 20 CHAPTER 6: RISK MANAGEMET 21-23 6.1 Risk Analysis 21 6.2 Sensitivity Analysis 22 6.3 Risk Management Strategies 23 6.4 Assumption of Business Operation 23 CHAPTER 7: SUMMARY AND CONCLUSION 24-26 7.1 Summary 24 7.2 Conclusion 25 7.3 Recommendation 26 References.

1 CHAPTER ONE INTRODUCTION 1.1 General Description of Business With the startup wave hitting the country, and a major disruption seen by the Restaurant Industry has encouraged a lot of people to start up their restaurant venture. Professionals and home cooks alike are now fuelling their passion for food and to get into the food business. Baking is one such passion that has been catching up lately, with many big and small bakery businesses cropping up. The name of our proposed venture is “House of Bakery”. Basically this bakery will be serving the people of Pokhara valley. It will initially be formed in Pokhara and in the initial phase it will be sold its item in Pokhara and neighboring district and later it will be sold in the major cities of Nepal. House of Bakery will baked goods categories like bars, breads (bagels, buns, rolls, biscuits and loaf breads), cookies, desserts (cakes, cheesecakes and pies), muffins, pizza, snack cakes, sweet goods (doughnuts, Danish, sweet rolls, cinnamon rolls and coffee cake). In the context of Pokhara most of the cookies are imported from different parts of Nepal that is the reason why some cookies are expensive in Pokhara. Although there are many bakery in Pokhara that has been able to provide consumer with better taste like: German bakery, Kathmandu bakery, Good day bakery, Misti bakery and so on. Most of the bakery are venture of business from Kathmandu. The main target of establishing this business is to provide them with the better taste in bakery items and we will be serving different types of coffee in our shop in lakeside. The area is in need of a warm and friendly place with excellent cakes, cookies and coffee. A place where you always know you will get the best of everything. House of Bakery will feature a cozy room area and an elegant . It will be the perfect place to stop in for a bite to eat, for a drink or for a small business meeting. For extra comfort and to please a large group of people we will make up special for customers. Mostly the raw materials used in product should be as per the demand in market. Most of the people things white bread is not good for health so that we should sell more brown bread in market for the people. The company intends to hire 5 bakers in it’s factory and 2 barista in shop..

2 1.2 Mission Statement We aim at becoming the leaders of the industry. With the mission of providing customers with the best prices on the highest quality bakery supplies. House of Bakery aims to offer high quality coffee espresso and bakery products at a competitive price to meet the demand of middle to higher income level local market area residents and tourists. The vision statement helps you plan long-term. All companies want to become profitable, but a company that can set an agenda to achieve that goal is going to set itself apart and inspire others. Our vision statement is to focus the efforts of the organization on the core competencies it needs to achieve its goals. 1.3 Objectives of the Organization 1. To provide efficient and effective service for the customer within the time subscribed. 2. To attract new consumer plan production of product and purchase, cost, and price product for profit. 3. Exhibit a solid foundation of techniques for food preparation, presentation, and service, including competence in baking and pastry production. 4. To provide healthy and nutritious product. 1.4 Forms of Business Organization House of Bakery is partnership business incorporated in Pokhara valley. The company is privately own by three shareholders with most of the funding comes from partnership and bank loans. It is privately owned by Rajita Gurung, Rita Pun, Subekchya Malla. 1.5 Organization Structure The company is owned and managed by three young people who have had previous experience in food industry.House of bakery highly believes on equal participation of each employee contributes for organizational growth. So it has adopted the following structure..

3 BOD Operational manager Front line staff Financial manager Accountant Marketing manager Sales personal Figure 1: Organizational Structure 1.6 Management Team House of bakery is managed by three young women. Mrs.Rajita completed her study in Masters of business administration from Kathmandu university. She will be observing finances aspects of business including accounting, billing and taxes. Mrs. Rita Pun also completed bachelor of business administration from Janapriya multiple campus and has experienced of baking for 3 years in Germany will be handling operation management. Subekchya Malla also completed her bachelor in business administration from Pokhara University and has experienced in marketing for 5 years will be handling our marketing department. 1.7 Location House of bakery is currently located in Hallanchowk, lakeside. It has its factory for production in Hallanchowk. It has its outlet in lakeside near its factory. This served as one of the best location for the bakery as many tourists visit lakeside.House of bakery provides its baked cookies, bread to many retailers shop in Pokhara valley. It will be easily accessible to the customers via public or private vehicle. The spot will have a beautiful view of the lake and cozy environment with nature vibe. Customers will be able to enjoy their time away from city chaos.Comfortable furnishings and decor with soothing warm tones. The bakery has comfy couches and antique love seats with a softly lit place. It will be the perfect place to stop in for a bite to eat, for a drink or for a small business meeting. For extra comfort and to please a large group of people we will make up special for customers.

4 1.8 Human Resource Management Human resource management is major in every business organization. There two barista, one cashier and two waiter in our outlet. There will be five bakers in our factory and three staff for garbage management. Our financial manager Mrs. Rajita Gurung will manage human resources including financial department also. All the hiring, training, firing employee will be handle by our human resource management. The employees of the bakery will be provided with a safe working environment and opportunity for further growth through training and development programs. As the bakery will be well known after few years of operation more employees will be recruited based on increased demand and need. 1.9 Procurement The manager will have a qualification of master’s degree in related field. The chef needs to have at least 2 years of experience as well as training on making different food items and products. The barista of company should have experienced of 2-3 years in related field. Similarly, the frontline employees will be recruited on the basis of their attitude and compatibility regarding customer interaction. They will be provided with necessary training to meet the requirement of the restaurant For the procurement mechanics all the employee will be recruit through the vacancy published on daily newspaper. Number of employees will be determined by the workload and demand of the products. Employee are hired as per their experienced in baking factory and accountant are hired according to their qualification..

5 CHAPTER TWO PRODUCT AND SERVICES ANALYSIS 2.1 Products and Services House of bakery will focus on breakfast in its outlet. The main target of establishing this business is to provide them with the better taste in bakery items and we will be serving different types of coffee in our shop in lakeside. The area is in need of a warm and friendly place with excellent cakes, cookies and coffee. A place where you always know you will get the best of everything. House of bakery will feature a cozy room area and an elegant .Comfortable furnishings and decor with soothing warm tones. The bakery has comfy couches and antique love seats with a softly lit place. We will be providing cold and hot beverages also. House of bakery will sell its cookies, brownies, bread, cupcakes, pastries to many retailers in Pokhara valley like: Bhatbhateni supermarket, Sulav department, galaxy department and so on inside Pokhara valley. Our retailers will be getting good prices as per their order. We want to create a local brand in Pokhara valley by providing best bakery products that balance between health and taste at reasonable price. After capturing the market our business will continue to its commitment to healthy food and differentiated product using unique way to produce foods. 2.2 Plant office location and its layout The location of House of bakery will be in Hallanchowk, lakeside. The manufacturing factory will also be in same place. Lakeside is chosen as a best place for outlet because of more tourist visit lakeside. Hallanchowk is choosen as a production factory because of easy access of water need for baking. Our outlet will be in Hallanchowk in one roof and factory will just be behind the outlet. We have selected very peaceful place for our customer to serve our food because of beauty of fewa lake. 2.3 Production Equipment and Material House of bakery will focused on baking patties, cookies, muffins, cake , bread in its factory. Most of the cookies and muffins are European style. The machine of factory will be bought from Kathmandu. As well as our interior design of our outlet will be done by well known designer of Pokhara. Raw materials will be ordered twice a month delivery from Nepalgunj. Raw material like: flour, sugar, egg will bought in.

6 very big amount so that cost will be low for the production. The main target of our company is to produce fresh product and sell in market so our inventory will be low. 2.4 Enterprise Resource Management Enterprise resource planning is a process used by companies to manage and integrate the important part of their businesses. Many ERP software are important to companies because they help them implement resources planning by integrating all of the processes needed to run their companies with a single system. It is design to centralize and optimize operation with its connectivity while reducing manual labor. Figure 2: Enterprise Resource Planning With ERP companies could integrate accounting, sales, distribution, manufacturing, planning, purchasing, human resources and other in one software, that will help our company to manage resources efficiently and at the same time better serve our customer. We can get indirect benefit also like: corporate image, customer satisfaction, improved customer goodwill and so on 2.5 Production and Operation Plan The company will have 10 continuous brand oven that is used to bake cookies. The ingredients of raw material like flour, sugar, water, egg are processes using machine and ovens and the final products will come out as : cake, cookies, bread, muffins and.

7 cake. The main focus of our company is to provide soft and crispy cookies in our outlet. We will provide fresh bakery products to all our retailers in market..

8 CHAPTER THREE ENVIROMENTAL ANALYSIS 3.1 Business Scenario Analysis The bakery industry in the Nepal is emerging now days. On the other hand, the retail side is highly fragmented. The bakery products are highly in demand because of rise in tourism industry. For companies of all sizes profitability is strongly tied to the efficiency of their operations. Large bakeries are able to reach economies of scale of advantages,while small bakeries can compete by offering speciality goods and offering superior local services. 3.2 SWOT Analysis SWOT stands for strengths, weaknesses, opportunities and threats. Identifying a company's strengths is a key part of the SWOT analysis a small business owner does when preparing an annual business plan. Taking advantage of our company's strengths and overcoming its weaknesses lead to revenue growth and profitability. Opportunities and threats are factors not influenced by the bakery. For example, a competitor opening across the street is a threat, while a decrease in the price of flour is an opportunity. Strength ⮚ Good quality product ⮚ Excellence promotional strategy ⮚ Cost effective ⮚ Clear vision of market need ⮚ Respected employer ⮚ Effective marketing channel ⮚ High investment in sales promotion ⮚ Talented bakers Weakness ⮚ Lack of experience ⮚ New in market ⮚ The bakeries product are perisable items ⮚ Lack of sufficient technical manpower.

9 Opportunities ⮚ New bakery products in area ⮚ High quality products with reasonable price ⮚ Educated degree holders bakers ⮚ Rising culture and habit of having breakfast Threats ⮚ Low price of competitors ⮚ Experience of competitors in market and best advertising strategy ⮚ Dynamic and unpredictable political environment ⮚ Rises in cost of raw materials and other input 3.3 Five Forces Analysis Figure 3: Michael Porter’s five forces model The threats of new entrances Profitable industries that yield high returns will attract new entities. New entrants eventually will decrease profitability for other firms in the industry. Unless the entry of new firms can be made more difficult by incumbents abnormal profitability will fall towards zero (perfect competition), which is the minimum level of profitability required to keep an industry in business. As there is many bakery shops in lakeside so we have to give our continuous focus on customer loyalty of brands and manage the access to distribution channel..

10 The threats of substitute products The main substitute of bakery products: cookies, doughnut, brownie, cakes, pastries dealing with the same kinds of good but in a different manner regard to our company. House of Bakery will always concern about the quality of products than a quantity and well as in a cost effective way also. Rivalry among existing products There is always rivalry among the industry. In the bakery industry there are many industry producing same kinds of product like: German bakery, Kathmandu bakery, Sheela bakery, Goodday bakery and so on. Though their are number of industry producing same product we should offer our customer with lower price with same quality in the industry. As a industry grow higher there is always intense competition in market as well as high aggresiveness of firm so House of bakery will prepare alternative strategy to overcome those consequenses. The bargaining power of suppliers The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. If you are making cookies and there is only one person who sells flour, you have no alternative but to buy it from them. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources. There is alternative among supplier who will be willing to supply goods required within its stipulated time and economic cost. While selecting the suppliers the quality will be given higher preference. Moreover company operating within the Nepal will give more preferences The bargaining power of buyers The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program. Buyers' power is high if buyers have many alternatives. It is low if they have few choices. Customer always know the price of products and how much to pay for it. The growing culture of income earner and the luxurious lifestyle of Pokhara valley tourist is one of the vital reason of business. There is growing numbers of tourist and people who likes bakery items nowdays. Trend has been shifted people like to have breakfast than a brunch first in Pokhara so, the demand of the bakery items is increasing day by day in Pokhara. Customers are.

11 regarded as a king in modern business industry so concerning about the customers the bakery is producing unique in taste product than in the market in a good price so that every level income earner would have bakery items in their life..

12 CHAPTER FOUR MARKETING PLAN 4.1 Market Analysis House of bakery focus is on meeting the demand of a regular local resident customer base, as well as a significant level of tourist traffic from nearby place. House of bakery posses good information regarding its typical costumer. This includes customer needs, the general circumstances from which the need arises, and the difficulties the customer would face if they tried to satisfy these needs themselves. Customer value analysis is the major part of the business that focus to provide benefit to is customer. We should examine how customer in a specific segment rate the company’s performance against a specific major competitor on an individual attribute or benefit basic.The market needs of bakery items and are strongly shaped by the customer’s desire to get the most delicious pastries and coffee. Considering the needs of people most people are likely to have bakery items with coffee in morning time so our focus is to provide them with the fresh bakery in morning time. As Pokhara is one of the tourist destination many tourist will be our targeted customer so we are focusing on providing best cookies, pastries as its tested in foreign countries. We want to attract most of the customer by our quality products so that marketing takes place between the customers and the ratings. So, our main target is to make our own signature cakes, cookies so that people could taste different than our competitors. As well as we will be delivering our bakery items to the people inside the Pokhara valley. We will be focusing on quality than on quantity. If the demand increases in the market we will increase our labor so that we could focus more on quality. 4.2 Competitive advantage No doubt, the bakery industry is indeed a very prolific and highly competitive industry. Costumer will only attract to your bakery shop if you serve the quality baked items to them. Indeed our main focus will be on customer value analysis and fulfill the needs and desire of customers. As we are quite aware of the competition in the market our main concern will be focusing on quality than on quantity. If the demand increases in the market of our products we will not decrease quality and produce more quantity rather we will increase the labor, machine so that we could do more focus on quality. We will be producing our own signature cakes with the better taste than available in the market so that people are attracted..

13 There are so many bakery shops in Pokhara that are licensed and highly demand in the market. Considering all those market our main concern is to provide the authentic croissants, pastries, cookies, bagens as available in foreign countries as we have the baker who is experienced in baking in Germany. As a bakery company we will provide only fresh bakery to our consumer and nobody like stale bakery items. Aside from that we will have strong online presence that will attracts the consumer. House of Bakery will give more focus on management of the company by our owners so that it couldn’t create anger in our consumer. 4.3 Pricing Strategies Once a concrete understanding of the product offering is established we can start making some pricing decisions. Price determinations will impact profit margins, supply, demand and marketing strategy. Similar in concept products and brands may need to be positioned differently based on varying price points, while price elasticity considerations may influence our next two Ps. As a new in the market following appropriate pricing strategy is most crucial part of the bakery. How to set price need to be known. To capture the market share in short period of time, House of bakery will follow the appropriate pricing strategy according to its competitor’s price. 4.4 Promotion Strategy We’ve got a product and a price now it’s time to promote it. Promotion looks at the many ways marketing agencies disseminate relevant product information to consumers and differentiate a particular product or service. Promotion includes elements like: advertising, public relations, social media marketing, email marketing, search engine marketing, video marketing and more. Each touch point must be supported by a well positioned brand to truly maximize return on investment. The different promotion strategy followed by House of bakery are: ● Social media is a great way to promote your business. If you’re short on time, pick one social media site and post consistently. ● Joint group as with any business, networking can bring in more customers. Join local business groups like your chamber of commerce or small business association and forge relationships..

14 ● When is the best time to promote? Is there seasonality in the market? Are there any wider environmental issues that suggest or dictate the timing of your market launch or subsequent promotions? ● How do your competitors do their promotions? And how does that influence your choice of promotional activity? Seek help from other professionals. Network with local event planners, florists and caterers. These businesses can pass on your contact information, business cards or brochures to clients who may need your services. Consider offering a discount to those businesses that refer customers to your bakery. Get involved locally. Donate baked goods to local schools and civic organizations for bake sales. Give a gift certificate valid for a dozen cupcakes or special order cake. Buy locally sourced ingredients, such as apples and pumpkins, and produce specialty products for farmer's market vendors and local produce stores. 4.5 Supply chain Management Supply chain management is the integration of activities that procure materials and services that transform them into intermediate goods and final products and deliver them to customers. These activities include purchasing and outsourcing activities plus many other functions. Supply chain is important for House of bakery to achieve competitive advantage by the way of managing supply chain management. Bakery will focus on demand of raw materials products from its supplier at lowest possible cost. 4.6 Sales Forecasting In the initial year the sale is estimated to be 5000000. The sales will rise up to 6000000 and 7000000 in year 2 and year 3 respectively. Figure 4: Sales Revenue.

15 CHAPTER FIVE FINANCIAL PLAN 5.1 Investment Plan The following table show estimated beginning funds required for House of Bakery. Table 1: Startup Funding Startup expenses Amount Legal expenses 200000 Expensed equipment 2000000 Total startup expenses 2200000 Cash 500000 Inventory 300000 Prepaid rent 1500000 Current asset 100000 Long term asset 400000 Total asset 2800000 Total beginning fund 5000000 5.2 Financial Plan House of bakery expects to raise 2500000 from its own capital and borrow 2500000 from bank as a five-year loan. This provides bulk of current financial required. The funding of business is 50 percent from shareholders and 50 percent from bank loan. Table 2: Financial Plan Loan 50% Equity 50% Total fund 100% 5.3 Projected income statement As the projected income statement show House of bakery expects to earn profit from year one and over the next three year of operation..

16 Table3 : Projected income statement Pro forma profit or loss Year 1 Year 2 Year 3 Sales 50,00,000 60,00,000 70,00,000 Direct cost of sales 25,00,000 30,00,000 35,00,000 Total cost of sales Rs 25,00,000 Rs 30,00,000 Rs 35,00,000 Payroll 8,00,000 10,00,000 10,00,000 Sales marketing and other expenses 1,00,000 1,50,000 2,00,000 Depreciation 80,000 90,000 100000 Utilities 60,000 80,000 80,000 Payroll Taxes 60,000 90,000 90,000 Total operating expenses 11,00,000 14,10,000 14,70,000 Profit before interest and tax 14,00,000 1,59,0000 2,030,000 Interest expenses 3,00,000 3,00,000 3,00,000 Tax 1,00,000 1,00,000 1,00,000 Net Profit 10,00000 11,70,000 16,30,000 5.4 Projected Balance Sheet A balance sheet is a financial statement that reports a company’s assets, liabilities, and shareholders equity at specific point in time and provide a basic for computing rates of return and evaluating its capital structure. Table 4: Projected Balance Sheet Particular Year 1 Year 2 Year 3 Asset Cash 2000000 3000000 4500000 Fixed asset 2000000 3000000 4500000 Plant and equipment 1500000 1500000 2500000 Land and building 2500000 2500000 2500000 Furniture 200000 200000 200000.

17 Total asset 6200000 7200000 9700000 Liabilities and equity Total current liabilities 1000000 1900000 3200000 long term bank loan 2500000 2500000 2500000 Retained earning 200000 300000 1500000 Equity 2500000 2500000 2500000 Total liabilities and capital 6200000 7200000 9700000 5.5 Projected Net Working Capital Table 5: Net Working Capital Utilities Amount Depreciation 80000 legal expenses 200000 Initial raw material 1500000 Initial promotion expenses 300000 Salary and lease payment 1500000 5.6 Projected Cash flow Statement The cash flow projection shows the provision for ongoing expenses are adequate to meet House of bakery needs as the business generates cash flow sufficient to support operation. Table 6: Projected cashflow statement Year 1 Year 2 Year 3 Cash flow from operating activities Cash received `from sales revenue 2500000 3000000 3500000 Total cash received 2500000 3000000 3500000 Cash payment for: Purchase 1000000 1200000 900000 Salaries and wages other expenses 900000 900000 1200000.

18 Insurance 300000 800000 300000 Taxes 100000 100000 100000 Total cash payment Total inflow of operating activities 200000 500000 1000000 Cash inflow from investing activities Purchase of asset 1500000 200000 200000 Net cash used by investing activities 1500000 200000 200000 Cash flow from financing activities Issuance of loan - - - Repayment of loan 300000 300000 300000 Net cash flow used financing activities 300000 300000 300000 Cash balance last year 2000000 3000000 Ending cash balance 2000000 3000000 4500000 5.7 Break Even Sales The Break even point BEP is the level of sales at which all revenue will be equal to all expenses and net income will be 0. We can calculate BEP by using this formula: BEP= Fixed cost/CM ratio Table 7: Break Even Year 1 2 3 Fixed Cost 1400000 1710000 1770000 Sales 5000000 6000000 7000000 Variable cost 2500000 3000000 3500000 Cm ratio 0.5 0.5 0.5 BEP 2800000 3420000 3540000.

19 5.8 Key Financial Ratio Return on Equity The return on equity measures the return on owner’s investment in the firm. Higher rate of return on equity is better for owner it is calculated as follow: ROE= Netincome/Total equity Table 8: Return on Equity Year 1 2 3 Net income 1000000 1170000 1630000 Equity 2500000 2500000 2500000 ROE 40% 46.5% 65.2% Return on Asset ROA stands for return on asset which is also called form return on total assets, measure the overall effectiveness of management in generating profit with its available assets. The higher the firm return on assets the better it is doing on operation and vice versa. It is calculated as follow: ROA = Net income/ Total assets Table 9: Return on Asset Year 1 2 3 Net income 1000000 1170000 1630000 Total assets 6200000 7200000 9700000 ROA 16.12% 16.25% 17% Times interest earned ratio Time interest also called interest coverage ratio the tie ratio measures the extent to which interest on debt capital is covered by EBIT. It is calculated by following ways: TIER = EBIT/ Interest expenses. Table 10: Time interest earned Ratio Year 1 2 3 EBIT 1400000 1590000 1630000 Interest expenses 300000 300000 300000 TIER9times) 4.6 5.3 5.43.

20 5.9 Capital Budgeting Decision Table 11: Cashflow Year 1 2 3 4 5 Eat 1000000 1170000 1630000 2250000 2250000 Add: dep 80000 90000 100000 110000 120000 CFAT 1080000 1260000 1730000 2360000 2370000 Table 12: Net Present Value Year Cashflow Cum CF PV factor 12% PV factor Cumulative Cf 0 (5000000) (5000000) (5000000) 1 1080000 (3920000) 0.8929 964332 (4035668) 2 1260000 (2660000) 0.7972 100442 (3935226) 3 1730000 (930000) 0.7118 1231414 (2703812) 4 2360000 1430000 0.6355 1499780 (1204032) 5 2370000 3800000 0.5674 1344738 140706 Total PV 5140706 Now calculation of NPV: NPV= Total present value- NCO NPV= 5140706 – 5000000 NPV= 140706 The NPV of project is Rs 140706. Since the NPV of project is positive the project is acceptable. Non discounted Payback Period = Year before full recovery + (Amount to be recovered/CF in year of recovery) =3 + (930000/2370000) = 3.39 years Discounted Payback Period = 4 + (1204032/1344738) =4.89 years.

21 CHAPTER SIX Risk MANAGEMENT AND ASSUMPTIONS 6.1 Risk Analysis In business world we frequently come across the unwanted events that affect the business adversely. When there is increase in price of raw material and other input will affect the cost of production. As well as major risk of House of bakery in outlet is seasonality of customer base because most of the tourist visit lakeside in spring and autumn rather than in winter and summer season. Bakery will focus on more production in spring and autumn in its outlet. In its wholesale market in Pokhara it will sell every months as per demand also. House of bakery will hire extra part time worker when there is high demand of products. Unless strong demand shows the need labor will be eliminated in the slower season and advertising will also be minimal. Health and safety of employees: In a bakery cook must continuously work with fire to cook the ordered meal. This exposes the employees to chances of catching fire, burns, nausea due to heat etc. Similarly, the slippery flooring and congested workspace adds to affect their health negatively. This will lead to increase in cost as the employees should be compensated for their loss and injury. Therefore, a bakery should have availability of fire extinguisher, first aid box, safe flooring, clean and fair space to work. Unfocused employees: Employees are the vital resources the restaurant who are responsible to meet the customer’s demand. Their work reflects the image of the restaurant. When employees are not focused in their job, have high absenteeism, slack and try to avoid responsibility it creates risk of hinderance in smooth operation of the restaurant. Ultimately the productivity falls along will fall in expected profit. Supplier risk: The quality output heavily depends upon the input provided by the supplier. When the supplier supplies low quality raw materials it reflects on the final product as well causing loss of bakery image and valuable customers. Similarly, if the supplier is unable to supply the required materials at right time it negatively affects the operation of the restaurant leading to inability to meet customer demand. Thus, suppliers must be chosen on the basis necessary criteria..

22 6.2 Sensitivity Analysis Sensitivity analysis is concerned with the uncertainty inherent in mathematical models where the values for the inputs used in the model can vary. It is the companion analytical tool to uncertainty analysis, and the two are often used together. All of the models composed, and studies executed, to draw conclusions or inferences for policy decisions, are based on assumptions regarding the validity of the inputs used in calculations. Return on Investment: Sensitivity analysis can be used to improve decisions based on certain calculations or modeling. House of Bakery can use sensitivity analysis to identify the best data to be collected for future analyses to evaluate basic assumptions regarding investment and return on investment (ROI), or to optimize the allocation of assets and resources. Climate Models: The weather has significant effect on flow of customers in the outlet. Computer models are commonly used in weather, environmental, and climate change forecasting. Sensitivity analysis can be used to improve such models by analyzing how various systematic sampling methods, inputs, and model parameters affect the accuracy of results or conclusions obtained from the computer models. Scientific Research: The disciplines of physics and chemistry often employ sensitivity analysis to evaluate results and conclusions. Sensitivity analysis has proven particularly useful in the evaluation and adjustment of kinetic models that involve using several differential equations. The importance of various inputs and the effects of variance in the inputs on model outcomes can be analyzed. Engineering: It is standard practice in engineering to use computer models to test the design of structures before they are built. Sensitivity analysis helps engineers create more reliable, robust designs by assessing points of uncertainty or wide variations in possible inputs and their corresponding effects on the viability of the model. Refinement of computer models can significantly impact the accuracy of evaluations of such things as bridge stress ability or tunneling risks.

23 .6.3 Risk Management Strategies Risk manager manages the risk and prevent the unwanted events which may bring huge amount of loss in business. The following strategies should be adopted to manage the risk. ● House of bakery risk manager shouldn’t produce lots of products in offseason in its outlet. ● Risk manager should forecast the future demand that helps in not much wastes in business. ● Risk manager should always focus on lean production. ● There should be certain amount kept in reserve for uncertain events like: fire, natural calamities and so on. ● Use of advanced appliances like electric stove, blender, fryer etc. to minimize processing time and better quality. ● Computerized billing, availability of payment via debit or credit card, mobile payment etc. 6.4 Assumptions of Business Operations We have taken 50% debt from the bank with 12 percent interest rate so that couldn’t feel burden of much loan in business. Salary and wages of House of bakery is increased every year. As well as there is growth in business every year. Depreciation in business is done by straight line depreciation. Bakery machine is depreciated every year..

24 CHAPTER SEVEN SUMMARY AND CONCLUSION 7.1 Summary It will initially be formed in Pokhara and in the initial phase it will be sold its item in Pokhara and neighboring district and later it will be sold in the major cities of Nepal. House of Bakery will baked goods categories like bars, breads (bagels, buns, rolls, biscuits and loaf breads), cookies, desserts (cakes, cheesecakes and pies), muffins, pizza, snack cakes, sweet goods (doughnuts, Danish, sweet rolls, cinnamon rolls and coffee cake). In the context of Pokhara most of the cookies are imported from different parts of Nepal that is the reason why some cookies are expensive in Pokhara. Although there are many bakery in Pokhara that has been able to provide consumer with better taste like: German bakery, Kathmandu bakery, Good day bakery, Misti bakery and so on. Most of the bakery are venture of business from Kathmandu. The main target of establishing this business is to provide them with the better taste in bakery items and we will be serving different types of coffee in our shop in lakeside. The area is in need of a warm and friendly place with excellent cakes, cookies and coffee. The House of Bakery should grasp this opportunity to attract more consumers to try the products served by the business. To grap this opportunity, the House of Bakery needs to capture the appetites of local people and tourist by producing authentic products, attracting teenagers by provide students package, and serving elders by introducing low sugar cakes. Besides, the launching of website, involve itself in Facebook and Twitter are also the good practice which may bring in more and more customers. The main strategy of House of Bakery opening shop in lakeside is to attract the tourist and most of the local people of Pokhara like to visit lakeside often. With the excellent lake view peoples like to enjoy their breakfast with freshly baked cookies, pastries, dougnut and so on. We are also managing the distribution channels..

25 7.2 Conclusion House of bakery is the proposed business plan for bakery shop to established in Pokhara ,lakeside. Our main mission company is to provide the best price with the highest quality bakery supplies. The business will be related on production and distribution of bakery products within Pokhara valley and nearby villages of Pokhara ad we will serve bakery products in our shop lakeside. The company aims to offer its products at competitive price to meet the demand of middle income and high income local area residents and tourists. The company plans to build strong market position in the town and nearby village by offering quality products. The company will offer bakery items like cookies, pastries, doughnut, variety of cake items etc. Since our company is producing the authentic bread as taste like foreign country taste we have tourist as a target costumer. Producing the unique taste bread is our strength of company that will lead us to achieve more market share within a short period of time. Establishing strong customer relationship by providing them different facilities will lead the business to success. Our top quality products is our key to success As a new comer in the food industry, the House of Bakery is brave to offer the new and different experiences and services for the consumers by introducing preference records member cards and special hands-on classes. Besides, as a new business opened in the new era, Bakery is also put in effort to maintain closest relationship with the targeted consumers through online networks and company website. ● The capital of proposed project is comprised of 50% equity & 50% debt equity. ● The ROE of the proposed project is in increasing. The increase in ROE shows that company is enjoying profit. ● The ROA of proposed project is also increasing, higher ROA shows that projects earning is high & increasing. ● The profit margin of the project shows that company is making good profit from their sales of service. ● The NPV of the project is positive; it shows the acceptance of the project. ● The project will recover its initial investment in minimum 3.07 years..

26 7.3 Recommendation With the sincerity and brave introducing new and different cake enjoying experiences, the House of Bakery is looking forward a bright future within a short period of time and looking forward to ‘share more happy stories’ with the consumers. The consumption of House of Bakery items has grown significantly over the years despite the bakery producers making significant investment to advertise their products. The sector is seeing significant shift in marketing and distribution operations in recent years. The consumption of bakery items is increasing as more and more people have started Preffered vegetarian items and are becoming health conscious. The demand for bakery items has increased rapidly in recent year. With the Strengths of strong and clear mission and vision, and the weaknesses of lack of experience founders, the House of Bakery is facing several opportunities and threats within the market. The House of Bakery should grap this opportunity to attract more consumers to try the products served by the business. The threats faced by the House of Bakery includes of the increasing price of sugar and flour, reducing subsidy for necessary goods, and high competition from other bakery and cafe. In this todays competitive business environment it is very difficult to sustain in the business. The globalization of business has made it even competitive. So, we need to do business from which there is high chances of capturing market in short period of time. The bakery business is one of them which is profitable sector to do business. Te recommendation for bakery industries are: ⮚ There should be unique taste serve to its customer. ⮚ Put in effort to maintain closest relationship with the targeted consumers through online networks and company website. ⮚ Innovation of more value added products according to the changing taste of upcoming generation. ⮚ Specialization and professionalization in the product processing, manufacturing, packaging, and in marketing of the products..

REFERENCES Koirala, K. D. (2002). Marketing research (1st Edition), Kathmandu: Buddha Academic publishers and Distributors Pvt Ltd. Koirala, K.D. (1997). Fundamental of marketing decision, (5th Edition), Kathmandu: M.K. Publishers and Distributors. Kotler, P. & Armstrong, G. (1998). Principle of marketing (8th Edition), New Delhi: Printice-Hall of India Private Limited. Poudel, R.(2000). Business Finance. Kathmandu: Asmita Books Publisher and Distributor. Zikmund, W. (2007). Business Research Methodology. Thomson Southwestern.(Megan, 2011).