In this section, we present particulars for STOR’s initial investment, a five-year projection and an NPV profitability analysis to determine whether this business is worth pursuing.
9.1. Initial Investment Summary
Table 4: Initial Investment Summary (Unit:Php) Fixed Asset Cost
Dispensary Equipment 350,000.00
Furnitures & Fixtures 176,000.00
Leasehold Improvements & Other Installations 72,000.00
Informational Website 20,000.00
Working Capital
Inventory 5,625,000.00
3 Month Rent & Deposit 1,000,000.00
3 Month Salary 465,000.00
3 Month Marketing 120,000.00
Licenses, Legal Fees & Permits 100,000.00 Miscellaneous and Cash Reserve 500,000.00
Total 8,428,000.00
9.1.1. Dispensary Equipment
The quality and efficiency of STOR’s tanks and dispensing valves are key to our business operations. Therefore, a big initial investment will be spent to manufacture the best quality custom tanks and dispensing valves. Details of these equipment were previously presented in the Key Resources section.
9.1.2. Furnitures & Fixtures
STOR sets a budget of Php2,200 per square meter. This budget will invest in creating a space that is visually stimulating and engaging for our customers surrounded by intelligent layout that is designed for optimum space and operations management. Our furniture and fixtures will
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serve as important tools that will help direct customer flow to encourage maximum interaction with each merchandise while also ensuring that there is never congestion in a single space during peak hours.
From a branding perspective these will help our customers develop a physical impression of STOR’s strong and unique brand image that will differentiate it from other stores making it memorable and recognizable from every angle.
9.1.3. Leasehold Improvements & Other Installations
STOR sets a budget of Php900 per square meter. The key goal for investing in these miscellaneous improvements in-store is to simplify the purchasing process for the consumers and create an overall enjoyable shopping experience. It serves to stimulate positive energy and an easy-going feel to the store space so that customers stay longer than they plan and spend more than they intend to. An example of investments under this budget would be plants and greenery in-store, mirrors to make the space seem larger and music to create a calm atmosphere.
9.1.4. Informational Website
As part of our value proposition to be proponents in zero waste consumption, we will establish an informational site where consumers can see our available product varieties. before they come visit our store as well as be informed of all things natural and zero waste. Here we will post articles from newsletters by our suppliers and original content of our own. Having this site is also attractive for potential investors who will want to find our STOR’s strength as a brand. To summarize, the STOR website is a channel for communication. This investment allows us to spread the word of our business and the benefits of zero waste consumption.
9.1.5. Inventory Cost
STOR’s merchandise will comprise of liquid, powder, and solid products that will be sourced from existing manufacturers of natural bath and skin care products. Expecting regular deliveries
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from our suppliers, we will maintain a tight 4 month on hand (MOH) inventory of its high-volume products such as soaps, shampoo and lotions and a 2 MOH inventory with its lower volume products such as special skin and facial creams.
9.1.6. Rent & Deposit
The two biggest mall developers in the Philippines are AyalaLand Malls and SM Prime Holdings. For prime space in high-traffic malls such as Greenbelt 5 in Makati and SM Mall of Asia in Pasay, rental cost will run up to Php2,500 per square meter per month which is nearly double the rental rate for space in Quezon which is around Php1,500 per square meter per month.
However, as location will be a key factor for success, this is an investment worth making. The budget price includes 3-month and a 2-month deposit which is standard in the Philippines.
However, there are several difficult issues to resolve with mall leasing in the Philippines such as the mall asking for a percentage of sales as rent. Therefore, a portion of the Legal Fees budget will be used to hire a commercial leasing consulting firm that will negotiate on our behalf to ensure that we get the best balance of our needs and how much STOR can afford.
9.1.7. Salary
The minimum wage for non-agricultural workers in Manila is currently set Php512. However, as STOR is a proponent for sustainability which encompasses healthy wages, we will provide Php700. With an 80 square meter space, STOR will need a minimum of five staff who will take shifts completing 352 working days in a year for malls in the Philippines. In addition to the five staff in-store, I will also hire two additional members to the team, who will be compensated with higher salaries, as their job includes assisting me in STOR’s overall marketing, supply chain and operations management. Any temporary hire within the first three months will be factored in the Miscellaneous budget.
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9.1.8. Marketing
We set a generous average monthly budget of around Php40,000 for the first three months.
These will be spent for in-store events, SEO, guerilla marketing type installations, press kits and gifts to the media and influencers, as well sponsorships for relevant events that tie to zero-waste consumption or environmental protection. A portion of this will also be spent in hiring project-based ad agencies for startup initiatives to leverage their connection, man-power and creative ideas.
As for unpaid marketing, STOR will focus on aggressively closing exchange-deals for store and product photoshoots, offline features on print media, guest appearances on special segments on TV and online mentions from local influencers.
9.1.9. Licenses, Legal Fees & Permits
The majority of the set budget of Php100,000 will go to a law and accounting consulting firm who will register STOR’s licenses and permits to operate as a legal business in the Philippines.
The firm will also negotiate for leasing contract with the mall in our behalf and will also take a significant role in drafting and signing our distributorship agreements with our suppliers. The actual permits themselves will cost less than Php5,000 however availing the services of a professional firm will speed up the process. Tax registration and receipts will also cost Php5,000.
9.1.10. Miscellaneous and Cash Reserve
A large budget is set at Php500,000 for this critical period. This budget is prepared in case of urgent and unexpected expenses within the first three months of STOR’s opening. It is calculated to be enough to nearly cover 3 months of the average monthly variable expenses.
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9.2. Five Year Projection with NPV
Table 5: NPV Profitability Analysis
We used a discount rate of 5.97% based on the calculation below.
Discount Rate = Risk Free Rate + Market Risk Premium = 1.06% + (0.79 *6.21%) = 5.97%
2018 2019 2020 2021 2022 2023
Period 0 1 2 3 4 5
Capital Investment (₱7,810,000)
Working Capital ₱7,810,000
Change in Working Capital (₱1,439,046) ₱1,557,344 ₱1,132,614 ₱1,183,077 ₱991,542
Sales ₱24,270,300 ₱30,203,040 ₱34,517,760 ₱39,024,720 ₱42,802,022
COGS (75%) ₱18,202,725 ₱22,652,280 ₱25,888,320 ₱29,268,540 ₱32,101,517
OPEX (18%) ₱2,185,000 ₱4,368,654 ₱5,436,547 ₱6,213,197 ₱7,024,450 ₱7,704,364
Pretax Profit (5% VAT) (₱2,185,000) ₱1,613,975 ₱2,008,502 ₱2,295,431 ₱2,595,144 ₱2,846,334
Income Tax (17%) (₱371,450) ₱274,376 ₱341,445 ₱390,223 ₱441,174 ₱483,877
Net Income (₱1,813,550) ₱1,424,545 ₱1,772,767 ₱2,026,020 ₱2,290,556 ₱2,512,265
NCF (₱9,623,550) (₱14,501) ₱3,330,112 ₱3,158,634 ₱3,473,633 ₱3,503,807
Present Value (₱9,623,550) (₱13,685) ₱2,965,695 ₱2,654,611 ₱2,754,986 ₱2,622,464 Net Present Value ₱1,360,521
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