Soap Manufacturing Business - Startup Plan

Soap is a fast moving consumer good (FMCG) and an essential product used daily by billions of people. The soap industry is divided into various segments - personal use, veterinary use and laundry use. Personal care soap segment is dominated by large consumer goods companies, whereas the veterinary use and laundry use segment is fragmented or dominated by a few large players. In this article, we look at the procedure, investment required and plan for starting a soap manufacturing business in India.

Soap Making Process

Soap making is a relatively easy process and can be easily done with minimal investment in plant and equipment. Beauty soap or personal use soap can be made in 3 steps - preparation of soap base, preparation of final base and stamping. The primary raw material for soap manufacturing is oil and fats. Based on the types of raw material used and the ad-mixture used, the finished product varies. Typical toilet soaps are made by combining liquid fats (like vegetable oils or animal fat) with an alkali like sodium hydroxide (also called lye). In addition to the above raw material, clear soaps typically contain glycerin and sorbitol and anti-bacterial soaps rely on triclosan, a substance that kills bacteria and helps prevent fungus growth.

Investment Required

The investment required for starting a small soap manufacturing business is minimal. A soap manufacturing unit setup with an investment of about Rs.15 lakhs, can generate revenues of upto Rs.50 lakhs and a profit of Rs.8 lakhs, if operated successfully. The breakup of the investment required and the assumptions for revenue are as under:

Land & Building Requirement

A small soap manufacturing unit requires a space of about 750 square feet of which around 500 square feet must be constructed. For the financial model, we have assumed that such a place can be obtained with an investment of about Rs.5 lakhs with the necessary power and water supply.

Machinery Required

A small soap making business minimal investment in machinery. Typical list of soap making machinery required for soap manufacturing are plodder machine, miller machine, sap stamping machine and soap cutting machine. Based on the type of product to be manufactured and the scale, the type and investment required in machinery would vary. Investment in a small soap manufacturing unit can vary between Rs. 1 and Rs. 5 lakhs. The typical time for setting up of a unit is about 3 to 6 months for obtaining the necessary licenses, equipment, raw material, ect.,

Working Capital

The main working capital expenditure for a soap manufacturing unit are raw material, salaries and wages, power cost and receivables. Raw material to the tune of Rs.2.5 lakhs must be on-stock for operating a soap manufacturing unit smoothly, with additional working capital requirement of Rs.1 to 2 lakhs required for other expenditures like salaries, power and receivable. Hence, taking into a three month working capital cycle, the promoters must have about Rs.6 to 10 lakhs of working capital funds to operate smoothly.

Licenses and Registrations Required

Its advisable for a soap manufacturing business to be setup as Limited Liability Partnership (LLP) or Private Limited Company as the investment in plant and machinery and the average annual turnover would be in excess of Rs.25 lakhs. Further, having a LLP or private limited company form of business would ensure that the unit has easy access to bank loans and is transferable in the future. In addition to the business registration, VAT registration would be required for the unit. It is important to obtain trademark registration, in case the unit manufactures soap under a unique brand name.

Bank Loan for Soap Manufacturing

Bank loan can be obtained for soap manufacturing from various banks in India. Since, the amount of investment required would be less than Rs.1 crore, loan can be obtained under the CGTMSE scheme without any collateral. Know more about loan for startups.