Philippine Self-Help Foundation

Until last month, I would smell the aroma of baking bread every time I visited Jelly's place. Jelly and Lauro, 53 and 56 respectively, own a small bakery in the village of Luyang in the rural town of Cauayan on the island of Negros. Their bakery is a dirt-floored high-ceilinged one-roomed bamboo structure next to their home. Neighbours would come to buy freshly baked bread from them but their main customers were sari-sari or variety store owners in the neighbouring communities. Deliveries were made using the tricycle (motor-cycle with side-car) for which they received a loan from the PSHF in 2016.

Unfortunately, Jelly and Lauro are no longer baking bread nowadays because they ran out of funds to buy flour and other ingredients. A series of medical emergencies gradually ate up their capital. Jelly’s father suffered from two strokes last year and shortly after the second attack, he died. Her mother, Lydia (76), also had a stroke last year and later on had a fall and so has been unable to walk since then. Jelly is the one who lives closest to her mother and keeps an eye on her.

It is for the above reasons that the couple approached the PSHF to apply for a loan of 6,000 pesos ($120) to revive their bakery. Whilst we were keen to approve their request quickly in the light of their circumstances, we were also mindful of the large balance (23,198 pesos) owing on their tricycle loan. We thus felt we should first conduct an appraisal of their business before approving the loan.

When they were still baking, the couple could produce and sell 1,200 packs of bread of different varieties such as rolls, brioches, buns and toasted bread. They were earning about 2,500 pesos ($50) per week.

Jelly and Lauro gave us the following information about their business in the past.

 a) They had 20 sari-sari clients each receiving 15 to 20 packs, three times a week. 

 b) 95% of their clients were sari-sari owners and the rest were mostly visitors from the hills. 

 c) Production and distribution was done on alternate days.

 d) Most clients paid cash on delivery. A few were granted a 5% discount. 

 e) A few clients requested short term credit.

Given that it may take a few weeks for Jelly and Lauro to attain their former levels of sales when they resume baking, we drew up the chart below to show the levels of projected net income for sales of different magnitude.

Break even chart

Sales                   Revenue          Fixed costs          Variable          Cost of sales        Income

per week                                                                        Cost                                                 

 (packs)                        (pesos)                     (pesos)                   (pesos)                        (pesos)                         (pesos)

   800                             6,400                        3,160                       4,000                          7,160                            -760

1,000                             8,000                         3,160                      5,000                          8,160                            -160

1,200                             9,600                         3,160                      6,000                          9,160                           +400  

1,400                           11,200                          3,160                      7,000                         10,160                          1,040


1) Sales refer to the number of packs sold at 8 pesos each. Each pack contains from two to ten pieces depending on size.

2) Variable costs of 5 pesos per pack include the cost of lard, flour, plastic bags, flavouring, milk, yeast as well as firewood.

3) Fixed costs are comprised of the following weekly expenses: 

Jelly’s and Lauro’s living costs of 2,000 pesos ($40). 

- Loan repayments (both loans) of 350 pesos. 

Tricycle gasoline of 210 pesos. 

Part-time helper’s wages of 600 pesos.

4) The break-even point is reached with sales of 1,053 packs of bread sold.

The conclusion of the business appraisal

We have conducted an extensive appraisal of the Rivera couple’s bakery because we wanted to reassure ourselves that the revival of the bakery was viable in the light of a big loan commitment from the PSHF. We also felt it could be a very useful case study for staff training purposes.

The additional loan of 6,000 pesos has now been approved and Jelly and Lauro are now baking once more. We wish them every success in their endeavours. We had just two concerns, namely:

a) The availability of credit.

They should be very careful about extending credit for bread purchases as this could lead to bad debts and a reduction of working capital.

b) The use of plastic bags.

Each pack is wrapped in plastic so 1,200 packs a week means a lot of single use plastic. Littering is a major environmental problem in the Philippines. We shall seek to advise the Rivera couple on alternative packaging for their bread deliveries.

Richard Foster and Bernadette G. Togado

October, 2017