PREPARING BANKABLE DOCUMENTS

1. Murat Yulek, Ph.D. Managing Partner PGlobal Global Advisory and Training Services PREPARING BANKABLE DOCUMENTS

2. Standard Project Cycle: For the Financier Identification Preparation Appraisal Negotiations/Internal Decision Process Implementation Post-Completion Evaluation Physical completion Impact assesment

3. Standard Project Cycle: For the Project Owner Identification Project preparation / Internal Checks Preparation of bankable document • Identification of possible • financiers • Sharing bankable document • with them Negotations with financiers Implementation

4. Content • Bankable Documents • Why do we need them? • Types • Feasibility Studies

5. What is Bankable Document? A report that describes a project from various angles in such a format that is generally required by financing entities in order to make the financing decision: • To whom the products / services will be sold, why and how • How the products/services will be acquired/produced and delivered to the market • Financial summary and returns • Risks involved and mitigating measures

6. Why do we need a bankable document? Projects owners need “external financing” to implement their projects while, Financiers need “bankable document” to judge if a project is worthwhile to finance, i.e., if it is “bankable” thus: Project owners need to prepare bankable documents to attract financing or equity investments Bankable documents provide a common language between project owners and financiers

7. Types of Bankable Documents Two related types • Feasibility Report Description of viability aspects of a project by an existing entity • Projects (Greenfield, expansion, ...) • Business Plan Blueprint of an action plan and evidence of viability of a new business • Starting up businesses

8. Feasibility Studies: What is a Feasibility Study • Feasibility study is an analysis of the viability of a project. Feasibility study helps answer various questions: • Should we proceed with the proposed project? • How much are we expecting to earn? • What are the risks and how are we going to mitigate them?

9. Feasibility Studies: What is a Feasibility Study Market Situation Technical ability Future trends Feasibility Company resources, tangible and intangible Financing conditions

10. Components of Feasibility (Report) I. Description of the Project II. Market Study III.Technical Feasibility IV. Organizational/Managerial Feasibility V. Financial Feasibility VI. Conclusions

11. I. Description of the Project • Define the project • Type and specifications of products / services to be brought to the market • Outline the general business model (i.e. how the business will make money) • Describe the technical processes • Specify the time plan and milestones in reaching the full capacity from the start

12. II.Target Market Study This section defines where and to whom the products/services will be sold in order to maximize revenues: • Who are going to be my clients and sources of my revenues: • Description of the Industry • Analysis of the Market and Competition • Future Market Potential • Sales Projections

13. II.Target Market Study (con’t) • Industry Description • Describe the size and scope of the industry, market and/or market segment(s). • Estimate the future direction of the industry, market and/or market segment(s). • Describe the nature of the industry, market and/or market segment(s). Is it stable or going through rapid change and restructuring? • Identify the life-cycle of the industry, market and/or market segment(s). Is it emerging, growing, mature, declining?

14. II.Target Market Study (con’t) • Current Market Analysis • Identify whether the product will be sold into a commodity market or a differentiated product/service market. • Identify the demand and usage trends of the market or market segment in which the product or service will participate. • Examine the potential for emerging, niche or segmented market opportunities. • Explore the opportunity and potential for a branded product. • Assess market usage and your potential share of the market or market segment

15. II.Target Market Study (con’t) • Competition • Who are your competitors (direct / substitute products) ? • Describe the industry concentration. Are there just a few large producers or many small producers? • Describe the major competitors.  Will you compete directly against them? • Analyze the barriers to entry of new competitors into the market or industry. Can more competitors enter market easily? • Describe the price competitiveness of your product/service.

16. II.Target Market Study (con’t) • Potential Buyers and Sources of Revenues • Your current key customers including governmental clients and the potential for new or renewed contracts. • Any sales leads that may generate new customers or clients. • A list of market segments you intend to target such as seniors citizens, working mothers, organizations, specialty retailers, etc. Keep these to a logical detail and preciseness. Do not give strategic information openly. However be ready to share this information at later stages of negotations.

17. II.Target Market Study (con’t) • Sales Projections • Specify main assumptions (prices, capacity utilization and physical production amounts) and project sales (sales of key products categories as well as the total sales)

18. III. TechnicalFeasibility This section describes the technical processes to be utilized in order to produce and deliver the products to the market. Explains • Howthe production will be done (technology) • Where the production will be done • Why the production will be done there • Ease of access to raw materials, energy, markets • Ease of access to manpowerwithnecessaryqualifications • How the products will be delivered to the market (distribution channel) • Cost structure • Materials • Labor • Transportation or Shipping • Other production costs • Administrative costs

19. III.Technical Feasibility (Con’t) • Materials • Estimate the amount of raw and intermediate materials (and their specifications) needed • Explain current and future availability and access to raw and intermediate materials. • Labor • List the number and types (and qualifications if necessary) of employees needed to run the business (blue and white collar) • Evaluate the potential to access and attract qualified management personnel

20. III.Technical Feasibility (Con’t) • Transportation or Shipping • Explain transportation and shipping services and resources that will be required to conduct the production and delivery of products to clients; • Determine capital expenditure needs (if applicable such as trucks, vehicles etc) • Production Premises • Describe necessary production facilities including auxilliary buildings • Determine capital expenditure needs

21. III.Technical Feasibility (Con’t) • Location of Production Premises Explain ease of access to • raw materials • Logistics/transportation services • Energy and utilities (electricity, natural gas, water, etc.) Identify • Environmental requirements • Other regulatory requirements • Economic development incentives provided by the government

22. III.Technical Feasibility (Con’t) • Technology • Explain the selected technology / supplier; advantages over alternatives • Discuss reliability and competitive power of the selected technology / supplies (access to spare parts and technical support, has the technology been tried elsewhere; references?) • Explain limitations or constraints of the technology.

23. IV. Organizational/Managerial Aspects This section describes the human resources and the structure of the company by presenting • Brief biographical sketch of key shareholders, top management and the team responsible for the project: • Business track record • Educational and professional qualifications • Awards, social aspects (e.g. President of business association etc) • Organizational Chart • Related corporate qualifications (ISO certification etc) • Existing human resources • Numbers and skill categories (blue collar, white collar and sub categories)

24. IV. Financial Analysis • Estimate the total capital requirements and relevant timetable • Estimate equity to be invested from your side • Estimate external equity / financing needs and repayment schedules • Project Income Statements • Project (Free) Cash Flow Statements • Calculate Financial Returns

25. IV.Financial Feasibility (Con’t) • Estimate the total capital requirements • Estimate and schedule capital expenditure requirements for facilities, and equipment • Estimate and schedule working capital needs (cash, inventories, receivables and payables) • Include contingency capital needs due to construction delays, technology malfunction, market access delays, etc.

26. IV. Financial Feasibility (Con’t) • Estimate equity and financing needs • Estimate external equity needs. • Estimate financing (bank credit) needs.

27. IV. Financial Feasibility (Con’t) • Project Income Statements and (Free) Cash Flow Statements • Use Information generated in earlier sections • Project Income Statements • Revenues • Expenditures including depreciation • Project (Net) Cash Flows by aggregating the following • Investment Outlays • Capital Expenditures • Working Capital Needs • Operational Cash Inflows • Profit + Depreciation • Equity and Financing • Specify schedule fo equity injection • Specify schedule of financing and its servicing (principal + interest/mark up)

28. IV. Financial Feasibility (Con’t) • Assess financial viability • Project IRR • The project’s own viability (i.e., independent of the way it is financing). This is equivalent to Equity IRR when the project is 100% equity financed. To calculate the Project IRR, simply calculate net cash flows of the project with no bank financing. • IRR (Equity) • The return to the equity investor when part of the project is financed by bank/debt. To calculate the Equity IRR, simply calculate net cash flows including the cash outflows due to repayment of bank financing. Note that Equity IRR > Project IRR when bank financing is utilized.

29. IV. Financial Feasibility (Con’t) IRR is the value of the variable r that satisfies the following condition: = 0 Ct: net cashflows n: number of years

30. IV. Financial Feasibility (Con’t) • Other methods used in financial analysis • Net Present Value • (Simple) Payback period

31. IV. Risks and Mitigations This section analyses risks associated with the project implementation and the operational phase, as well as the mitigating measures • Identify key risks; assess their importance for the success of the project • Explain mitigants you will employ

32. Conclusions Summarize the project and its viability indicators.

33. Some References • PGlobal Global Advisory Services: Corporate Valuation Training Materials, Ankara, 2009 • Development Bank of Turkey, Evaluation of Capital Investment Projects: Training Notes (in Turkish) Ankara, 2009. • Dr. Ertan Yülek, Handbook for the Preparation of Feasibility Reports (in Turkish), Sakarya University, Turkey, 1982. • UNIDO Manuals • Covello A. Joseph and Brian J. Hazelgren. The Complete Book of Business Plans. Illionis: Sourcebooks, Inc., 2006 Various web resources including: • Thompson, Alan. Enterpreneurship and Business Innovation, Successful Business Start-ups and Business Planning. Murdoch University, 2005. Web. 14 December 2009 • Easterbrook, Steve. Requirements Engineering. Department of Computer Science, University of Toronto, 2005. Web. 16 December 2009 • Hofstrand, Don and Mary Holz-Clause. New Business Development - Starting a Business. Agricultural Decision Maker Iowa State University, Web. 10 December 2009. • Wolfe, Lahle. Guide to Women in Business, A Comprehensive Feasibility Study Supports Business & Marketing Plans. Web. 10 December 2009.

34. Thank you …