Developing Feasibility Studies and Business Plans

1. Developing Feasibility Studies and Business Plans

2. Points to be Pondered… • What is a Feasibility Study? • What is a Business Plan? • How do they differ? • What Resources are available to help develop each? • Are all Studies created Equal?

3. What is a Feasibility Study? • A feasibility study is an analysis of the viability of an idea through a disciplined and documented process of thinking through the idea from its logical beginning to its logical end. • A feasibility study provides an Investigating function that helps answer “Should we proceed with the proposed project idea? Is it a viable business venture?” • A feasibility study should be conducted to determine the viability of an idea BEFORE proceeding with the development of a business.

4. Levels of Feasibility Assessment • A feasibility study of an idea is conducted at three levels • Operational Feasibility (Market) • “Will it work?” • Technical Feasibility (Technical) • “Can it be built?” • Economic Feasibility (Financial) • “Will it make economic sense if it works and is built?” • “ Will it generate PROFITS?”

5. Why do a Feasibility Study? • Provide a thorough examination of all issues and assessment of probability of business success • Give focus to the project and outline alternatives • Narrow business alternatives • Surface new opportunities through the investigative process • Identify reasons NOT to proceed • Enhance the probability of success by addressing and mitigating factors early on that could affect the project • Provide quality information for decision making • Help to increase investment in the company • Provide documentation that the business venture was thoroughly investigated • Help in securing funding from lending institutions and other monetary sources

6. Data Sources for a Feasibility Assessment • Data required for a feasibility study can come from primary or secondary sources • Primary data can include formal interviews and surveys • Collection of primary data can be expensive and time consuming • Secondary data can include industry and trade publications, statistics of industry associations, and government agency reports

7. Steps for an Economic Feasibility Study • Identify and Estimate all Capital Expenditures • Identify and Estimate all Variable Costs related to the Proposed Business Venture • Identify People and Skills required to operate • Determine Wages, Salaries, and Benefits • Identify and Estimate Project Related Costs • Infrastructure development or improvements • Advertising and Promotion • Legal Fees • Municipal & State Development taxes • Identify and Estimate all Fixed Costs

8. Estimating Total Capital Requirements • Assess the “seed capital” needs of the business project and how these needs will be met • Estimate capital requirements for facilities, equipment and inventories • Replacement capital requirements and timing for facilities and equipment • Estimate working capital needs • Estimate start-up capital needs until revenues are realized at full capacity • Estimate contingency capital needs (constructions delays, technology malfunction, market access delays, etc.) • Estimate other capital needs

9. Equity and Credit • Estimate Equity and Credit Needs • Identify alternative equity sources and capital availability • Producers, Local Investors, Angel Investors, Venture Capitalists • Identify and assess alternative credit sources • Banks, Government (direct loans or loan guarantees), Grants, Local and State Economic Development Incentives • Assess expected financing needs and alternative sources • Interest Rates, Terms, Conditions, Covenants, Liens, Etc. • Debt to Equity Levels

10. EXPENSE REVENUE Cost-Benefit Analysis Utilize data collected to determine economic feasibility: • Estimate Expected Costs and Revenue • Estimate the Profit Margin and Expected Net Profit • Estimate the sales or usage needed to break-even • Estimate the returns under various production, price and sales levels to create a “sensitivity analysis” • Assess the reliability of the underlying assumptions of the financial analysis • Benchmark against industry averages and/or competitors • Identify limitations or constraints of the economic analysis • Project expected cash flow during the start-up period • Project income statement, balance sheet when reaching full operation

11. What Defines Feasibility? • A feasible business venture is one where • the business will generate adequate cash flow and profits, • the business will withstand the risks it will encounter, • the business will remain viable in the long-term, and • the business will meet the goals of the founders.

12. MARKETIG ANALYSIS: • The marketing analysis will include: • Strategic marketing: Reviewing the enterprise’s business strategies and it related marketing strategic intent if exist. • Marketing functions attributes: assessing the existing marketing function structure, operations, people ...etc. • Markets analysis attributes: Conducting an overview of the international and national markets of the enterprise and conducting a market analysis for its major products, competitors, suppliers and customers. • Market size, sales volume and company’s share attributes: Determining market shares, growth rates, trends, market requirements, etc. and analyzingtheturnover (per product, year, local, export…),, sales volumes, value in JD, and percentage of the products marketed and their progress. • Marketing Mix (4Ps) attributes: Assessing marketing performance and conducting product, pricing, promotion and distribution (place) mix analysis. • Products attributes: Analyzing the enterprise’s market products product range/mix. • Advertising and Promotion: assessing the current tools and techniques for promotion and advertising. • Pricing: reviewing the current pricing policy. • Distribution (place): assessing distribution channels and communication policies. • Customers attributes: identifying the current and potential customers and identifying their characteristics. • Competitiveness attributes: identifying major competitiveness factors (including, but not limited to, manpower, technology, delivery conditions, design, procurement and marketing) • Benchmarking attributes: Conducting a benchmarking analysis based on benchmarking factors for each product range, market segmentation (designer labels, expensive brands, average prices, medium quality, low prices-low quality, etc)

13. TECHNICAL Analysis: • The Technical Audit will include: • Products technical attributes: identifying all types of products, characteristics, types and use. • Materials attributes: Analyzing the current types of products and their materials, their characteristics and sources. • Processes attributes: assessing the current technologies, processes, fabrications, tools, and techniques for producing the products. • Factory premises attributes: assessing the availability of space required for production, storage, maintenance and utilities. • Factory layout attributes: assessing the current layout status and its relationship with the handling system and the work station organization. • Machines attributes: identifying the nominal and actual capacity, age, and trade mark of each machine in the company. • Productivity attributes: the productivity level within the company compared to its competitors. • Production planning and control attributes: assessing the existing system used for production planning and control and operations management system components. • Safety and Maintenance attributes: identifying the used safety policies, preventive vs. corrective maintenance activities and policies. • R&D attributes: assessing the existing R & D activities and areas of concern. • Procurement and inventories attributes: identifying the current inventories policies, inventory management system characteristics, Procurement procedures and suppliers relationships. • Logistics and materials management attributes: evaluating the existing materials management and logistics system and its network. • QM attributes: assessing the existing quality control, assurance and management system. • Cost analysis attributes: analyzing the operational cost and costing system. • Environment/Energy attributes: assessing the current activities for environment and energy protection and concerns.

14. FINANCIAL Analysis: • The Financial Diagnostic will include: • Financial management system attributes: assessing the current financial system structure, components, resources, procedures and staff. • Accounting system attributes: evaluating the current accounting system and the used procedures. • Financial statements attributes: analyzing the existing income, balance sheet and cash flow statements. • Debt attributes: identifying the company’s current debt status and repayment schedule and related collateral, for the last five years (if exist). • Ratios analysis attributes: analyzing the financial situation of the enterprise through conducting the following analysis by ratios: • The analysis of assets and liabilities structure • The cost and expenses breakdown analysis of manufacturing, general & administrative, sales & marketing, etc. • The value added analysis • The working capital analysis • The liquidity ratios • The activity ratios • The debt (leverage) ratios • The profitability ratios. • Financial restructuring attributes: formulating a plan, if needed, to ensure proper cash flow management.

15. What Next? • After the feasibility study has been completed and presented to the leaders of the project, they should carefully study and analyze the conclusions and underlying assumptions • Next they will decide which course of action to pursue • Potential Courses of action include • Choosing the most viable business model, developing a business plan and proceeding with creating and operating a business • Identifying additional scenarios for further study • Deciding that a viable business opportunity is not available and moving to end the business assessment process • Following another course of action

16. Developing a Business Plan

17. ?? What is a Business Plan? • A Business Plan summarizes the plan of action after a course of action has been determined through the Feasibility Study • A Business Plan provides a Planning function • A Business Plan outlines the actions needed to take the proposal from “idea” to “reality” • A Business Plan tells How your business will be created and Why it will be successful • A Business Plan provides a road map for strategic planning

18. Why Write a Business Plan? • Put the Pieces Together—Do the pieces fit together in a logical manner? • Create a Blueprint for Action • Focus Founders and/or Management Team • Obtain Financing • Attract Equity Investment • Attract Key Managers and Employees • Obtain Contracts • Create Joint Ventures, Mergers, Acquisitions

19. What is included in a Business Plan? • A Business Plan should be brief, concise & straight to the point • Main Requirements May Include • Industry Description • Market Size • Customer Base • Competitive Advantage • Business Location • Three years of Financial Projections • Monthly Tracking of First Year Financials • Management Experience and Profile • Personal Statement of Affairs • Other Sources of Cash, if any

20. How Effective Is the Business Plan? • How effective a Business Plan is depends on how well the following questions are answered: • Who are we? • What do we do? • What do we have to offer? • Why will someone pay for our products/service? • What resources do we have? • Where are we going? • What do we need to get there? • Why will we be successful? • Why should someone participate or invest? • How will we measure performance?

21. The Story a Business Plan Tells… • Business Plan should be tailored to the stakeholders • Be aware of each potential stakeholder’s priorities • Make sure all priorities are addressed in a balanced manner in the business plan • If more than one version of a business plan is written, make sure each tells the SAME story only with difference emphasis

22. Who is the “Target” of a Business Plan? *Portable MBA for Entrepreneurship, William B. Bygrave, John Wiley & Son, Inc., 1994

23. Feasibility Study vs. Business Plan • Feasibility study answers the bottom line question—Is this venture going to make money? • Feasibility study outlines and analyzes several alternatives or methods of achieving business success • Feasibility study is conducted before a business plan • Business plan is prepared only after the venture has been deemed to be feasible • Business plan deals with only one alternative or scenario that is determined to be the “best” alternative • Business plan considers the management side—goals and objectives of the planned business venture

24. What resources are available to help develop each? • Hired Business Consultants • Make sure an accurate assessment is given • Make sure someone is not paid to give the answer the group wants to hear • Can be costly • Third Party Unbiased • Universities • Center for Agribusiness & Economic Development • Small Business Development Center