Feasibility Planning Chapter # 3

Chapter outline CH # 3 Fundamentals of Feasibility Planning The Business Plan

What is Feasibility Planning? 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. Helps answer the question of whether to go forward with the business idea.

What is Feasibility Planning? A feasibility study provides an Investigating function that helps answer “Is the project feasible? Can it be done? Does it make sense? Should we proceed with the proposed project idea? A feasibility study should be conducted to determine the viability of an idea BEFORE proceeding with the development of a business.

A feasibility study is valuable for: Starting a new business Expansion of an existing business Adding an enterprise to an existing business Purchasing an existing business

Levels of Feasibility Study 1- Market Feasibility Industry description. Industry competitiveness. Market potential Access to market outlets.  Sales projection

Levels of Feasibility Study 2- Technical Feasibility Determine facility needs. Suitability of production technology. Availability and suitable of site. Raw materials. Other inputs.

3- Financial / 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” 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

Why do a Feasibility Study? Provide a thorough examination of all issues 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 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

What is a Feasible Business? 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.

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

Feasibility Study vs. 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

What is a Business Plan? A Business Plan summarizes the plan of action after a business idea has been determined feasible 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

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

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

The Parts of a Business Plan Cover Page Market Analysis Title Page Competitive Analysis Table of Contents Marketing Plan Executive Summary Operations Plan Management Plan Organizational Plan Company Description Financial Plan Product and Service Plan Growth Plan Mission and Vision Statements Contingency Plan Industry Overview Supporting Documents

Executive Summary executive summary a brief recounting of the key points contained in a business plan . The executive summary should include the most important information from each section of the business plan. To save time, investors and lenders rely on the executive summary to help them decide whether the business plan is worth pursuing.

Management Team Plan The management team presents your qualifications and those of any partners.   You must describe how your management team has the capabilities to execute your business plan.

Company Description The company description section of the business plan outlines the company’s background information and basic business concept.

Product and Service Plan In the product and service plan section of the business plan, you present the nature of your business and the unique features of the product or service. Main Features of the product including: Branding, Trade marks, Variants, Packaging, Support services, Warranties, Prices & other offers.

Company Vision & Mission The vision statement and mission statement state the guiding principles by which a company functions. vision statement a declaration of the scope and purpose of a company mission statement a declaration of the specific aspirations of a company, the major goals for which it will strive

Industry Overview The industry overview section of the business plan presents your research into the industry, those companies providing similar, complementary, or supplementary products or services.

Competitive Analysis The competitive analysis section of the business plan should demonstrate that the proposed business has a advantage over its competitors. Main Competitor Competitive Position Competitive Advantage

Marketing Plan A marketing plan discusses how a company plans to make its customers aware of its products or services.   A marketing plan also describes the market niche, pricing, company image, marketing tactics, a media plan, and a marketing budget.

Production Plan Details relating to How Product will be Manufactured? Detail about all Processes, Raw Materials, Inventory, Technology, Formula, Quality control and other production related issues.

Operational Plan distribution channel the means by which a product or service is delivered to the customer The operational plan describes all the processes involving the production and delivery of the product or service.   The operational plan describes the distribution channel of the product or service. direct channel the means of delivering a service or product directly to the customer, such as via a Web site indirect channel the means of delivering a service or product indirectly to the customer, such as through a wholesaler

Organizational Plan The organizational plan section of a business plan looks at the people aspects and the legal form of the business.   It also describes the roles and compensation of key management personnel and important employment policies.

Financial Plan The financial plan presents forecasts for the future of the business. Financing Decisions: Ratio of Equity & Debt Financing. Financial statements. Financial projections, Forecasts, Budgets and other important documents related to company finances. Plan for repayment of Loans / Exit strategy

Growth Plan The growth plan describes how the business will expand in the future.   Investors and lenders like to see that a business has plans to grow in a planned and controlled way.

Contingency Plan The contingency plan section of the business plan looks at the risks to business, such as changing economic conditions and lower-than-expected sales.   It then suggests ways to minimize the risks.

Who is Target of Business Plan? Stakeholder Issues to Emphasize Banker Cash-Flow, Assets, Solid Growth Investor Fast Growth Potential Strategic Partner Synergy, Proprietary Large Customers Stability, Service Key Employees Security, Opportunity

The Electronic Entrepreneur The E-Business Business Plan A good business plan is as important for an e-business as it is to any other business. An E-business plan should include the following: metrics hardware timeline functionality style

E-Business Plan Functionality the way a product or service works, such as a Web site’s features Launch the first date on which a Web site is on the Internet Metrics methods used to measure activity and progress, such as those on a Web site; metrics software can measure number of visitors, time of day the site is most active, and which products receive the most hits Web host a business that provides server space and file maintenance services for Web sites controlled by businesses that do not have their own Web servers  Web server a computer that delivers Web pages

Common Mistakes in Preparing Business Plans projecting exaggerated growth levels trying to be an expert in all areas claiming performance above industry averages underestimating the need for capital

Sources of Business Plan Information Government Support services Small Business Promotion Authorities Company Websites Online Databases Private Research Firms Industry & Trade Associations Chamber of Commerce