Feasibility Study.pdf

Feasibility Study  Deadlines Description of the Project – August 9 Project parameters – August 16 Technical feasibility – August 30 Operational/Manpower – September 13 Market Feasibility – September 27 Financial – October 18 Co...

Feasibility Study  Deadlines Description of the Project – August 9 Project parameters – August 16 Technical feasibility – August 30 Operational/Manpower – September 13 Market Feasibility – September 27 Financial – October 18 Complete draft – November 11 Presentation Week November 25-29 Bound copies submission – December 13  Next steps Communications OSA requirements (waiver, etc.) MOA, if needed  Business Feasibility Study A controlled process for identifying problems and opportunities, determining objectives, describing situations, defining successful outcomes and assessing the range of costs and benefits associated with several alternatives for solving a problem. Used to support the decision-making process based on a cost benefit analysis of the actual business or project viability. Conducted during the deliberation phase of the business development cycle prior to commencement of a formal Business Plan. An analytical tool that includes recommendations and limitations, which are utilized to assist the decision-makers when determining if the Business Concept is viable.  Feasibility Analysis Involves assessing your new business idea in detail to determine if it will be viable Helps consider the costs and activities required to set up and run a business, and how to make an informed decision whether to start a business and how to do it. Gives a picture of the costs involved that you’ll need to consider and the revenue and profit you can realistically expect to generate. A feasibility analysis provides details for a formal business plan and may be necessary when preparing pitch to investors, lenders or potentials partners for your business, and when applying for government funding. Importance of Business/Project Feasibility Study An effective way to safeguard against wastage of further investment or resources Preparatory to preparing a Business Plan The research and information uncovered in the feasibility study stage will support the business planning stage and reduce the research time. Reduce the business planning cost Contain clear supporting evidence for recommendations Recommendations are reliant on a mix of numerical data with qualitative, experience-based documentation. Provides the stakeholders with varying degrees of evidence that a business concept is in fact be viable.  Practical questions as starting point Is the business logistically achievable? Does current technology meet your needs? What are the risks? How will your products or service differ from what is on the market? What is the trajectory of the market? Do you have the finances to make the business achievable? Is there time constraint for establishing the business? How to analyze the feasibility of your business? Have a detailed understanding of: the business idea, product or service the nature of the market the needs of the customers the costs involved and the revenue you are forecasting your business model and plan the human resources and skills available to support the business  Steps in Feasibility Analysis Create and define the project parameters (i.e. financial feasibility of starting the business, legal requirements for operating it, operational capacity) Research the industry, market, customers, business model and staffing – how will they affect the feasibility of your business? Review your research findings to determine if the business idea, product or service is viable.  Dimensions of Business Viability Market viability Technical viability Business model viability Management model viability Economic and financial viability Exit strategy viability  Feasibility study outline Cover sheet and preliminary pages Marketing and Sales Strategy Executive Summary Production/Operating Requirements Table of Contents Management and Personnel Introduction Requirements Product or Service Intellectual Property Technology Regulations/Environmental Issues Market Environment Critical Risk Factors Competition Financial Projections Industry Recommendations and Conclusion Business Model  Financial Projections Components Balance Sheet Projections Income Statement Projections Cash Flow Projections Break-even Analysis Capital Requirements and Strategy Recommendations and Findings Conclusion  Executive Summary A summary of all key sections of the Business Feasibility Study and should work as a separate, stand-alone document. Interested parties will read this section first in conjunction with a glance at the financial section when deciding whether or not they read the rest of the document.  Executive Summary Write this document after the content section of the Business Feasibility Study is completed. The section/chapter is written last but presented first. Should be no more than one page long. This is equivalent to the abstract in a research paper.  Product or Service Describe the enterprises, product or service in simple language. Give product mix if the enterprise will be focusing on more than one product. Describe how customers would use and buy the product or service. Give enough detail to help the reader judge the effectiveness of your marketing and positioning plans. Describe key components or raw materials that will be used in the product, how the enterprise will source these and how available they are.  Product or Service Describe the plans to test the product to ensure it works as planned and is sufficiently durable, rugged, secure, etc. (e.g. consumer product test, beta test with major company, etc.) Describe plans to upgrade product/service or expand product/service line.  Technology As necessary, provide further technical information about the product or service. Describe additional or ongoing research and development needs. Keep description in lay terms and/or explain technical terms enough to be understood by business-savvy but not necessarily technology expert readers.  Market Environment Target Market: Define and describe the target market(s). Distinguish between end users and customers. (i.e. in curricular offerings, target students as customers and industry as end users) Be clear how end users and customers benefit. How and why would they but the product or service? What is the projected need(s) your product or services fulfill so beautifully? How big is the opportunity? What level of actual market demand can be measured versus projected?  Market Environment For business-to-business markets (B2B), include: What industry is the target market in, who are the key players, frequency of product purchase, replacement needs versus expansion, purchasing process Estimated market size, initial targeted geographic area, enterprise’s targeted market share  Market Environment For business-to-customer (B2C), include: Demographic factors, such as income level, age range, gender, educational level, ethnicity. Psychographic factors (personality characteristics, lifestyle, social class, habits, behaviours and interests). Relevant behavioural factors such as frequency of product purchase and shopping behaviour.  Competition Describe direct and indirect competition (as it pertains to the target markets only). For key competitors, give market share, resources, product and market focus, goals, strategies, strengths and weaknesses. Use tools such as SWOT, PEST, Porter’s Five Forces Model, etc.) List all key barriers to entry.  Competition Describe what is unique about the enterprise’s product/service compared to competition (competitive edge). Make sure this is consistent with the unmet need of the target market(s). State how difficult it will be for competitors to copy the enterprise’s product/service. Describe how competitors will most likely react to the enterprise’s product launch and the enterprise’s response strategy. Include estimates of the time it might take a competitor to copy your product or service.  Industry Clearly define and describe the industry in which the enterprise operates. Include the size, growth rate, and outlook. Define key industry segments and state where enterprise fits in. Describe demand and supply factors and trends. Describe the larger forces that drives the market, e.g. innovation, cultural change, regulation, whatever.  Business Model Describe the proposed enterprise’s business model. How will the business generate revenue (i.e. sell the product, charge licensing, retail sales)? Will there be recurring revenue? A business model outlines the core attributes of a business. It defines the products and services, target market and costs, and details the high-level strategy for how the business plans to make a profit. You should consider the long-term operation of the business when assessing its feasibility – the business must be viable in the start-up phase and be able to maintain this viability into the future. Describe the model in enough detail to support financial projections presenter later.  Marketing and Sales Strategy Lay out the basic marketing and sales strategies. Discuss any strategic partnership the enterprise has or is planning to form. Do they provide critical market access or other resources? What are their rights and responsibilities? Discuss the distribution strategy (sell direct customers through sales force, direct mail, or internet; sell through manufacturers’ representatives, wholesalers, distributors, or retailers). Provide projected profit margin or mark-up expectations, commissions, and other expected compensation (co-op advertising, slotting fees, etc.)  Marketing and Sales Strategy Describe the pricing strategy and justification. Include the expected gross profit margins. Describe intended typical payment terms for customers. Other issues and their impact, e.g. warranties. Quantify the marketing budget for at least the first year, or ideally three years.  Production/Operating Requirements Describe enough of flow and where the enterprise will manufacture, source or create and deliver the final product or service to be able to estimate costs. What physical premises are required? Give location, size, age, condition, and capacity of planned production and warehouse facilities and number of shifts planned. Will space be owned or leased? Will renovations be required? At what cost? How complex is the manufacturing process? Describe equipment needed and costs.  Production/Operating Requirements If enterprise will outsource production or distribute others’ materials: Describe supply sources. Are sources of supply readily available? Outline the relevant contract terms, manufacturer’s capacity, minimum order and tooling requirements, reputation, size or financial condition. Describe the enterprise’s plan to protect its proprietary processes and trade secrets and quality control.  Production/Operating Requirements If enterprise is providing a service: How will the service be designed, delivered, measured and improved? What stakeholders exist, who will be trading partners with the business? What will be the terms of the contract? Are there substitute partners?  Management and Personnel List the proposed key managers, titles, responsibilities, relevant background, experience, skills, costs. Sketch personnel requirements: what people will be needed now, in a year, in the long term? What skills and qualifications are required and what financial implications result?  Intellectual Property Briefly describe patents, copyrights, and trademarks obtained and in process. Give all names that are on issued patents; summarize results of patent searches. If enterprise is operating under a licencing agreement or patent assignment, give name of licensor/assignor, describe key terms (e.g. exclusivity, rights and responsibilities), and give termination or renewal date.  Intellectual Property If the business concept is a science (research oriented) business, the intellectual property is extremely important. The protocols in managing them, particularly at the initial planning stage are critical. Often business planning associated with intellectual property must occur prior to a business (science – research and development) concept being developed and validated so that the strength and ownership of the findings can be assured.  Operational Analysis Determine if the business has the operational resources it requires to be successful (e.g. business structure, premises, suppliers, human resources and equipment). Consider: Is the business structure confirmed? Are the business premises and location suitable? Does the business have access to a variety of suppliers? Does the business have the necessary staffing and equipment to operate?  Regulations/Environmental Issues Outline non-economic forces that might affect the prospects of the firm: Key government regulations and the enterprise’s plans for compliance. Any environmental problems on property, plans to address the problems, and their cost. Environmental factors i.e. waste disposal plans, if needed. Political stability, if applicable. Any other regulatory or political issues. This may deal with proposed industry regulatory changes, stable versus unstable environments.  Legal Analysis Determines if the business successfully meets the necessary legal requirements to operate (e.g. business registrations, permits and licenses) Consider: Does the business have all relevant registrations, licenses and permits in place? Does the business have access to legal advice as necessary?  Critical Risk Factors Describe critical risk faced by the enterprise (currently or in the future).Much of these components will arise from the SWOT, Porters Five Forces and PEST Analysis. Examples include internal characteristics, uniqueness, investment, economic forecasts, change in regulations and technical obsolescence, etc. Be sure to describe how will you mitigate each risk.  Start-up Schedule Sketch the major events in the life of the venture by listing the timetable/deadlines for the completion of phases of venture start-up. Be sure to demonstrate the relationship of events and to keep the milestones, financial requirements, personnel requirements, etc. consistent. If possible, establish a formal project schedule for the start-up process.  Financial Projections Include a narrative highlighting key underlying assumptions and the logic governing your projections. Include financial history, if any (e.g. equity and debt), and likely financing stages including information about funding sources and uses. Provide a page or two of footnotes for each financial spreadsheet attached explaining the assumptions behind each major line item.  Financial Projections Core components of financial projections are: Balance Sheet Projections – 5-10 years and highlight inflows of capital. Income Projections – year 1 ( monthly or quarterly), years 2-5 or 2-10 (annually) Cash Flow Projections – year 1 (monthly or quarterly) years 2-5 or 2-10 (annually)  Financial Projections Core components of financial projections are: Break-Even analysis (units and monetary), Payback Period, Discounted Payback Period -when will the firm begin to turn a profit Cost benefit Analysis – Will the business provide a viable return on investment for the owner and/or investors? (Rate of Return – IRR, ROS, ROA, ROI) Sensitivity Analysis – To which factor or element will profit be highly susceptible and makes it highly volatile?  Financial Analysis Ultimately, financial analysis is used to determine if the business has adequate economic resources to meet its goals (e.g. funding, capital, profit). Determines if: What is the financial position of the business? Is the business able to access necessary funding? Can the business make a profit? Does the business have enough money to meet its obligations?  Capital Requirements and Strategy How much funding (equity) will the firm need, and when? What projected revenue or assets does proposed business have to secure the financing? What sources will provide the funding, i.e. investors, lending institutions, etc? What ratio of debt to equity financing will occur? When will investors begin to see a return? What is the expected return on investment (ROI)?  Final Findings and Recommendations Recommendations from the feasibility Market Viability study regarding the viability of putting the business idea into practice should be Technical Viability honest, short and direct. When making the Business Model Viability findings or recommendations arising from Management Model Viability the Business Feasibility Study, discuss the viability of the proposed business venture Economic and Financial Model Viability in terms of: Exit Strategy Viability  Market Viability Use traditional business analysis techniques such as SWOT, Porters Five Forces and PEST. To ensure that customer needs are met, consider: Conducting usability testing – the process of testing a product or design with a group of users that are representative of your target customers. Implementing universal design principles – used to ensure products and services are accessible to the widest range of customers.  Customer Feasibility Checklist Will you conduct usability testing? Will you apply universal design principles? How will your pricing affect the size of the market? How will competitors affect your price position in the market? Will the customer need to purchase maintenance packages or pay for regular updates?  Product and Service (Technical) Viability Analysis that looks specifically at considerations associated with business products and services, rather than the business itself. The potential that business products have to generate demand in the market and is profitable.  Product and Service Viability To determine product/service viability, consider: Is the product safe? Will the product fit into the market? How quickly can we get the product into the market? Does the current product need to be improved? How will you manage the research and development?  Product and Service Viability To determine product/service viability, consider: Can you partner with industry or research partners to innovate? Do you have the time and money available to innovate? Is there a gap in the market for this product? Do you have the funding to develop the new product? How will you manage the intellectual property?  Long-term Viability of Products and Services Consider: Will your products and services be viable in 5-10 years or will trends diminish their value? Are the products and services dependent on other products and services (i.e. maintenance, parts, servicing requirements)? If so, will those still be available in 5-10 years? Can your products and services adapt to industry changes and meet market needs in new ways in the future (i.e. integrate with new technologies, such as renewables)? What capital requirements will be needed in the long term? Will the potential income be worth the capital investment?  Business Model Viability Consider The ownership structure of the business – is it fit for purpose? Could it be changed to better suit your business goals? The capital required from lenders or investors – what capital do you need to make your business profitable in the short and long term? The distribution channels available – do you have channels available to distribute your products and services efficiently? The potential to license or sell products and services in the future – will you require specific licenses to sell products and services? Will you be able to meet the necessary requirements? The future export potential – will you export products and services? If so, are there any existing or potential trade barriers?  Management Model Viability Refers to organizational feasibility. Choose the ideal team in forming the human resources. Consider the attributes people, within and outside the business, should have to help the business succeed. Owner - responsible for the business. Are they the right person to manage and lead the business now and in the future? Will they be the best person to help the business grow or will you need more people to provide support?  Management Model Viability Equity partners – What kind of capital does your business need? Equity partners might help reach the business goals. Make sure you have identified the amount of equity of each partner before engaging in partnership discussions. Employed staff – Staff are vital to business success. Both managers and general staff are needed to lead and operate the business. Think about the staff needed in the future. Independent contractors – can help meet specialist needs in both the short and long term. Consider the potential skills gaps within your business and opportunities for outsourcing.  Management Model Viability Other key stakeholders – other people Researchers who may benefit the business and help Financial advisers build capacity for growth and Intellectual property specialists improvement: Lawyers Mentors Accountants Bookkeepers IT specialists Advertising and marketing managers  Economic and Financial Model Viability The business’s capacity to generate enough income to meet its operating costs while maintaining required service levels. Make sure you calculated the costs required to start the business and that you have the funds to cover these. To assess the financial viability of your business, consider if the business: is profitable can give an income, salary or return on investment is meeting all business obligations has adequate cash resources could sustain operations through a phase of no profit.  Exit Strategy Viability A plan made by an owner to sell their company, or their share in a company, to another corporation or group of investors. Gives a business owner a way to reduce or liquidate his stake in a business and, if the business is successful, make a substantial profit. Can be eventual sale or dissolution of a business once it reaches a milestone or value.  Final Findings and Recommendations A significant component of the findings should be related to the likelihood of success, projected return on investment and how any identified risk should be mitigated. The purpose of the feasibility study is to consolidate an argument based on factual evidence and analysis to help justify your decision in relation to the core question of whether the business venture in question is actually viable. Subsequent slides are examples  Sample Assessment Tools Product/Service – Buying Intentions Survey Industry/Market Feasibility – Industry attractiveness, Target market attractiveness, Timeliness of entry into the target market Organizational Feasibility – Management prowess, resource sufficiency Financial Feasibility – Total startup cash needed, Financial Performance of similar businesses, Overall financial attractiveness of the proposed venture Overall Feasibility  Buying Intentions Survey Example: How likely would you be to buy the product or service described above? ____ Definitely would buy ____ Probably would not buy ____ Probably would buy ____ Definitely would not buy ____ Might or might not buy Additional questions may be added on buying intentions. Conclusion should be reached on Product/service desirability Product/service demand Product /service feasibility Suggestions for improving product/service feasibility  Industry Attractiveness Assess the attractiveness of the Stage of industry life cycle industry the potential business plans to Importance of industry’s products enter on each of the following and/or services to customers dimensions. Number of competitors Extent to which business and environmental trends are moving in Age of industry favor of the industry Growth rate of industry Number of exciting new product and Average net income for firms in the services emerging from the industry industry Long-term prospects Degree of industry concentration Industry Attractiveness Assessment Tool (used to assess the broad industry, rather than the specific target market, you plan to enter)  Target Market Attractiveness Identify the portion or specific market within your broader industry that you plan to target. Assess the attractiveness of the target market on each of the following dimensions. Target Market Attractiveness Assessment Tool (used to assess the specific target market, rather than the broader industry, you plan to enter)  Market Timeliness Determine the extent to which the “window of opportunity” for the proposed business is open or closed based on the following criteria. Determine the timeliness of entering a specific target market based on other criteria.  Market Timeliness Assessment Tool  Management Prowess Use the following table to candidly and objectively rate the “prowess” of the founder or group of founders who will be starting the proposed venture.  Resource Sufficiency The focus in this section is on nonfinancial resources. Use the following table to rate your “resource sufficiency” in each category. The list of resources is not meant to be exhaustive. A list of the 6 to 12 most critical nonfinancial resources for your proposed business is sufficient.  Resource Sufficiency An explanation of the rating system used in the first portion of the table is as follows: ① Available ② Likely to be available: will probably be available and will be within my budget ③ Unlikely to be available: will probably be hard to find or gain access to, and may exceed my budget ④ Unavailable ⑤ NA: not applicable for my business  Total Startup Cash needed The startup costs (which include capital investments and operating expenses) should include all the costs necessary for the business to make its first sale. New firms typically need money for a host of purposes, including the hiring of personnel, office or manufacturing space, equipment, training, research and development, marketing, and the initial product rollout. At the feasibility analysis stage, it is not necessary for the number to be exact. However, the number should be fairly accurate to give an entrepreneur an idea of the dollar amount that will be needed to launch the firm. After the approximate dollar amount is known, the entrepreneur should determine specifically where the money will come from to cover the startup costs. The total startup cash needed can be estimate using the following table. Total Startup Cash needed Financial Performance of Similar Businesses Financial Performance of Similar Businesses Overall financial attractiveness of the proposed venture  Overall Feasibility: Summary and Conclusion  Sample Tools You can adopt only those applicable to your project.  Sample Business Overview Business Overview Date Established (or Estimated Time Business name of Commencement) Business Structure Business Owner(s) DTI/SEC/CDA Registration No. Vision Statement TIN Mission Statement Business Location Business Objectives  Sample Business Overview Short Term Goals Long Term Goals Products SWOT Analysis SWOT Activity Sheet Tools for Market Analysis (Target Customers) Sample Competitor Analysis Sample Marketing Objectives  Marketing Strategy Detail the overall strategy you will use to position yourself within the market to meet your customers’ needs. Apply the 8 P’s of marketing: Your Product (or Service) The Pricing of your product or service Your Position (place) in the marketplace The Promotion of your product or service The People in your business (salespeople, staff, etc.) The Physical environment where the good/services are presented. Productivity and Quality as an essential part of meeting customer needs. Product or Service Pricing of product or service Your Position (Place) in the marketplace Sales and distribution channels The Promotion of your product or service The People in your business (salespeople, staff, etc.) The Process represents the buying experience The Physical Environment where the goods/services are presented Productivity is an essential part of meeting a customer’s needs Marketing Activity  Final Note A Business Feasibility Study supports the decision-making process as to whether the Business Concept is in fact viable. A No Viability answer is still a positive result as it saves the entrepreneur wasting material resources and valuable time. The Business Feasibility Study outline and the Business Plan outline are very similar in nature and are normally designed to dovetail in pursuit of efficiencies of development, evidentiary alignment and consistency or reporting.