Assignment No.

10

Aim :Prepare financial feasibility report on a chosen product/services.

Steps to Prepare a Financial Feasibility Study

● Examine the market
● Ascertain the possible startup cost
● Make a projection of the cash flow and profit plan
● Determine the return on investment
● Forecast future performance
● Provide the management team with intelligent statistics
● Locate areas of growth
● And much more…

Identify The Startup Cost

On the concept of financial feasibility study, the first step to take is to have
a clear definition of what the cost of your startup project should be. And
though you alone can figure that out completely, below are some of the
typical startup costs you should consider.

● Utilities and advertising

● Supplies and office furniture
● Purchases for buildings and land
● Permits and licenses
● Cost of initial material purchases
● Employee wages
● Cost of equipment acquisition
● Accounting and legal fees for incorporation
● Cost of marketing research
● Insurance premiums
With an appropriate sum decided, you can move over to the next phase.
However, be aware that the startup cost must be available as most of the
above listed must be provided before you can proceed.

Cash Flow And Profit Projection

According to studies, 30% of businesses fold up because the holders run
out funds. But with a laser-focus projection of the future cash flow and
profit, you can prevent that. By definition, cash flow is a full-blown picture of
the money that is expected to move out and into your project. So it
makes sense that calculating all your expenses and revenue is a must.
Being realistic with your cash flow projection, first analyze your account
receivable box which includes; rebates, customer deposits and payments,
government grants, and bank loans. After the analysis and calculation of
that, you do the same for your account payable box which includes;
inventory, taxes, overheads, payrolls, rents, payment to suppliers and
vendors, and your personal compensation as the business owner.

Manage Negative Cash Flow Upfront

When you study the patterns of your cash flow statement, you see that
each of the two sides of your cash as previously mentioned (account
receivable and account payable) is separated into three categories namely;
financing, operation, and investing cash. If you notice that the three
breakdowns of your account payable are higher than those of your account
receivable then there’s the possibility of experiencing a negative cash flow
in the future. And that is not good for you, right? The best thing you want to
do is manage your negative cash flow upfront and make the balances so
much that the amount of money moving out is less than the amount moving
into your project.
● Find out where and how your cash flow is negative
● Create and negotiate new payment terms with customers and
vendors
● Talk to lenders to make up for low sales
● Reduce operating expenses
● Find out how to increase sales
Stretch Out The Need For Additional Funding
With your cash flow projection, sales, and profits, you are able to know
where and how negative cash flow may pop up. Right? But that is not
enough. Because in most cases sourcing additional funding from the
outside to get ahead of negative cash flow may not be ideal. So, go ahead
and stretch out the conditions that determine when additional funding will
be needed. These conditions can only be decided by you and your team as
they will remain fixed and unchanged through the age of your business.

Conclude Your ROI (Return On Investment)

Notice that I didn’t dive into profits in step 2 even when it was highlighted to
be discussed. Here’s where I have saved it up for. As the projected profit of
your business determines the viability of it and the financial feasibility of the
project, it makes sense to give it a special treatment. The overall idea here
is to come into a conclusion about how far your business can attract equity
investors. And what makes a potential equity investor tick?

● Short payback period; you need to project how long it takes the
investment on your business to be recovered alongside profit. As
expected, a project with a short payback period will attract more
equity investors.
● Awesome NPV; aka Net Profit Value, the NPV is a statement of the
difference between the present cost and the projected profit. If there’s
a huge positive NPV after calculation, then your project is considered
feasible enough to attract investors.
● Correct Internal Rate Of Return (IRR); simply put, the IRR is a
balanced NPV. Whenever the projected cash outflow equals the
present cash inflow, then you have great possibilities with your
business. By implication, smart investors have their eyes for
possibilities.
Conclusion:Great ideas may turn out to be the worst in the end. If you’ve
just had a new business idea pop out of your head out of the blues, you
don’t want to initiate it right off the bat. And that is where preparing a
financial feasibility study comes in. A well-thought-out and accurately
prepared financial feasibility saves stories that touch. In this article, so far, I
have given you the complete blueprint for a guided walk-through into
creating your new business financial feasibility. I can only hope this helps
you in your quest to start and successfully run a profitable business.