Financial Feasibility and Your Business Plan

Until you open the doors, it is not possible to be sure that your business is financially feasible. What you can't do is know what the customer will do or know what your competitiors will do. What you can do is:

• know your goals by which you measure financial success
• know a realiable range for demand
• know your start up cash needs (start up capital or capitalization)
• know your operating expenses

It is entirely possible to predict with reasonable accuracy whether or not your business is feasible when looking at your business from a financial perspective as well as other perspectives.

Feasibility of the Business Idea

• Personal & Business Goals
• Your Skills and Resources time, skills, experience, knowledge, barriers, etc.
• Trade Area & Competition
• Potential MarketsBuyer Behavior & Expected Demand
• Marketing, USP, Product
• Financials
  • Startup Capital Needs
  • Availability of Capital
  • Pro Forma Balance Sheet & Income Statement
  • Operating Revenues Projections
  • Typical Operating Expenses
  • Cash Flow & Working Capital
  • Business Phases and Future Cash Flow Needs
• Acquiring Licenses & Permits

Capital Needs

1. Startup Costs
• Items
• Contingency Capital
• Working Capital
• Living Capital
2. Future Capital Needs
• Working Capital
• Replacement
• Expansion - Growth Capital
3. Sources of Capital

Forecasting is guesswork, an educated guess when you do your marketing research. When forecasting operations, the area of demand is the big question mark. We have looked pretty carefully at profiling our market, segmenting it and trying to forecat a range for sales as measured in the three typical ways: dollars, units and number of customers. Let's practice this a little.

Open a Business Bank Account and do the Following:

1. Deposit a Loan $20,000 & Equity of $30,000 into the account
2. Buy Equipment $5,000
3. Buy Invemtory $25,000
4. Buy a 1 Year Insurance Policy $1,200
5. Pay First Month's Rent $1,800
6. Advertise $2,000

• Make a Balance Sheet and an Income Statement for the Start up period.
• Make a Statement of Cash Flow

Do the same thing for your Typical Month (or average) of Operations:

1. Sell 3/5's of the inventory at a 200% markup
2. Pay Rent
3. Advertise $1,000
4. Amortize one month's Insurance expense
5. Depreciate Equipment for one month (salvage value $500 after 5 years)

What do the Financial Statements tell you?

• Balance Sheet
• Income Statement
• Cash Flow Statement

What does the Market tell you?

• large enough in size
• accessible
• responsive
• room competitively
• can you develop a marketing plan

What does the capital and cash position tell you?

• raise startup capital
• adequate working capital
• expenses manageable

Can you charge a high enough price to:

• cover costs
• yield profit goals
• recover investment?

What will the competitive reaction be?

• Are you vulnerable to competitive reactions
• Do you have a niche
• Do you have a distinct trade area
• Can you find a suitable location
• Do you have adequate capital to grow the business and become profitable
• Do you have a unique selling proposition
• Do you have a distinct brand or product position?

What does your analysis of personal goals and resources tell you?

• adequate resources
• the ability to gain resources, skills and abilities in time
• ability and willingness to add partners or employees to your resources and skill mix
• does the business meet your personal goals
• will the lifestyle meet your needs or family situational needs?

Your answers to these questions will give you a good sense of the overall feasibility of your business idea.

You would then want to continue to develop the business plan, seek sources of capital and take steps to implement the business plan and open the doors for business!