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

• Financial
  • Startup Costs
  • Operating Expenses
• Other
  • Location
  • Demand
  • You - time, skills, experience, knowledge, barriers, etc.
  • Goals - personal, business, etc.
  • Competition
  • Capital Available
  • Lecenses & Permits
  • USP/Product
  • Marketing

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

Income Statement

Advertise at $2,000

Sell 1/2 Inventory at 200% markup

Balance Sheet

Investment of $10,000

Loan of $15,000

Buy Inventory at $8,000

1) Forecasting the Market:

a. Identify the Potential Market - users & nonusers
b. identify competitive shares
c. Profile Target Market(s)/Segmentation

2) Forecasting Capital Needs/Start-up Costs:

a. itemized list - uses of capital
b. Balance Sheets
c. Capital Asset List/Depreciation & Replacement Schedule

3) Forecasting Operations:

a. Price and Demand in $, units, and # of customers
b. Revenue (P x Q) and Expense projections
c. Income Statement(s)
d. Balance Sheet (s)
e. BEP analysis
f. Cash Flow Statement(s)

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 more. A simple effort to forecast demand should look like the following worksheet.

Demand Worksheet

Verbally describe the customers making up your Potential Market. Identify special segments or focus on a targeted segment if appropriate.

1. The number of customers in the potential market is
(measure this as total potential users)

____________________

The # of nonusers is ______________________

The # of current users is ______________________

2. Purchase Frequency (cycle) is
(measured in days, months or years)

____________________

3. Average Purchase Quantity
(measured in units, or average sale in $ per visit)

______________________

4. Average Sale in $ per Customer Visit
(measured by price x units)

______________________