Strongpreneur#Starting A Business
February 19, 2019 298
Strongpreneur#Starting A Business
February 19, 2019 298
A feasibility study is very important to investors. Feasibility study usually among the important documents on the basis of which banks may grant loans to investors, therefore, should be taken seriously.
A feasibility study is very important for any new venture. Normally it should be made up of two broad parts; the executive summary and the main body.
The executive summary is a quick and brief summary of what is detailed in the main body of the report. It normally gives an overview of the whole report.
A feasibility study is an important and carefully drafted document that describes a particular project, with the aim of finding out whether it is economically viable and capable of being executed successfully. In it, the relevant dimensions and variables in the business environment that might come to bear on particular projects are evaluated, and their relationship with total capital investment assessed in order to determine the potential financial rewards that investors can expect. Such a study is usually carried out before any modern business is established. Through the findings of feasibility studies, a decision is taken either to undertake a project or to abandon it.
The feasibility study report is normally a technical report, which the entrepreneur should at times obtain the services of a management consultant to prepare the report for professional input.
The feasibility study report is always a reference report that should be referred to from time to time to check whether the set target is being met or not.
Entrepreneurs equally use the report to raise funds from the banks, aid in the business planning, and decision-making and a table evaluation of the new business venture during and after execution.
The entrepreneur from the very day the idea of the project was initiated has to ask himself these questions below:
These questions have to be an entrepreneur should analyze critically before setting off to prepare the feasibility report.
A good feasibility study may take the following patterns:
(a) Background information about the project and the industry
(b) Objectives of the study
(c) Method and Extent
(d) Time for the study
The technicalities required in the write-up of the various sections may differ from project to project. Normally, the write-up will require the information set out below.
While introducing the project, assess the overall atmosphere, market and economic situation of the particular industry. Examine the existing government regulations affecting the industry. State whether the product is in popular demand, and examine the economic justification of the project- state the possibility of using local raw materials as substitution of import to save foreign exchange.
The objectives of the studies should include the ascertaining of the followings:
State the research methods used:
State the period, month, year during which the study was undertaken.
Define the target market and examine the size and growth rate of the population and their projection. Find out the percentage of the urban and rural population the average number of persons per household, and their consumption habit. Examine the activity and roles of competitors and the possibility of competing or participating successfully.
On the basis of above information, propose the initial production capacity, which can be profitably handled. Then state the steps to be taken to achieve the production target set, in the following sections.
Make sure you assess capital requirements, working capital, and an equity contribution of promoters, sources, and application of funds. Mention should be made of the type of loans available and their terms as well as the projected cash flow, break-even analysis, and tax provisions. Solvency in short and long-term should be assessed and effective cash management assured.
Describe the type of machines to be used, state reasons for choosing the particular model instead of alternatives. Seriously assess cost, maintenance, and suppliers. These points are considered in the following sections:
Type of the project has to be stated, whether the project should be on large or small-scale. Consequently, state the total capital required indicating the percentage of fixed assets and working capital. Describe the sources of working capital, e.g., loans from commercial banks. Then estimate capital required for the commencement of operations. This would include the estimated cost of fixed assets, financial plan, depreciation, and finance charges.
This will show the capital required to attain the projected levels of operation, profitability, and cash flow. The financial plan may have alternatives but the important aspect is for each of the alternatives to show equity and loan capital as well as contributions of partners.
Then state, which of the alternatives of the financial plans has higher net returns per annum and recommend it formally. Consideration should be given to the provisions of indigenization laws where they exist.
Indicate the amount made for depreciation of fixed assets, then show:
Indicate yearly charges in respect of the loans to be raised for the working capital of the factory (mainly from commercial banks). State the alternative (financial plan) that incurs fewer charges. Accounts should be for live years showing commercial bank overdraft and interest (%).
On the basis of the preceding actions, comment objectively as to whether the venture will be viable or unviable. Given management efficiency, especially concerning the timely procurement of adequate raw materials and dynamic salesmanship, prove that net profit will grow throughout the first 5 years. The followings should be shown:
Good management requires that heavy reliance on bank overdraft for working capital be discouraged as soon as possible. In that case, the surplus cash generated from the operations in the first five years may be estimated.
The economic and legal feasibility of the project must be ascertained. The project, apart from being economically feasible, should be in consonance with the land. Analysis of the following should be done thus:
The feasibility and profitability of the project should be ascertained through the following methods:
The gestation period should be ascertained, so as to know whether the long or short-term loan should be obtained, because of the rate of cash generation.
The entrepreneur should analyze the effect or the impact the sourcing of foreign exchange will have on the investment if some raw materials must be imported.
The multiplier effect the employment will have on the society should be analyzed and evaluated.
The comprehensive analysis of the environment should be done to ascertain the benefit the local sourcing of raw materials may have in the sourcing country.
The legal implications of the physical development, that is the zoning pattern and urban development should be known. The fiscal policies of the Government as regards the raw materials to be used should equally be known and emphasized.
On the basis of thorough evaluation of the whole project and of its particular situation in the market, list recommendations that should be taken must seriously by promoters of the project to facilitate successful execution. Make sure that all the measures recommended and plans laid out fall within legal limits. In this wise, the researcher is expected to have a good knowledge of the company, commercial or industrial laws or may not augur well for the venture.
Do not totally be optimistic but some measure of objectivity is recommended. Be critical and assume that something may go wrong; raw materials may go up while consumer price remains unchanged; there may be strike and loss of production time. In such circumstances, only some percentage of the planned turnover may be realized.
The entrepreneur must take the issue of feasibility report very seriously as it acts as the master plan for the new project.
Above all, you should be able to tell whether the evaluation indicates that the proposed project is a feasible and viable economic venture, worthy of being invested upon.
Don’t forget to share this post!