Feasibility Plan: Guideline

Transcription

1 Feasibility Plan: Guideline A superior feasibility plan is one that is clear and concise. Length is determined by the plan s expected use. Lengthy plans only confuse, overwhelm and discourage the reader. There is no gain from a lengthy well-prepared plan if the readers won t read it. The authors recommend that a feasibility plan not exceed 15 pages (not including appendices), except for unusual circumstances. The feasibility plan is the framework that the entrepreneur/innovation expert uses to decide whether to pursue the concept and to develop a business plan. When formatting your feasibility plan, using subtitles for each major section of the plan is highly recommended. Subtitles clearly divide the information in each section into similar categories, which makes reading the plan easier and more eye appealing. Topic Outline A suggested topical outline for a feasibility plan consists of the following: Executive Summary Product/Service The Market Price and Profitability Plan for Further Action Executive Summary ( please note that a standard executive summary is being required for all projects so if the format of this feasibility plan is chosen then call this section Introduction.) This section should be written like a letter and addressed to the reader(s) of the plan. This section is a brief overview of the key points appearing in each section of the plan. Many times this is the only section a potential investor, lender, future employee or strategic partner will read, so it is of great importance. The length of the letter should be no more than one-and-a-half to two pages long. Although this section is first in the order of the feasibility plan, it is the last section to be written. As you develop the feasibility plan, you will uncover additional information that will alter your original business concept. (This section does not contain subtitles and is the only section that doesn t follow the subtitle format.) Executive Summary/Introduction Questions: 1. What business is your venture in? (Example: A retail menswear store, wholesale plumbing supplies or manufacturer of women s sportswear.) 2. What is the current stage of development for the venture? (Start-up, initial operations, concept stage.) 3. What is unique about the product/service and what proprietary rights does the business have? 4. What is the market like in terms of the industry, the customer, customer needs, product benefits and market penetration plan? (Give reader an overview of the market section.)

2 5. How much money does the venture need for start-up cost? (Highlight how much money is needed to get into this business and how will it be spent.) 6. What kind of financing will the company need (debt or equity)? 7. Who will it impact and what kind of impact will that be? Product/Service Many business concepts sound like a great idea but unfortunately when they enter large markets they fail for lack of a sound working product/service. Often the proposed product/service has already been tried and failed. Or perhaps, other parties own the product/service. Before going any further in new venture, the entrepreneur must determine if the concept has a working and tested product/service, is owned or licensed by you, and is feasible. Product/Service Plan: Formatting a Feasibility Plan with Subtitles Purpose of the Product/Service (question 1) Stage of the Development (question 2) Product Limitation (question 3) Proprietary Rights (question 4) Governmental Approvals (question 5) Product Liability (question 6) Related Service and Spin-offs (question 7) Production (question 8) Product/Service Questions: 1. Describe the purpose and the unique features of the product/service (consider cost, design, quality, capabilities, etc.). Include any photographs or sketches that are necessary. 2. What stage of development is the product/service in (e.g., idea stage, model stage, working prototype, small production runs, full manufacturing/production)? 3. Describe the shelf life of your product/service (bakery goods, medicine, dairy products all have different shelf lives. Some may be indefinite. Be specific.). 4. List your proprietary rights (e.g., patents, copyrights, trademarks, licensing, royalty agreements, franchise agreements, or distribution rights). 5. List any governmental approvals necessary and the status of such approvals (e.g., FDA, EPA, FCC, USDA, OSHA). 6. What are the liabilities this product/service may create? What insurance requirements does the product/service require? (List the approximate cost or if the company is going to self-insure and explain.) 7. What new product/service could be developed to meet the continuously changing market needs in this industry or others (e.g., service contracts, replacement parts, supplies)? 8. How much will be produced internally and how much of the production will be subcontracted out (name subcontractors and approximate cost of product/service)?

3 The Market The market analysis is very vital part of the feasibility plan. Is there a market for the concept? Can it be proven? If not, it may be useless to continue to pursue the concept. The market for the business concept may be so large and obvious that little needs to be done in the feasibility plan other than proving its size. In your business plan much additional market information is required. In the feasibility plan it is enough to prove that a sufficiently large market exists for the concept and, therefore, further investigation of this opportunity is necessary. The feasibility plans should explain the way the product/service will be sold to the customer and what kind of distribution channels will be used. Market: Formatting a Feasibility Plan with Subtitles Current Market Size (question 1) Growth Potential of the Market (question 2) Industry Trends (question 3) Customer Profile (question 4) Customer Benefits (question 5) Target Markets (question 6) Market Penetration (question 7) Market Questions: 1. Describe the current size of the industry for the product/service. (Indicate the amount of dollars spent annually by customers and/or units consumed.) 2. Describe the growth potential of the industry for the product/service. (Is the growth stable or declining?) 3. Describe the industry trends that will affect the product/service. (Look for new developments such as low-fat, no-cholesterol food products, etc.) 4. Define the customer profile. (Consider demographics such as age, sex, income, profession, and geographic location.) 5. Explain customer benefits from the product/service. (What problems are you solving for your customers? List in bullet form.) 6. List target markets that the product/service will be sold to. (List the names of customers, companies or specific groups of customers like market segments.) 7. How will the product/service be sold to potential customers? (Distributors, sale representatives, direct sales force, direct mail, telemarketing, etc.) Price and Profitability Is the customer going to pay enough for the product or service to make the enterprise sufficiently profitable so it is worth undertaking? Often the answer is no. Then the venture does not succeed because it can t maintain a sufficiently high gross margin to cover all of the expenses and still generate an ample profit. There must be a large enough margin for error. The price/cost ratio determines the gross margin. For example, if a customer will pay five times the direct costs, then the gross margin will be 80 percent, since the cost of goods sold will be 20 percent. If sales are one million dollars, then you will have $800,000 with which to meet expenses and enjoy a healthy profit. Price and Profitability: Formatting a Feasibility Plan with Subtitles

4 Price List (question 1) Sales Estimate (question 2) Cost of Product/Service (question 3) Gross Margin (question 4) 3-Year Operating Expense and Assumptions (question 5) 3-Year Operating Statement (question 6) Start-Up Cost (question 7) Price and Potential Profitability Questions 1. What price will the customer be willing to pay? (If the venture provides more than one product/service, list each individually. If the venture has many product services, list them by related categories. Use chart form.) 2. Estimate the sales from the new venture by product/service for three years. (Use chart form. List by groups if the concept has multiple products/services.) 3. What is the cost for providing the product/service for three years? (This includes materials, labor, and any capital expenditures; however, it does not include operating expenses.) If the venture provides more than one product/service, list each individually or by group. 4. What will the gross margin be for each product/service for three years? (The gross margin is the net sales minus cost of goods sold, sometime called gross profit.) 5. List operating expenses for the new venture for three years. (This includes rent, salaries, office supplies, insurance, advertising, etc.) Write an assumption for each expense; i.e., a brief explanation of how the estimate for each expense was determined. 6. Estimate the sales, cost of goods, gross margin, operating expenses and profit by year for the next three years. (Use chart form.) 7. Estimate all the start-up expenses for the business. (Rent deposit, signage, fixtures, computers, utilities deposits, etc.) Plan for Further Action During the last part of the feasibility plan the focus is the future. After an entrepreneur proves the business concept is feasible and a profit can be obtained, it is time to write the business plan. Most likely the next step is to write a full business plan, which is the traditional sequence of events. However, this step requires a lot of time, effort and money. Maybe the feasibility plan shows that the concept is worthwhile, but not for a new company. Instead, the concept should be sold or licensed to some existing firm. A feasibility plan is often used to show potential investors, bankers, employees, friends, personal business advisors and corporate strategic partners. Many times this type of exposure will allow useful information to further develop and better focus your original business concept. Plan for Further Action: Formatting a Feasibility Plan with Subtitles Pitfalls (question 1) Positives (question 2) Needed Capital (question 3)

5 Entrepreneur s Role (question 4) Business Plan (question 5) Licensed Potential (question 6) Corporate Partners (question 7) Proprietary Rights (question 8) Infrastructure Members (question 9) Plans for Further Action Questions 1. Describe the drawbacks the feasibility plan identified. It is possible to overcome or eliminate all of the obstacles? (List the pitfalls and a short explanation of how the problems can be solved in bullet form.) 2. List the strong points that the feasibility plan identified. (Do not be vague, but give factual information. Example: The Company will have the greater service. Explain how the service is better.) 3. How can the needed capital for starting the new venture be obtained? (Bank, venture capitalist, private placement, friends, relatives, self.) 4. What role will you play in the new venture? (Ownership only, ownership and manager, salary, benefits, brief job description.) 5. Should a business plan be written? (If so, list the key points that should be further researched. If not, list the reasons why.) 6. Should the product/service be licensed or royalty rights be given to another company? (If so, why and who is the potential licensee?) 7. Identify any possible corporate partners to be used for potential capital or support. (List names, addresses and possible contact person.) 8. Do you have any priority rights that could be sold to other parties? If yes, indicate who and what the appropriate amount should be. (Distribution rights, patents, trademarks, trade secrets, franchise, etc.) 9. Identify any infrastructure members who should help prepare the business plan and the projected cost and their services. (Accountants, attorneys, consultants, etc.)