Project managementdocs.comfeasibility study templatethisCC
1. ProjectManagementDocs.com
Feasibility Study Template
This Feasibility Study Template is free for you to copy and use
on your project
and within your organization. We hope that you find this
template useful and
welcome your comments. Public distribution of this document is
only permitted
from the Project Management Docs official website at:
ProjectManagementDocs.com
Feasibility Study
<Project Name>
Company Name
Street Address
City, State Zip Code
Date
Table of Contents
1.Executive Summary3
2.Description of Products and Services3
2. 3.Technology Considerations4
4.Product/Service Marketplace4
5.Marketing Strategy5
6.Organization and Staffing6
7.Schedule6
8.Financial Projections7
9.Findings and Recommendations8
1.
Executive Summary
The executive summary provides an overview of the content
contained in the feasibility study document. Many people write
this section after the rest of the document is completed. This
section is important in that it provides a higher level summary
of the detail contained within the rest of the document.
Alan’s Best Chocolates (ABC) is a leader in the sales of
chocolates and confections throughout the United States.
ABC’s products are sold from 50 stores throughout the country
and maintain a reputation for superior taste and quality. While
ABC’s sales have grown over the past 10 years, the rate of
growth has slowed significantly. One key factor for this
slowing growth rate is the shift in the marketplace to purchasing
chocolates and confections online. While ABC maintains a web
site, it is not capable of hosting an e-commerce platform for
online sales. ABC’s sales occur only in its brick and mortar
facilities and the company is losing potential customers to
competitors who provide online sales. The chocolate and
confections marketplace is healthy and shows a continued
growth trajectory over the next five to ten years. ABC is in a
position to capitalize on this online marketplace by leveraging
existing technologies, industry best practices, and an aggressive
marketing and sales campaign to ramp up the company’s growth
projections for the foreseeable future.
3. 2. Description of Products and Services
This section provides a high level description of the products
and/or services which are being considered as past of the
feasibility study. The purpose of this section is to provide
detailed descriptions of exactly what the organization is
considering so this information can be applied to the following
sections of the document. It is important that this description
captures the most important aspects of the products and/or
services that the organization is considering as well as how it
may benefit customers and the organization.
ABC is considering a move to create and provide an online
platform from which to sell its existing product line. Until now
ABC has only sold its products from its chain of brick and
mortar facilities and has been limited to sales within the
geographical regions where its stores reside. By doing so, ABC
has not been able to capitalize on the growing trend of online
sales within the chocolate and confections marketplace. By
offering its products through an online platform, ABC can
market its products to an entirely new market, increase revenue
and growth projections, and allow customers to purchase our
products from the convenience of their own homes.
There are no proposed changes to ABC’s current product
offerings as a result of this study. Online sales will include
only current products and any changes to this product line must
be considered outside of the purpose of this document.
3. Technology Considerations
This section should explain any considerations the organization
must make with regards to technology. Many new initiatives
rely on technology to manage or monitor various business
functions. New technology may be developed internally or
contracted through a service provider and always result in costs
which must be weighed in determining the path forward.
Upgraded technological capability will be required for ABC to
4. move toward offering an online marketplace from which
customers may purchase our products. Customers demand a
simple and easy way by which to conduct online transactions
and it is imperative that all transactions are conducted in a
secure manner. While ABC maintains a web site with product
lists and descriptions, it does not currently allow for purchasing
to be done online. This functionality must be integrated with
our current web site to allow for secure purchases to be made.
Additionally, new online marketing functionality must be
considered in order to target existing and potential customers
through methods such as e-mailing lists, promotional
advertisements, and loyalty discounts.
While ABC maintains a small information technology (IT)
group, the expertise does not currently exist internally to
design, build, and implement the sort of extensive online
platform required for this effort. Therefore, the
recommendation is to contract this work out to an internet
marketplace provider who can work with ABC to meet its needs
within the determined timeframe and budget. It should be noted
that while ABC does not have this expertise internally, the
technology exists and is in use throughout the marketplace
which lowers the risk of this concept considerably.
ABC currently maintains a high speed internet connection, web
server, and the latest software. With the addition of an e-
commerce portal it is expected that there will be an overall cost
increase of 5-10% for web server operations and maintenance
costs.
4. Product/Service Marketplace
This section describes the existing marketplace for the products
and/or services the organization is considering. It may describe
who the target market consists of for these products or services,
who the competitors are, how products will be distributed, and
why customers might choose to buy our products/services.
Most marketplaces are dynamic environments in which things
5. change constantly. To enter a new marketplace blindly will
usually result in an organization not fully understanding its role
and not maximizing its resulting benefits.
The online marketplace for chocolates and confections has been
thriving for many years. In FY20xx online chocolate sales
accounted for approximately $20 million or 20% of total
chocolate sales worldwide. While chocolates and confections
are available in almost every store, our primary marketplace
consists of specialty chocolates and confections. All of ABC’s
current major competitors already have an established online
presence of at least 3-5 years. The top 3 competitors are
currently: Smith’s Chocolates, Worldwide Candy, and
Chocolate International. A large majority of ABC’s customer
base are returning customers and referrals from existing
customers. By providing a more convenient means of
purchasing our products online it is expected that we will retain
these customers while conducting an online marketing campaign
for new customers as well.
ABC will distribute online purchases via direct shipping from
the nearest store location. This will allow ABC to provide
timely shipping and eliminate the need for a central warehouse
or facility from which to store and ship its products. Such a
facility would require a significant capital investment as well as
increased operation and maintenance costs. However, based on
anticipated growth projections, ABC must ensure that all store
locations maintain adequate inventories on hand to satisfy
customer demand.
5. Marketing Strategy
This section provides a high level description of how the
organization will market its product or service. Some topics
which should be included are: how does an organization
differentiate itself from its competitors; types of marketing the
organization will utilize; and who the organization will target.
Marketing efforts must be focused on the right target groups in
6. order to yield the greatest return on investment.
In order to be successful, ABC must differentiate itself from
competitors in order to appeal to customers in the online
marketplace. To do this, ABC will utilize its practice of
personalizing its product packaging which it currently offers in-
store customers. Current competitors do not currently provide
any personalization of packaging. Customers will have the
ability to personalize messages on or inside of product
packaging, request specific color-based themes, or tailor
packaging for special occasions or events.
ABC will implement a customer e mailing list in order to send
product promotions, sales advertisements, and other special
offerings to customers who register. Additionally, ABC will
offer referral incentives to customers who refer our products to
friends and family in order to provide additional incentives.
ABC will also maintain a customer database in order to
determine its target customer groups and geographical regions.
ABC will research marketing intelligence providers to
determine the benefits and costs of purchasing customer
information for bulk email campaigns as well. Another
important consideration of ABC’s online marketing strategy is
cost. Electronic marketing communication costs are very small
in comparison to direct mail marketing which ABC currently
utilizes. However, we expect the additional revenue from
online sales to greatly outweigh these additional electronic
marketing costs.
It is important to note that ABC’s current marketing and sales
staff will require training in online marketing and sales
practices. This training will need to be contracted to a training
provider as part of our startup costs and schedule.
6. Organization and Staffing
With many new products or services there may be a need for
additional staffing or for an organization to restructure in order
7. to accommodate the change. These are important considerations
as they may result in increased costs or require an organization
to change its practices and processes.
The ABC online sales campaign is not anticipated to
significantly affect the organizational structure of the company.
There are, however, several staffing additions required to
successfully implement the online sales campaign. All of these
positions will work within existing departments and report to
department managers.
Staffing Position #1: Online Sales Manager – this full time
position will lead sales staff in identifying sales opportunities
and converting these opportunities to actual sales. This person
will report to ABC’s Director of Sales and will work in ABC
headquarters.
Staffing Position #2: Online Marketing Manager – this full time
position will lead marketing staff in identifying target customer
groups/markets and conducting online advertising/marketing
efforts to maximize traffic to ABCs online marketplace. This
person will report to ABC’s Director of Marketing and will
work in ABC headquarters.
7. Schedule
This section is intended to provide a high level framework for
implementation of the product or service being considered.
This section is not intended to include a detailed schedule as
this would be developed during project planning should this
initiative be approved. This section may include some targeted
milestones and timeframes for completion as a guideline only.
The ABC online sales campaign is expected to take six months
from project approval to launch of the e-commerce platform.
Many of the foundations for this platform, such as high-speed
internet and web server capability, are already available. The
following is a high level schedule of some significant
8. milestones for this initiative:
Jan 1, 20xx: Initiate Project
February 1, 20 xx: Project kickoff meeting
March 1, 20 xx: Complete online sales site design
April 1, 20 xx: Complete testing of online sales site
June 1, 20 xx: Complete beta testing trials of online sales site
July 2, 20 xx: Go live with site launch
Upon approval of this project a detailed schedule will be
created by the assigned project team to include all tasks and
deliverables.
8. Financial Projections
This section provides a description of the financial projections
the new initiative is expected to yield versus additional costs.
Financial projections are one key aspect of new project
selection criteria. There are many ways to present these
projections. Net present value (NPV), cost-benefit calculations,
and balance sheets are just some examples of how financial
projections may be illustrated. This section should also provide
the assumptions on which the illustrated financial projections
are based.
The financial projections for the addition of an online sales
platform for ABC are highlighted in the table below. These
figures account for projected online sales, additional staffing
requirements, shipping, material, and insurance costs, contract
support for IT and training needs, and web server and hosting
costs.
The assumptions for these projections are as follows:
· In store sales projections remain unchanged
· All milestones are performed in accordance with the schedule
· All transactions are closed yearly with no carry-over to
subsequent years
9. 9. Findings and Recommendations
This section should summarize the findings of the feasibility
study and explain why this course of action is or is not
recommended. This section may include a description of pros
and cons for the initiative being considered. This section
should be brief since most of the detail is included elsewhere in
the document. Additionally, it should capture the likelihood of
success for the business idea being studied.
Based on the information presented in this feasibility study, it is
recommended that ABC approves the online sales initiative and
begins project initiation. The findings of this feasibility study
show that this initiative will be highly beneficial to the
organization and has a high probability of success. Key
findings are as follows:
Technology:
· Will utilize existing technology which lowers project risk
· Ecommerce infrastructure will be contracted out to vendor
which allows ABC to share risk
· Once in place this technology is simple to operate and
maintain for a relatively low cost
Marketing:
· This initiative will allow ABC to reach large number of target
groups electronically at a low cost
· ABC can expand customer base beyond geographic areas
where stores are currently located
· The marketplace for online chocolate and confection sales is
in a steady state of growth
· ABC is able to differentiate itself from its competitors and
will utilize incentive programs to target new consumers
Organizational:
10. · Minimal increases to staffing are required with no changes to
organizational structure
· No new facilities or capital investments are required
Financial:
· Break even point occurs early in the second year of operation
· Five year projections show online sales accounting for 25% of
total sales
· ABC will be in position to capture greater market share by
maintaining both an in-store and online presence
This free Project Management Plan Template is brought to you
by ProjectManagementDocs.com
2
Measure Year 1Year 2Year 3Year 4Year 55 year total
Online Sales Projections
$350,000$425,000$500,000$650,000$800,000$2,725,000
Additional Staffing Costs
$160,000$170,000$200,000$235,000$255,000$1,020,000
Projected Material, Shipping, Insurance Costs
$42,000$58,000$70,000$78,000$84,000$332,000
Additional Web Server and IT Hosting/Maintenance
$22,000$25,000$30,000$35,000$40,000$152,000
Training for Sales and Marketing Staff
$75,000$0$0$0$0$75,000
Contract for Design, Build, and Implementation of Online
Store
$100,000$0$0$0$0$100,000
Total Additional Costs for Online Sales
$399,000$253,000$300,000$348,000$379,000$1,679,000
Cash Inflow -
$49,000.00$172,000.00$200,000.00$302,000.00$421,000.00$1,
046,000.00
12. which aspects may need to be rethought.
The financials that are common in the business world are those
that track past performance.
With these statements, if we know past performance, we can
better predict future performance.
For a prospective business that has not previously existed, on
the other hand, preparing
financial statements is much more difficult. There is no past
history to build on, there are no real
numbers to start with, and it is not certain how the venture will
materialize. It is not likely the
numbers will be correct, so why do this?
The main reasons for creating financials fall into internal and
external arguments:
1. Your numbers reflect your positioning and business model.
They can inform you about
the viability of your business and help you determine whether
and how to move forward.
While some numbers are likely to be wrong, your initial
approach to the business is also
likely to be wrong in some aspects. If these numbers can help
put you on a more viable
path (sooner rather than later), this information is undeniably
valuable.
2. Investors and other stakeholders will want to understand the
viability of your business
and how you intend to pursue the opportunity. They want to
know that you have thought
through the economic representation of your business model and
that you have done
your homework in crafting logical financials. While most
13. sophisticated investors and
1 The author would like to acknowledge Janice Bell, Professor
Emeritus of Accounting, Babson College, for her
constructive comments on an early draft of this note.
Do
N
ot
C
op
y o
r P
os
t
This document is authorized for educator review use only by
MUHAMMAD ATHER ELAHI, Institute of Business
Administration until Sep 2021. Copying or posting is an
infringement of
copyright. [email protected] or 617.783.7860
A Guide to Creating Financial Statements for Entrepreneuers
BAB466- November 2018
2
other experts often believe entrepreneurs are overly optimistic
14. with financial projections,
they also want to see how ambitious you are in your thinking
about launching the
business.
Most business people have at least a basic understanding of
financial statements, but creating
them from scratch is a difficult task. The complexity of the
exercise increases when
entrepreneurs feel they need to create detailed, comprehensive
statements with items such as
unearned revenue, prepaid rent, and allocated overhead. Don’ t
do this. Start simple, at least for
the first pass. Get the basics down and, more importantly,
understand the relationships between
the numbers on the statements and how they link to your
business model.
Using Templates
A template can serve as an easy solution for an entrepreneur
who does not have substantial
finance expertise and has little time to devote to this task.
Working with a template can be better
than ending up with no financials at all, or with poorly
constructed ones. However, be aware of
the limitations.
First, plugging in numbers and having the statements generate
on their own can limit your
understanding of the relationships between elements within and
across the different statements.
In addition, you want to have in-depth knowledge of your
financials when dealing with
sophisticated investors and other financially savvy stakeholders.
In many ways, templates can
15. help you do this. However, you need to understand the
reasoning behind your inputs to the
statements and what the results tell you. Similarly, if you have a
team member with financial
expertise or an accountant working with you on this, make sure
you know the numbers and their
implications.
Second, every business is unique, and generic templates are
often limited in their ability to help
specific types of business, or they are overly complex in an
attempt to be relevant to all
businesses. A similar issue arises with adapting financials from
an established company in your
industry. This latter exercise is very useful and will be
discussed later in this note. But financials
from an ongoing business may have more detail than you need
to consider early on. Also,
adapting financials needs to be done with careful consideration
of the startup context and how
your business differs. With regard to templates, if you can find
a template that serves your
industry well, and if these templates allow for adaptation to
your unique business model, this
can be very helpful, especially in establishing a base-level set
of financials.
This note will guide you through the process of building basic
financials that reflect the
approach of your prospective business. This will provide a
foundation for you to evaluate the
viability of, and make changes to, the business model, and
communicate the opportunity to key
stakeholders. This early set of financials can then serve as a
launching pad for identifying
metrics and for ongoing assessment of the venture startup and
16. growth process.
Understanding the Relationship Between the Three Statements
Let’s first take a basic look at the financial statements and their
interrelationships. Each serves a
critical role in exhibiting particular dimensions of your
business. The income statement tells you
about the profitability of your business, while your cash flow
statement indicates how cash will
Do
N
ot
C
op
y o
r P
os
t
This document is authorized for educator review use only by
MUHAMMAD ATHER ELAHI, Institute of Business
Administration until Sep 2021. Copying or posting is an
infringement of
copyright. [email protected] or 617.783.7860
A Guide to Creating Financial Statements for Entrepreneuers
BAB466- November 2018
3
17. flow into and out of the business (like a checking account
register). The balance sheet shows
assets and liabilities and, by subtracting the liabilities from the
assets, it reflects your equity in
the business.
Here is an oversimplified example, meant to illustrate in very
basic terms the differences, and
relationships, between the three statements. Let’s assume you
decide to start a business called
Orthopawdic, selling orthopedic dog beds.
Month 1: You paid your supplier for your first shipment of 10
dog beds at $50 each. Your
grandmother gave you a loan of $500 to cover this inventory.
Your statements would look like
this below. Look at these for a few minutes before you read
further. Think about the activities
that have taken place and how they are represented in the
numbers below.
Income Statement Cash Flows Balance Sheet
Month 1 Month 1 Month 1
Revenues 0 Operating activities -500 Accounts Receivable
less: COGS2 0 Investing activities Inventory 500
Gross Margin 0 Financing activities 500 Total Assets 500
Net Cash Flow 0
less: SG&A3 0 Beginning balance 0 Liabilities 500
Net Income 0 Ending balance 0 Equity
Total Liabilities and
18. Equity 500
You’ve probably noticed a few things:
1. There is a lot of cash and product changing hands, but no
sales, so the income statement
shows nothing (for simplicity, we’re assuming no SG&A).
2. On the cash flow statement, the cash paid for the inventory is
reflected in operating
activities. The money from Grandma shows up in financing
activities on the balance
sheet. You now have inventory, which is an asset that will
create value when you sell it.
But you owe Grandma $500, and that shows up as a liability on
the other side, balancing
out the statement.
Month 2: Congratulations! You made your first sale. Kiki has
bought a bed for $125 for her dog
Max and will pay you next month. Your statements below
reflect this month’s activities. Again,
look at this before you read further, and think about how this
month’s activities are reflected in
the three statements, especially compared to the first month.
What has changed?
2 Cost of Goods Sold
19. 3 Selling, General and Administrative Expenses Do
N
ot
C
op
y o
r P
os
t
This document is authorized for educator review use only by
MUHAMMAD ATHER ELAHI, Institute of Business
Administration until Sep 2021. Copying or posting is an
infringement of
copyright. [email protected] or 617.783.7860
A Guide to Creating Financial Statements for Entrepreneuers
BAB466- November 2018
4
Income Statement Cash Flows Balance Sheet
Month 2 Month 2 Month 2
Revenues 125 Operating activities 0 Accounts Receivable 125
less: COGS 50 Investing activities Inventory 450
Gross Margin 75 Financing activities 0 Total Assets 575
Net Cash Flow 0
20. less: SG&A 0 Beginning balance 0 Liabilities 500
Net Income 75 Ending balance 0 Equity 75
Total Liabilities and
Equity 575
Some observations you’ve made probably include the following:
1. You’ve made a sale, so the income statement shows revenue.
One dog bed comes out of
inventory and goes into COGS on the income statement. You’ll
notice that inventory on
the balance sheet is now $450.
2. You’ve also made a profit of $75 (the amount that Kiki paid,
less the cost of the bed)
which shows up in the income statement as net income and also
in equity on the balance
sheet. Essentially, you’ve added $75 of value to the business.
3. You’ll notice that no cash changed hands. Kiki will not pay
you until next month, and you
already paid for the inventory last month. So the $125 sale is
recorded as an account
receivable on the balance sheet, and there is no activity
recorded on the cash flow
statement.
Now, before reading further, recall the purpose of each of the
three financial statements. What
does each tell you about your business?
21. The income statement tracks your business activities (regardless
of the flow of cash). There
are two main categories of expenses: (1) COGS is tied to sales.
So when Orthopawdic made a sale
to Kiki, one bed came out of inventory and went into COGS;4
(2) SG&A are expensed in the
period in which they are incurred; they are not costs associated
with a particular sale. If, for
example, Orthopawdic did some advertising in Month 1, that
expense would go under SG&A.
Your income statement thus tells you about the flow of business
activities and whether the
enterprise can be profitable. It should reflect your business
model. For example, if you are
introducing an innovative or otherwise highly differentiated
product, you should expect higher
margins, particularly to cover expenses associated with
communicating its unique advantages,
and perhaps other costs like product development. With this
example, you will likely project
losses for the first year or more, given that you are incurring
expenses such as marketing and
product development5 that you expect will generate substantial
future sales.
4 Notice how the dog bed went from being classified as an asset
on the balance sheet, to an expense on the income
statement. Before it was sold, the bed was sitting in inventory,
offering future economic value for your business. That
value was created when the bed was sold, and it then became an
expense (COGS) associated with the revenue
generated on the income statement.
5 R&D/product development costs are expensed when incurred,
under SG&A on the income statement. If you have a
patent, however, the cost associated with applying for, or
22. acquiring, the patent will become an asset on the balance
sheet that is expensed over time on the income statement (as
amortization). Do
N
ot
C
op
y o
r P
os
t
This document is authorized for educator review use only by
MUHAMMAD ATHER ELAHI, Institute of Business
Administration until Sep 2021. Copying or posting is an
infringement of
copyright. [email protected] or 617.783.7860
A Guide to Creating Financial Statements for Entreprene uers
BAB466- November 2018
5
The cash flow statement tracks your flow of cash. Cash flows
fall into three categories:
1. Operations: actual cash received and paid out for items on the
income statement.
23. 2. Investing: assets that go on the balance sheet. For example,
equipment, property, or
temporary investments in stocks of other companies.
3. Financing: money that comes in or is paid out to finance the
business, whether debt
or equity. This includes dividends, but interest is typically an
operating cash flow.
You may already recognize the importance of the cash flow
statement for entrepreneurs,
particularly when considering that what happens in the income
statement does not necessarily
match what’s going on relative to cash flows. You can be
hugely profitable but cash poor; cash
flow projections can therefore help you determine when you
will be short on funds.
The balance sheet essentially shows the asset base you are
leveraging and the capitalization of
your business. It can provide a lens into how you are building
and managing your asset base,
and how you are choosing to finance your business.
While the income statement is a financial representation of the
business activities that have
taken place over time, and the cash flow statement reflects cash
flows over a period, the balance
sheet is unique in providing a snapshot of your financial
picture. The balance sheet is akin to a
still photo, while the income statement and cash flow statement
are like videos.
Making Informed Assumptions
Given the high uncertainty characterizing the early stages of
24. planning a venture, financial
projections are often seen as unreliable, like pulling numbers
out of thin air. What is more
important than arriving at precise figures, however, is the set of
assumptions and reasoning
applied to derive the numbers.
There are three basic sources you can use to determine your
inputs to the financials:
1. Published (secondary) sources. These are cheap and plentiful.
You can access a range of
information such as company and industry data, trade and
business information, media
articles and so forth. Secondary data is compiled for a particular
purpose, not all of
which is relevant to your needs. And what is relevant often
needs to be adapted
somehow. The overall challenge is to sort through all of this,
and to figure out what
applies to your business and how. Be selective in what you use
to support your numbers
and the reasoning you use in applying this data to your
business. Then, continue your
search through the vast amount of information out there, and
incorporate new
information into your financials as they evolve.
2. Advice and feedback from experts or customers you contact.
It is increasingly critical to
talk to people about your business and use their feedback to
adjust your approach. You
will impress your audience when you show evidence of having
reached out to experts and
25. customers.
3. Results of experiments and primary research you conduct.
This will surely wow an
investor or other interested party—stating that you stood at an
intersection for two hours Do
N
ot
C
op
y o
r P
os
t
This document is authorized for educator review use only by
MUHAMMAD ATHER ELAHI, Institute of Business
Administration until Sep 2021. Copying or posting is an
infringement of
copyright. [email protected] or 617.783.7860
A Guide to Creating Financial Statements for Entrepreneuers
BAB466- November 2018
6
at a time over each day of the week for one week and counted
26. how many cyclists there
were, and how many wore helmets. Or, you rented a table at a
farmer’s market, and 50%
of the people who stopped in front of your table bought your
brownies.
When using any of these sources, make sure you sound as
objective as possible. Avoid biased
information, like saying you told 50 people about your new cat-
tracking device and 90% said
they loved it, even if they didn’t have a cat. Seeing how
passionate you are, or neither
understanding it nor feeling invested in what you’re doing, they
may just say what you want to
hear.
Think deeply about how you can gather and present information
in the most objective way. For
example, you talked with 60 men and women aged 45-65 in the
Boston area, and 30% are
currently members of a health club, but of these, half have not
visited their club at all in the
prior two weeks. In the early stages of building an opportunity,
particularly an innovative one,
actual behavior is much more reliable than expressed intentions.
Your numbers may represent a guess, an informed estimate, or
an exact number. As you move
forward with your business, you’ll have some exact numbers
(financing raised, sales orders
received, marketing costs incurred). In the beginning, it may
seem that you have mostly guesses.
Nonetheless, you want to move quickly toward informed
estimates. Continually refine your
numbers as you collect more information and steer your venture
27. onto more viable paths. Keep a
running list of the sources used to develop your assumptions
and any interpretation you applied.
These increase your confidence in your numbers and signal to
investors that you have
reasonably thought through this exercise.
Building Your Financial Statements
Typically, entrepreneurs provide five years of financial
projections for all three statements, and
then a monthly breakdown for the first two years with the
income statement and cash flow
statement. The reasons for this monthly breakdown are
straightforward. For the income
statement, monthly detail shows your ramp-up and seasonality.
Monthly detail on cash flows
shows when you’ll have a cash deficit, and when you’ll need
funding and how much.
For the first two years, you may find it useful first to create
annual income statements and cash
flow statements for the full five years and take a high-level
approach to what this looks like.
Then, you could divide the first two years into monthly detail,
considering both the initial ramp-
up period and any seasonality. But, particularly when applying
the bottom-up method described
in this note, you may find it useful to estimate what sales look
like on a daily and weekly basis,
and build this out to monthly and annual numbers as you
progress through the initial year or
two.
28. Do
N
ot
C
op
y o
r P
os
t
This document is authorized for educator review use only by
MUHAMMAD ATHER ELAHI, Institute of Business
Administration until Sep 2021. Copying or posting is an
infringement of
copyright. [email protected] or 617.783.7860
A Guide to Creating Financial Statements for Entrepreneuers
BAB466- November 2018
7
The Income Statement
Revenue Projections
Let’s first take a look at three ways you can estimate revenues:
top-down, bottom-up, or
comparables.
29. Top Down
With this method, you identify the total size of the market
segment you could serve and estimate
your share of the market. Of all customers who are reachable
with your concept, you can
estimate what proportion is likely to buy. You may be able to
find market data expressed in total
dollar amounts, which includes both numbers of people and the
amount they purchase per year.
You could calculate market share and revenue data from this.
Another way is to calculate numbers of customers and then
apply pricing and purchase
frequency. First, consider the proportion of your market that can
reasonably become aware of,
and access, your product. It is often said, for example, that
people will drive no more than 15
minutes to a health club. Given the demographics of the market
for a health club, one could
identify the number of people in the target market area and
adjust for demographic and
behavioral characteristics.
Building on this example, say you want to open a fitness
business in Welltown, Massachusetts.
Your market research and business model indicate a target
market segment of older males and
females, 45-65 years of age, who exercise regularly.
a. Population statistics reveal that there are 30,000 people
living in Welltown and 30% are
between the ages of 45 and 65 years old. This gives you 9,000
people.
b. A magazine published a survey showing that 50% of people
in the region around
30. Welltown engage in regular exercise. Applying this informatio n
reveals a market size of
4,500 people.
c. There is one health club in Welltown, a national franchise,
which a source says has 1,800
members. Industry statistics reveal that about half of health club
members in the United
States are over the age of 44, so you estimate that they have 900
members over 44 or
20% market share in the segment you are targeting. There are
also four niche fitness
businesses (cycling studio, pilates, personal training, and a
weight gym) that have
smaller market shares. Your concept is a multi-offering facility
targeting the older
population, so you project you can achieve 10% market share,
or 450 members, after an
initial ramp-up period, eventually increasing to 30% by the end
of five years. You then
apply your pricing information to generate revenue projections.
Bottom Up
You can also count the number of customers you expect to
serve, along with how much they will
buy. You may be able to get data on customer behavior from
various sources. You can talk to
reliable informants, such as store owners, sales reps, suppliers,
or other industry experts. Or you
can physically observe this—counting people entering and
exiting a store, tabulating how many
buy, and if possible, what and how much. Think reasonably
about how many people would buy
Do
31. N
ot
C
op
y o
r P
os
t
This document is authorized for educator review use only by
MUHAMMAD ATHER ELAHI, Institute of Business
Administration until Sep 2021. Copying or posting is an
infringement of
copyright. [email protected] or 617.783.7860
A Guide to Creating Financial Statements for Entrepreneuers
BAB466- November 2018
8
your product or use your service. Given the hours the business
is open, what might a typical day
be like, including peak or slow hours? How much does a typical
customer spend? From this
approach, you can build out to weekly, and then monthly and
annual sales projections.
Comparables
A third approach is to obtain revenue numbers from comparable
32. businesses, drawing on a
company (or companies) selling a similar offering, and
adjusting for differences in elements
such as stage of business and your source of differentiation.
You may not have concrete numbers
for your closest competitors, especially if they are private, but
you can obtain data on industry
averages and public firms.
Particularly for large companies with multiple product
offerings, revenues are often aggregated,
and you will again have to make assumptions. For example, if
you are opening a retail store and
you have located a comparable company that reveals the number
of stores it has, you can divide
total sales by the number of stores to determine average revenue
per store.
As another example, say you know a company’s total sales for
the year. You may be able to locate
information showing what proportion of these sales contains the
product category that matches
your offering. You can draw on published sources such as press
releases, journal articles, or the
Management Discussion and Analysis (MDA) section and
footnotes in annual reports, even
expert opinion. With the information available, consider how
you can make informed estimates.
In projecting revenues, your price and sales volume should
reflect your strategy. If you have a
premium product or service, pricing should be relatively higher.
Comparisons to the alternatives
presented in your competitive analysis are helpful here, so
collect good data on pricing for
competing products or services. Summarize the logic behind
33. your pricing in your assumptions.
Expenses
Like revenues, expenses may also be approximated in multiple
ways. You can obtain data on
actual rent costs where you plan to locate, for example, or on
average salaries for the types of
employees you would need to hire. In addition, you can draw on
industry averages or actual
expenditures of similar businesses to estimate certain expense
categories.
To estimate cost of goods sold, you may be able to determine
what it would cost to purchase or
produce your product or service.6 You can get quotes from
suppliers, or ask those purchasing
similar products what they pay. You can also look at gross
margins for similar alternatives.
Industry averages or comparisons may also be helpful. Again,
try several different methods and
arrive at a reasonable figure, making adjustments for your
particular concept. Document your
reasoning in your assumptions.
6For entrepreneurs, the lower risks and capital requi rements of
buying a product from a supplier or outsourcing
production to a contract manufacturer generally outweigh the
advantages of in-house production. Depending on your
business, you may be able to start with small-batch production
in-house. But when ramping up your operations,
consider the implications of doing it yourself: investments you
would need to make in equipment and facilities, and
the capital requirements, as well as other considerations such as
human resources and compliance issues. Having
34. control, and the ability to leverage fixed costs and increase
margins, can be attractive, but you also want some
flexibility as you establish your product and test the market.
Do
N
ot
C
op
y o
r P
os
t
This document is authorized for educator review use only by
MUHAMMAD ATHER ELAHI, Institute of Business
Administration until Sep 2021. Copying or posting is an
infringement of
copyright. [email protected] or 617.783.7860
A Guide to Creating Financial Statements for Entrepreneuers
BAB466- November 2018
9
For SG&A costs, you can use comparables or consult experts.
Be careful not to underestimate
how much it will cost to attract and convince customers, even
beyond ramp-up. You are just
35. starting out, and people may not be aware of, or think they
need, your concept. They may be
happy with competing alternatives, and there may be costs
associated with switching to your
solution, such as a learning curve, complementary products, or
network effects.
Triangulate, Triangulate, Triangulate
In building your income statement, it is useful to try multiple
ways to estimate both revenues
and expenses and see how they compare. You may find that the
various methods reveal different
results. In this case, revisit your assumptions and seek
additional evidence to revise your
numbers. You can make adjustments to your results until the
methods triangulate. When they
do, you have stronger support for your projections.
You can take into consideration whether one method might be
more accurate for your purposes
than others, depending on the nature of your business and the
availability of relevant
information. At the same time, you may find it helpful to
combine the most useful aspects of
different approaches. Remember, there is a high level of
uncertainty associated with estimating
revenues and expenses at this point. While acknowledging this,
you want nonetheless to project
confidence that you have thought about what drives your
numbers and that you have evidence to
support your assumptions.
Additionally, beware the tendency to overestimate revenues
and/or underestimate expenses.
Entrepreneurs are inherently optimistic — some would say
naïve — when it comes to estimating
36. sales, the speed at which sales ramp up, and the level of
expenses required to generate projected
sales. Investors and other sophisticated stakeholders will see
right through this. Make informed
assumptions and back these up with sound evidence.
Startup Costs
The startup phase includes three additional considerations
relative to the financial picture. First,
what startup costs will you incur, and how many months will
you be spending money before
generating sales? Second, what would the sales ramp-up time
look like? Third, how long will it
take …
Content1.1Cash flow1.2Cash
flow2.1Annuity2.2Annuity2.3Annuity3.1NPV Using Constant
Discounting 3.2NPV Using Constant Discounting 4.1NPV Using
General Discounting 4.2NPV Using General Discounting
5.1Loan Amortization 5.2Loan Amortization 9.1Firm and
project Val9.7Firm and project Val15.1Break Even
Analysis15.2Break Even Analysis
&"Arial"&10&K000000&1#
&1#&"Arial"&10&K000000Saudi Aramco: Company General
Use
Sheet1Location EvaluationCriteriaKhobar suopr foam car wach
population density (15)15purshusing power and social class
(10)8possibility of obtaining licenses (5)5transferring materials
to the site (5)3clossness to vital places (5)5labor
accommedation (10)10easy access (10)10capacity (10)10rent
(10)9compititors (10)8total (90)83Foundation expensesqtyunit
pricetotaltransfer kfala fees19200038,000.00 [$....-401]visa
and imgration 19175033,250.00 [$....-
401]waterpumps4550022,000.00 [$....-401]water hose
37. 75003,500.00 [$....-401]air compressor2600012,000.00
[$....-401]steam machine 12700027,000.00 [$....-401]car
vacuum 4350014,000.00 [$....-401]washing tools and supplies
150005,000.00 [$....-401]logo and sinages12600026,000.00
[$....-401]decorations16000060,000.00 [$....-401]rent for 6
month 0.510000050,000.00 [$....-401]labor accomodation
11000010,000.00 [$....-401]other25,000.00 [$....-401]needed
capital325,750.00 [$....-401]Operational
ExpensesColumn1monthly yearly
salary44300531600advertismnets7008400stationary
1001200food expenses160019200transportation 6007200safty
equipments2002400rent833399996internet5006000hospitality
1001200electriciety 200024000water300036000medical
5006000maintenance7008400commission 5006000tools
5006000extra labor120014400total64833777996Labor
costsjobqtypositionskillnationalty salry ministiry of labor
feesmonthly for 1total monthtotal yearmanager1Aexelantsaudi
400004000400048000supervisor 1Bvery goodindian
16009002500250030000labor18Cgoodbangladishi120090021003
7800453600يلامجالا
201800860044300531600IncomColumn1car per day avreg
incom per cardaily incommonthly incom yearly incom year
16035210063000756000year 27035245073500882000year
380403200960001152000year 4904036001080001296000year
51004040001200001440000ResultesColumn1Column2monthly
yearly Column3year
1incom63000756000cost64833777996result-1833-21996-
6.75%year
2incom73500882000cost64833777996result866710400431.93%y
ear
3incom960001152000cost64833777996result31167374004114.8
1%year
4incom1080001296000cost64833777996result43167518004159.
02%year
5incom1200001440000cost64833777996result55167662004203.
22%
38. 1.1SINGLE CASH FLOWPresent ValueInputsSingle Cash
Flow$1,000.0020Discount Rate / Period6.0%6Number of
Periods55Present Value using a Time LinePeriod012345Cash
FlowsPresent Value $747.26Present Value using the
FormulaPresent Value$747.26Present Value using the PV
FunctionPresent Value$747.26
&"Arial"&10&K000000&1#
&1#&"Arial"&10&K000000Saudi Aramco: Company General
Use
Single Cash Flow - Present Value
Cash Flows 0 1 2 3 4 5 Present Value 0
1 2 3 4 5 747.25817286605684
Period
1.2SINGLE CASH FLOWFuture ValueInputsSingle Cash
Flow$747.2614Discount Rate / Period6.0%6Number of
Periods55Future Value using a Time LinePeriod012345Cash
Flows$747.26Future Value $1,000.00Future Value using the
FormulaFuture Value$1,000.00Future Value using the FV
FunctionFuture Value$1,000.00
&"Arial"&10&K000000&1#
&1#&"Arial"&10&K000000Saudi Aramco: Company General
Use
Single Cash Flow - Future Value
Cash Flows 0 1 2 3 4 5 747.26 Future
Value 0 1 2 3 4 5 1000.0024451173764
Period
2.1ANNUITYPresent Value InputsPayment$80.008Discount
Rate / Period6.0%6Number of Periods55Present
Value$336.996Annuity Present Value using a Time
39. LinePeriod012345Cash
Flows$80.00$80.00$80.00$80.00$80.00$80.00Present Value of
Each Cash Flow$75.47$71.20$67.17$63.37$59.78Present
Value$336.99Annuity Present Value using the FormulaPresent
Value$336.99Annuity Present Value using the PV
FunctionPresent Value$336.99
&"Arial"&10&K000000&1#
Annuity
Cash Flows 0 1 2 3 4 5 80 80 80 80
80 80 Present Value of Each Cash Flow 0 1 2
3 4 5 75.471698113207538
71.199715201139185 67.169542642584133
63.367493059041635 59.780653829284553
Period
2.2ANNUITYFuture ValueInputsPayment$80.008Discount Rate
/ Period6.0%6Number of Periods55Annuity Future Value using
a Time LinePeriod012345Cash
Flows$80.00$80.00$80.00$80.00$80.00Future Value of Each
Cash Flow$101.00$95.28$89.89$84.80$80.00Future
Value$450.97Annuity Future Value using the FormulaFuture
Value$450.97Annuity Future Value using the FV
FunctionFuture Value$450.97
&"Arial"&10&K000000&1#
Annuity
Cash Flows 0 1 2 3 4 5 80 80 80 80
80 Future Value of Each Cash Flow 0 1 2 3
4 5 100.99815680000003 95.281280000000024
89.888000000000005 84.800000000000011 80
Period
2.3ANNUITYSystem of Four Annuity
VariablesInputsPayment$80.008Discount Rate /
Period6.0%6Number of Periods55Present
40. Value$336.996Annuity Present Value using a Time
LinePeriod012345Cash
Flows$80.00$80.00$80.00$80.00$80.00$80.00Present Value of
Each Cash FlowPresent ValueAnnuity Present Value using the
FormulaPresent ValueAnnuity Present Value using the PV
FunctionPresent ValuePaymentPayment using the
Formula$80.00Payment using the PMT Function$80.00Discount
Rate / PeriodDiscount Rate / Per using the RATE
Func6.0%Number of PeriodsNum of Periods using the NPER
Function5
&"Arial"&10&K000000&1#
Annuity
Cash Flows 0 1 2 3 4 5 80 80 80 80
80 80 Present Value of Each Cash Flow 0 1 2
3 4 5
Period
3.1 - 3.2NPV USING CONSTANT DISCOUNTINGNominal and
Real Rates(in thousands of $)InputsInflation Rate3.0%3Real
Discount Rate4.854%4OutputsNominal Discount Rate8.0%Net
Present Value using a Time LinePeriod012345Cash
Flows($100.00)$21.00$34.00$40.00$33.00$17.001023431Presen
t Value of Each Cash
Flow($100.00)$19.44$29.15$31.75$24.26$11.57Net Present
Value$16.17Net Present Value using the NPV FunctionNet
Present Value$16.17
&"Arial"&10&K000000&1#
NPV Using Constant Discounting
Cash Flows 0 1 2 3 4 5 -100 21 34 40
33 17 Present Value of Each Cash Flow 0 1 2
3 4 5 -100 19.444512860323027
29.149725017594321 31.753624816778299
24.256326525817492 11.570117896511826
Period
41. 4.1 - 4.2NPV USING GENERAL DISCOUNTINGNominal and
Real Rates(in thousands of $)0InputsPeriod012345Add to All
PeriodsInflation Rate3.0%2.8%2.5%2.2%2.0%0.0%222225Real
Discount
Rate4.854%4.669%4.683%4.697%4.902%0.0%444445OutputsPe
riod012345Nominal Discount Rate8.0%7.6%7.3%7. 0%7.0%Net
Present Value using a Time LinePeriod012345Cash
Flows($100.00)$21.00$34.00$40.00$33.00$17.001023431Cumul
ative Discount Factor0.0%8.0%16.2%24.7%33.4%42.8%Present
Value of Each Cash
Flow($100.00)$19.44$29.26$32.08$24.73$11.91Net Present
Value$17.42
NPV Using General Discounting
Cash Flows 0 1 2 3 4 5 -100 21 34 40
33 17 Present Value of Each Cash Flow 0 1 2
3 4 5 -100 19.444512860323027
29.258058235727582 32.079423041604514
24.734057380908478 11.908207824613447
Period
5.1 - 5.2LOAN AMORTIZATIONBasics and Sensitivity
AnalysisInputsPresent value$300,00030Interest rate /
year8.00%8Number of
years3030OutputsYear1234567891011121314151617181920212
2232425262728293031Beg. Principal
Balance$300,000$297,352$294,492$291,403$288,067$284,464$
280,573$276,370$271,832$266,930$261,636$255,919$249,744$
243,076$235,873$228,095$219,694$210,622$200,823$190,241$
178,812$166,469$153,138$138,741$123,192$106,399$88,262$6
8,675$47,521$24,674Payment$26,648$26,648$26,648$26,648$2
6,648$26,648$26,648$26,648$26,648$26,648$26,648$26,648$2
6,648$26,648$26,648$26,648$26,648$26,648$26,648$26,648$2
6,648$26,648$26,648$26,648$26,648$26,648$26,648$26,648$2
6,648$26,648Interest
Component$24,000$23,788$23,559$23,312$23,045$22,757$22,
42. 446$22,110$21,747$21,354$20,931$20,474$19,980$19,446$18,
870$18,248$17,576$16,850$16,066$15,219$14,305$13,317$12,
251$11,099$9,855$8,512$7,061$5,494$3,802$1,974Principal
Component$2,648$2,860$3,089$3,336$3,603$3,891$4,202$4,53
9$4,902$5,294$5,717$6,175$6,669$7,202$7,778$8,401$9,073$9
,798$10,582$11,429$12,343$13,331$14,397$15,549$16,793$18,
136$19,587$21,154$22,847$24,674Data Table: Sensitivity of
the Interest Component to the Interest Rate / YearInput Values
forOutput Formula: Interest ComponentInterest rate /
year$24,000$23,788$23,559$23,312$23,045$22,757$22,446$22,
110$21,747$21,354$20,931$20,474$19,980$19,446$18,870$18,
248$17,576$16,850$16,066$15,219$14,305$13,317$12,251$11,
099$9,855$8,512$7,061$5,494$3,802$1,9747.00%$21,000$20,7
78$20,540$20,285$20,013$19,722$19,410$19,076$18,719$18,3
37$17,928$17,491$17,023$16,522$15,987$15,413$14,800$14,1
44$13,442$12,690$11,886$11,026$10,105$9,120$8,066$6,939$
5,732$4,441$3,060$1,5828.00%$24,000$23,788$23,559$23,312
$23,045$22,757$22,446$22,110$21,747$21,354$20,931$20,474
$19,980$19,446$18,870$18,248$17,576$16,850$16,066$15,219
$14,305$13,317$12,251$11,099$9,855$8,512$7,061$5,494$3,80
2$1,974Data Table: Sensitivity of the Principal Component to
the Interest Rate / YearInput Values forOutput Formula:
Principal ComponentInterest rate /
year$2,648$2,860$3,089$3,336$3,603$3,891$4,202$4,539$4,90
2$5,294$5,717$6,175$6,669$7,202$7,778$8,401$9,073$9,798$1
0,582$11,429$12,343$13,331$14,397$15,549$16,793$18,136$1
9,587$21,154$22,847$24,6747.00%$3,176$3,398$3,636$3,891$
4,163$4,454$4,766$5,100$5,457$5,839$6,248$6,685$7,153$7,6
53$8,189$8,762$9,376$10,032$10,734$11,486$12,290$13,150$
14,071$15,056$16,109$17,237$18,444$19,735$21,116$22,5948.
00%$2,648$2,860$3,089$3,336$3,603$3,891$4,202$4,539$4,90
2$5,294$5,717$6,175$6,669$7,202$7,778$8,401$9,073$9,798$1
0,582$11,429$12,343$13,331$14,397$15,549$16,793$18,136$1
9,587$21,154$22,847$24,674
Principal And Interest Payments Over Time
1 2 3 4 5 6 7 8 9 10 11 12 13
47. 0After-Tax Salvage Value$0.0050New Invest in Working
Capital($10.00)($10.00)($10.00)($10.00)($10.00)($10.00)50505
0505050Cash Flows from InvestmentsNew Borrowing
(Repayment)$5.00$5.00$5.00$5.00$5.005050505050Free Cash
Flow to Equity (FCFE)= DividendsInterestLess New Borrowing
(Repayment)Cash Flow to Debtholders (CFD)Tax Shield
BenefitFree Cash Flow to the Firm (FCFF)Alternative Way to
get FCFFEarningsAfter-tax Interest ExpenseNet Oper. Profit
After Tax (NOPAT)DepreciationCash Flows from
InvestmentsFree Cash Flow to the Firm (FCFF)Debt
(D)$250.0050Book Value of EquityTotal CapitalEconomic
ProfitNet Oper. Profit After Tax (NOPAT)Capital
ChargeEconomic Profit(1.) Adjusted Present Value (APV)2nd
Stage:First Stage: Finite HorizonInfin HorizDate0123456Free
Cash Flow to the Firm (FCFF)Value of the Unlevered FirmTax
Shield BenefitValue of the Tax Shield BenefitValue of the Firm
(APV Method)- Date 0 Firm CapitalValue Added by Firm (APV
Method)(2) Free Cash Flow to Equity (FCFE)2nd Stage:First
Stage: Finite HorizonInfin HorizDate0123456Debt + Equity
(D+E)Equity (E)Levered Cost of Equity CapitalFree Cash Flow
to Equity (FCFE)Value of Equity (E)Value of Debt (D)Value of
the Firm (FCFE Method)- Date 0 Firm CapitalValue Added by
Firm (FCFE Method)(3) Free Cash Flow to the Firm (FCFF)2nd
Stage:First Stage: Finite HorizonInfin HorizDate0123456Equity
Weight (E / (D+E))Debt Weight (D / (D+E))Cost of Firm
Capital (WACC)Free Cash Flow to the Firm (FCFF)Value of the
Firm (FCFF Method)- Date 0 Firm CapitalValue Added by Firm
(FCFF Method)(4) Dividend Discount Model (DDM)2nd
Stage:First Stage: Finite HorizonInfin
HorizYear0123456DividendValue of Equity (E)Value of Debt
(D)Value of the Firm (DDM Method)- Date 0 Firm CapitalValue
Added by Firm (DDM Method)(5) Residual Income (RI)2nd
Stage:First Stage: Finite HorizonInfin
HorizYear0123456Economic ProfitEconomic Profit on Salvage
ValueValue of the Economic Profit+ Date 0 Book Value of the
FirmValue of the Firm (RI Method)- Date 0 Firm CapitalValue
48. Added by Firm (RI Method)
(13) Free Cash Flow to Equity
Enter =C34 and copy across
Firm
Project
Valuation Object
Yes
No
Infinite Horizon
15.1BREAK-EVEN ANALYSISBased On Accounting
ProfitInputsFixed Costs$30,00030Sales Revenue /
Unit$6.006Variable Costs / Unit$4.004Calculate the Break-even
Point using the FormulaBreak-even Point (Unit
Sales)15,000Back solve for the Break-even Point using the
Income StatementUnit Sales15,000Sales
Revenue$90,000Variable Costs$60,000Gross
Margin$30,000Fixed Costs$30,000Accounting Profit$0Data
Table: Sensitivity of Costs, Revenues, and Acct. Profit to Unit
SalesInput Values for Unit SalesOutput
Formulas:05,00010,00015,00020,000Total
Costs$90,000$30,000$50,000$70,000$90,000$110,000Sales
Revenue$90,000$0$30,000$60,000$90,000$120,000Accounting
Profit$0($30,000)($20,000)($10,000)$0$10,000
Break-Even Point Based On Acct. Profit = 0
Total Costs 0 5000 10000 15000 20000 30000
50000 70000 90000 110000 Sales Revenue 0
5000 10000 15000 20000 0 30000 60000
90000 120000 Accounting Profit 0 5000 10000
15000 20000 -30000 -20000 -10000 0
10000
Unit Sales
15.2BREAK-EVEN ANALYSISBased On NPV(in thousands of
49. $)Year 0Year 1Year 2Year 3Year 4Year 5Year 6Year 7Key
AssumptionsSales Growth Rate55.0%40.0%25.0%5.0%-20.0%-
50.0%Change in Sales Growth Rate-15.0%-15.0%-20.0%-
25.0%-30.0%Inflation
Rate2.0%2.5%3.0%3.5%4.0%4.0%4.0%Real Cost of
Capital11.0%11.2%11.4%11.6%11.8%12.0%12.2%Tax
Rate35.0%35.0%35.0%35.0%35.0%35.0%35.0%DiscountingDis
count Rate = Cost of
Capital13.2%14.0%14.7%15.5%16.3%16.5%16.7%Cumulative
Discount
Factor0.0%13.2%29.0%48.1%71.0%98.9%131.6%170.3%Price
or Cost / UnitUnit Sales1,875290740705087534242732137Sales
Revenue /
Unit$9.70$9.94$10.24$10.60$11.02$11.46$11.92Variable Cost /
Unit$7.40$7.59$7.81$8.09$8.41$8.75$9.10Cash Fixed
Costs$5,280$5,412$5,574$5,769$6,000$6,240$6,490Cash Flow
ForecastsSales
Revenue$18,192$28,903$41,678$53,921$58,881$48,989$25,474
Variable
Costs$13,879$22,050$31,796$41,135$44,920$37,373$19,434Gr
oss
Margin$4,314$6,853$9,882$12,785$13,962$11,616$6,040Cash
Fixed
Costs$5,280$5,412$5,574$5,769$6,000$6,240$6,490Depreciatio
n$1,421$1,421$1,421$1,421$1,421$1,421$1,421Total Fixed
Costs$6,701$6,833$6,996$7,191$7,422$7,662$7,911Operating
Profit($2,388)$20$2,887$5,594$6,540$3,954($1 ,871)Taxes($83
6)$7$1,010$1,958$2,289$1,384($655)Net
Profit($1,552)$13$1,876$3,636$4,251$2,570($1,216)Add Back
Depreciation$1,421$1,421$1,421$1,421$1,421$1,421$1,421Ope
rating Cash
Flow($131)$1,434$3,298$5,058$5,672$3,992$205Investment in
Plant & Equip($11,350)$1,400Cash
Flows($11,350)($131)$1,434$3,298$5,058$5,672$3,992$1,605P
resent Value of Each Cash
Flow($11,350)($115)$1,111$2,227$2,957$2,852$1,723$594Net
50. Present Value($0)Data Table: Sensitivity of Net Present Value
to Year 1 Unit Sales and Year 2 Sales Growth
RateOutput Formula:Input Values for Year 1 Unit SalesNet
Present
Value($0)1,7001,9002,1002,30045.0%($6,767)($4,692)($2,618)
($543)Input Values for Year
250.0%($4,673)($2,352)($31)$2,290Sales Growth
Rate55.0%($2,283)$319$2,921$5,52360 .0%$442$3,365$6,288$
9,21065.0%$3,548$6,836$10,124$13,412
NPV Break-Even Contour (Based On NPV = 0) Across
Year 1 Unit Sales And Year 2 Sales Growth Rate
1,700 0.45 0.5 0.55000000000000004 0.6 0.65 -
6767.0836670711742 -4672.9277187851812 -
2283.1385032181506 442.23187178181001
3547.5606264680082 1,900 0.45 0.5
0.55000000000000004 0.6 0.65 -4692.4891514404444
-2351.9619151207999 318.97897286588602
3364.9811566893713 6835.6427060445294 2,100
0.45 0.5 0.55000000000000004 0.6 0.65 -
2617.8946358097064 -30.996111456413871
2921.0964489499165 6287.7304415969229
10123.724785621049 2,300 0.45 0.5
0.55000000000000004 0.6 0.65 -543.30012017896979
2289.9696922079647 5523.2139250339442
9210.4797265044799 13411.806865197566
Year 2 Sales Growth Rate
Net Present Value
Year 1 Unit Sales
NPV Break-Even
Contour
Super foam
51. car wash
A new concept for car wash
1
Content
* The idea
* The services
* Distinction
* Forecast
* Location study
* Man power
* Marketing plan
* Financial plan
The idea
Super foam is a car wash service center that is specialized in
providing interior and exterior car cleaning trying to offer a
high quality service for a reasonable rate.
1
Good location
52. 2
Speed in service
3
The quality in service
4
growth in market
Forecast
The business will be initially financed by a personal investment
and will finance growth through cash flow. This will mean that
the company will grow more slowly than it could, but it will
ensure that retains control over the direction of the company.
In year three, it is hoped that the company will be able to open a
second location. It is envisioned that an outside loan or equity
funding will be sought at that time
The services
The following services will be offered:
• Water washing
• Steam washing
• Car polishing
53. • Carpet cleaning and detailing
Pricing services
Exterior washSmall car20Big car25Express wash Small
car40Big car50VIP wash Small car 60Big car70
distinction
Speed in service
The quality in service
growth in market
Market study
studying the potential market/ Demand Gap Through our
market observations and testing we find a demand gap >
available market capacity
Throughout the observations and conducted market survey, we
found the following:
54. Long waiting time.
Unsatisfied customers with the available service.
Lack of service quality.
Lack of some services like steam washing machines
Market study
The target customers are AlKHOBAR city and the surrounding
area resident
they have nice cars and want them to look nice, there are many
different local businesses that have company cars and that
require clean appearances. All of these potential customers
need a car wash that fits their needs and their budget. We will
happily fill that need.
Demographic segmentation : Middle to high income level
The location study
The project will be located in Al Khobar city
Alkhobar service area has a good advantage of serving
residents.
The service area has other competitors providing low service
55. locationLocation EvaluationCriteriaKhobar super foam car wash
population density (15)15purchasing power and social class
(10)8possibility of obtaining licenses (5)5transferring materials
to the site (5)3closeness to vital places (5)5labor
accommodation (10)10easy access (10)10capacity (10)10rent
(10)9compititors (10)8total (90)83
The marketing study Demand estimation
We estimated that the target customers owns 1.5 cars in
average.
We estimated the each customer will request the cleaning
service twice a month
Man power Labor costsjobqtypositionskillnationalty salry
ministiry of labor feesmonthly for 1total monthtotal
yearmanager1AexcellentSaudi .... 4,000.00 .... 0.00 ....
4,000.00 .... 4,000.00 .... 48,000.00 supervisor 1Bvery
goodindian .... 1,600.00 .... 900.00 .... 2,500.00 ....
2,500.00 .... 30,000.00 labor18CgoodBangladeshi....
1,200.00 .... 900.00 .... 2,100.00 .... 37,800.00 ....
453,600.00 ايلامجال20.... 1,800.00 .... 8,600.00 ....
44,300.00 .... 531,600.00
56. Marketing plan
Full identity for the car wash
Advertising boards
Lighting panels
Discount ads- commercials
Ads on social media
Celebrity ads
ExpensesFoundation expensesqtyunit pricetotaltransfer kfala
fees192000 38,000.00 .... visa and immigration 191750
33,250.00 .... water pumps45500 22,000.00 .... water hose
7500 3,500.00 .... air compressor26000 12,000.00 ....
steam machine 127000 27,000.00 .... car vacuum 43500
14,000.00 .... washing tools and supplies 15000 5,000.00
.... logo and sinages126000 26,000.00 ....
decorations160000 60,000.00 .... rent for 6 month 0.5100000
50,000.00 .... labor accomodation 110000 10,000.00 ....
other 25,000.00 .... needed capital 325,750.00 ....
57. incomeColumn1car per day avreg incom per cardaily
incommonthly incom yearly incom Year 16035 $ 2,100.00
$ 63,000.00 $ 756,000.00 Year 27035 $ 2,450.00 $
73,500.00 $ 882,000.00 Year 38030 $ 2,400.00 $
72,000.00 $ 864,000.00 Year 49035 $ 3,150.00 $
94,500.00 $1,134,000.00 Year 510035 $ 3,500.00 $
105,000.00 $1,260,000.00
Thank you and visit us