It\'s Not Rocket Science! Tools for Quick Project Feasibility
A Quick Primer on how to tell a good deal from a Dog! Presentation by Mark Barbash atBuckeye Power Economic Development Workshop November 13, 2012
Provide economic developers with tools toquickly evaluate development projects for theirviability – From the perspective of the community – From the perspective of the economic viability of: • An operating business project • A real estate development project
How will the project How will the project benefit the business? benefit the community? Financial Feasibility Are project costsIs the project timetable documented and realistic? realistic? 3
How will the project benefit thecommunity? Job creation Job retention Research or skills capabilities Support industry cluster or technology Key community initiative (location) Main Street Revitalization 4
Market Financial Identified the market Profits are nice….Cash pays for product or service the bills Wide market or niche Customers and suppliers market control a business’ success Competition Owners should have a stakeManagement in the business & project Business Mission Growing sales can Required skills within sometimes be a problem top management Controlling expenses is P & L Manager in difficult Manufacturing 5
Question Ratio Formula Year 1 Year 2Is the business Sales Growth (Sales Year 2 – Sales Year 1)growing? ÷ Sales Yr. 1Is the business EBT Positive? EBT + Salesprofitable?Does the business Quick Ratio (Cash + Receivables)have cash to pay the ÷ Current Liabilitiesbills?How well has the Debt to Equity Equity ÷ Debt = Debt tobusiness managed Ratio Equity Ratiodebt?How well is the Days Receivable Receivables ÷ Salesbusiness collecting X 360from its customers?How long is it taking Days Payable Payables ÷ Cost of Goodsfor the business to Sold (COGS)pay its suppliers? X 360May 17, 2012 Mark Barbash WEDA Presentation 6
How will the project How will the projectbenefit the developer? benefit the community? Financial Feasibility Is the developer How stable is the experienced in the developer and how firm market and sector? is the financing? 7
1. Most developers are dreamers and story tellers2. Most developers never saw a project that didn’t fit the market3. Look for signed leases4. Watch out for developers’ fees5. Who’s calling the shots?6. Experience in the type of development proposed7. Real estate markets can turn bad very quickly8. Lenders lend on value, not project cost
1. Are they willing to provide business and personal financial statements?2. Are they willing to provide references?3. How do they respond to challenging “devil’s advocate” questions?4. Is their answer always “Someone Else was in Charge?”5. Do they expect “free money?”6. Do they have a realistic assessment of the market, competition and job creation potential?7. Are they willing to spend money up front?
1. Not all projects can fit with public sector programs2. Let the program people represent their program3. Don’t overpromise what the program can deliver4. Don’t pile on government programs5. Explain the strings up front6. Find a willing lender7. Keep written records of your activities8. Be prepared to help with the paperwork9. If it sounds too good to be true, it probably is10. Take informed risk!
1. Does the developer have site control? If on option, when does option expire and what are terms renewal terms?2. Has an environmental assessment been completed and have all issues been identified?3. How far in advance does equipment have to be ordered? Does payment have to be made on advance orders?4. What is the timetable for site prep/ Construction?5. Does the general contractor have experience with this type of project in this type of community?
• Money: – Inadequate working capital – Site problems, Project costs escalate – The financial strength of the business deteriorates• Market: – Defined too broadly – Unfamiliar or inappropriate business line• Management: – Inadequate business skills among principals – Expanding too fast
1. Has a real estate appraisal been completed?2. Has an engineering assessment of existing and needed infrastructure been completed?3. Has an environmental assessment or Phase I been completed which shows any remediation that must be completed?4. Has an engineering assessment on buildings & equipment been completed to assure that there are no structural issues?5. Have detailed and documented project cost estimate been done by a third party?