SMALL BUSINESS MANAGEMENT - PREPARING A BRIEF, BUT CONCISE FEASIBILITY

SMALL BUSINESS MANAGEMENT

[PREPARING A BRIEF, BUT CONCISE FEASIBILITY FOR ANY SMALL BUSINESS]

For comments, observations, questions and answers, email theotherwomaninmarriage@gmail.com  

Like I said yesterday, I was going to bring you the concluding part of the feasibility - below is the concluding part and the continuation - you can copy and past the one of yesterday and today to MS Word and to make it one document for your understanding. 

  Part II:

Financial/Technical Requirements

Assess capital requirements, working capital, and 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 type of machines to be used, stating reasons for choosing the particular model instead of alternatives.  Seriously assess cost, maintenance and suppliers.  These points are considered in the following sections:

(a)    Investments

Say whether the project should be on large or small scale.  Consequently state the total capital required indicating 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.

Fixed Assets

i.                     Land (acquisition and development)

ii.                    Factory/Office Building

iii.                  Furniture, fixture and fittings

iv.                  Motor Vehicles

v.                    Plant Machine and equipment

vi.                  Utilities-Generators equipment etc

vii.                 Contingencies (%)

viii.               Preliminary and preparatory expenses

ix.                  Working capital (say for 2-3 months)

(b)   Financial Plan

This show capital required to attain the projected levels of operation, profitability and cash flow.  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.

Example:

i.                     Nigerian Sponsors (60%)

ii.                    Foreign Partners (40%)

iii.                  Commercial banks – short-term loan for working capital (raw material and labour) then state which 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.

(c)    Depreciation

While indicating the amount made for depreciation of fixed assets, show:

Estimated value of fixed assets

Annual depreciation rate

Amount of depreciation of:

i.                     Land

ii.                    Building

iii.                  Plant and Machinery

iv.                  Furniture, fixtures, fittings

v.                    Motor Vehicles

vi.                  Utilities

vii.                 Contingencies (5-10%)

(d)   Finance Charges

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 five years showing commercial bank overdraft and interest(%)

(e)    Profitability

On the basis of the preceding sections, comment objectively as to whether the venture will be viable or unviable.  Given management efficiency, especially concerning timely procurement of adequate raw materials and dynamic salesmanship, prove that net profit will grow throughout the first 5 years.  The following should be shown:

-          Average profit potential in %

-          Return on total investment in %

-          No of times of returns of cost of acquisition of entire fixed assets.

  

Then proceed to prepare projected profit and loss estimates for the first 5 years (for alternative plans) as shown example below: