murat yulek, ph.d. managing partner pglobal global advisory and training services
TRANSCRIPT
Identification
Preparation
Appraisal
Negotiations/Internal Decision Process
Implementation
Post-Completion EvaluationPhysical completion
Impact assesment
Identification
Project preparation / Internal Checks
• Identification of possible financiers• Sharing bankable document with them
Implementation
Preparation of bankable document
Negotations with financiers
A report that describes a project from various angles in such a format that is generally required by financing entities in order to make the financing decision: To whom the products / services will be sold,
why and how How the products/services will be
acquired/produced and delivered to the market
Financial summary and returns Risks involved and mitigating measures
Projects owners need “external financing” to implement their projects
while,
Financiers need “bankable document” to judge if a project is worthwhile to finance, i.e., if it is “bankable”
thus:
Project owners need to prepare bankable documents to attract financing or equity investments
Bankable documents provide a common language between project owners and financiers
Two related types
Feasibility Report Description of viability aspects of a project by an existing entity
Projects (Greenfield, expansion, ...)
Business PlanBlueprint of an action plan and evidence of viability of a new business
Starting up businesses
Feasibility study is an analysis of the viability of a project. Feasibility study helps answer various questions:
Should we proceed with the proposed project?
How much are we expecting to earn?
What are the risks and how are we going to mitigate them?
Market Situation
Technical ability
Future trends
Company resources,
tangible and intangibleFinancing conditions
Feasibility
I. Description of the Project
II. Market Study
III.Technical Feasibility
IV. Organizational/Managerial Feasibility
V. Financial Feasibility
VI. Conclusions
Define the project Type and specifications of products / services to be
brought to the market Outline the general business model (i.e. how the
business will make money) Describe the technical processes Specify the time plan and milestones in reaching the full
capacity from the start
This section defines where and to whom the
products/services will be sold in order to
maximize revenues:
Who are going to be my clients and sources of
my revenues:
▪ Description of the Industry
▪ Analysis of the Market and Competition
▪ Future Market Potential
Sales Projections
Industry Description
Describe the size and scope of the industry, market and/or market segment(s).
Estimate the future direction of the industry, market and/or market segment(s).
Describe the nature of the industry, market and/or market segment(s). Is it stable or going through rapid change and restructuring?
Identify the life-cycle of the industry, market and/or market segment(s). Is it emerging, growing, mature, declining?
Current Market Analysis
Identify whether the product will be sold into a commodity market or a differentiated product/service market.
Identify the demand and usage trends of the market or market segment in which the product or service will participate.
Examine the potential for emerging, niche or segmented market opportunities.
Explore the opportunity and potential for a branded product.
Assess market usage and your potential share of the market or market segment
Competition Who are your competitors (direct / substitute products) ?
Describe the industry concentration. Are there just a few large producers or many small producers?
Describe the major competitors. Will you compete directly against them?
Analyze the barriers to entry of new competitors into the market or industry. Can more competitors enter market easily?
Describe the price competitiveness of your product/service.
Potential Buyers and Sources of Revenues
Your current key customers including governmental clients and the potential for new or renewed contracts.
Any sales leads that may generate new customers or clients.
A list of market segments you intend to target such as seniors citizens, working mothers, organizations, specialty retailers, etc.
Keep these to a logical detail and preciseness. Do not give strategic information openly. However be ready to share this information at later stages of negotations.
Sales Projections
Specify main assumptions (prices, capacity utilization and physical production amounts) and project sales (sales of key products categories as well as the total sales)
This section describes the technical processes to be utilized in order to produce and deliver the products to the market. Explains
How the production will be done (technology) Where the production will be done Why the production will be done there
Ease of access to raw materials, energy, markets Ease of access to manpower with necessary qualifications
How the products will be delivered to the market (distribution channel)
Cost structure Materials Labor Transportation or Shipping Other production costs Administrative costs
Materials Estimate the amount of raw and intermediate
materials (and their specifications) needed Explain current and future availability and access to
raw and intermediate materials.
Labor List the number and types (and qualifications if
necessary) of employees needed to run the business (blue and white collar)
Evaluate the potential to access and attract qualified management personnel
Transportation or Shipping Explain transportation and shipping services and
resources that will be required to conduct the production and delivery of products to clients;
Determine capital expenditure needs (if applicable such as trucks, vehicles etc)
Production Premises
Describe necessary production facilities including auxilliary buildings
Determine capital expenditure needs
Location of Production Premises
Explain ease of access to raw materials Logistics/transportation services Energy and utilities (electricity, natural gas, water,
etc.)
Identify Environmental requirements Other regulatory requirements Economic development incentives provided by the
government
Technology Explain the selected technology / supplier;
advantages over alternatives Discuss reliability and competitive power of the
selected technology / supplies (access to spare parts and technical support, has the technology been tried elsewhere; references?)
Explain limitations or constraints of the technology.
This section describes the human resources and the structure of the company by presenting
Brief biographical sketch of key shareholders, top management and the team responsible for the project:
Business track record Educational and professional qualifications Awards, social aspects (e.g. President of business
association etc)
Organizational Chart
Related corporate qualifications (ISO certification etc)
Existing human resources Numbers and skill categories (blue collar, white collar
and sub categories)
Estimate the total capital requirements and relevant
timetable
Estimate equity to be invested from your side
Estimate external equity / financing needs and
repayment schedules
Project Income Statements
Project (Free) Cash Flow Statements
Calculate Financial Returns
Estimate the total capital requirements Estimate and schedule capital expenditure
requirements for facilities, and equipment
Estimate and schedule working capital needs (cash, inventories, receivables and payables)
Include contingency capital needs due to construction delays, technology malfunction, market access delays, etc.
Project CostTotal Project Owner Financing 2009 2010 2011
in eurosTotal Capital Expenditure 21.111.135 11.241.728 9.869.407 7.388.897 6.333.340 7.388.897 Item 1 12.409.932 7.445.959 4.963.973 4.343.476 3.722.980 4.343.476 Item 2 2.773.794 2.773.794 - 970.828 832.138 970.828 Item 3 4.008.215 - 4.008.215 1.402.875 1.202.464 1.402.875 Contingencies (10 percent) 1.919.194 1.021.975 897.219 671.718 575.758 671.718
Financing Project Implementation
Estimate equity and financing needs
Estimate external equity needs.
Estimate financing (bank credit) needs.
Project Income Statements and (Free) Cash Flow Statements Use Information generated in earlier sections Project Income Statements
▪ Revenues▪ Expenditures including depreciation
Project (Net) Cash Flows by aggregating the following▪ Investment Outlays
▪ Capital Expenditures▪ Working Capital Needs
▪ Operational Cash Inflows▪ Profit + Depreciation
▪ Equity and Financing▪ Specify schedule fo equity injection ▪ Specify schedule of financing and its servicing (principal + interest/mark up)
Assess financial viability Project IRR
▪ The project’s own viability (i.e., independent of the way it is financing). This is equivalent to Equity IRR when the project is 100% equity financed. To calculate the Project IRR, simply calculate net cash flows of the project with no bank financing.
IRR (Equity)▪ The return to the equity investor when part of the
project is financed by bank/debt. To calculate the Equity IRR, simply calculate net cash flows including the cash outflows due to repayment of bank financing.
Note that Equity IRR > Project IRR when bank financing is utilized.
n
tr
Ct
t
0)1(
IRR is the value of the variable r that satisfies the following condition:
= 0
Ct: net cashflows n: number of years
This section analyses risks associated with the project implementation and the operational phase, as well as the mitigating measures
Identify key risks; assess their importance for the success of the project
Explain mitigants you will employ
PGlobal Global Advisory Services: Corporate Valuation Training Materials, Ankara, 2009
Development Bank of Turkey, Evaluation of Capital Investment Projects: Training Notes (in Turkish)
Ankara, 2009.
Dr. Ertan Yülek, Handbook for the Preparation of Feasibility Reports (in Turkish), Sakarya
University, Turkey, 1982.
UNIDO Manuals
Covello A. Joseph and Brian J. Hazelgren. The Complete Book of Business Plans. Illionis:
Sourcebooks, Inc., 2006
Various web resources including:
Thompson, Alan. Enterpreneurship and Business Innovation, Successful Business Start-ups and Business Planning. Murdoch University, 2005. Web. 14 December 2009
Easterbrook, Steve. Requirements Engineering. Department of Computer Science, University of Toronto, 2005. Web. 16 December 2009
Hofstrand, Don and Mary Holz-Clause. New Business Development - Starting a Business. Agricultural Decision Maker Iowa State University, Web. 10 December 2009.
Wolfe, Lahle. Guide to Women in Business, A Comprehensive Feasibility Study Supports Business & Marketing Plans. Web. 10 December 2009.