feasibility analysis feasibility analysis

the firm to the point where its cash flow is positive. Showing how a new venture’s start-up
costs will be covered is an important issue. Many entrepreneurial ventures look promising as
ongoing concerns, but have no way of raising the money to get up-and-running, or are never
able to recover from the costs involved. When projecting start-up expenses, it is better to overestimate
rather than underestimate the costs involved. Murphy’s Law is prevalent in the startup
world—things will go wrong. It is a rare start-up that doesn’t have some setbacks getting
up-and-running—whether it involves unanticipated expenses or delays getting to market.
In terms of raising the money needed to start a firm, you will read many anecdotes throughout
this book of savvy and creative ways that entrepreneurs cover their start-up costs. For example,
as we discussed earlier, David Bateman, the founder of Property Solutions, raised $100,000
in cash and in-kind services by winning two prestigious business plan competitions. Similarly,
Derek Gregg and Justin Swick, the entrepreneurs featured at the beginning of Chapter 10,
raised over $250,000 through business plan competitions and grants to get their firm, Vandalia
Research, off the ground. While participating in business plan competitions and applying for
grants is hard work, in many instances these and similar types of efforts make the difference
between a successful start-up and an idea that has to be dropped because of lack of funding.
Financial Performance of Similar Businesses. The second component of financial
feasibility analysis is estimating a proposed start-up’s potential financial performance by
comparing it to similar, already established businesses. Obviously, this effort will result in
approximate rather than exact numbers. There are several ways of doing this, all of which
involve a little ethical detective work. First, there are many reports available, some for free and
some that require a fee, offering detailed industry trend analysis and reports on thousands of
individual firms. The most promising sources are shown in Table 3.5. Bizstats.com
(www.bizstats.com), for example, provides a wealth of information for free. On the Bizstats
Web site, entrepreneurs can type in the projected revenue of their firm, by industry
classification, and receive a mock income statement in return that shows the average
profitability and expense percentages of U.S. small businesses in the same category. Similarly,
Bizminer.com (www.bizminer.com), which is a for-profit company, sells a wide variety of
industry-related data and statistics. A portion of the company’s Web site is designed specifically
for start-ups and provides information to help entrepreneurs understand how businesses similar
to theirs are doing financially. Substantive reports can be purchased for as little as $99.
There are also ways that entrepreneurs can track sales data, in particular, through simple
observation and reviewing public records. For example, the fictitious firm New Venture
Fitness Drinks, discussed earlier in the chapter, could gauge the type of sales to expect by
estimating the number of people, along with the average purchase per visit, who patronize
similar restaurants, like smoothie shops, in their area. A very basic way of doing this is to
CHAPTER 3 • FEASIBILITY ANALYSIS 87
TABLE 3.5
Resources to Help Entrepreneurs Understand How Businesses Similar to Their
Proposed New Venture Are Doing Financially
Source Description Cost
Bizminer.com Has a wide variety of industry-related data, statistics, and other Fee-based
information. A section of its site is dedicated to new ventures.
Bizstats.com Has a variety of detailed financial data on various retail categories. Free
On the site, entrepreneurs can type in the projected revenue of their
firm, by industry classification, and receive a mock income statement
in return that shows the average profitability and expense percentages
of U.S. small businesses in the same category.
Hoover’s Online Brief histories and financial information on companies, industries, Typically free if accessed
people, and products. Provides access to detailed financial information from a college, university,
and 10-K reports for publicly traded firms.
or public library.
Marketresearch.com In-depth research on industries and various retail categories. Fee-based
Provides data on more difficult-to-understand industries,
such as biotechnology, health care, and all forms
of technology.