Page 101 - DMGT310_ENTREPRENEURSHIP_AND_SMALL_BUSINESS_MANAGEMENT

Entrepreneurship and Small Business Management

Notes Financial Feasibility

Once the analysis of marketing and operations has been done successfully, a final financial
feasibility is done to assess financial issues of the proposed business venture. Following cost
estimates have to be carried out.
1. Cost of land and building: Depending on the requirement and the availability of funds the
land and building can be hired, can be taken on lease or purchased.

2. Cost of plant and machinery: It includes estimates of cost of plant and machineries, their
running and maintenance cost.
3. Preliminary cost estimation is made to assess how much cost would be required in
conducting market survey, preparing feasibility report, expenses in registering and
incorporating machine, establishment expenses, expenses in raising capital from public
and other miscellaneous expenses.
4. Provision for contingencies needs to be made to cover certain unexpected expenses which
can emerge due to change in the external environment, like increase in price of raw
material, or transport costs going up if the petrol prices are revised.
5. Working capital estimates for running the business are also made.

6. Cost of production, which would include raw material cost, labour cost, overhead expenses,
utilities like power, water, fuel etc.
7. Sales and production estimates: Based on the plant capacity the production and sales
estimates are made, which help in estimating profitability.
8. Profitability projections are made on the following parameters:
(a) Cost of production

(b) Sales expenses
(c) Administrative expenses
(d) Expected sales
Summation of all above gives gross profit.

Based on the above information, the following projections are made:
(a) Break-even point
(b) Cash flow statement
(c) Balance sheet statement

(d) Multi-year projections
Drawing Functional Plans: After positive results from the feasibility study, functional plans are
drawn. Some scholars and writers prefer to include feasibility study with the functional plans
but they have been taken separately in this book, as feasibility study is a precursor to the plan
and is done to check the viability of the project from various dimensions. Whereas, after the
feasibility study gives positive indication about the viability of the proposed project, one can go
into the details of drawing functional plans which would plan the strategies for all the operational
areas: marketing, finance, HR and production.
Marketing plan: Marketing plan lays down the strategies of marketing which can lead to success
of business. These strategies are in terms of Marketing Mix (product, price, place and promotion).
From the market feasibility study and marketing research, potential/present demand of customers
is determined, which helps in understanding the profile of customers and hence helps in laying

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