Murat Yulek, Ph.D.Managing PartnerPGlobal Global Advisory and Training Services

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

Bankable Documents Why do we need them? Types

Feasibility Studies

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

Other methods used in financial analysis Net Present Value (Simple) Payback period

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

Summarize the project and its viability indicators.

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.

Thank you …Thank you …