It refers to
the process of assessment of the preliminary capital/money which are necessary
to start the business. For feasibility analysis, a quick financial assessment
is usually sufficient. The most important issues to consider at this stage are:
i. Total start‐up cash needed.
The first
issue refers to the to the total cash needed to prepare the business to make
its first sale. When projecting start‐up expenses, it is better to overestimate
rather than underestimate the costs involved.
ii. Financial performance of similar
businesses.
It is the
estimation of the proposed start up’s financial performance by comparing with similar
but established businesses. There are several ways to doing this, all of which
involve a little ethical
detective
work.
a. First,
there are many reports available, comparison can be done by reading annual
reports of individual firms.
b. Second, conducting
a simple observational research could done that work.
iii. Overall attractiveness of the
proposed venture.
A number of
other factors are associated with evaluating the financial attractiveness of a proposed
venture. These evaluations are based primarily on a new venture’s projected
sales and rate of return. At the feasibility analysis stage, the projected
return is a judgment call. A more precise estimation can be computed by
preparing pro forma financial statements. For effective projection of a start-up’s
the following can be crucial-
_ The amount
of capital invested
_ The risks
assumed in launching the business
_ The
existing alternatives for the money being invested
_ The
existing alternatives for the entrepreneur’s time and efforts
