2015 Q1-2 Where’s the Money?

A newspaper headline reads “Small-business loans start to ease.” Well, it’s about time. Certainly, it has been discouraging for small businesses and aspiring entrepreneurs to have an idea, concept, patent or project in mind and are unable to acquire the financing necessary to bring it to market. Financing is a critical part of the business equation, but just as important, the venture must be credible and marketable before a lending institution will pay much attention. In other words, how feasible is it? Sure, it’s okay to hear what your friends, relatives and colleagues think about your business proposition or venture but don’t take their advice as the final word. They are useful as sounding boards, but when staking your career, lifestyle or savings on the idea, you will need an unbiased assessment of the market potential.

Most likely, you will need an objective, independent feasibility study to validate your assumptions. Likewise, if you are seeking bank or investor financing, more often than not, many are now demanding a feasibility study, especially after the economic devastation many have encountered over the last few years. Thankfully, according to the Federal Reserve, banking regulators are applying pressure to get more credit flowing to small businesses, who hire more than half of American workers.

So what is a feasibility study? Typically, a feasibility study will determine whether or not it makes sound business sense to move forward with the venture, i.e. a GO or NO GO decision. As a key component of the feasibility study you will need to assess the market demand for your product, service or project. Secondly, an overall assessment of the industry in which you will compete is essential. What is the market size, growth trends, niche opportunities, etc.? Where will your business fit in? A review of the competition including strengths and weaknesses is mandatory. Sometimes a market survey will be required to gauge interest among prospective customers.

Feasibility studies provide the impetus for crystallizing your ideas into well thought out objectives. Knowing which way to turn requires an in-depth understanding of the marketplace and making the wrong turn (decision) can lead to a disastrous outcome.

For a moment, visualize yourself as a lender or investor. Which of the following business ‘opportunities’ would you have invested in?
• Selling fractional ownerships in very light jets at a 35% reduction in operating costs
• Opening several restaurants throughout the U.S. under the EB-5 program
• Raising Wagyu beef cattle to supply high-end restaurants along the east coast with an alternative to Kobe beef
• Establishing a preschool facility in Panama City, Panama
• Opening a retail store in an upscale Houston suburb offering custom fit jeans in 30 minutes while you wait
• Constructing an assisted living facility in Maryland
• Opening a 400,000 sq. ft. amateur sports center in the San Francisco Bay area
• Creating a ‘ManCave’ condo style storage units for high-end tenants
• Establishing pain management clinics throughout the Southeast
• Operating a cable wakeboard park in Florida
• Constructing a $20 million off campus student housing project at a highly recognized Southeastern university.
• Exploring the global market for functional drinks that have unique and beneficial additives such as co-enzymes, omega fatty acids, amino acids and their derivatives.
• Operating a cycling resort in Girona, Spain

Those examples are a small sampling of projects for which Strategic Performance Group LLC (SPG) has performed feasibility studies. It’s not easy to predict which ventures will be successful. However, in those situations where the feasibility study proved favorable, financing became available and led to the successful launch of the business venture.

Recognizing when to pursue business expansion or venture start-up requires sound business judgment. Failure rates for new ventures, products or services run high so you can appreciate why banks are reluctant to invest unless they are convinced that they can earn an acceptable return and get their principal back.

Before embarking on business expansion or starting a new venture, consider these steps to make sure it is feasible:
▫ Conduct a macro assessment of the industry in which your business will be competing
▫ Analyze the market to determine if your product or service has an application.
▫ Review and assess the competitive landscape.
▫ Conduct a classical SWOT analyses (Strengths, Weaknesses, Opportunities and Threats)
▫ Establish realistic revenue and profit projections backed up by sound business strategy

After completing a feasibility study, seek out lenders to acquire the capital to launch your business expansion or new venture. As Ben Bernanke, former chairman of the Federal Reserve once stated, “making credit accessible to sound small businesses is crucial to our economic recovery.” Let’s hope the banks are listening.