Will It Work? Tips for Determining the Feasibility of a Business or Project

Entrepreneurs are often faced with answering the question “Will it work?” Lenders, investors, perhaps

suppliers and others involved in the project should also ask that question or scan the business plan to see if

“will it work” is addressed. Whatever the specific project—starting a new business, expanding an existing one, or even selling or buying a business—the basic issue is feasibility.  Can it be implemented successfully?

Here at the Small Business Development Center (SBDC) we work with entrepreneurs on a variety of projects, and most of them involve feasibility. Here are some tips on feasibility that we’ve found work in most situations.

Do A Rough Analysis First

A good starting point is what we call “back of the napkin” analysis. In a short amount of time and with little data, you can often get a rough idea of the feasibility of a project. The results of this rough analysis may quickly decide if you need to spend more time on the detailed analysis, alter your idea a bit, or move on to

another idea.

For example, say you are thinking of making cookies to sell to stores, cafes, espresso stands, and restaurants. In a short amount of time you can gather some basic data:

• The cost of ingredients of a batch of cookies, and how many cookies a batch makes.

• The time it will take you to bake them.

• How much rent will be to use a commercial kitchen (assuming you will lease space until you are established).

• The price of competing cookies (the price to your customer—the store, café, espresso stand or restaurant, that is).

• How much money you need at a minimum to take out of this business for yourself for the time you spend in it.

Although you will have other costs (insurance for example), you can quickly calculate using the above data, what your capacity is (how many you can make in the time you have in your leased commercial kitchen), and what your gross profit (sales less cost of ingredients) per cookie will be. You can then calculate how many cookies you need to sell per month to pay the rent, and provide you with the income you have decided is the minimum you need. You can then see if at this very basic level of analysis if it seems feasible enough to continue.

If the rough analysis seems feasible, you can gather more detailed costs and refine the analysis. Then you can start your market research to determine the level of demand. While our example is a simple one, this approach can apply to any type of business: starting a commercial fishing business, expanding a manufacturing business to add a new product, or starting a service business, such as bookkeeping services.

The tasks are the same:

• Gather rough estimates of your basic and largest costs, including profit for the owner(s)

• Figure out how many of your product you need to sell to cover these basic costs.

• Ask yourself if the resulting sales figure seems reasonable. Calculate how many different customers you might need.

• If your rough results are encouraging, proceed to next steps.

• Refine your cost estimates and redo the analysis.

• Start your marketing research to determine demand

What happens, though, if the rough analysis is not encouraging? Rework your idea — explore various options for parts of your plan. Being successful in starting a business or expanding an existing one involves determining if the venture is feasible — will it work. Start your analysis and contact the SBDC if you need assistance.

Taking Your Business to the Next Level

“How can I evaluate new business opportunities?” “How can I determine whether to sell one of my three businesses?” “How can I better plan for future contingencies?” “Will I be able to sell my business in ten years and afford to retire?” These questions and others like them are ones that small business owners should be  asking themselves. As often happens, we become complacent when all is going well. We can breathe--and even take a vacation! However, businesses often take on a life of their own and may be headed down a path that is different from what the owner envisions. The owner just hasn’t told the business of his or her vision. Taking your business to the next level is that type of planning. It asks: “Where is my business going? Where do I want it to go? How can I get there?”

The First Step—Your Current Reality

To begin this type of planning, you need to know where you are—what is your current reality? This involves some data gathering and analysis. While this will be different for each business, there are four main areas you’ll typically need to look at to assess your current situation: finances; marketing; employees; and facilities. Let’s briefly look at some of the issues in each of these areas.

• Finances: Do you prepare monthly financial statements? If not, then this is the place to start. If you do, do you analyze them? What do you see when you look at trends in revenues and major expense categories? Are they changing? Is the change positive or negative? By calculating a few standard financial ratios, you can better understand what’s going on. You will also gain an idea of how your business compares with others in your industry.

• Marketing: How much do you know about your customers? Who are they? Where do they live? What other demographic data do you know about them? What influences their buying decisions? Has your customer base changed over the years? Is one type of customer more profitable than other ones? Who are your competitors? What are their strengths and weaknesses? What is your competitive advantage—why should customers come to your business and not the competition? What about your prices—are they too high or too low?

• Employees: Do your employees know what you expect of them? How do you communicate this? Can they take over for one another when necessary? Do they know what values your business is run on? What is your employee turnover rate? And why do employees leave?

• Facilities: Is your space adequate? Can you expand? How would your customers and employees evaluate your location and facilities?

The Next Step—Creating a Vision and a Plan

Where do you want to go and what do you want your business to accomplish? Now that you know where you are—what the current reality is—you can begin creating a vision of what you’d like to see as a future reality. Your vision can be broad in scope, including personal goals and goals for your community. Now ask yourself what part you want your business to play in fulfilling that vision. Your answer to that question becomes your mission statement. Armed with a firm understanding of your current Taking Your Business to

the Next Level  reality and what you’d like to create as your future reality, you can prepare an action plan that will help you to realize your vision.

How the SBDC Can Help

At the SBDC, we work with small business owners to help them gain an understanding of their current situation, create a vision, and develop a plan to get there. For example, a few years ago we worked with an entrepreneur who owned three businesses. He had a good understanding of his current situation and he had some components of a vision: he wanted more personal flexibility to enjoy life as he got older, and he wanted to be able to take advantage of opportunities to sell one or more of his businesses. We worked with him to fine-tune that vision, and we helped him to develop not only an action plan, but also a series of analytical tools for decision-making.

Businesses are never standing still, they are either moving forward or backward. By using the approach outlined above, you can move your business forward to the next level of success. Let us know if we can help you with this.

Kathleen Purdy is the Center Director of the Olympic Peninsula Small Business Development Center (SBDC),  This article was first published in Olympic Business Journal

8 Ways to Increase Your Cash Flow in a Cash-Crunched Economy

Every day I hear about cash flow problems from business owners. In this economy, most of us are having cash flow concerns. I am hearing that sales of most small retail businesses are down 10% to 20% from

last year. If you don’t understand the different ways to increase your cash flow, you can get stuck thinking you have no options. If you are having cash flow concerns, chances are it is difficult for you to get a loan  from the bank.

My clients continue to come up with inventive ways to solve their cash flow concerns. I wanted to share some of their stories in the hope it will be helpful to you. I’ve broken these down into 8 ideas to help you increase your cash flow:

1 Create a positive cash flow cycle. The cash flow cycle refers to the difference in timing between when you pay for products or payroll and when you get paid by your clients. A negative cash flow cycle means you pay out before you get paid. A positive cash flow cycle means you get paid before you have to pay out. One client recently asked her vendors for 30 day terms and got it. It put her into a positive cash flow immediately. Other clients have started asking for ½ down before they start the job and some clients offer small incentives for paying accounts receivables early.

2 Increase your average sale. If you can get your customers to buy more of your stuff, for more money, and more often you will increase your average sale. When your average sale goes up more dollars go into your bank account. I have one retail client that started carrying more upscale products, increased her prices on some items, and bundled or packaged some products together. She saw an immediate improvement in her cash flow.

3 Increase your sales and marketing efforts. This is a hard time for building supply companies. One client opened a building supply company just before the real estate market slow down. Oops! So, he took a gamble and advertised on T.V. It was hard to spend the money, but the results are that he has been increasing sales every month since he opened. Another client doubled her sales force and has increased sales every month of the downturn. There really is a lot of opportunity out there.

4 Cut your costs. This one seems like a no brainer, however, many of my clients have been slow to do the difficult cost cutting that is required to stay profitable. One of my clients was very slow to cut costs. We worked together and talked about each expense and explored other ways to get what she needed without spending so much. We found several creative ways to cut costs without hurting productivity or customer service.

5 Reduce or restructure debt payments. The payments you make on business debts, because it is money out of your bank account, are an important area that affects your cash flow. One client talked to their banker, but the banker was reluctant to refinance or restructure the debt. I told this client that the secret was to talk to a bank different from his own. Banks other than yours view gaining your deposit and loans accounts as a big win. Your current bank doesn’t always appreciate your accounts until they are about to lose them. Needless to say, this client did well in lowering their debt payments and received some other nice perks as well.

6 Reduce or eliminate capital expenditures. One business I worked with had a very tight cash flow because she is growing. Growth always creates a drain on cash. She needed equipment and trucks to get the next step. Buying new stuff was out of the question. She started asking people she knew for what she wanted and got the equipment and trucks for almost nothing.

7 Increase the productivity of your staff. I worked with a small business with a tight cash flow that was doing about $800,000 in annual sales but there was very little profit they were just breaking even. We determined through a break even analysis that if we increased sales to $1,000,000 they should add about $100,000 to the bottom line. When they came back the next year they had actually increased their sales to $1,400,000, but there was still no profit. Based on the numbers, our analysis of the situation was that they hadn’t increased the productivity of their staff. When they added new business, their staff costs expanded with their sales. The idea is to find ways for your staff to get more done with less time, energy, effort, or cost.

8 Increase your prices. Increasing price is one of the hardest things for business owners to do. I worked with one owner to research the prices of her competitors. We found that her prices were at least 25% below what her competitors were charging for the same type of products. We experimented with pricing and found that some items actually sold faster when they were priced higher. One business owner increased his prices by just $1. It added an extra $3,000 a month or $36,000 annually to the cash flow. You know that “cash is king.” It is the key to surviving the down times. By working smarter as well has harder you will improve your chances of survival and increase the value of your business. Think of it this way; by improving your cash flow now in this economy, when it bounces back (and it will), you will benefit from improved profitability, productivity, and a positive cash flow.

This article was written by Kirk Davis, an SBDC Certified Business Advisor for the Kent Small Business Development Center, To locate your local SBDC advisor please visit the SBDC web site  www.wsbdc.org/map

Revisiting Your Credit Strategy

Monitoring and understanding your cash flow is probably one of the most critical aspects of business management. Cash flow has always been important to businesses, but many business owners have recently been reminded of this in a very unpleasant fashion; i.e. the cancellation or reduction of a vital credit line.

Business owners typically concentrate their efforts on year-end tax planning and strategizing for increased sales in the coming year. It is rare, in the planning process, to see businesses pay equal attention to planning for cash flow by reviewing the business’ credit strategy (the way that bills are paid and the way in which you receive payments for goods and services that are sold).

Following are some tips on things to consider when you review your credit strategy:

• Think twice about paying early on your business debts since you may use up cash reserves that may be critical for survival.

• You may need to consider asking your customers for more financial information to determine whether they have the capacity to pay for goods and services purchased on account.

• You may need to reconsider the length of time that you are allowing your customers to pay on their accounts or you may need to consider asking for a larger deposit or a greater percentage of the total cost of a project to reduce the risk of bad debts.

• Consider taking credit cards, if you are not doing so already, since the bank’s merchant fees may be a small price to pay for not worrying about collecting from some of your customers. It may be more important for you to have the cash in the bank!

• Use the maximum time allowable to pay your suppliers on account unless you will lose the benefit of a discount.

• The economy is still tight and funding is tough to find, so do not assume that your existing strategy will continue to work for you. Instead, be proactive about addressing any policies that might increase your risk for bad debts.

• Clean up your financial statements, strengthen your equity position in your business, and continually monitor your cash flow position.

Article written by Susan Hoosier, Certified Business Advisor and Certified Economic Development Professional, with the Small Business Development Center, which is part of the 24 statewide offices of the Washington Small Business Development Center network (WSBDC).