Lecture 7

Capital formation
Sources of Finance: A firm can seek to raise needed capital through borrowing money (debt), selling ownership ( equity), or earning profits (retained earnings). The Main Sources: ‡ Owners Equity/Equity Financing ‡ Debt Equity/Debt Financing

Sources of Finance
‡ Equity Financing: Is the funds raised from operations within the firm or through the sale of ownership in the firm. ‡ Advantages of Equity Financing:  No fixed charge  Ease of raising for establishing a new business  Control in owner s hand  Less chance of magnifying the losses

Sources of Finance
‡ Disadvantages of Equity Financing:  Many legal restrictions to raise  More taxes  High return to owners in the shape of dividends  Less flexibility ‡ Debt Financing: Is funds raised through various forms of borrowing that must be repaid. ‡ Advantages of Debt Financing:  Less taxes

Sources of Finance
‡ Advantages of Debt Financing:  Less Return  More flexible ‡ Disadvantages of Debt Financing:  Fixed charge  Difficult to raise for new business  More chances of magnifying of losses  Less control on policies

Business Feasibility Study
What is a Feasibility Study? A business feasibility study can be defined as a controlled process for identifying problems and opportunities, determining objectives, describing situations, defining successful outcomes and assessing the range of costs and benefits associated with several alternatives for solving a problem.

Snapshot of Usage of Business Feasibility study
Controlled Process Identify Problems and Opportunities Determine Objectives Define successful Outcomes Describe Situation

The Usage of Business Feasibility Study
The business feasibility study is conducted to support the decision-making process based on a cost-benefit analysis of the actual business or project viability. The feasibility study is conducted during the deliberation phase of the business development cycle prior to commencement of a formal Business Plan. It is an analytical tool that include recommendations and limitations, which are utilized to assist the decisionmakers when determining if the Business concept is viable.

Snapshot of Importance of a Feasibility Study
Safeguard against wastage Help to make Logical Business Plan Reduce Research Time Cost Reduction

The Importance of A Business Feasibility Study
It is estimated that only one in fifty business ideas are actually commercially viable. Therefore, a Business Feasibility Study is an effective way to safeguard against wastage of further investment or resources. If a project is seen to be feasible the next logical step is to proceed with the full Business Plan. The research and information uncovered in the feasibility study will support the business planning stage and reduce the research time. Which will help in reduction of cost.

The Importance of A Business Feasibility Study
A thorough viability analysis provides an abundance of information that is necessary for the business plan. A feasibility study should contain clear supporting evidence for its recommendations. The strength of the recommendations can be weighed against the study ability to demonstrate the continuity that exists between the research analysis and the proposed business model. Recommendations will be reliant on a mix of numerical data with qualitative, experience-based documentation. A Business feasibility study is heavily dependant on market research and analysis. A feasibility study provides the stakeholders with varying degrees of evidence that a business concept will in fact be viable.

Business Feasibility Study and Dimensions of Business Viability
The Business Feasibility Study findings will be assessed by potential investors and stakeholders regarding their credibility and depth of argument. The Business Feasibility Study places the findings of the dimensions of Business Viability Model assessment into a formal report. It also aligns the findings with functional processes of an enterprise which an audience can easily understand. Business and market analysis contribute considerably to the Business Feasibility Study. Consideration should be given to using traditional business analysis techniques such as SWOT, PERT etc.

The Dimensions of Business Viability
‡ ‡ ‡ ‡ ‡ ‡ Market Viability Technical Viability Business Model Viability Management Model Viability Economic and Financial Model Viability Exit Strategy Viability

Sign up to vote on this title
UsefulNot useful