ASSIGNMENT 8

PREPARE FINANCIAL FEASIBILITY REPORT OF A CHOSEN

PRODUCT

Financial Plan

Phoebe's Photo Studio will become profitable in its fifth month of operation, by May 2006. It
will grow vigorously each year after that to its optimum level during 2008. This optimum level
will produce sales sufficient for a generous net profit, even with the owner's and employee's
salaries.

The business will be funded with an investment by the owner and loan secured by real estate.

Start-up Funding

The start-up requirements for Phoebe's Photo Studio including start-up expenses, current assets,
cash on hand, and long-term assets were presented earlier in this plan. Start-up funding is
presented in the table below.

The owner, Phoebe Peters will provide a seed investment. A loan for the balance will be secured
by real estate.

Important Assumptions

We assume a stable economy with reasonable growth and a steady rise in interest rates. We also
assume that our competitors won't adopt our strategy within the first two years. After that, our
approach is likely to make a change in what our competitors charge for digital files, because
they'll see it's effective in bringing in repeat business as well as new business.

Break-even Analysis

The average monthly expenses are shown in the table below. With low average direct unit costs,
we will need to make the monthly sales displayed to break even. We expect to pass the break-
even point in May.

ASSIGNMENT 8 1
Key Financial Indicators

The benchmarks chart, below, shows a quick comparison of Sales, Gross Margin %, and
Operating Expenses over the next three years. Although Operating Expenses will rise slightly in
future years, they are not rising proportionally with sales growth. The higher operating cost ratio
in the first reflects the higher costs of advertising to establish visibility at the start of the
business.

Projected Profit and Loss

This business is projected to become profitable in May 2006, after the start-up advertising is
completed and customers begin to discover the service. For the year 2006, the business will be
profitable. It will grow at a vigorous rate over the next two years.

Our utility costs include monthly charges for high-speed Internet access via a corporate account,
which will essential to delivering our finished images to most of our customers.

The optimum level of profitability for this one-photographer shop is reached in 2008. Our profit
margins are much higher than the industry average because of our innovative product-delivery
options - digital images require no film, no paper, and no chemicals, just storage units (CDs and
DVDs) and delivery (computer and Internet access).

A financial feasibility study projects how much start-up capital is needed, sources of
capital, returns on investment, and other financial considerations. The study considers how much
cash is needed, where it will come from, and how it will be spent. It can focus on one particular
project or area, or on a group of projects (such as advertising campaigns).

The study is an assessment of the financial aspects of something. It could be anything,

but is most often used to consider a few key points that, if refined correctly, should answer most
of the basic questions of anyone who takes a seat at the table.

Start-Up Capital Requirements

ASSIGNMENT 8 2
 Start-up capital is how much cash you need to start your business and keep it running
until it is self-sustaining. You should include enough capital funds (cash, or access to cash) to
run the business for one to two years. Although many business or sole proprietorships determine
their capital requirements individually, larger corporations may use the help of their respective
bank or capital firm to pinpoint capital requirements for either a round of funding or business
launch.

Finding Start-Up Capital Funding Sources

There are many ways to raise capital for your business, but no matter what route you take,
investors are more likely to invest, banks are more likely to approve loans, and large
corporations are more likely to give you contracts if you have personally invested in the business
yourself.

Depending on the size of your business, you may be able to utilize one of the many Small
Business Administration's (SBA) Microloan programs. Using these, you will not need much
capital, as the program allows for a much smaller down-payment on their lending partner's loans.
These can vary, but are around three-to-twelve percent.

When you make a list of funding resources, be sure to include anything that you can contribute to
the business, including free labor. If you are starting a nonprofit organization, your donated
professional time may even be tax deductible for you

Investors can be a friends, family members, professional associates, client, partners, share
holders, or investment institutions. Any business or individual willing to give you cash can be a
potential investor. Investors give you money with the understanding that they will receive
"returns" on their investment, that is, in addition to the amount that is invested they will get a
percentage of profits.

In order to entice investors you need to show how your business will make profits, when it will
begin to make profits, how much profit it will make, and what investors will gain from their
investment. The investment return section should offer both a description of how investors will
be involved and discuss different variables that will affect the profitability of your business,
offering more than one scenario.

ASSIGNMENT 8 3
Paying Back Investors

How investors will be paid will vary according to individual investment offers. Read every offer
over very carefully —not all investors will be right for your business.

The investment section of your financial feasibility study should not make specific or binding
offers to investors. Do not state investors will be paid specific dollar amounts by certain dates.
Instead, list general practices for how investments return will be distributed, assuming different
business scenarios. For example, you might state that investors will be paid X amount of dollars
or X% on their investment at the end of any business quarter where profits exceed a certain
threshold.

Project total revenue, deduct business expenses, and then from the remaining amount, decide
what percentage will be distributed to investors. You should never promise 100% of the
remaining amount to investors. You need to keep cash on hand to continue operating your
business, to grow your business, and to build reserves.

Most investment returns are typically distributed on a quarterly, bi-annual, or annual basis.
Consider how the various distribution cycles could affect your business' cash flow during the
first two years of operation. In other words, do not just run one set of numbers, examine each
type of distribution and support why you think the option you choose is the best one.

ASSIGNMENT 8 4