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BUSINESS ADVISOR
BOTTOM LINE
Format Financial Feasibility Like a Pro
Everyone wants to know the financial bottom line. What your feasibility study needs is a financial statement based on a set of assumptions from information given by a vendor, your calculations
or both. It should define the hypothetical financial future (for years out, in some cases) for each proposed scenario. The name for this statement is the "pro forma."
When doing a feasibility study, I include a profit and
loss statement (P&L) as the pro forma. A P&L essentially measures or projects the activity of a business over a period of time. It does take
some effort and research, but your accountants should have most of
these numbers on hand. Then it's just a matter of plugging in the numbers for expenses associated with the proposal (a negative in the extraordinary income row for 2014), and figuring extra savings or revenue into "general operating expenses" or "other income."
Remember, you're trying to prove a financial point in your decision process. Just because a change doesn't result in greater profit, doesn't mean it's not feasible. It's just more difficult to sell. The key is to clearly detail the pertinent numbers for your readers and to make a compelling case in other areas of your feasibility study.
Sample Pro Forma
Figures
2013
2014 (projected)
Revenue
370,000
400,000
Cost of goods sold (COGS)
(70,000)
(75,000)
Gross Profit
300,000
325,000
General operating expenses
(35,000)
(40,000)
Depreciation
(12,000)
(12,000)
Operating Income
253,000
273,000
Other income (interest income)
8,000
12,000
Extraordinary income
—
(3,000)
Earnings Before Interest & Tax (EBIT)
261,000
282,000
Interest expense
(10,000)
(10,000)
Net Profit Before Taxes (NPBT)
251,000
272,000
Taxes (10%)
(25,100)
(27,200)
Net Profit After Taxes (NPAT)
225,900
244,800
Dividends paid to shareholders
—
(20,000)
Retained Earnings
225,900
224,800
— Stephen Earnhart
