It\'s Not Rocket Science! Tools for Quick Project Feasibility
-
Upload
mark-barbash-finance-fund -
Category
Documents
-
view
161 -
download
2
description
Transcript of It\'s Not Rocket Science! Tools for Quick Project Feasibility
A Quick Primer on how to tell a good deal from a Dog!
It’s Not Rocket Science
Presentation by Mark Barbashat
Buckeye Power Economic Development Workshop
November 13, 2012
Provide economic developers with tools to quickly evaluate development projects for their viability– From the perspective of the community– From the perspective of the economic viability of:• An operating business project• A real estate development project
Goal:
3
How will the project benefit the business?
How will the project benefit the community?
Is the project timetable realistic?
Are project costs documented and
realistic?
Financial Feasibility
Evaluating the viability of a Business Project
4
How will the project benefit the community? Job creation Job retention Research or skills capabilities Support industry cluster or technology Key community initiative (location) Main Street Revitalization
How will the project benefit the community?
5
Market Identified the market for
product or service Wide market or niche
market Competition
Management Business Mission Required skills within top
management P & L Manager in
Manufacturing
Management and Financial Health of a Business
Financial Profits are nice….Cash pays
the bills Customers and suppliers
control a business’ success Owners should have a stake
in the business & project Growing sales can
sometimes be a problem Controlling expenses is
difficult
Mark Barbash WEDA Presentation 6
Question Ratio Formula Year 1 Year 2Is the business growing?
Sales Growth (Sales Year 2 – Sales Year 1) ÷ Sales Yr. 1
Is the business profitable?
EBT Positive? EBT + Sales
Does the business have cash to pay the bills?
Quick Ratio (Cash + Receivables) ÷ Current Liabilities
How well has the business managed debt?
Debt to Equity Ratio
Equity ÷ Debt = Debt to Equity Ratio
How well is the business collecting from its customers?
Days Receivable Receivables ÷ Sales X 360
How long is it taking for the business to pay its suppliers?
Days Payable Payables ÷ Cost of Goods Sold (COGS) X 360
May 17, 2012
Key Financial Ratios
7
How will the project benefit the developer?
How will the project benefit the community?
Is the developer experienced in the market and sector?
How stable is the developer and how firm
is the financing?
Financial Feasibility
Evaluating the viability of a real estate project
1. Most developers are dreamers and story tellers2. Most developers never saw a project that didn’t
fit the market3. Look for signed leases4. Watch out for developers’ fees5. Who’s calling the shots?6. Experience in the type of development
proposed7. Real estate markets can turn bad very quickly8. Lenders lend on value, not project cost
Rules for Working with Developers
1. Are they willing to provide business and personal financial statements?
2. Are they willing to provide references?3. How do they respond to challenging “devil’s
advocate” questions? 4. Is their answer always “Someone Else was in
Charge?” 5. Do they expect “free money?” 6. Do they have a realistic assessment of the market,
competition and job creation potential?7. Are they willing to spend money up front?
How to Determine if it’s a Real DealOn the First Visit
1. Not all projects can fit with public sector programs2. Let the program people represent their program3. Don’t overpromise what the program can deliver4. Don’t pile on government programs5. Explain the strings up front6. Find a willing lender7. Keep written records of your activities8. Be prepared to help with the paperwork9. If it sounds too good to be true, it probably is10. Take informed risk!
Rules for Working with Public Programs
1. Does the developer have site control? If on option, when does option expire and what are terms renewal terms?
2. Has an environmental assessment been completed and have all issues been identified?
3. How far in advance does equipment have to be ordered? Does payment have to be made on advance orders?
4. What is the timetable for site prep/ Construction? 5. Does the general contractor have experience with
this type of project in this type of community?
Questions to Ask aboutProject Timetable
• Money: – Inadequate working capital – Site problems, Project costs escalate– The financial strength of the business deteriorates
• Market: – Defined too broadly– Unfamiliar or inappropriate business line
• Management:– Inadequate business skills among principals– Expanding too fast
Why do Projects Fail?
1. Has a real estate appraisal been completed?2. Has an engineering assessment of existing and
needed infrastructure been completed?3. Has an environmental assessment or Phase I
been completed which shows any remediation that must be completed?
4. Has an engineering assessment on buildings & equipment been completed to assure that there are no structural issues?
5. Have detailed and documented project cost estimate been done by a third party?
Key Questions to ask aboutProject Documentation
Thank you.