Financial feasibility study: from costs to decision

Set-up costs

Everything you pay before the first sale: fit-out, equipment, fees and licences, deposit and advance rent, opening stock and pre-opening marketing.

Plus working capital: the cash that covers expenses until the project covers itself. Most projects that stumble early never calculated it.

Projected statements

• Income statement: monthly in year one, then yearly.
• Cash flow: when cash comes in and goes out; it reveals the deficit, because accounting profit does not pay rent.
• Balance sheet.

At Madrous every statement is headed “estimated, unaudited financial information”.

Break-even and safety margin

Break-even is the sales level that covers all costs; it is clearest in project units, such as customers per day.

The safety margin is the gap between expected demand and break-even: expecting 110 customers a day with break-even at 83 is a margin of about 24%. Try it in the break-even calculator.

Payback and return

Payback is how many months until capital returns from cash flow, preferably after the owner’s salary. Larger projects add NPV and IRR, separating project return from owners’ return when there is financing.

Scenarios and sensitivity

The base case should be the one most consistent with the evidence, not the most optimistic. Sensitivity ranks variables by impact, so you know which number to verify in the field.

Common mistakes

• Counting VAT as revenue.
• Mixing loan principal with interest, or a deposit with an expense.
• Sales above daily capacity.
• Cutting marketing without cutting sales.
• Ignoring the owner’s salary.

Frequently asked questions