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Feasibility Study Course Lesson 4 – How to Write a Financial Feasibility Study
Part 2 - Investor Returns and Disbursements

By Lahle Wolfe, About.com Guide

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(Continued from Page 1)

Feasibility Study Course Index - List of All Lessons

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Potential Returns for Investors Feasibility Study

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.

How Should I Pay Back Investors?

How investors will be paid will vary according to individual investment offers. Read every offer over very carefully – not all investors may 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.