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Maddys Paw

Feasibility Study

Frances Bloom
June 10, 2013

Table of Contents
MARKET ANALYSIS .............................................................................................................. 2
Market Assessment ......................................................................................................... 2
Target Market.................................................................................................................. 3
Target Market Needs ...................................................................................................... 6
Competitive Analysis ....................................................................................................... 7
Products & Services ......................................................................................................... 9
Market Potential ........................................................................................................... 10
FINANCIAL MODEL ............................................................................................................ 14
Financial Overview ........................................................................................................ 14
Financial Projections ..................................................................................................... 16
Financial Feasibility ....................................................................................................... 19

MARKET ANALYSIS
Market Assessment
>A feasibility study starts with a question - why do you want to pursue this opportunity in
the first place? Market potential can often be measured by considering the obvious
opportunities and threats. The following are examples of each. You may think of others
that fit your situation.

Opportunity
o Lots of customers
o Clear customer needs
o Fulfilling needs by vendors leaves something to be desired
o Strong population or economic growth

Threats
o Economic or employment downturns on the horizon
o Geographical shift of the business district
o Strong competition w/ deep pockets
o Strong probability of new competition

When considering the above, market potential can be defined as:

Ideal: High in opportunity; low in threats; great promise for success;


Speculative: High in opportunity; high in major threats; risky with potentially large
returns;
Mature: Low in major opportunity; low in threats; limited growth potential with low
risk;
Risky: Low in opportunity; high in threats; business venture requires immediate
reconsideration.

If your market place seems like it is worth pursuing, the feasibility study is intended to
validate your assumptions, give you obvious reasons to modify your view of the market or
send you a strong signal to reconsider your venture.

Sample Market Assessment


(bullet point/notes example)

Pet supply industry: Last year consumers spent over $53 billion on pet food, vet
care, kennels and other pet services. Expenditures are expected to increase by 4%
to $55.5 billion in the coming year. Conclusion: industry seems robust
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Source: American Pet Products Association

Local area: Burien had a 4.8% increase in population between 2000 and 2010, mostly
from the 35 to 44 year old middle age group, families with children under five. This
group is likely to own a pet, consider them a part of the family and have a need for
natural pet foods and higher quality supplies. Conclusion: local market looks good

Competition: No pet stores in Burien; consumers must travel out of the area on
congested roads for natural pet food and quality pet supplies. Conclusion: open
field to get established and develop

Potential: US Census reports a $52 per capita expenditure in pet supplies and
services in Washington State. Based on the population of Burien market area, the
market potential for products we will sell is about $1.4 million annually. Conclusion:
ample market to support our revenue goal of $500,000 annual.

In the above sample, information came from the following:

Paragraph 1: web search using pet store industry


Paragraph 2: Wikipedia for data on Burien
Paragraph 3: US Census website

There is a great deal of free data on the US Census website (http://factfinder2.census.gov).


You will also find data on your community at (http://www.zip-codes.com).
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Target Market
> The single most important principle in marketing is: find a needand fill it. Effective
marketing is about understanding market needs and filling them better than competition.
The selection of a target customer group and understanding their needs is central to that
effort.
Start by identifying customer groups that have common demographic characteristics and
probably some common needs. Then, make choices about which groups are important to
your business model and which ones are not. Depending on your business, you will have
target markets that are consumers or businesses, and in some cases both.

Consumer Demographics
Demographics are measurable statistics of a given population. Statistics are used in marketing to
identify and quantify a target customer group. The relative importance of specific demographics
(i.e. age range) can vary from business to business depending on the products or services sold.
When measuring demographics, the considerations are:

Geography Where do the live


o Zip code, town, city, county, etc.
o Geographical boundaries rivers, highways, canyons, etc.)

Characteristics Which are important to your offering (not all apply)


o Age range
o Gender
o Family size
o Income
o Occupation
o Education
o Ethnicity

The US Census has free demographic data on a geographical basis (zip code, town, county,
etc.). http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml
Business Characteristics (if applicable)
Businesses evaluate offerings in more detail with a purchasing process that can involve
more than one person. You also need to think of your comfort level. Do you want to call on
a corporate buyer or talk to the owner? Some business types will work for you and others
may not. It is useful to identify commercial customer groups based on the following:

Geography: Where are they located (are they convenient for you)
Type: Industry (retail, wholesale, manufacturing, hospitality, etc.)
Size: Revenue range, number of employees, etc.
Purchasing: Easy access to decision makers

Your target market could be an industry group, types of firms within a group or a specific
company.
It pays to visit the US Census Censtats Database and take the time to get acquainted with
industries and industry specs. The County Business Patterns (NAICS) should be especially
important to you. http://censtats.census.gov/

Sample Target Market

Target market: Burien pet owners, especially families with children


Geographical area: Burien zip codes 21308 and approximately 50% of 21310.
Target consumer demographics:
o Age range: 20 to 60
o Household type: family households, w/ children under 18 years, single
households
o Employed, self-employed, professional
o Average income and above

Details of Burien market for our demographic.


Demographics

Total Population
Ages 20 to 60
Households
Family households
w/ children under 18 years
Non-family households
Occupation
Private wage and salary workers
Self-employed & professionals
Median family income

Area 91308
42,731
24,213
15,127
9,706
4,439
5,421

Area 91310
24,092
13,459
8,668
5,720
2,497
2,948

15,618
1,403
$59,966

8,452
626
$67,697

Source: http://factfinder2.census.gov/

Conclusion: local market has ample population in the demographics important to our
concept
Commercial Market
o Commercial market: referral relationships with vets, kennels, grooming and pet care
service providers
o Services: partner with a local carpenter and/or handyman to make dog houses and
dog runs we can market through our store.
Conclusion: modest commercial market; do not budget until retail is established
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Geographic
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Consumer Demographics
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Demographics
Area

Area

Commercial Market
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Target Market Needs


>Your target market will have needs such as, a young working couple needing day care for
their small children. However, the couple may also have underlying needs that are more
personal in nature. In this case, the young couple may be somewhat discriminating
because they really value child safety, tender loving care and children educational
programs. Your ability to respond to their underlying concerns is what creates value to the
consumer.
A day care operator that markets to consumers whose only value is the lowest price in
town, is not likely to connect with the needs of a discriminating consumer. The day care
provider that understands and fulfills a parents underlying needs is surely in a better
position when the purchase decision is being made.

Sample Target Market Needs


(sample of text)
Maddys will focus on families with children under the age of 18. Reports indicate that 50%
of households with dogs or cats consider their pet to be a family member, especially when
they have children.
Because their pet is a cherished member of the family, this group is likely to have
discriminating purchasing values that influence where they shop for their furry family

member, what goods they will purchase products and how much they will spend on behalf
of their pet. They will also value family promotional events that focus on their pet.
The above information comes from a variety of pet industry reports found on the web.
Delving into industry reports can be a real learning experience.
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Competitive Analysis
>Competitive analysis is often the single biggest weakness of a small business operator. It is
extremely important to understand how your offering compares to competition in terms of
what is important to the customer. Without this knowledge it is impossible to define your
competitive edge.
Once purchase values of a customer group are defined, you can make a subjective
comparison of your business and a competitor. One way is to simply describe the strengths
and weakness of your business and each competitor as in the following example.
Supermarket A

Maddys

Strengths
Weekly exposure to most shoppers
National pet food brands
Competitive prices

Strengths
Owner operated
Strong selection of natural & organic pet food
Extensive selection of quality pet supplies
Staff is trained in pet foods
Especially convenient
Intriguing store ambiance
Weaknesses
New business needed market identity
Small business w/limited capital
Consumers perception of small stores
Prices are somewhat higher

Weaknesses
No organic or natural pet foods
Pet supply inventory is skimpy
Pet meds offering is limited
No customer service
Located on fringe of market area

Another way is to use a system to compare everyone. The systematic comparison can be
descriptive or numerical. The matrix below gives an example of both measures. If using a
matrix, it is good to think in terms of numerical ratings based on 5 = Strong market position
and 1 = Weak or non-existent.

Sample Competitive Analysis


Competition
Our market survey reveals the following:

Chain pet stores None


Mass merchandisers None
Independent pet stores None

The only retailer that stocks pet food and supplies is a supermarket with two stores on the
fringe of the market area.
Consumer Purchase Values
Based on my discussions with other pet store owners, the customer purchasing values we
are most likely to experience are: broad inventory selection, good quality and safe products,
knowledgeable and engaging employees and competitive pricing.
The following indicates how we will compare with the supermarket on Purchase Values.
The rating scale is subjective with 5= Excellent or Strong Market Position and 1 = Poor or
Non-existent.
Competition
Purchase Values
Product selection
Premium pet food & treats
Pet toys
Pet supplies
Vitamins & supplements
Product quality
Customer service
Price

Maddys Paw

Supermarket

Natural/Organic (5)
Broad (5)
5
4
5
5
3

National Brands (2)


Limited (2)
2
3
3
1
5

Summary
We will have a compelling competitive edge with premium foods & treats, unique toys and
quality pet products. Based on present competition, our competitive edge is sustainable.
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Competition
Customer Values

Your Business

Competitor 1

Competitor 2

Competitor 3

Summary
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Products & Services


> The feasibility study should define the basics of your product/services offering and its
value to the customer. The basics usually include:

Overview of your offering


Features and customer benefits of your offering
Supplemental services that add dimension to your offering

Sample Products/Services
Description
Maddys Paw will provide a selection of pet food and supplies that will fulfill the needs of
families that want to treat their pet as a special member of the family and buy products that
are healthy and reflect the value of their pet to the family.
Maddys product categories will include:

Pet Food: dry, canned, raw & dehydrated


Treats: biscuits, meat jerky, chew, catnip, bonito
Supplies: collars, leashes, harnesses, litter, pans, carriers, beds, bowls, cookie jars
Toys: fetch, chew, tug, snuggle, chase
Pet Care: brushes, shampoo, flea control, skin & nail care, cones, digestive aids
Accessories: ID tags, rain wear, outfits
Family: T-shirts, magnets, key fobs, pet memorial items

Features & Benefits


A consumer who treats their pet as a member of their family circle, places a high value on
the natural and organic quality of pet food and safe pet products. The main feature of our
offering is convenient access to natural, organic and safe pet supplies. The customer
benefit from purchasing our products is the health and well-being of their furry family
member and fun time with their children.

Services
Maddys will provide a variety of services that should appeal to pet owners.

Canine CPR classes


Family pictures displayed in the store and on the website
Pet birthday tracking program
Special birthday treats
Memorial board for pets that have passed away

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Description
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Features & Benefits
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Services
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Market Potential
> You should now be at a point where your feasibility study has either validated your
original view of the market place, redefined your vision or encouraged you to reconsider
the venture. Assuming the news is positive, remember that potential is one thing and
fulfillment is another.
In a small business, it is important to give the customer compelling reasons to make choices
in favor of your services. Further, you must be a consistent in meeting their needs and
constantly reinforce their view of your offering. This takes focus!
The keys to success are the absolutes of your business operation that are likely to make
the difference between success and failure. Therefore, it is important to identify these
absolutes stay focused on them. Keep the list to 3 or 4 because anything beyond is
usually not manageable.

Sample Market Potential


Based on our analysis, the pet store opportunity is ideal because of the following:

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High in opportunity: Sizeable population in the demographics important to upscale


pet supply stores
Low in threats: No direct competition from retailers specializing in pet supplies.

Based on our discussions with other pet store owners, the following are considered critical
to achieving long-term success.

Assure that inventory in-stock position is high


Stay competitive on price sensitive items
Provide customers with a well-informed and pleasant retail team
Maintain ongoing image advertising in the market

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Location Requirements
At this phase of the study, it is time to think about your location requirements. While
location attributes vary from business to business, considerations often include:

Adequate space
Good condition
Remodel needs
Good visibility

Ample parking
Convenience
Safe
Traffic congestion

Walk by traffic
Affordable lease
Renewable lease
Good landlord

The following table can help define your needs in terms of the how important a Site Attribute is to
you (weight), your ideal situation and your rating of locations in the market that may be worth
considering when you are ready. It often helps to rank the Site Attributes in terms of weight.
There is a direct relationship between the collective value of a location in terms of meeting your
needs and the rent one should consider paying.

Site Attribute

Weight
(1-3)
3

Ideal
(1-5)
3

Main St. Site #1


(1-5)
3

Beckham Ave. #2
(1-5)
3

Affordable/renewable lease

Good condition

Safe area

Convenient location

Adequate space

11

Good visibility

Ample parking

Minimal congestion

Retail pull

Good landlord

n/a

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20

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VALUE SUMMARY

You can see how the overall value a location is more than just the space and monthly rent.
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Site Attribute

Weight
(1-3)

Adequate space

Affordable/renewable lease

Good condition

Safe area

Convenient location

Good visibility

Ample parking

Minimal congestion

Ideal
Rating
(1-5)

Retail pull
Good landlord
VALUE SUMMARY

n/a

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Site #1
Rating
(1-5)

Site #2
Rating
(1-5)

FINANCIAL MODEL
Financial Overview
>The first step in determining financial feasibility is to make a realistic estimate of your
start-up cost and funding needs. This includes how the funds will be used and collateral
that can be used to secure the loan, if required.
The E-Z Financial Model includes a detailed Startup Funding Model along with examples of
cost estimates. For those doing the startup cost estimate on their own, the following is
offered.
Start-up/Organizational Expenses
1.
2.
3.
4.
5.
6.
7.

Consulting: architectural & design fees


Legal: cost of incorporating if needed; lease negotiation services
Accounting: help setting up your bookkeeping system
License: State and/or city business license
Permits: building permits if needed
Loan fees: SBA lenders may pass on loans fee of 2 or 3%
Pre-paid insurance (optional): usually insurance is expensed 100% in the forecast
model but you may be required to make a pre-payment;
8. Marketing: pre-opening expenses - website & marketing materials
9. Pre-opening payroll: needed if setting up a facility and/or training employees
10. Supplies: general office supplies & software
11. Small equipment: items paid for such as a microwave, coffee pot, etc.
12. Other: suggest a 5% of total as a buffer to cover anything you may miss; this
number will go away as you refine your actual costs.
Start-up Assets
1. Opening day cash: enough cash to cover operating costs (4 to 6 months) until the
business starts generating cash; negotiation of free rent for the first 30 to 90 days
helps; a credit line can be substituted for some of the cash; the E-Z Financial Model
cash flow projection will clearly indicate if your estimated cash reserve is adequate;
2. Inventory for sale: must have enough inventory to maintain sales and anticipated
growth; consider the standard Sales/Inventory ratio of your industry (data available
on www.bizstats.com.)
3. Deposits: lease security deposit (1 or 2 months rent) and utility company deposit

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4. Fixed Assets: allocations of funds used for leasehold improvements (remodeling a


rented facility); equipment, machinery, furniture, fixtures, vehicles & business sign

Sample Financial Overview


As an upscale pet supply store, we will need $125,000 to launch and ramp up operations.
The funds will be used for:
Start-up expenses:
Current Assets:
Fixed Assets:
TOTAL:

$12,000
$63,000
$50,000
$125,000

A detailed explanation of our allocation of capital is detailed in the Start-up Funds section of
our Financial Model.
Funding Requirements
I will be investing $50,000 (40% equity) in cash and will seek a 7 year SBA loan for $65,000
along with the assumption of $10,000 in credit card debt for organizational costs. The
collateral for the business loan will be:
Fixed assets of business
Personal real estate equity
TOTAL:

$50,000
$50,000
$100,000

The collateral offered more than meets the requirements of the Mutual Bank of Seattle.
Use of Funds
Funds from the SBA loan will be used for the following:
Funding Application
Leasehold improvements
Equipment
Furniture & Fixtures
Inventory
TOTAL:

Amount
$15,000
$10,000
$25,000
$15,000
$65,000

When Needed
July, 2013
September, 2013
September, 2013
September, 2013

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Funding Requirements
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Use of Funds
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Financial Projections
A feasibility study for a small business start-up should focus on the first 12 months of operation. If
the business is on solid footing by the end of Year 1, long-term sustainability is fairly predictable
barring unforeseen circumstances. When it comes to making financial projections, the words
logical and defendable should be considered paramount.
Sound financial projections are based on defendable input in three important areas:

Salary and Wages


Fixed Operating Expense
Sales Forecast

The following provides examples of all three sections in a financial model. This is basically spread
sheets work and while it takes some thinking, it is not complicated.

Personnel Needs
In order to develop realistic financial projections, it is best to start by considering the
number of hours you will be open, your salary needs, the managerial support you will need,
daily staffing needs and wages.
Sample Personnel Needs
Mary Jones (owner) will work full-time and oversee the operation. All employees will report to
Mary. The store will be open 70 hours per week and will require the following personnel functions.

Assistant Manager (1): Management support, buying, oversee customer service


o Retail experience required
o Demonstration of responsibility
o Outgoing personality
o Positive employment history
o Pass drug test

Retail clerks (2): Customer service, stocking, housekeeping


o Outgoing personality
o Good references
o Pleasant appearance
o Pass drug test

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Personnel Model
Salaried
Owner
Assistant Mgr.
Retail Clerk

# Employees

Job Function

Salary

Notes

1
1
2

Oversight
Management
Customer Service

$3,000/mo.
$12.00/hr.
$10.00/hr.

Full-time -40 hrs. wk.


Part-time -20 hrs. wk. each

Commissions
Benefits

None
None at start

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Personnel Model
Salaried

# Employees

Job Function

Salary

Notes

Hourly

Commissions
Benefits

A personnel budget is included in the E-Z Financial Model.


Fixed Operating Expenses
The fixed operating expenses estimate considers the average monthly cost over the first 12
months. The expense categories that should be considered are:

Advertising: include grand opening and follow up events


Rent: use the leasing rate in the area
Insurance: business liability, vehicles, buildings, medical, etc.
Office Expenses: paper, supplies, etc.
Utilities: gas, electric, water, garbage pickup, etc.
State Taxes: (optional)
Miscellaneous: (see below)

Miscellaneous: auto operations, bank charges, credit card fees, contract labor, conferences
& seminars, dues & subscriptions, leased equipment, licenses, repairs & maintenance,

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postage & deliver, telephone & communications, professional fees (legal, accounting, etc.)
and travel.
NOTE: It is possible that www.bizstats.com will have information on operating cost
percentages for your business type. The Sole Proprietorships section at Bizstats.com has
information on 146 industries.
Sample Fixed Operating Expenses
Expense Item
Advertising
Rent
Insurance
Office Expenses
Utilities
State Taxes (if tax is on gross sales)
Miscellaneous
Total Expenses
Miscellaneous
Auto
Bad Debt
Bank Charges
Credit Card Fees
Contract Labor
Conferences/Seminars
Dues & Subscriptions
Leased Equipment
Licenses/Fees/Permits
Repairs & Maintenance
Postage & Delivery
Professional Fees
Telephone & Communications
Travel
Total Monthly

Monthly
800
45,500
85
100
300
212
660
$6,657

50
0
15
200
0
0
20
0
25
50
0
150
150
0
$660

Notes
Grand opening, follow up events, small weekly ads
$15.00 per square foot 3,000 sq. ft.
Basic business policy
Office & computer supplies
Heat, electric, water trash removal
.00412% of gross sales

Owner vehicle
Estimate for bad checks
Monthly fees
2.5% on 80% of sales
Help not on payroll
Trade shows, etc.
Local organizations
Leased fixtures, sign, equipment
Business license
Allowance for equipment repair, cleaning
Sending product to customer
Legal, accounting, etc./
Phone, web host, internet hook up
Trade shows

Sales Forecast
The sales forecast is often the most difficult step because the process seems so abstract.
The process is not that difficult but it does require some logic and critical thought. Here are
the steps in doing a sales forecast.

Monthly Sales Forecast


o Sales categories: Define your main revenue streams (no more than four)
o Monthly sales: Estimate the average monthly sales for each category when
considering:
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Soft opening
Grand opening period
Major promotional periods
Seasonal affects
Probable growth over the first year
o Cost of Sales (if selling from an inventory): Estimate the percent allocated to
replace inventory
o Gross Margin: The money left to pay bills and loans (Subtract Cost of Sales
from Sales)
The model should look something like the following:

Factor
Sales
Food
Pet Supplies
Other
Services
TOTAL SALES
Direct Cost of Sales
Food
Pet Supplies
Other
Services
TOTAL DIRECT COST

GROSS MARGIN

65%
50%
0%
0%

Mo 1

Mo 2

Mo 3

13,500
9,000
0
0
$ 22,500

35,100
23,400
0
0
$ 58,500

32,400
21,600
0
0
$ 54,000

8775
22815
21060
4500
11700
10800
0
0
0
0
0
0
$ 13,275 $ 34,515 $ 31,860

$ 9,225

$ 23,985

$ 22,140

The above sample comes from the E-Z Financial Model Basic template where sales
are accounted for in the month projected.
If a business will have commercial customers that pay after being billed for services
rendered, the forecast would also need to estimate the percent collected in each
month over 90 days. The E-Z Financial Model Accrued template provides for this
computation.

Financial Feasibility
>When borrowing money, the business model is feasible when you have enough cash flow
during the first year ramp up period to cover your operating costs and inventory purchases
and still be able to make your loan payments.
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If funding is not required, financial feasibility is more about being able to generate a
sustainable profit by the end of Year 1 and beyond.
Loan Risk
Your financial projections should also consider your ability to pay back your loan if your
revenue is below expectations. A lender will usually discount revenue projections by as
much as 25% to challenge loan feasibility.
For those who are adept with spreadsheets, you can create your own tables and work this
out on your own. However, both versions of the E-Z Financial Model include a Sensitivity
Analysis table where you can easily create best and worst case scenarios to ensure you
financial model is sound before you present your plan to a lender.

Sample Financial Feasibility


The following suggests the feasibility of our Financial Model.

Cash Flow: The business should have a positive and sustainable cash flow beginning
in month 5 and at the end of Year 1. The initial cash reserve estimate of $20,000 is
adequate to fund payroll and operating costs until cash flow is self-sustaining.

Profit: The business will show a profit beginning in Month 5 and thereafter.

Sensitivity Analysis: If revenue were to be 10% lower than projections, the business
will still have enough EBITDA (earnings before interest, taxes, depreciation and
amortization) to fund the loan. This will be calculated when the lease payment is
finalized.

Summary
The 12 month cash flow model, income projection and sensitivity analysis indicate the
financial model is feasible.
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