Feasibility Studies

Leisure Business Advisors (LBA) specializes in conducting feasibility studies for a variety of leisure businesses. An independent industry expert usually prepares this detailed study, which is required by potential lenders and investors. 

The feasibility study is the first step of the development process and provides critical guidance for design, construction, and operations. It evaluates potential market support and forecasts usage. It determines potential financial performance and maximum warranted development costs. It provides physical planning parameters, such as total land size needed and building space required. It recommends the attraction mix and can include a walk-through description and artist conception images for use in initial presentations. 

The following paragraphs outline the major tasks typically involved in conducting a feasibility study.
Task 1: Orientation Meeting
An initial meeting would be held to discuss the project in more detail and to see the prospective site if one has been chosen.

Task 2: Site and Area Evaluation

The site and local area would be evaluated to determine its effect on potential usage. Factors include:

  • Market proximity
  • Physical limitations or constraints
  • Access routes
  • Traffic patterns
  • Surrounding development
  • Potential complementary and competitive facilities

Task 3: Concept Description and Industry Trends

The type of leisure business being studied would be described and industry trends discussed. Readers of the feasibility study may be unfamiliar with the concept and this section of the report provides an introduction before specific project-related issues are examined.

Task 4: Market Analysis

The market areas would be defined based on distance from the site. Demographic characteristics for the resident market would be analyzed to provide an indication of support. This would typically include:

  • Population growth
  • Age distribution
  • Income distribution 

The tourist market would be defined and analyzed. Based on available information, this analysis would likely examine:

  • Current size
  • Historic growth
  • Other characteristics 

Task 5: Evaluation of Comparable Facilities

Selected comparable facilities would be examined. Available reported information would be provided on individual characteristics, including:

  • Name and location
  • Physical description
  • Pricing
  • Annual revenues
  • Financial performance
  • Development costs 

Task 6: Annual Usage

Potential annual usage for the proposed facility would be estimated for the first five years of operation based on a number of factors, including:

  • Planned components
  • Size of the available markets
  • Qualitative market characteristics
  • Market penetration rates achieved by comparable facilities
  • Location and possible competition 

Task 7: Concept Development

LBA would make physical planning recommendations needed to service expected market demand. The specific parameters vary from one leisure business to another. For larger projects, LBA can also provide a walk-through description and color artist conceptual images as seen through the eyes of a typical visitor. These would preliminarily suggest the general "look and feel" and could be used in initial presentations. Physical planning parameters may include: 

  • Recommended types of activities
  • Recommended activity mix
  • Minimum land size
  • Recommended building space
  • Recommended food service and merchandise space
  • Recommended number of parking spaces 

Task 8: Financial Analysis

The financial analysis for the proposed facility would be based on the selected concept and potential usage. Financial estimates for the first five years of operations would include:

  • Revenues by category
  • Operating expenses
  • Operating profit
  • Return-on-investment for equity investors 

Task 9: Warranted and Typical Development Cost 

LBA would determine the warranted development cost or investment based on potential profitability. This is the recommended maximum amount that should be spent to effectively develop the project and return a reasonable return-on-investment to equity investors. 

This warranted amount would be compared to the actual development costs for other comparable facilities. Relative size would be taken into consideration. This comparison would provide guidance as to whether the proposed project could be developed for its warranted investment. If it can be, the project is considered financially feasible.

Certification

Financial institutions and investors typically require an independent feasibility study from an industry expert. On the opening page of each of our reports, LBA's managing director certifies that to the best of his knowledge and belief:

  • The statements of fact contained in this report are true and correct.
  • The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions and conclusions.
  • This feasibility study was performed on a basis of non-advocacy; we have no present or contemplated interest in the proposed business and have no personal bias with respect to the parties involved.
  • Our compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, the report.
  • Our analyses, opinions, conclusions and report have been prepared in conformity with the professional standards of the Institute of Business Appraisers.

LBA's Experience

John Gerner, our managing director, has conducted many feasibility studies. Click here for more details on his background or click here to contact us for more information.

 

Copyright @2005-2008 Leisure Business Advisors LLC and its licensors.