Lauton U: The Hidden Costs of Project Funding - Part II

In Part I of The Hidden Costs of Project Funding, we discussed two major categories of costs —due diligence expenses and project package expenses— and we also analyzed those key cost components that usually form part of the due diligence process. Today, we will cover those capital outlays associated with putting your project package together.

Costs Associated With Putting Your Project Package Together
Although we are listing a total of 18 specific costs, your particular expenses will vary depending upon the nature and scale of your project as well as the type and total amount of funding you seek. This list is not meant to encompass all of the expenses you will have to take care of but it does contain those commonly incurred by the clients we work with.
In preparing your project’s pre-operational budget it would be wise to err on the side of caution. Facing a shortfall at the tail end of your preliminary phase could cripple your efforts so overestimate and play it safe.

1. Business Plan
Some principals prefer to write their own business plans. There are many online and offline resources out there that will help you write a decent business plan for your project. If, on the other hand, you decide to outsource this, be prepared to pay handsomely for the services of a professional business plan writing firm. Like with so many other things, you get what you pay for. Pinching pennies here could be disastrous because funding sources can smell a poorly written business plan from a mile away.

2. Financials
It is highly recommended that you present funding sources with audited financials. Depending on the funding source you’re working with, this is something your accounting department can take care of. You can then have them audited by an accounting firm. If you feel you need outside expertise to prepare the financial projections then plan on spending more for this additional service.

3. Feasibility studies
As we have mentioned in an earlier post, not all funding sources require that a feasibility study be included in your funding package. However, it is highly recommended that you present one. Not only will it substantiate the soundness of your project, it will also make investors comfortable with the idea of investing in your venture. This is because feasibility studies analyze whether the project can be completed within the cost estimates and, more importantly, will indicate whether it can be profitable.

An important component of a feasibility study is market research. Generally, it looks at market trends for your industry and determines how easy and effective your entry will be into that market. It will analyze what competition you face as well as where and how you should position your product or service ideally in the market. It will highlight market demand for your product or service and can peg what price point would be most attractive to them.
A feasibility study will help qualify and quantify market demand for your project’s goods and/or services. Commissioning a comprehensive report can be very expensive. For most projects, this can be one of their largest outlays. Often potential investors will get their own feasibility studies done but you would still be expected to front its cost.

4. SWOT Report
As part of determining how feasible your project it, some lenders and investors also get a SWOT report to understand the fundamental strengths, weaknesses, opportunities and threats your project faces. Again, this is something they typically get done on their own and whose cost you need to cover prior to getting funded.

5. Legal fees
Running a business also means that you will be paying legal fees. From negotiating and finalizing deals, to drafting and executing contracts and beyond, you will require the services of a legal professional. A legal adviser can help you navigate murky waters safely so their advice and insights can prove to be invaluable.

6. Patents
If you need to file for a patent before you can get your project off ground, you will have to budget both time and money to pay for getting that taken care of with the help of professional service providers.

7. Lease deposits
Investors and lenders prefer to see done deals especially when it involves raw land or any other type of real property. A signed lease would send a strong signal to investors that you are serious and committed to the success of your project. However, in most instances, signing the lease will also require the payment of the lease’s deposit. Regardless of how big or small your venture is, this is not going to be petty cash.

8. Licenses and permits
The majority of business need some sort of license and/or permit(s) to operate legally. These requirements and regulations vary greatly from one state to the next. They also differ depending on the industry you’re in and can even vary depending on the size of your business. From environmental impact licenses, to building permits to your standard business license, in order to avoid serious problems with local, state or federal agencies, we strongly advise you to find out what types of licenses and permits you need and make absolutely sure you are in full compliance.

9. Industry taxes
Inquire with local government agencies as to what special taxes you might have to pay as a result of the type of business you will be operating. For instance, hotels and restaurants may be required to pay a specific type of tax while sports and recreational businesses pay another kind. No matter what business you are in, make sure you are taking care of the Tax Man otherwise he will come for you . . . and everything you have.
Well, that covers today’s half.

Tell us what you think
We hope we have covered in sufficient detail an area which no one seems to discuss with funding seekers. We invite you to read the article which kicked off this seriesThe Shocking And Controversial Truth About Project Funding – What You Need To Know Before You Approach Investors.
As always, we welcome your thoughts on this article’s topic. If you have personal experiences you would like to share concerning this aspect of fund raising, feel free to include them. We look forward to hearing from you!