Michigan State University Extension
Tourism Educational Materials - 33119707
06/06/02
A Guide for a Feasibility Study of recreation enterprises
List of files and visuals associated with this text.
by James E. Neal, District Extension Leader, Resource
Development
and John K. Trocke, District Extension Marketing Agent
TABLE OF CONTENTS
Introduction
Section I. Analyzing the Site
Section II. Developing a Consumer Profile
Section III. Selecting the Best Alternatives
Section IV. Evaluating Personal Characteristics and
Objectives
Section V. Estimating Resource Requirements
Section VI. Estimating Investment Requirements
Section VII. Estimating Income
Section VIII. Analyzing Profitability
Section IX. Tips for Conducting the Feasibility Study
Section X. Summary of Decisions and Priority of Steps
Conclusion
Information Sources
Bibliography
ACKNOWLEDGEMENT
The authors wish to thank Eugene Dice and Roger Murray of
the Parks and Recreation Resource Department of
Michigan State University, for their assistance in the
development of this publication.
INTRODUCTION
Recreation-related enterprises are becoming an
increasingly important American business. Increased
leisure time and discretionary, disposable income;
greater mobility; and the social thrust toward relaxation,
leisure and satisfying personal wants are creating
exciting, new recreation opportunities that did not exist
a decade ago.
Many people are asking questions about this dynamic,
growing industry. Some possess land or financial resources
which they feel would yield greatest economic returns in a
recreation enterprise. Others would like to manage a
recreation business. Thus, there is need for criteria
which can be used to justify the application of finances
or talents in this area. That is the purpose of this
bulletin.
To make a feasibility study, it is necessary to (1) gather
significant information about the planned enterprise and
(2) analyze this data to determine the best possible
alternatives. The following outline will help the
potential entrepreneur accomplish this task. Because there
are many possible recreation enterprises, this check list
is somewhat general. It is not meant to provide a complete
feasibility study or prospectus, but should help determine
whether a contemplated recreation enterprise has potential
for a sound economic return.
The following sections are not necessarily in the correct
order for your particular use, nor are all necessary for
every study. There is a great deal of overlapping, which
should be expected, since each section is interdependent
on all of the others.
This check list can help you take an intelligent and
systematic look at your opportunities for success in a
recreation enterprise. In addition, the information
sources and bibliography sections offer sound information
which can be used to further evaluate the proposed
recreation business.
SECTION I ANALYZING THE SITE
The chart on pages 4-5 offers some recreation activities
that could be developed, given any of three natural
resources: water, forest, or open land --or a combination
of all of them.
For example, several recreation activities are possible
with a natural resource like water. If forest or open land
is adjacent to the water, other activities can be
included. If only forest or open land is available,
activities must be land-oriented.
Determine which natural resource(s) you have available;
then use the following chart to explore possible
activities. Put a check mark in front of those you would
like to include. If you are planning slow development, you
may want to rank the activities (1, 2, 3, etc.) to show
priority of development.
Summer-Winter Recreation Activities Available with Water,
Forest or Open Land Resources
Activities that Require Minimal Development(Vis. 1)
Activities that Require Extensive Development (Vis. 2)
SECTION II DEVELOPING A CONSUMER PROFILE
To be successful, every business must establish a profile
of the consumer it wishes to attract. This is particularly
true of the recreation business.
People have different recreation interests because of
differences in age, family status, income level, etc. If
you attempt to attract all consumers, you are likely to
fail or be less successful. At the same time, it is
important to recognize that there is a wide area of common
recreation interest among the overall population. Location
factors, such as proximity and accessibility to your
potential consumer, are other important considerations.
To develop a consumer profile for your business, begin
with your Section I site analysis and rank the most
important consumer and location characteristics (for the
success of your business) within each of the following
categories.
(Where appropriate, rank your market targets 1, 2, 3,
etc.)
1. Age of Clientele
a) senior citizens
b) middle years (age 35-55)
c) post school youth (age 2535)
d) older youth, teens (age 16-25)
e) younger youth (age 10-16)
f) children (age 1-10)
2. Family Status
a) older (children raised)
b) married, family oriented (children, youth)
c) young married (young children)
d) married (no children)
e) honeymooners
f) older and post school youth (single)
g) younger, single youth and children group
3. Income
a) high
b) above average
c) middle or average
d) low
4. Other Factors About Clientele
a) occupational differences or similarities
b) religious beliefs
c) ethnic characteristics
d) cultural background
e) sex
f) educational levels
5. Location Factors
a) transient or destination type facility
b) distance of clientele from you (in miles and time)
c) competitive facilities in area
d) complementary facilities ~ attractions in area
6. Transportation Available
a) highway system
b) rail - bus
c) air facilities
d) accessible and easily located
e) private transportation needed
7. Composite Consumer Profile
From items checked in (1)-(6) above, list below those
factors which are most pertinent to the consumer profile
of your recreation enterprise. (Example-middle years,
married, family oriented, high income, destination
facility, travel by air, etc.)
This type of analysis will help you determine your
business targets. The kinds of physical facilities and
services you offer should be based on your consumer
profile.
By matching this consumer profile with planned recreation
activities from Section I, you will enhance your chances
of success. Section III can help you do this. Don't make
the mistake of trying to be all things to all people!
SECTION III. SELECTING THE BEST ALTERNATIVES
This Section is important since it will help you further
evaluate your site according to anticipated activities and
the clientele you wish to attract. It can help you select
the best alternatives as well as answer important
questions, like:
Are these recreation activities realistic in my particular
situation?
Do they match my consumer profile?
Are there any apparent conflicts or contradictions?
Information from Sections I and II should enable you to
complete this Section.
(Complete chart: "Selecting the Best Alternatives,")
SECTION IV.
EVALUATING PERSONAL CHARACTERISTICS AND OBJECTIVES
Anyone planning to go into business should evaluate his
own personality, self perception and expectations as they
will affect the proposed enterprise. Recreation-oriented
businesses can be particularly demanding since they are
often seasonal, must cater to other people's needs,
involve long working days and are open for business on
weekends, holidays, Sundays, etc. Just because you like to
ski, play golf, etc., doesn't mean you should develop such
a recreation business. You may find yourself far too busy
operating the business to enjoy the sport! Your own
personality, objectives and expectations from the
enterprise should be carefully analyzed to prevent
disillusionment.
1. Planning, Objectives
a) Income or salary expected for own labor and management
b) Rate of profit or return expected on investment
c) Scale or size of business anticipated (dollars, sales,
personnel hired, capital invested)
d) Contributions of others to the venture
e) Rapid growth and expansion planned
f) Plan to devote full time to the enterprise
2. Personal Evaluation
a) Experience and knowledge in management and recreation
enterprises
b) Attitude of family toward venture
c) Visualize yourself as happy and content in this
enterprise as a life's work
d) Able to train and supervise employees
e) Like working with people and catering to their needs
g) Anticipated problems (privacy, Sunday operation,
working on holidays, weekends)
g) Suitable personality and temper Dent
SECTION V.
ESTIMATING RESOURCE REQUIREMENTS
This Section will help you estimate basic requirements
necessary for your recreation enterprise. It is based upon
typical requirements of various outdoor recreation
enterprises. To determine actual costs, more detailed
study, planning and evaluation will be necessary.
CAPITAL INVESTMENT (Estimated Costs)
1. Water Supply
a) public water (cost of connecting) amount used cost per
month.
b) artesian or drilled well (cost of drilling, cost of
pump and installation)
c) pipe line through grounds below freeze line (no. of
feet, connections, outlets)
d) water faucets and drinking fountains
e) water treatment equipment, heaters, boilers, softeners,
chlorinators
2. Sanitary System
Requirements for a sanitary system are determined by local
building codes and the State of Michigan Health
Department--Contact appropriate authority.
a) cost of sewerage line through grounds (including
connections, plumbing, toilets, urinals, lavatories,
showers)
1. public sewerage (connecting cost) cost per month
2. private sewerage (septic tanks and drain tile fields;
lagoon systems; other)
b) dumping station
c) laundry facilities
3. Electricity See local power company for estimates.
a) installation, safety lights, outlets, transformers,
wire
(Use this information to figure controllable costs in
Sections VI and VIII.)
b) electrical equipment amount (kWh) used
4. Fuel
See local gas company for estimates.
a) installation, outlets, gas lights, piping, metering,
tanks, amounts used:
natural gas cost per month
fuel oil cost per month
gasoline cost per month
5. Telephone System
a) installation, telephone extensions
cost per month
6. Heating Systems
a) central heating with connections to individual areas
b) individual heating systems
7. Site Development See contractor for estimates.
a) clearing -
b) road development, filling, drainage culverts, gravel,
paving
c) parking areas -
d) beaches, sand -
e) campgrounds and sites -
f) picnic area -
g) swimming pool -
h) Other
8. Buildings and Furnishings (include lances, linens,
other supplies)
See contractor or supplier for estimates.
a) office
b) campstore
c) equipment storage
d) bathhouse
e) motel - lodge
f) restaurant
g) meeting rooms
h) multipurpose
i) cabins
j) arts and crafts
k) other
9. Recreation Equipment
a) picnic tables, grills, trash barrels
b) boats: row, canoe, paddle, sail
c) snowmobiles
d) horses and equipment
e) bicycles
f) fishing: poles, outboard motors, tackle
g) golf clubs, carts
h) playground; swings, slides, teeters, climbing equipment
i) beach: water safety equipment, rafts, docks
j) skates, toboggans, skis
k) guns, bows and arrows, targets
l) projectors
m) loudspeaker systems
n) arts and crafts and equipment
o) other
10. Vehicles and Maintenance Equipment
a) tractor-mowing machines, snowplows, grader, trailer
b) truck
c) car
d) other
11. signs
a) highway (including installation)
b) entrance
c) building signs
d) rules
e) directions
f) campsite marker
g) other
GRAND TOTALS (add subtotals of 1-11)
SECTION VI. ESTIMATING INVESTMENT REQUIREMENTS
Many otherwise successful businesses fail due to limited
capital. Don't fail to accurately estimate complete costs
of inputs. Most developers are overly optimistic during
planning and fail to consider all costs.
A. Capital Investment
1. land
2. site development (roads, paving, grading, drainage,
parking--Sec.V, 7 and 11)
3. utilities (installation for water, electricity,
telephone, sanitary system, fuel) (do not include
operating expenses--Sec. V. 1-5)
4. equipment and machinery (recreation, site maintenance,
furniture, fixtures, linens, transportation
vehicles--Sec. V, 9-10)
5. buildings and other supportive facilities (Sec. V, 6
and 8)
6. costs of procuring loan and drawing legal papers
7. professional fees (legal, accounting, architectural,
consultants, appraisal, etc.) -
8. others -
B. Working Capital
1. salary or income needed during development (prior to
opening)
2. personal expenses prior to opening (travel, telephone,
etc.)
3. licenses, fees (liquor, sales, franchise fee, etc.)
4. operating money needed until cash flow develops
sufficiently to meet direct costs
a) utilities (Sec. V, 1-4)
b) labor and supplies
5. stock and inventory for resale
6. other
C. Source of Funds
1. owner equity (investment in stocks, convertible
debentures, owner's interest)
2. loans (from mortgages, notes, bonds, debentures, line
of credit, advances)
3. total investment or capital and cash needed (add
Sections A and B) These should balance:
4. total funds or cash available (Section C)
SECTION VII. ESTIMATING INCOME
When anticipating income for your enterprise, use
restraint in calculating the days of facility usage and
rates. Trade associations, competitive operations and
consultants can furnish important data. Remember,
seasonality, time of week, weather conditions, etc., will
affect revenue and usage. This income forecast should be
projected over a three-year period to allow for growth and
development. The worksheet on "Estimating Income) will
help you determine expected income from your business.
SECTION VIII. ANALYZING PROFITABILITY
When analyzing returns, be sure to consider alternative
uses of time and money. High interest costs and a tight
money market make this especially important. While only
basic expense items are listed here, special care should
be taken to include all expenses anticipated in the
enterprise.(Many of these figures can be based on items
listed in previous sections.)
EXPENSES
(A) Fixed
1. actual interest to be paid out (borrowed funds)
2. insurance (other than payroll)--fire, wind, life,
liability, bonding, theft, auto, etc.
3. taxes (other than income and payroll)--business,
property, franchise, etc.
4. depreciation (invested equity in depreciable capital
items, divided by no. of years useful life)
Total Fixed Expenses
(B) Controllable (Operational and Administrative)
1. management and administrative wages (your own,
supervision, office wages, expenses, etc.) -
2. employees wages -
3. payroll fringe benefits, insurance and taxes (figure
15-20% above actual wages paid)
4. supplies (for normal conduct of business)
5. repairs, maintenance of facilities, equipment and
grounds
6. advertising and promotion
7. utilities and communications (see Section V.)
8. professional services of continuing nature (auditing,
legal, consultant, teachers, etc.)
9. other expenses (miscellaneous, dues, subscriptions,
contributions, bad debts)
10. sales taxes
11. other:
Total Controllable Expenses
ANALYSIS
1. Fixed Expenses
(plus)
Controllable Expenses
(equals)
Total Expenses
2. Total Income (last entry, sections VII worksheets)
(minus)
Total Expenses (above)
(equals)
Gross Profit
3. Gross Profit
(minus)
Federal and State Income Tax.
(equals)
Net Profit
(If not a corporation, net income will equal Gross Profit
(above). However, if personal income has not been included
as an expense, it should be deducted from Net Profit for
figuring ratios below)
4. Divide Total Income (line 2, above) into Net Profit for
rate of profit
5. Divide Total Investment (Sec. VI, "C", line 3) into Net
Profit (above) for rate of return on investment %
6. Divide Owner Equity (Sec. VI, "C", line 1) into Net
Profit (from 3, above) for rate of return on owner's
investment %
WORKSHEETS FOR ESTIMATING INCOME (Develop additional
worksheets as needed)
INCOME:
(A) Fees and charges for use of facilities (Bathhouse, ski
slope, golf course, etc.)
Kind of Facility
No. Units(x)
No. Times Used(x)
Charge/Unit Use
= Income
(B) Fees and charges for rental of equipment (towels, ski
equipment, golf clubs, boats, etc.)
Kind of Equipment
No. Units(x)
No. Times Used(x)
Charge/Unit Use
= Income
(C) Sale of goods (food, equipment, merchandise,
supplies-groceries, beverages, meals, boats, bait, fishing
equipment, ice, fuel, etc.)
Kind of Goods Sold
Total Sales -
Cost of Goods
= Income (Margin)
Subtotal Total Sales
Total Income (Margin)
(D) Sales or services not included in Items A to C (repair
service, swimming lessons, tours, babysitting, boat
launching, etc.)
Service Income
Total
(E) Other income (memberships, leases, etc.)
Add items (A) thou (E) Total Income
7. Add wages paid yourself to Net Profit (from 3, above)
to arrive at returns to management, labor, and capital of
owner-operator.
8. Take Net Profit (from 3, above) and add Depreciation
(Sec. VIII, "A", line 4) to determine if there is
sufficient cash flow to retire debt principle payments as
needed.
SECTION IX. TIPS FOR CONDUCTING THE FEASIBILITY STUDY
I. Information and Fact Gathering
a) Determine the information essential to the success of
the study (review check lists).
b) Determine possible sources of additional information
and bibliography.
c) Assign the responsibility for gathering facts and
information--select professional sources such as
appraisers, architects, site development engineers,
and designate specific responsibility.
d) Set a timetable for gathering and assembling the
information.
II. Analysis of the Facts and Information (much of this is
done after the check list is completed)
a) Group the facts and information in an orderly manner
(Use the check list to develop an orderly study).
1. Draw a map showing location to markets, population
centers, competitive and complementary facilities,
physical factors of site accessibility,
developmental factors, etc.
b) Determine if special steps must be taken to fill
information gaps crucial to the success of the enterprise.
c) Assign priority to facts according to how they affect
the potential feasibility of information vs. opinion and
"guesstimates." Talking to someone in the business can be
helpful.
d) Determine which, if any current trends (public
preferences, area development, economics) may have a
significant bearing on your enterprise, and the effects of
your recreation enterprise on others. Then, you can decide
which alternative or alternatives are feasible and worthy
of detailed study and implementation.
SECTION X. SUMMARY OF DECISIONS AND PRIORITY OF STEPS
So far, site, clientele, personalities and economics have
been considered. Which is most important? Which should be
considered first? These are difficult questions. If you
have the best site in the state, but no money to develop
it you must decide whether to hold, rent, lease or sell.
And, it can be frustrating to have a willing clientele and
available finances, but no site. It is unfortunate,
likewise, to have access to a good site, adequate
financing and potential clientele, but lack the needed
personality or management abilities for the enterprise.
For success, balance is needed in all of these important
areas.
Recreation enterprises which offer genuinely different or
unique activities have been successful almost regardless
of cost to the developer or user. In contrast, some
successful outdoor enterprises are inexpensively
constructed and operate with almost a "carnival"
atmosphere. The common denominator for success appears to
be management ability. Thus, management ability should
rate high on the priority list. Site also contributes
significantly to the success of an outdoor recreation
enterprise. Some physical features can be altered to
conform to the operation, but location cannot be changed.
Financial backing is essential, and must be available
prior to beginning the venture. Unfortunately, expenses
begin before income, a fact which stops many enterprises
in the development stage.
Because of the interdependence of all priorities, the
decision maker has to consider all of them together.
Visits to existing recreation enterprises can be helpful.
Discussion with others and observation of their successes
and failures has helped many entrepreneurs come to a
decision.
Another important aspect to consider is the community's
attitude toward your potential enterprise. Most cities,
townships and counties have planning commissions and
zoning boards that require compliance to their plans and
ordinances. Zoning may prohibit the development of a
recreation enterprise on your property. Visit these groups
and explain your plans. It could save time and money, and
more importantly, dispel unfounded rumors, which seem to
accompany most such developments.
While zoning can prohibit development, deed restrictions
and private covenants cm also be used to impose private
control over land development. They are legally
enforceable as long as they aren't counter to public law.
An attorney can examine a current abstract of title and
advise you on any use limitations.
Public and municipal services should be thoroughly
investigated. Services of importance to a prospective
recreation enterprise include: fire and police protection,
garbage collection, road maintenance, water, sewerage,
telephone, electrical power, natural gas and others. Lack
of such services could limit operations or cause added
expenses.
The available local labor force is another important item
on the priority list that should be analyzed. Where will
your help come from? What age employee is needed? What
education requirements are necessary? What training will
be needed?
Labor force information is available at the nearest
Michigan Employment Securities Commission. This office
will also assist in locating and testing prospective
employees.
CONCLUSION
The need for a systematic method of analyzing a planned
recreation business (or any business) has prompted this
publication. It will succeed if it assists the developer
in realistically looking at himself, his site, potential
clientele, finances and development of the enterprise.
However, even skillful completion of these worksheets
cannot insure success. Usually, it should be followed by a
more complete feasibility study with detailed plans of the
development, including both financing and business
management.
INFORMATION SOURCES
Local Assistance
Michigan State University Cooperative Extension Service
(locations in each county in Michigan, with specialists in
Natural Resources, Park & Recreation Resources, Marketing,
Hotel, Motel S Restaurant Management)
Soil Conservation Districts
County or Township Planning & Zoning Commissions
County Health Department
County Road Commission
County Drain Commission
County Board of Commissioners
County Board of Education
County Sheriff
Township Board
Michigan Employment Securities Commission
Michigan State Police
Chambers of Commerce
Agricultural Stabilization & Conservation - County
Committees
Federal Assistance
-U.S. Department of Agriculture, Washington, D.C. 20250 -
educational materials
-Soil Conservation Service - plans, technical services,
maps, soil types
-Forest Service - plans, technical assistance,
consultation
-Farmers Home Administration - possible loans
-National Park Service - plans, educational material
-U.S. Small Business Administration possible loans
State Assistance
-Michigan Department of Natural Resources, Lansing,
Michigan - assistance in fish wildlife management, park
development, forestry, etc.
-Michigan State Highway Department, Lansing, Michigan -
reports on traffic volume, patterns, highway plans and
improvements
-Michigan Department of Health, Lansing, Michigan -
publications and consultation on local water supply,
sewage disposal, refuse disposal, swimming pools, and
insect and rodent control
-Michigan Water Resources Commission, Lansing, Michigan -
information related to water resource matters
-Michigan Tourist Association, Lansing, Michigan -
promotional agency
-Michigan State Chamber of Commerce, Lansing, Michigan -
promotional agency
-Michigan Department of Commerce, Economic Expansion Div.,
Lansing, Michigan - statistical, business information
-Michigan Department of Agriculture, Lewis Cass Bldg.,
Lansing, Michigan inspection regulatory agency
BIBLIOGRAPHY
Michigan State University-Cooperative Extension Service
Bulletins
-Employee Motivation - Work Incentives in the Service
Industries (E483)
http://www.msue.msu.edu/msue/imp/modtd/33129713.html
-Outdoor Games for Guest Entertainment (R701)
-Management through Figures(E656)
http://www.msue.msu.edu/msue/imp/modtd/33119706.html
-Marketing Management * Lodging Industry (E677)
http://www.msue.msu.edu/msue/imp/modtd/33410154.html
-Liability and Insurance Protection in Rural Recreation
Enterprises (E580)
http://www.msue.msu.edu/msue/imp/modtd/33139716.html
-Directory Sources of Assistance in Recreation (25›)
(E481)
-Account Book (1.00) (R604)
-Children's Games and Play Equipment (R702)
-Hospitality Schools, Conducting (R102)
-Recruiting and Training Employees (E484)
http://www.msue.msu.edu/msue/imp/modtd/33129714.html
http://www.msue.msu.edu/msue/imp/modtd/.html
-Planning Community Wide Recreation (E684)
-Vacation Homesites (E676) Federal Government-U.S.
Department of Agriculture or U.S. Department of Interior
Bulletins
-Working Drawings of Basic Facilities for Campground
Development (No. 264)
-Liability - Insurance Protection for Farmers Who Have
Income-Producing Recreational Facilities (ERS120)
-Budgeting Farm and Ranch Recreation Enterprises (ESC559)
-Rural Recreation-New Opportunities on Private Land
(930)
-Forest Recreation for Profit (265)
-Income Opportunities for Rural Families from Outdoor
Recreation Enterprises(68)
-Financing of Private Outdoor Recreation, Dept. of the
Interior
-Outdoor Recreation Space Standards, Dept. of the Interior
-Internal Revenue Service bulletins:
#509 Tax Calendar ~ Checklist
#534 Depreciation, Investment Credit Amortization,
Depletion
#535 Tax Information on Business Expenses
#539 Withholding Taxes from Employees Wages
#541 Tax Information on Partnership Income ~ Losses
#334 Tax Guide for Small Business
Miscellaneous Bulletins
Evaluating Forest Campground Sites,
Richard C. Allison, Roger S. Leighton, University of New
Nampshire, Durham, N.H. 03824
So You Want to Operate a Campground,
National Conference on State Parks, 1700 Pennsylvania Ave.
N.W.,Washington, D.C. 20006
Regulations Governing Seasonal Trailer Parks,
Michigan Department of Public Health, Lansing, Michigan
48913
Minimum Requirements for Food& Drink Establishments,
Michigan Department of Agriculture Food Inspection
Division, Lansing, Michigan 48913
A Look at Commercial Recreation on Small Woodland in Ohio,
Wayt, Action & Whittaker, Northeastern Forest Experiment
Station, Upper Darby, Pa. Forest Service, U.S. Department
of Agriculture
Outdoor Recreation Budget,
Cooperative Extension Service, College of Agr., Washington
State University, Pullman, WA 99163
This information is for educational purposes only. References
to commercial products or trade names does not imply
endorsement by MSU Extension or bias against those not
mentioned. This information becomes public property upon
publication and may be printed verbatim with credit to MSU
Extension. Reprinting cannot be used to endorse or advertise
a commercial product or company.
This file was generated from data base TD on 09/30/03.
Data base TD was last revised on 06/06/02.
For more information about this data base or its contents please contact
alexande@msue.msu.edu . Please read our
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