This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
The investigation of a proposed new enterprise may be divided into three stages:
1. A preliminary analysis and review of the field in which many approximate tests of the probable revenue and expenditures may be applied. Sometimes an hour or two of careful figuring and thinking, based upon a general knowledge of the proposition, will determine whether it is worth while to proceed with further study.
2. The next stage is a preliminary study of the important facts, corresponding to the preliminary survey of a. new rail-road line, which maps out its course but does not attempt to cover all the details. It should be possible at the conclusion of this stage to form a final judgment as to the prospects of the enterprise.
3. Finally there should come a detailed investigation of the location of the enterprise, the sales markets, the personnel or proposed personnel, and of numerous other factors, with a view to making certain that no hidden weakness exists.
This is the process that would be gone through in making a thorough investigation of an entirely new proposition, as for instance, an interurban railway. First, anyone considering the promotion of the railway would get general data as to the population of the territory, length of the line, expense of buildings, operation, etc., and would determine whether it was desirable to go ahead. Second, he would have a definite survey and study of the traffic possibilities made for him. Third, he would go into detail as to the layout of the line, the cost of right of way, the nature and cost of the franchise, and so on.