A feasibility study in business is an assessment of the practicality of a proposed project or idea. It involves examining the project’s technical, operational, financial, and legal aspects. The purpose of a feasibility study is to determine whether the project is viable, practical, and economically feasible.
So, starting a new business or exploring opportunities within your existing business is an exciting endeavor. However, one of the most crucial challenges you’ll face is determining the feasibility of your idea. To ensure that you make informed decisions and increase your chances of success, conducting a thorough feasibility study is essential.
Preliminary Analysis: Evaluating Personal and Project Considerations
General Personal Considerations
Before diving into the technical aspects of your business idea, it’s crucial to assess your personal suitability for business ownership and management. Ask yourself the following questions:
1. Do you enjoy making your own decisions?
2. Are you motivated by healthy competition?
3. Do you possess willpower and self-discipline?
4. Are you proactive in planning ahead?
5. Do you consistently meet deadlines?
6. Are you open to receiving advice and feedback from others?
7. Can you adapt effectively to changing business conditions?
Specific Personal Considerations
Beyond general attributes, consider the specific skills and expertise needed for your project’s success. Ask yourself:
1. Do you possess the necessary skills critical to the success of your project?
2. Does your idea effectively utilize your skills and abilities?
3. Can you identify and recruit personnel with the expertise you lack?
4. Are you clear on the reasons driving your interest in this project?
5. Will this project align with your long-term career aspirations?
Project Description: Defining Your Business
To move forward with your feasibility study, you need a clear and concise description of your business idea. Provide the following details:
1. Briefly describe the nature of the business you want to establish.
2. List the products and/or services you plan to offer.
3. Identify your target audience and potential users of your products/services.
4. Highlight the unique selling points of your product/service – what sets it apart?
5. Specify the ideal location for your business, considering factors like neighborhood, traffic count, and nearby firms.
6. List your potential product/service suppliers.
7. Identify major competitors who offer similar products/services.
8. Outline the necessary labor and staff required to deliver your products/services.
Requirements for Success: Assessing Business Viability
To determine whether your business idea is likely to succeed, consider the following aspects:
1. Does your product/service fulfill an unserved need in the market?
2. Is there an existing market with demand exceeding supply for your product/service?
3. Can your product/service/business outcompete existing players through advantageous factors such as better pricing or location?
Identifying Major Disadvantages: Addressing Potential Pitfalls
It’s essential to recognize and address any potential flaws that might hinder the success of your business idea. Consider the following factors:
1. Are there any constraints or shortages that could make the production of your product/service difficult or costly?
2. Are the capital requirements for entry or ongoing operations excessive?
3. Will securing adequate financing be challenging?
4. Are there potential detrimental environmental effects associated with your business?
5. Are there any barriers preventing effective marketing of your product/service?
Desired Income: Financial Considerations for Business Owners
Understandably, profitability is a significant concern for any business venture. Consider the following financial aspects:
1. Determine the level of income you desire from your business.
2. Are you prepared to accept a lower income for the initial 1-3 years of operation?
3. Establish the minimum income required to sustain your personal and business needs.
4. Evaluate the financial investment necessary for your business and potential returns.
5. Compare the potential earnings from your business with those you could earn by working for someone else.
6. Consider the average return on investment for businesses similar to yours.
Preliminary Income Statement: Analyzing Financial Performance
To gain insights into your business’s financial performance, prepare an income statement. Follow these steps:
1. Determine the markup in your industry, which is the percentage difference between the cost of goods sold and sales.
2. Calculate the average cost of goods sold as a percentage of sales.
3. Analyze the average inventory turnover, indicating how many times the average inventory is sold each year.
4. Calculate the average gross profit as a percentage of sales.
5. Evaluate the average expense as a percentage of sales.
6. Assess the average net profit as a percentage of sales.
7. Use these figures to determine the sales level required to achieve your desired income.
Market Analysis: Understanding Your Target Audience
A thorough market analysis is vital for projecting sales accurately. Consider the following aspects:
1. Define the geographical areas from which you expect to draw customers.
2. Gather information about the population in these areas, including size, growth trends, age distribution, and per capita income.
3. Understand consumers’ attitudes toward businesses similar to yours.
4. Analyze consumer shopping and spending patterns related to your type of business.
5. Assess whether pricing is a crucial factor for your target market.
6. Determine the size of your potential market segment and its profitability.
Competition Analysis: Knowing Your Competitors
Understanding your competition is essential for developing effective strategies. Analyze the following aspects related to your competitors:
1. Identify your major competitors and their strengths and weaknesses.
2. Gather information on their price structure, product lines, location, promotional activities, and image from the consumer’s perspective.
3. Stay informed about any new competitors entering the market or your competitors’ plans for expansion.
4. Learn from the failures of other businesses similar to yours.
Sales Forecast: Estimating Future Sales
A well-grounded sales forecast is crucial for setting realistic business goals. Consider the following factors:
1. Determine the total sales volume in your market area.
2. Evaluate the accuracy of your sales forecast and base it on concrete data.
3. Consider seasonal factors that could affect sales.
4. Plan your inventory strategy, including mark-downs if necessary.
5. Outline your advertising and promotion plans.
6. Forecast the share of the total market you can realistically capture.
Supply Assessment: Ensuring Smooth Operations
A reliable supply chain is essential for the success of your business. Assess the following:
1. Create a list of all the inventory and operating supplies needed.
2. Identify potential sources of supply, including their price ranges and delivery schedules.
3. Evaluate the credit terms and financial condition of each supplier.
4. Assess the risk of shortage for critical materials or merchandise.
5. Consider transportation costs and their impact on pricing and profitability.
With a comprehensive feasibility study, you can gain valuable insights into the viability of your business idea. Analyzing these aspects will help you make informed decisions and increase your chances of creating a successful and profitable venture. Remember to continually update your feasibility study as market conditions and business dynamics change. Armed with this knowledge, you are well on your way to outrank other websites and capture Google’s attention for your business expertise and insights.
“Conducting Feasibility Studies, Marketing, Technical, Finance, HR etc.” https://theintactone.com/2018/07/05/ed-u2-topic-4-conducting-feasibility-studies-marketing-technical-finance-hr-etc/, Accessed 21 July. 2023.