Do you know how to conduct feasibility study on a business
idea? What if I provide you with a feasibility study template and sample? If I
show you a practical feasibility study outline, will you appreciate it? If your
answer is yes, then read on.
In the previous article wrote, I stressed the importance of
conducting feasibility study on your business idea before taking it to the
marketplace. Today, I will be teaching you how to conduct feasibility study on
your business idea. Since conducting feasibility study is such an important
process that must be carried out on your business idea or proposal, I will
advise you print out or bookmark this article for future reference.
“A man that is prepared has half won the battle.” – Sydney
M. Bremer
5 Reasons Why You Must Conduct Feasibility Study
What is the importance of conducting feasibility study
before starting a business? Can conducting feasibility study give your business
an advantage and help reduce the high rate of business failure?
A feasibility report is an often ignored but vital
prerequisite to building a successful business from scratch. In fact, not doing
feasibility is one of the silly mistakes entrepreneurs make when starting a
business. So in this article, i will be stressing the need to conduct
feasibility study.
“Starting a business is like jumping out of an airplane
without a parachute. In mid air the entrepreneur begins building a parachute
and hope it opens before hitting the ground.” – Rich Dad.
Few years ago, before starting a business of my own, I was
privileged to assist my dad in overseeing the affairs of his business. Our
company was in the business of importing and distributing sanitary wares.
Business moved on smoothly for many years till we began to
experience a decline in sales and decrease in profit margin due to stiff
competition and inconsistent government policies. My dad decided to diversify
so he made a move into the clothing line based on the recommendation of a
nephew.
Since he started his first business from scratch without
conducting a feasibility study, he thought he could repeat the feat in the
clothing line. As expected, the business flopped in less than two years due to
many unforeseen factors I wouldn’t want to mention here; and we lost a lot of
money.
Though this experience was painful, I learned a lesson I
will never forget in my life and that is: “The Importance of Conducting a
Feasibility Study before Starting a Business.” Now i know many out there have
made this same business mistake and many are still to bound to make it. Having
shared my story; let me highlight five reasons why you need to conduct
feasibility study before starting a business.
Importance of Conducting Feasibility Study Before Starting a
business
a. Feasibility study will help you to determine the
profitability of the business venture. Before starting a business, seasoned
entrepreneurs and investors would want to know if the business would be worth
their time, effort and resources. It is worthwhile to know that many
entrepreneurs have abandoned solid business ideas because the profitability
could not be ascertained on conducting a feasibility study on the business
idea.
b. A feasibility study report will help prove to the entrepreneur,
venture capitalists, lenders and investors the existence of the market, the
liquidity of the business venture and the expected return on investment.
c. Feasibility study will help you identify the flaws,
business challenges, strengths, weaknesses, opportunities, threats and
unforeseen circumstances that might affect the success and sustainability of
the business venture. Just like the case of my dad’s business, the business
failure and loss of money would have been avoided if we had carried out a
feasibility study. We simply jumped in based on someone’s recommendations
because we were flushed with cash and we paid dearly for it.
d. Before starting a business, feasibility study will enable
you estimate the financial, human and technological resources that will be
needed to ensure the successful launching of the business. Feasibility study
helps to reveal the number and level of skill or unskilled workers to be
employed and their salary scale.
e. Feasibility study will help you to determine the amount
of capital required to start the business. It will also help you in
establishing the budget plan, working capital and cash flow projections of the
business.
As a last note, my advice to you is this:
“Never invest a dime without first carrying out feasibility
study on the business idea.”
How to Conduct a Feasibility Study – Sample Template
A Typical Feasibility Study Template and Outline
1. Economic Analysis
I believe this is where your feasibility study should start
from. What is the essence of carrying out market research or even going ahead
to start a business when the economy does not favor entrepreneurship or private
ventures?
Analyzing the economy will help you align your planned
business with the economic situation on ground. Economic feasibility should
include analysis on government’s fiscal and monetary policies, import and
export rate, inflation rate, tax rate, and currency exchange rate and so on.
2. Market Analysis
The next thing you should be analyzing is the market for
your proposed business idea. Carrying out a feasibility study on the market
will enable you know if there is actually a need or market for your business
idea. Market analysis will also help you to determine the size of the market,
demographics and psychographics of the market, level of competition and the
size of the market you can compete for.
3. Technical Analysis
This part of a feasibility study deals with the
technological requirements of the business. Technical analysis will enable you
determine the method of production to be employed, equipments, spare parts and
tools, site development, supporting facilities, the nature of the factory
building, fencing and so on.
4. Location Analysis
This is carried out with a view to determine the best
location for the business in terms of nearness to high traffic roads, nearness
to infrastructure, accessibility to customers, ease of transportation of raw
materials and finished products, nearness to cheap labour, cost of land
acquisition and so on.
5. Manpower Analysis-: This part of a feasibility study
deals with the process of estimating the level of skill, professionalism and
number of employees to be hired by the business. The salary scale, incentives
and pay package are also estimated at this point.
6. Financial Analysis
Financial analysis will be dealing with the estimation of
the total capital involved, capital expenditures, working capital; profit and
loss analysis, pricing of products, cash flow projections, projected sales
revenue and the entire project viability. Everything concerning finance should
be dealt with at this juncture. If you are trying to raise venture capital for
your small business startup, then you have to do a clean job on the financial
section of the feasibility report because this is where investors focus on. All
they are interested in knowing is how much is the percentage return on
investment and the payback period.
7. Sensitivity and Risk Analysis
This is the last part of a feasibility study and probably
the most important. After all other factors have been analyzed and proven
viable, sensitivity and risk analysis can come in. Building a business without
properly conducting a risk analysis is like flying a plane without regards to
weather condition. Before any business idea is taken to the marketplace, its
risk to reward ratio should be analyzed, the sensitivity to competition should
be determined and the liquidation rate of companies in the industry of your
proposed business venture should be calculated. With results obtained from
sensitivity and risk analysis, growth and survival strategies can be developed
for your proposed business.
As a final note, if conducting feasibility study is too
technical for you; then consider hiring a professional or a business consultant
to do the dirty work for you. It’s going to save you time and energy. And just
before I drop my pen, always bear in mind that carrying out feasibility study
on your business idea will enable you write a business plan and help you forge
a competitive advantage for your business and increase your chance of success.
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