Business Feasibility Studies
BUSINESS FEASIBILTY STUDY
Prepared by Crossroads Business Management Centre Ltd
Business Feasibility Studies
WHAT IS A BUSINESS FEASIBILITY STUDY?
A feasibility study looks at the viability of a business idea with an emphasis on identifying potential problems and attempts to answer one main question: Will the idea work and should you proceed with it? Before you begin writing your business plan you need to identify how, where, and to whom you intend to sell a service or product. You also need to assess your competition and figure out how much money you need to start your business and keep it running until it is established. Feasibility studies address things like where and how the business will operate. They provide indepth details about the business to determine if and how it can succeed, and serve as a valuable tool for developing a winning business plan.
The feasibility study should answer the following questions: 1. Will the business work or not? 2. Is it profitable or not? 3. Is it worth doing? 4. Is it worth commissioning a business plan?
Prepared by Crossroads Business Management Centre Ltd
Business Feasibility Studies
REASONS TO DO A BUSINESS FEASIBILITY STUDY
Conducting a feasibility study is a good business practice. If you examine successful businesses, you will find that they did not go into a new business venture without first thoroughly examining all of the issues and assessing the probability of business success. It is estimated that only one out of fifty business ideas are actually commercially viable. This means that a feasibility study is an effective way for an investor/entrepreneur find out the truth before investing his/her capital. Below are other reasons to conduct a feasibility study.
Gives focus to the project and outline alternatives.
Narrows business alternatives
Identifies new opportunities through the investigative process.
Identifies reasons not to proceed.
Enhances the probability of success by addressing and mitigating factors early on that could affect the project.
Provides quality information for decision making.
Provides documentation that the business venture was thoroughly investigated.
Helps in securing funding from lending institutions and other monetary sources.
Helps to attract equity investment.
The feasibility study is a critical step in the business assessment process. If properly conducted, it may be the best investment you ever made.
Prepared by Crossroads Business Management Centre Ltd
Business Feasibility Studies
BUSINESS FEASIBILITY STUDY RECOMMENDATIONS The feasibility study should contain clear supportive evidence for its recommendations. The strength of the recommendations can be weighed against the study ability to demonstrate the continuity that exists between the research analysis and the proposed business model. The recommendations should clearly state if the business is viable or not. If the business is not viable, what are the reasons and what can be done to make it viable?
BUSINESS PLANS A business plan is a detailed road map for building a given company. A business plan contains all that the feasibility study has plus specific timelines, detailed budgets with forecasts, letters of intent, resumes of staff, background, competition, strengths and weaknesses, work sheets (with full supporting references and notations) and appendices. Appendices should include copies of all documentation in relation to key analyses as well as plans that together represent the road map for company development.
A well-written business plan will show exactly what revenues can be expected and when to expect them, what overheads and expenses will need to be paid and exactly when they will be due. It will also show staffing levels and salaries along with costs of employment, sales levels with monthly and seasonal trends, setup costs, building/office costs, utility and telephone costs, legal, insurance and accounting costs, office furniture and supplies costs and a myriad of other costs and projections. However, while these costs and revenues form an important part of the required picture, a business plan will also need to demonstrate that all required plans are completed.
Prepared by Crossroads Business Management Centre Ltd
Business Feasibility Studies
BUSINESS FEASIBILITY STUDY VS. BUSINESS PLAN A feasibility study is not a business plan. The separate roles of the feasibility study and the business plan are frequently misunderstood. The feasibility study provides an investigating function. It addresses the question of “Is this a viable business venture?” The business plan provides a planning function. The business plan outlines the actions needed to take the proposal from “idea” to “reality.” The feasibility study outlines and analyzes several alternatives or methods of achieving business success. The feasibility study helps to narrow the scope of the project to identify the best business scenario(s). The business plan deals with only one alternative or scenario. The feasibility study helps to narrow the scope of the project to identify and define two or three scenarios or alternatives. The feasibility study is conducted before the business plan. A business plan is prepared only after the business venture has been deemed to be feasible. If a proposed business venture is considered to be feasible, a business plan is usually constructed next that provides a “roadmap” of how the business will be created and developed. The business plan provides the “blueprint” for project implementation. If the venture is deemed not to be feasible, efforts may be made to correct its deficiencies, other alternatives may be explored, or the idea is dropped.
Prepared by Crossroads Business Management Centre Ltd
Business Feasibility Studies
BUSINESS FEASIBILITY STUDY OUTLINE
COVER SHEET EXECUTIVE SUMMARY One page summary of key sections in feasibility study
INTRODUCTION
Brief introduction of the business
Why you are conducting the feasibility study
Terms of reference of the feasibility study
Objectives Mission Vision Objectives
Entry strategies
Growth strategies
Prepared by Crossroads Business Management Centre Ltd
Business Feasibility Studies
PRODUCT OR SERVICE
List of product and services
Product mix if company has more than one product
Source of raw material and equipment
Consumer product test
Beta test with major companies
TECHNOLOGY
Technical information on the product and services
Research and & Development
MARKET ENVIRONMENT
Target market
Define end users and consumers
Product features
Product benefits
Market size
Market share
Frequency of product purchase
Purchasing process
Shopping behavior
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Business Feasibility Studies
Customer purchasing patterns
Major customers
Pareto principal applicability
The industry
Key industrial trends
Industrial outlook
COMPETITION
Direct competitors
Indirect competitors
List key competitors strengths and weaknesses
Key barriers to entry
Competitors reaction to new product entry and their expected behavior
Competitive landscape Source of competition Type of competition Intensity of competition
CUSTOMER CARE
Customer care policy
Customer care training
Customer care desk
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Business Feasibility Studies
Complaint policies and procedures
Complaints solutions and feedbacks
Management role in customer care
THE INDUSTRY
The industrial description
Industrial size
Market share
Demand and supply factors
Market forces such as innovations, cultural change, environment and regulations
BUSINESS MODEL
Describe the business model
Revenue source
MARKET AND SALES STRATEGIES
Marketing strategies
Sales strategies
Strategic partnership
Distribution strategies
Pricing model
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Business Feasibility Studies
Pricing strategy
Payment terms
Market budget for the next 3 years
PRODUCTION/OPERATING REQUIREMENT
The production plan
The production process
Source of raw materials
Source of equipment
Importation process, duty and taxes to be paid
Installation of the equipment
Suppliers terms and conditions
Training of staff
Location of the business, size and requirement
Owning or leasing premises
Source of raw materials
Storage of raw materials and finished products
Security
MANAGEMENT AND PERSONNEL REQUIREMENT
The organization chart
The recruitment process
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Business Feasibility Studies
Management staff, titles, experience, qualifications and responsibilities
Salary summary
Motivational policy
Employees evaluation process
Staff code of conduct
INTELLECTUAL PROPERTY RIGHTS
Required name search
Trade patents, trademark and copyrights
Registration of intellectual property rights
Licensing agreements
REGULATIONS/ENVIRONMENT ISSUES
Government regulations
NEMA assessment and licensing
Political stability
CRITICAL RISK FACTORS
SWOT analysis
PEST analysis
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Business Feasibility Studies
Risk factors
Mitigation of each risk
Prepared by Crossroads Business Management Centre Ltd
Business Feasibility Studies
FINANCIAL PROJECTIONS
PROFIT AND LOSS PROJECTIONS FOR 3YEARS
Key points
Notes Assumptions on each revenue and cost items
CASH FLOW PROJECTIONS FOR 3 YEARS
Key point to note
Notes and assumptions
BALANCE SHEET PROJECTIONS FOR 3 YEARS
Key features
Notes on the balance sheet
FINANCIAL SUMMARIES
Market share projections
Cost assumptions
Statement of income
Summary of cash flows
Prepared by Crossroads Business Management Centre Ltd
Business Feasibility Studies
FINANCIAL RATIO AND COMMENTS
Liquidity ratios i. Current ratio ii. Quick ratio
Profitability ratios i. Profit margin ratio ii. Return on asset ratio iii. Return on equity ratio iv. Return on invested capital-ROIC ratio
Debt ratios i. Debt to equity ratio ii. Capitalization ratio iii. Cash flow to debt ratio
Break-even point
CAPITAL REQUIREMENT AND STRATEGY
Start-up budget
Funding
Source of funding
Return on investment ROI
Pay Back Period
Prepared by Crossroads Business Management Centre Ltd
Business Feasibility Studies
RECOMMENDATIONS AND FINDINGS
Viability of the project i. Market viability ii. Technical viability iii. Business model viability iv. Management model viability
Exit strategy
CONCLUSION
Overall recommendations
Prepared by Crossroads Business Management Centre Ltd
