There are various reasons to conduct a feasibility study before starting any business. A feasibility study may be necessary for a variety of projects, including many business studies for the expansion or continued operation of a company or small business, as well as other types of proposed projects like public works initiatives.
Your feasibility study should cover technical viability, market viability and commercial viability. It should also include an overall assessment of risks and your strategies to minimise those risks.
You may need to seek professional assistance as you prepare your feasibility study but it will be worth it so that you can make an informed decision on whether or not to proceed with your business idea.
Here are some of the main parts necessary when officials or business managers want to do a feasibility study
1. Economic Analysis
2. Market Analysis
After the economic analysis, the next thing you should be analyzing is the market for your proposed business idea. Market analysis of the feasibility study answers the following questions;
- Can the product or service be sold in sufficient volume at a sustainable price?
- Is there a market for what you are proposing to offer?
3. 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.
4. Technical Analysis
Is the product or service that you propose to offer technically viable? This part of a feasibility study answers this question. The technical analysis deals with the technological requirements of the business. Technical analysis will enable you determine the method of production to be employed, equipment, spare parts and tools, site development, supporting facilities, the nature of the factory building, fencing and so on.
5. 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.
6. Commercial Feasibility
The commercial feasibility answers the following question;
- Is your product or service commercially viable?
- Can you sell your product or service in sufficient volume to generate a profit?
This section of the feasibility study will contain detailed explanation about the:
Key success factors for your business, i.e. those factors you MUST have to meet business objectives
Strengths and weaknesses of your business and the opportunities and threats it faces
How long you expect to be in business before you generate your first sale.
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.
*What are the major risks you will have to accept if you go ahead with your business?
*How do you propose to lessen the risks?
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.