Feasibility Report
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A business feasibility study format can be as simple or complex as you desire. Simply, it is an examination of your business model. You are checking that it is possible to make a profit from your intended business.
When considering how to write a business feasibility study, it is important to consider three main areas of the business:
- market environment
- technical and operational requirements
- financial projections
The main difference between a feasibility report and a business plan is purpose.
Business plans are written to explain business concepts and to show (by producing references to relevant research) that the concept is not only feasible, but profitable. Research is produced to support claims made in the business plan regarding a single pre-selected business model and concept.
Feasibility Reports outline the business concept/s (in the same way as a scientific experiment might pose a hypothesis), and then examines research to determine whether in fact there is sufficient support for the concept or not. The report will conclude by either accepting that the concept is sufficiently profitable, making recommendations for refinements in concept in order to achieve profitability, or concluding that the concept is not viable, and should be dropped.
To help you work through a feasibility study, ReadyPlanning.com is proud to present to you “Don’t Gamble With Your Business! - New Business Feasibility Study Workbook”, available for immediate purchase, and instantly downloadable to your desktop. Read more about the feasibility study workbook.
Market Potential Assessment
A business (or product/service) is assessed as feasible if it can be shown that there is sufficient market demand - that is, that you can show there are enough customers in your geographic/target market who will purchase a sufficient quantity of products/services to estimate that your business will return a profit. If at the end of the process you have decided that there is not space in the market (that being, your type of customers in your target location) then you should make a choice; either, target a different type of customer or different geographical catchment where there is space for your business; or drop the idea.
Many business owners fall into a trap of confusing zeal with ability. They are convinced that their product is so much bigger and better than the competition, that they believe they can enter a saturated market and survive… and they might. But in a financial arena where 80% or more of businesses do not survive the first five years, they would be wise not to subject their startup to the additional burden of trying to grow in a heavily competitive market. It is much better to be entering a market where demand outstrips supply - in this environment, customers are much more likely to buy your product, with less effort on your part.
Other important considerations include:
- What stage of the product life-cycle is the target population in?
- Is the market dominated by a few large players, or is it fragmented and met by hundreds of smaller players?
- Is competition based around price or value?
Technical and Operational Assessment
A business is considered technically and operationally feasible if it has the necessary expertise, infrastructure and capital to develop, install, operate and maintain the proposed system, and that by establishing such a system, the business will be able to deliver goods or services at a profit. When considering a new business, it is important to consider if there is sufficient access to resources. One of the primary reasons that new business fails is under-capitalisation - not enough money to keep the business going from startup until it starts to make a profit. This can lead to a lack of resources.
Things you need consider include:
- What equipment will you need?
- Who will supply the equipment?
- What materials do you need?
- What facilities will you need? and
- What managerial assets will be required?
Financial Assessment
A business or project may be regarded as economically feasible if it is able to produce goods/services and distribute them to the marketplace and still return a profit to the owners.
The following costs and income should be considered:
- What are total start-up costs needed in order to begin operations?
- What are the cashflow requirements of the business.
- What is the business’s projected income?
- How will you determine your pricing arrangements?
- What are possible sources of financing?
- What is the projected profit/loss of the business over the first five years?
- When does the business break even?
If a business is able to ‘pass’ all of the above criteria, then there is potential for a successful business. However, it is important to remember - just because a business has potential, does not guarantee its success.
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