How to Write a Feasibility Study Step by Step
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A feasibility study looks at the viability of an idea with an emphasis on identifying potential problems. The study attempts to answer two main questions: Will the idea work, and should you proceed with it?
Before you start to write your business plan, it's important that you first identify how, where, and to whom you intend to sell your product or service. You also need to assess your competition and figure out how much money you will need to start your business—and more importantly, how much it will take to keep it running smoothly until it is well established.
A feasibility study also addresses such important issues as where (and how) the business will operate. If done properly, your feasibility will provide in-depth details about all the various components of your business in order to determine if it can succeed. In the end, this document will serve as a valuable tool for developing a winning business plan.
Why Feasibility Studies Are so Important
The information you gather and present in your feasibility study will help you:
- Identify all the things you need to make the business work
- Pinpoint logistical and other business-related problems and solutions
- Develop marketing strategies to convince a bank or investor that your business is worth considering as an investment
- Serve as a solid foundation for developing your business plan
Location, Location, Location
Even if you have a great business idea, you'll have to find a cost-effective way to market and sell your products or services. This is especially important for storefront retail businesses where the location you choose could make or break your business. The right store in the wrong place is doomed to fail. Most commercial space leases place restrictions on businesses that can have a dramatic effect on income. A lease might limit business hours or days, or parking spaces. It might restrict what products or services you can offer.
In some cases, it can even limit the number of customers a business can receive each day.
Also, you'll need to ask yourself if you should you rent space in a business park, industrial park, or retail location—because different types of commercial real estate properties all have pros and cons.
6 Components of a Feasibility Study
- Description of the Business. This describes the product or services to be offered.
- Market Feasibility. This includes a description of the industry, the current market, anticipated future market potential, competition, sales projections, and potential buyers.
- Technical Feasibility. This details how you will deliver your product or service, including issues of materials, labor, transportation, where your business will be located and the technology needed.
- Financial Feasibility. You need to project how much startup capital you'll need and examine potential sources of capital and returns on investment.
- Organizational Feasibility. This examines the legal and corporate structure of the business. You can also include professional background information about the founders of the business and what skills they can contribute to the business.
- Conclusions. You should discuss how you envision the business succeeding. You need to be honest in your assessment because investors won't look at your conclusions and take that as proof. They should also look at the data and question your conclusions if they appear unrealistic.
Feasibility studies contain comprehensive, detailed information about your business structure, your products, and services, the market. They also examine the logistics of how you will deliver a product or service, and the resources you need to make the business run efficiently.