A feasibility study looks at the viability of a business venture or project with an emphasis on identifying potential problems. The study attempts to answer two main questions: Will the proposed business venture or project 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 important issues such as where (and how) the business will operate. If done properly, your feasibility analysis will provide in-depth details about all the various components of your business 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 investing in, and serve as a solid foundation for developing your business plan
The Importance of 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, parking spaces, and restrict what products or services you can offer. In extreme cases, it can even limit the number of customers a business can receive each day.
You'll need to ask yourself if you should rent space in a business park, industrial park, or retail location—because they each have their own pros and cons.
6 Components of a Feasibility Study
- Description of the Business: Describes the product or services you plan to offer.
- Market Feasibility: Describes the industry, the current market, anticipated future market potential, competition, sales projections, and potential buyers.
- Technical Feasibility: 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: Projects how much startup capital you'll need and examines potential sources of capital and returns on investment.
- Organizational Feasibility: 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: Discusses 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 will look at the data and question your conclusions if they appear unrealistic.
The Bottom Line
Feasibility studies contain comprehensive, detailed information about your business structure, products, services, and 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.