Learn How to Write a Business Feasibility Study
10 Steps to a Professional Feasibility Study
If you think you have a great idea for a new product, such as a homemade cherry jam handed down to you by your grandmother, it may be time to bring your idea or product to market.
You may have even received so many compliments that you feel it could be a genuine business opportunity, which is great, but you'll probably need to do some research to see if the idea will actually bring in any real profits.
What's a Feasibility Study?
A business feasibility study is a process that tests your idea's viability. It helps you to get a handle on whether your idea will fly or if it's likely to flop. Feasibility studies can also serve as a basis for creating a small business plan and a marketing plan, both of which you'll also need going forward. A typical feasibility study covers six areas, starting with a description of your business, the market, technology you'll need to use, financial and organizational details, and a conclusion of how you'll move forward.
Before starting the report, you can do some basic research to see if your idea has enough going for it to take the time to compile the report. These 10 steps and considerations can get you started on answering that question and working through your own study.
Assess Potential Customer Demand
If you're thinking of selling your cherry jam in your area, start your research by visiting grocers and surveying their shelves. Do they have a paltry display with very few jam products? This could mean that there's no demand for your product.
Next, go to the Internet. Do a keyword search for your product if you plan to sell it online. If it looks like a lot of people are doing a brisk business selling cherry jam or a similar product, there's a good chance that demand exists for what you intend to sell.
Assess the Competition
Find out who you're up against. Let's say you'd like to sell your jam at the local farmers market. Stop by the market at least twice, once on the busiest day and once on the slowest day. See how many—if any—vendors are selling jam, and sample their products.
You should be able to judge fairly easily if your product is superior or unique to those that you'll be competing against. If you plan to sell your jam online, see if there's a leading brand that dominates the market and already has a devoted customer base, then sample it.
Starting Your Feasibility Study
Now you're ready to get started on your study, and that begins with understanding it in more detail. A feasibility study typically includes six sections or components: a description of your business, a market feasibility study, a technical feasibility study, a financial feasibility study, an organizational feasibility study, and your conclusions.
Begin gathering necessary the information you'll need to address all these issues. What do you need to accomplish to make your business work? What are some potential problems you might encounter? Devise some marketing strategies. Commit all this to writing—you'll refer back to it a time or two or 10.
Writing a Market Feasibility Study
Prepare the market components of your feasibility study first, including a description of the industry, the current market, the anticipated future market potential, and industry trends, the level of your competition, sales projections, potential customers and clients, and other revenue-generating resources.
Your challenge is to keep all this as brief as possible. Eliminate wishful thinking in your assessment of the current market and your competition and be conservative with your sales projections.
Writing a Technical Feasibility Study
The technical feasibility study focuses on the technical and logistical factors that must be in place so your business can produce, store, and deliver its products or services to the public. A technical feasibility study includes details like the kinds of materials, labor, technology, and transportation you'll need, as well as where your business will be located.
Remember, a loan officer or investor will be reading this, and yours is probably not the first feasibility study he's ever encountered. He's experienced, you have his attention, and you're taking his time. He expects your study to be polished and professional. So give a comprehensive accounting of what you expect to need to get your business off the ground, including technology, materials, labor costs, and transportation and shipping costs in clear, concise order.
Writing a Financial Feasibility Study
The information included in your technical feasibility study must be supported by your financial feasibility study. Your technical feasibility study should flow seamlessly and directly into this component.
Here's where you'll address estimated startup capital. Identify and list your sources of capital, and the explain estimated potential returns on investments. Don't overlook an explanation of how an investor can expect to be paid for his support of your business. Your financial feasibility study should be comprehensive down to the most minute detail. Don't assume that your reader already knows or anticipates hearing this information.
Make sure your projected capital is adequate to cover the technical and logistical factors you've already outlined.
Writing an Organizational Feasibility Study
This covers the important details of your business's organizational structure and will help you make your feasibility study and your business plan more attractive to potential investors and clients.
An organizational feasibility study defines the legal structure of your business and offers pertinent professional background information about the founders, the partners, and other principals involved in the venture if any.
It can be helpful to include a code of ethics here, along with your business's principles and practices. Address issues of employee training and accountability, as well as anti-discrimination and other labor policies.
Feasibility Study Conclusions
Here's where you summarize and draw the conclusions you want your potential investors and customers to understand.
You don't want to introduce statements here that have not been supported by the data and other information you've already presented. Your previous study components must support your conclusions clearly and without question. Use this section to enforce items you've already mentioned and to make sure previous points are crystal clear.
Stick to facts. Avoid comments and phrases like, "I think," or "I believe." Other words to avoid include "hope," "anticipate," and "opinion." Your reader wants facts, not speculation.
Presenting Your Completed Feasibility Study
This last but perhaps most important step involves assembling your feasibility study into a professional-looking package, as you might be presenting this report to several different parties. While content's key, the presentation is equally important because you want to engage people from the start or they won't pay attention to the details. Make sure your cover letter is personalized and has impact. Design a cover sheet and assemble a table of contents. Gather everything in a neat, professional binder or portfolio.
Should You Hire an Expert Consultant?
If you don't have the time to complete a feasibility study, it might make sense to hire a consultant to manage and conduct it for you. Ask colleagues for referrals and thoroughly research consultants with expertise in your chosen product or service area. Learn what their fees are. If you decide to hire someone, be clear that you want his report to be as objective and honest as possible.
Otherwise, roll up your shirtsleeves and get to work. You can write a useful and worthwhile feasibility study if you take your time and educate yourself a little first.