How to Make a Feasibility Study for a Business Easily
Definition of the Feasibility Study for Business
What is the feasibility study for business? How is the feasibility study different from the ordinary business plan? Definition: A feasibility study is a documented result of marketing and practicality studies justifying the feasibility of implementing an investment project, selecting the most effective organizational, technical, and economic solutions for commissioning new developments or reconstruction and modernization of existing production facilities. A feasibility study, if necessary, is included in the composition of the business plan.
Having thoroughly studied this “problem,” we came to the strange conclusion that a feasibility study is simply a “stripped-down” semblance of a business plan, and in some cases, it is a business plan called a “feasibility study,” and no more. Before you find out how to make a feasibility study for a business, it is also important to learn what is the aim of creating this document.
The Aim of the Feasibility Study
Knowing the aim is important if you want to understand how to do a feasibility study for a new business. The main aim of this type of business paper is to make an analysis of demand for products, goods, and services planned for production. The main goal of entrepreneurial activity is profit making. When planning the planned transaction, you should first of all determine the amount of profit you can expect, and make sure that the project can bring the desired profit. It is important to take into account the time factor, as well as in general when creating a business plan. In other words, along with the magnitude of the expected profit, it is necessary to know how it will be distributed over time and whether the profit will be too late, taking into account the entrepreneur’s need for money and the impact of inflation.
Peculiarities of the Feasibility Study
The business plan and feasibility study differ in their structure. So the business plan has a clear structure which must be adhered to; the same can not be said about the feasibility study. As a rule, the structure of the feasibility study depends on the specific investment project. For example, if a feasibility study is prepared for a newly established enterprise, then its structure should contain all the most important aspects of the activity of this enterprise. If the investment project involves the renovation and reconstruction of the company’s fixed assets, then in this case special attention should be given to the assessment and efficiency of capital expenditures.
Now that you know the definition, the aim, and the particularities of a feasibility study, it is time to learn how to make feasibility report for business.
Feasibility Business Plan Writing Steps
- Write the business description with key success factors. The beginning of any feasibility study is the presentation of the company, which reflects its main characteristics, the degree of technology it is equipped with, the share of the market, and a brief financial analysis of the company.
- Describe the product/service and its benefits. Write why your product or service is the best choice on the market.
- Point out target market feasibility, demand and supply analysis, and location.
- Quantitative and qualitative requirements to material resources and labor funds are determined. Possible ways of supplying raw materials and/or components are reflected. The level of training of personnel participating in the implementation of the investment project is determined.
- Consider government regulations and technology costs. Calculate the costs associated with research and production in this investment project. In the case when a feasibility study is developed for a manufacturing enterprise, the factory cost of the future product is calculated by the method of increasing the cost calculations for one product-unit.
- Carry out an analysis on competitive advantage and entry barriers. Try to find methods of working that your competitors use.
- Think about technical feasibility, resources, and work force. You should describe the level of technological potential of the enterprise.
- Write on sales forecast, profitability, and financial viability. You should make a calculation of financial indicators of profitability and sustainability of the project.
- Describe marketing potential and strategy, advertising, and pricing. Include data of marketing research in the areas of the consumer market, counterparties, the surrounding business environment, and production conditions.
- Talk about possible risks. Include technical and financial risks.
- Summarize and conclude the feasibility study of business.
Analysis of Feasibility Plan Example
This feasibility plan template is used to analyze credit risks and prospects. We recommend you to develop your own feasibility study in accordance with the following analysis. Preparation of the feasibility study and its creation will be much easier if you read through the following analysis of one of feasibility plan examples.
Feasibility Study Writing Tips
- If you want to know how to make feasibility study for small business, you should understand that each business project begins with the initiation, identification of the main tasks and objectives, and the preparation of the feasibility study. After the feasibility study has been developed, the management team of the company decides:
– The project is rejected because it is inexpedient and unprofitable.
– The project is deferred until the necessary information is clarified.
– The project is approved and submitted for review and approval by the investor or creditor.
– The project is approved and passed to the project manager for its implementation.
- The initiator and the project manager participate in the preparation of the feasibility study. The initiator is the representative of the business unit – he or she manages all stages of the project implementation and is responsible for the targeted use of the financing allocated for the project.
- It is important to understand that only top managers fully know all the topical issues on the introduction of innovations and the tasks the company is faced with. Therefore, it is best to develop a feasibility study on your own, without the help of outsiders. A special role in this matter is the preservation of information about the project, as a document of strategic importance.
- The feasibility study can be developed both in the format of an independent document and be included in the business plan and other developments. The compiled feasibility study in different companies looks different: in some firms it is 1-2 sheets of A-4 format, and some firms approach the development of a feasibility study in the most responsible way, involving professionals of various specializations in this process – in this case the final type of feasibility study is a set of documents.
- The time of performance of the feasibility study is determined by:
– the degree of detail in the presentation of the document;
– the volume of the planned functionality required for the preparation and implementation of the plan;
– readiness and relevance of necessary legal documents;
– presence of necessary employees for development of the company.
- It is not difficult to compile a feasibility study of a business or its modernization, if you adhere to two specific factors: dependence on the case and the requirements put forward by the party for which the document is drawn up. A case is a specific project. So, for the introduction of a single product or service there will be one volume and format, and for the implementation of a global project to open a production complex, the scale of calculations and their estimates will be completely different.
- It is important to understand that in developing a feasibility study, the requirements for this document depend on the subject or object which approves the project. For example, for the feasibility study of credit or investment capital, it is necessary to show more carefully the calculations of the economic efficiency of the project, and for modernization of production carried out with the company’s own money, greater attention is paid to marketing analysis and consumer characteristics of products.
- Any feasibility study methodology should reflect both fixed costs and non-recurring expenses, and also have a calculation of the profit received under different conditions of demand. It is important that the feasibility study depicts an overall assessment of the implementation of the business project.
Mistakes in Feasibility Study
- Forgetting about the marketing block or including unnecessary details in it. The marketing block should describe all the relevant details and circumstances related to the impact on the market and the reaction of the market in connection with the implementation of the business project. This block should describe what competitive strategy will be chosen and why it will lead to success, and which companies will gain competitive advantages.
- Forgetting to describe the technology of production of goods or services, the organization of production processes, as well as other important parameters for achieving the basic production indicators – assortment, cost, terms, and quality. The production and technological block should describe how the production of products (services) will be organized and the provision of the necessary raw materials, components, and goods.
- Forgetting to describe the enterprise management system, the investment development plan, as well as all the necessary parameters related to the recruitment, training, and management of the work force.
Now you know how to do a high-quality feasibility study which can help you to get better results in your business. If you want to learn more information about other types of business papers, check out our blog for more information.