Entrepreneurs often decide to start a business, and then search for the perfect business idea. While this is a good approach, it begs the question: How do you decide which business opportunity is right? And is the idea worth your time? This type of analysis can be done through the formal business planning process. This process helps small business owners to see the truth and make realistic business decisions. A feasibility study is a planning tool that helps to assess the viability of an opportunity.
The feasibility study’s purpose is to minimize the risk that the business owner is taking on. A feasibility study should allow you to determine whether the opportunity offers potential profit and is worth the time, effort and money. The majority of the information gathered can be used to create formal business plans if the feasibility study proves the business idea financially viable.
Be cautious with your enthusiasm about a business idea. AfterThe feasibility study is complete. Do not spend any money, sign nothing, and don’t start anything. You can save yourself time, money and grief by heeding this warning.
A thorough feasibility study should include:
The Business Opportunity
You should start by giving a detailed description of your business opportunity.
It is important to determine if there are legal restrictions to this type of business. These may include licenses or qualifications that are required by regulatory agencies. Most home-based businesses require permission from the council in order to operate out of their home. You don’t want to open a business that requires licenses or qualifications you do not possess.
Customers and the Market
To determine the market size for your products or services, you need to conduct market research. This will allow you to profile the market, potential customers and competitors. Also, you should assess whether your offers are better than those of your competitors. This will help you determine the probable purchase volumes and price points for your products. You should also identify issues likely to affect the market or industry in the future.
Operational issues, such as the business location and the required facilities, need to be addressed. It evaluates the available space and determines whether it is adequate for your expected business growth. It will ask you how you plan to identify the best location and type space.
You should also consider how you will finance the space. Do you plan to rent, buy, or lease the space?
It addresses the logistics aspects of running the business. For example, how will you transport, store and handle goods? What distribution channels do you plan to use? What type of transport do you require? What plant and equipment is required to start operations?
This article examines the management aspect of the business. This asks about the skills and qualifications required to manage this business. Who will be responsible for the management of the business? What are the required roles and who will perform them? This covers marketing, finance, sales, management of information technology, and other areas.
You must critically examine the business opportunity’s requirements and compare them with your own abilities. Do you possess the necessary skills to run this business? Can they be easily acquired if you don’t have the skills? Do you actually want to learn these skills?
This is a review of the skills needed by the business. This asks you how many employees will be needed to run this business idea. Are you going to need to hire new employees? Which skills and competencies are required? Are you able and willing to hire these people?
Do you know enough about the legalities of staff hiring? Are you familiar with regulations regarding salaries, wages and workers compensation? Workplace safety and equality are just some of the topics covered. Are you aware of where to find this information?
This section examines the financial aspects of the business idea. This covers the important questions of how to raise capital and what capital is needed to start the business. How do you estimate your profitability after taking out all costs (including tax)? What is your annual living wage? What is the breakeven point?
Also, you need to assess your abilities in managing finances. Do you have the skills to manage your finances? Are you able to manage cashflows and bookkeeping? Are you looking for financial help?
Sales and marketing
This is how you want your sales and marketing strategy. It determines which promotional methods are most cost-effective and what time and money will need to be spent on sales and marketing. It also asks who will take responsibility for this function.
Although the above list isn’t exhaustive, it will give you an idea of the questions that you should ask when doing a feasibility study. Once you have completed your research and answered the key questions, you can begin a SWOT analysis. SWOT stands to identify strengths, weaknesses and opportunities as well as threats. This allows you to use all of the information that you have gathered to create a comprehensive assessment of the viability and potential risks of your business.
A feasibility study can seem daunting, especially if your goal is to launch your business. However, you will be able to save time, money, and energy. A feasibility study will help you sort through the many business ideas available and identify those that you should pursue.