A lot of business people decide to go into business and then use it for the ideal business concept. There is nothing wrong with this approach, but it raises the question of how you decide which business opportunity is right for you and which business theory is worth pursuing. The regular process of business planning provides this type of analysis. It’s a process that helps small business owners remove their ‘rose-colored glasses’ and investigate the business idea based on rigorous facts and realistic analysis. The planning tool used to determine the viability of business opportunities is called feasibility study.
The goal of the feasibility study is to minimize the degree of risk that the business owner has to take. Upon completion of a feasibility study, you should be able to conclude that there is room for profit in this opportunity and therefore your time, effort and financial investment is worth it. If the study proves that the business idea is economically viable, the associated information can be used in formal business planning documents.
A word of warning, even for a business idea to stop your enthusiasm after the Feasibility study has been completed. Don’t spend even one percent, don’t sign anything, don’t do anything. Following this warning can save you a lot of money, time and grief.
A detailed feasibility study should include:
Start by describing the business opportunity in as much detail as possible.
You need to investigate whether there are any legal barriers to running this type of business. This may include regulatory requirements for specific qualifications or licenses. Home-based businesses usually require permission from the local council to operate from home. There is no point in going into a business that requires you to be qualified or licensed.
Market and consumers
You need to determine the market size of your products and services and do market research to determine the characteristics of the market, both your competitors and potential customers. You should also consider whether you can offer something different, better or different from what your competitor has to offer and determine the amount of purchase and the price points for your product. Your market research should also point out any issues that may affect the market or industry in the near future.
Operational issues such as the nature of the business location and facilities need to be investigated and addressed. It immediately checks the required space and evaluates whether it will be enough to increase your expected business in different time frames. It is asked how you will identify the appropriate location and place.
It should also be considered how you will finance the desired location. Will you get a purchase, rent or long term lease?
It examines the logistical aspects of running a business, such as how you will handle, transport and store goods in your business. Which distribution channels will you use? Do you need transport such as car, van, truck or forklift? What other plants and equipment do operators need to get started, and what do they need in business life?
It examines the management aspects of the business. It asks what kind of skills are needed to run this particular business? Who will manage the business? Which roles are needed and who will fulfill those roles? This includes marketing, finance, sales, information technology management, etc.
Critically, you need to test the skills required for this business opportunity and compare them with your own skills. Do you have the necessary skills to do this business? If not, can they be easily obtained? Are you also interested in acquiring these skills?
It tests the skills needed in the business. It asks how many additional staff will be needed to run this business idea. Will you need to recruit new workers? If so, what level of skills and competencies will be required? Do you know how to recruit these staff members and are you qualified to effectively recruit and train these new recruits?
Do you know enough about the legal aspects of hiring staff? Are you aware of regulations regarding salaries and wages, taxes, wage compensation, workplace safety and equal opportunities? Do you know where to go to get this information?
It takes a detailed look at business-related financial matters. This includes all the important questions about what capital is needed to start a business and how you will raise the required capital. What is your profit estimate after deducting all expenses, including taxes? How much do you need to spend annually? How long will it take to break it?
You also need to evaluate your financial management skills. Are you capable of capping books yourself? Can you manage cash flow? Do you know where to go for expert financial advice?
Sales and marketing
It expects your sales and marketing strategy. It takes a look at how much time and money will be allocated for the sales and marketing function and decides what the highest cost promotional method should be. It also asks who will be responsible for this function.
The above is not a complete list of questions that should be asked during a feasibility study but it gives you a taste of what it should be. Once you’ve done your research and found the answers to the key questions, you’ll be in a position to do SWOT analysis. SWOT means strength, weakness, opportunity and danger. This allows you to retrieve all of the information you have collected and to get an overview of your business operations.
Studying a feasibility study sounds like a lot of work, especially when you want to get started, but if you want to save yourself a lot of time, money, energy and grief, Take the time to determine if a business idea is really worth your investment. A feasibility study can help you filter out a fleet of business ideas and allow you to exclude things that are worth pursuing. Is not and may help to identify the chances of success.