A feasibility study is a process during which the viability of a business idea is tested. A lot of aspiring entrepreneurs get excited about their conceived ideas and just venture into the business without a second thought.
You’ve heard before that, you shouldn’t judge a book by its cover. The same should be applied when considering a business. You must always probe the viability and sustainability of an idea before pumping your hard-earned money into it.
A feasibility study is part of the information in your business plan. But, not every business owner can conduct a feasibility study by themselves. This article provides information on the steps to follow when conducting a feasibility study for any business idea you conceive and its types.
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Why You Need A Feasibility Study
Before we go into the steps you need to take to conduct a feasibility study, let’s explain why you need one.
- A feasibility study improves the focus of the team
- It shows you whether to proceed or not
- By analyzing various variables, the success rate is increased
- Helps to identify a valid reason for carrying out the project
- Assists in project decision-making
- Discovers new opportunities
Steps In Conducting A Feasibility Study
Step One: Conduct A Preliminary Analysis
You can call a preliminary analysis a pre-feasibility study. This step helps you determine if you need to carry out a full-blown investigation. Before you spend time and money conducting a feasibility study, study your target market to determine if there’s a need or demand for your idea. If you discover there is, you can then proceed to study the idea in-depth. If otherwise, this is where you bid the idea goodbye and move on to the next one.
To find out if there is a demand for your idea, you can do a keyword search for your idea online and pay attention to the results. If a lot of people are into the business, it means that there is high demand for the business.
On the other hand, your idea may not have been explored by many because it’s your invention. However, you must ensure that it is an idea offering solution to a major need of your target audience.
More About Preliminary Analysis
Furthermore, if you notice that there is a high demand for your idea, it equally means there will be high competition in your chosen field. Hence, you need to assess the competition. Who are you up against? What makes them the preferred brand? What’s their pricing strategy?
You can visit your competitors’ offices, and patronise them to find out what makes them stand out. Once you discover their selling point, ask yourself if you’ll be able to compete or offer consumers a better product or service.
Don’t also forget to check the online market as well. Place an order from them and highlight what makes the different brands unique. Once you gather this information, you can then begin to think of ways to penetrate the saturated market.
Importantly, before you move on to the active stages of your feasibility study, look out for the recurring obstacles or challenges associated with the business. When you discover the challenges, research the possible solutions you can integrate to help tackle the challenges.
If at this stage you discover that your idea may be successful, you may decide to hire a consultant to manage and conduct your feasibility study for you. This decision is dependent on your type of project or idea. Because some ideas require the input of professionals such as Accountants, Engineer and Lawyer among others.
Step Two: Prepare A Projected Income Statement
A projected income statement is important when preparing your feasibility study because it shows the profits and losses for a specific future period. You can also call it a budgeted income statement.
To create a projected income statement, it’s expedient to consider your revenue, cost of goods sold, gross profit, and operating expenses. Usually, the equation for arriving at your projected income is gross profit – operating expenses = net income.
If you want to attract investors, you must take this step seriously because investors are more interested in numbers. It has to be as accurate as possible, even though it’s about a future event.
To be able to draw a proper projected income statement, your years of experience in your chosen field is important. So, if you don’t have any experience, it’s important to reach out to those already in the business.
Step Three: Conduct Market Research And Analysis
Market research is another needed step in conducting your feasibility study. Here, you will need to find out everything about your target audience to determine how to strategically position your business around them. Market research helps you know what’s trending in your industry, and what influences the buying decisions of your prospective customers.
Steps To Conduct Market Research
i. Get Familiar With The Market
If you’ve carried out the two steps above and you are convinced that your idea is workable, the next thing is to learn as much as you can about what the market currently holds for your product or service. Although you’ve done an initial survey of the market, this time, you need to dive in deeper and leave no stone unturned.
ii. Conduct A Survey For Your Target Audience
You can come up with a survey regarding your business and share it with your target audience to fill. Most people don’t like feeling surveys, so you can offer them a free sample of your product to encourage them to fill out your survey.
Also, take time to interview as many people as possible. Ask them specific questions related to your product or service. Besides meeting people directly, you can also email your survey to people who can benefit from your product but can’t see it physically.
Remember to be detailed in your survey questions as this is crucial to the success of your business. Without a thorough understanding of your customer’s needs, you may miss out on the opportunities in your industry.
iii. Determine Your Competitor’s Share Of The Market
Who is the market leader in your industry? How long have they held on to that position and why? You must take your time to get answers to these questions if you want a share of the same market.
When you understand what makes your competitor the preferred brand, you can then begin to work on your competitive advantage. Look for the underserved areas and come in through that. When this is in place, you should be able to identify your potential share of the market.
Step Four: Conduct Operational And Organisational Analysis
At this point, you need to plan for the operation and organisation of your business. This should be done in an in-depth manner, leaving no detail unattended. Here are the basic things to take care of under this step:
1. Identify Your Workplace And Work Style
Part of your feasibility study is to determine where you will work and the work style to adopt. For a start, will you work remotely or rent an office space? Will you have headquarters and branches scattered around or will you maintain a single office space?
Are you going to acquire a land space to build your company or lease a building? Will your teamwork from a co-working space while you work on setting up your office space? You need to be able to answer these questions affirmatively. Also, research the permit and licenses you’ll need.
2. Determine How Your Team Will Be Structured
Will you be heading the team yourself or you’ll hire someone to do that? What will be your staffing requirement? How many staff will you employ? Will you have a board of directors? If yes, who is qualified to be on the board? Will you handle your recruitment process yourself or you’ll outsource it? What will be the salary range of your employees? These and more should be answered when carrying out your feasibility study.
3. Determine The Necessary Equipment You Need
Here, you will list out all the materials you’ll need for each stage of your business. What equipment will you need? Where will you get your materials? How much will you need to purchase the equipment? Will you partner with a supplier?
You should also take note of smaller details including office supplies and deliveries. Also, ensure to record the prices of the materials you’ll need as you research their availability.
4. Identify Any Required Technology
We are in an era where technology is the new order of the day. Without good technology in place, your business cannot thrive in the 21st century. So, research if you’ll need any special technology for your business operation. Then research its affordability and availability.
Step Five: Carry Out Comprehensive Financial Analysis
This is a very important aspect of your feasibility study. Below are the must-dos under this step:
i. Itemise Your Startup/Operating Cost
Your feasibility study must contain a detailed budget including all you’ll need to handle as you kick off your business. Write out the exact amount you’ll need to purchase all the equipment and materials you’ve highlighted before. Operating costs are the regular running costs of a business. They include such things as salaries, rent, materials, office supplies, etc.
ii. Estimate Your Revenue Predictions
With the information you have so far, you should be able to project what your profit margin would be. You should also be able to ascertain if your revenue stream will remain steady or grow over time. To calculate this, first calculate your fixed costs (rent, salaries, supplies, etc.). With that in place, you can then predict your profit.
iii. Identify Your Funding Sources
It’s important you know how to get funding to cover all your estimated costs. So, carefully highlight all your available sources of funding and income. Determine if you will be diverting your savings to start the business or you’ll need investors or bank loans. In most cases, the ultimate feasibility of your idea will come down to questions about money.
Step Six: Review And Compile Your Feasibility Study
Once you’ve completed all the stages of your feasibility study, you’ll need to go over it the second time and then organise your findings. At this point, determine if you need to adjust or change any data or analysis.
If you find out that there are some concerns with certain aspects of the feasibility, it doesn’t mean that you have to scrap the entire study. All you need to do is to re-evaluate your approach and budget. Also, put into consideration market changes that can bring about disruption in your predictions.
Step Seven: Decide Whether To Execute The Business Idea Or Not
A feasibility study is conducted to enhance the decision-making process. If the study reveals that the business will yield the desired projected income and has the potential to scale over time, then move to the execution stage. If otherwise, it will be a bad business decision to go ahead with such a business idea.
Types Of Feasibility Study
There are five types of a feasibility study, which are distinct areas that a feasibility study can investigate.
1. Technical Feasibility
It determines whether your organisation has the technical resources and expertise to meet the task objectives. Technical feasibility includes an assessment of the proposed system’s hardware, software, and other operational specifications. For instance, if you want to open a daycare, is there a playground? Do you have the capability to manage the playground?
2. Economic Feasibility
How will the economic factors affect the financial plan of your business? These factors could include government policies, tax rates, laws, statutory fees, interest rates and the like. An economic assessment helps determine the viability, cost, and benefits of the business before financial resources are allocated.
3. Legal Feasibility
From the name, you can already tell that it is about laws around the business or the location of the business. Delving in and finding out you started illegally can result in huge fines or repercussions. Hence, the need for legal feasibility.
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4. Operational Feasibility
Can the organisation’s needs be met? How well will it be met? These are the questions an operational feasibility study answers. It refers to how well your task aligns with your company’s capacity planning, resources, strategic goals, and business objectives.
5. Scheduling Feasibility
It is also called Time Feasibility. When will the work be done and how long will it take? Here, estimated time is allocated to the activities that will see to the success of your company.
Finally, conducting a thorough feasibility study will prevent you from blindly entering a risky business. Therefore, the impact of a feasibility study on the success or failure of your business cannot be overemphasised.
There you have it. Have you conducted a feasibility study for your business before? Tell us about your experience in the comment section and feel free to ask questions if you have any. You can reach us on WhatsApp- 08038874148 to conduct and write your feasibility study.
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