Do you want to start a business but don’t want to do so without a plan? If YES, here’s a guide on how to conduct feasibility study and write a detailed report.
What is Feasibility Study?
Feasibility studies, also known as feasibility analysis is a very important step in the entrepreneurial process. It is one of the activities that are carried out before or during the starting phase of a project. This study aims to investigate and rationalize the need of starting or investing in a project by way of technical feasibility, viability of the business and how economical the business is.
A feasibility study can also be used when a business intends to change location, purchase a new equipment or software, hire more staff or acquire a new firm or company. It is also useful for assisting in project documentation, business case and execution plan, determining the necessary planning permission needed, determining other legal/statutory approvals needed, analyzing the budget relative to the client requirement, accessing appropriate and maintenance issues etc.
Why Conduct Feasibility Study on a Business Project?
For example, an aspiring business owner may have a lot of ideas regarding a particular business he or she wants to delve into. The idea may be something they have always dreamed about doing, something they have read about or something that other people are telling them may be a good idea.
Without a framework in which to explore the business, it can be difficult to determine if the business will be sound enough to move forward with. This is where performing a feasibility study is valuable. The essential question the feasibility study intends to answer is- “is this a viable idea to proceed with?”
That is, will this business generate sufficient cash flow and profit to withstand reasonable risk, offer long term viability and fulfill business goals? Thus the feasibility study intends to investigate the nature of a project and thus justify the need to lunch it.
What is a Feasibility Study Report?
Once a feasibility study has been carried out, the findings are collated into a Feasibility Study Report (FSR) which will contain a summary of the project and this will determine if a project is worth carrying out in the first place or not.
A feasibility study does not only come in handy when starting a business because at its core, a feasibility study intends to justify a course of action. To this end, it can help to save a business time and funds that would have otherwise been wasted.
Feasibility Study Report vs Business Plan – What’s the Difference?
A lot of people assume that a feasibility study is the same as a business plan considering that a lot of things that appear in a feasibility study are also present in a business plan. This is totally false. A feasibility study is a cursory analysis to determine whether a business idea makes sense and is profitable. A business plan on the other hand is a detailed plan of how you will achieve success with goals, objectives and other financial statements among other information.
A well conducted feasibility study is the first step to a successful business. Not only does feasibility studies narrow down the available alternatives you may have at hand but it also provides focus to your endeavor by highlighting the opportunity that may exist, and weaknesses that need to be addressed through your business plan.
Regardless of the size, scope or type of project, here is a step to step guide on how to conduct a feasibility study:
A Step by Step Guide on How to Do Feasibility Study for a Business
1. Conduct Preliminary Analysis
A feasibility study can be a time and resource consuming endeavor and as such it is pertinent to first conduct preliminary analysis. Think of it as a pre-feasibility study to access if there is an actual need to conduct the feasibility study in the first place.
Results of this assessment will help to justify the need to spend time and money on carrying out the feasibility study. For example, if you want to carry out a feasibility study on acquiring an already existing farm, you would have to check the overall attainability of that action.
If purchasing that farm comes at the risk of bankruptcy to your business, then there is no need to even proceed with the entire feasibility study. To carry out a preliminary analysis, you would have to do the following;
- List out in details your idea and actions and what you intend to achieve
- Research and find out more about the market space and the type of customer who would be attracted to what you have to offer. At this point, you do not conduct a full market research but your intent here is to understand if there are people who will want what you have.
- Outline the unique properties of your idea or business and what makes it stand out from your potential competitors
- Determine the risk that will be involved in the enterprise and access the percentage and probability of such event occurring.
It should be noted that the above steps are not the feasibility study itself but they are carried out with the intention of getting the overall feel of the project. If at the end of the preliminary analysis, no obstacle that could be a deal breaker was found, then you can proceed with the feasibility study proper.
2. Outline the Scope of the Project
Next you have to outline the scope that you would want the feasibility study to cover. The scope that you draw up must be detailed and should contain the specific objectives of the feasibility study. When doing this, you should note that other parts of your business can be influenced by an action or idea even when they are not impacting the business as a whole.
For example, hiring staff in a particular department can sometimes have far reaching influence on other sectors that may not be easily recognized at first. When outlining the scope of the project, it is very important to note the participants involved and the end users of the proposed idea.
For example, if you should move your business, it will impact your staff (you have to change their route or even place of residence) and your customer (who may or may not be willing to follow you to the new location).
3. Compare and Contrast: You will have to now compare your proposal with products and services that already exist. Research what already exists in your niche in order to determine if the idea you proposed is a viable one. Irrespective of the idea or project you want to carry out a feasibility study on, you will have to find out how to stack up to already existing ideas and if it can survive the business climate.
4. Perform Market Research and Analysis: The main aim of this stage is to gauge people’s interest and the amount of income and revenue that can be generated from the product or service when it is implemented and fully operational. It involves;
a. Learning about the market: Irrespective of the little market research you carried out in the preliminary phase, you will have to dig deeper to uncover the details about your target market. You will need to learn as much as possible about the nature of the market that you would want to delve into. If the market is changing, you will have to take note of this and propose viable strategies that will help you stay afloat.
b. Examine the market conditions: You will also have to examine the market conditions at the time of lunching the study. Here you will have to consider 4 main points which are;
- Define the target market
- Know the buying habits of individuals in the market
- Project the market share outlook of the proposal
- Outline the promotion and advertisements that may be required for the use of the product or service
You will have to be realistic in your predictions of the number of sales you will have and the amount of promotion or advertisement that is required for the product or service to catch on.
You should make use of the government’s economic census which is carried out every 5 years to find out the details of the demand that exists for the product and service you are offering. You can find out the results of the economic census on the internet which you can use to streamline you search to learn as much as you can from it.
c. Customer Survey: You can learn about your customer by interviewing and surveying them directly. You can also mail people the surveys to complete. Alternatively, you can also use telephone or email surveys. Surveying them can help you know about their buying habits. Irrespective of the method you choose, make sure that you design a survey that is well structured, clear and easy to understand.
d. Analyze the Competition: It is important while conducting the feasibility study to find out how much of the market share is owned by your various competitors and how long they have held on to them. It can help you to gauge what percentage you can be able to take and control. For instance if a local company dominates a particular market and people are very loyal to them, you may find it very difficult to break into that market.
5. Perform the Organizational and Technical Analysis
- Office: Here you should try to explore the work place/space that would be required to carry out the project.
- Team structure: If you will not be carrying out the project alone, you will have to determine what sort of help you will require- be it paid or volunteer effort. You will also need to determine the amount of staff you will need and if there will be need for a board of directors.
- Materials: Here you will need to research and list out all materials and equipment that will be needed for the project and how you intend to source them. If a special technology will be needed to carry out or run the project, you should take note of this and enquire about its availability. You will also need to estimate the cost that will be needed to get all these materials.
6. Understand the Financial Costs
Calculating the financial cost that is involved in carrying out a project is one of the most important aspects of a feasibility study. Irrespective of the idea or action that is involved, the cost that will be incurred from it can make or mar the implementation of that project. Any action that an enterprise needs to undertake has to be weighed against the impact it will have on the income and profit of the firm. The following points should be considered here;
- The resources that are needed to implement the project.
- How these resources will be sourced (through internal or external financing).
- What impact the idea or action is expected to have whether in the form of a reduced cost of production or an increase in sales.
- The time frame within which the idea or action is expected to stay before it begins to yield fruit.
- The financial risks and dangers that may be encountered and the probability of their occurrence.
- The financial loss that would be incurred by the business if the action or idea fails.
In this stage, you will also have to outline the cost that is needed to start up the action or idea, estimate the operating cost that would be involved, estimate the revenue prediction and identify the sources of funding that are available to the business.
After you must have done all these, you will then have the profitability analysis. This involves subtracting your anticipated expenses from anticipated income to try to find out if the amount will be able to start up the business and enable it generate profit. The profit margin that exists will tell you if the business is worth implementing or not.
In this stage, it is very likely that the figures that will be generated will be estimates and not really an actual representation of the true nature of things. However, it is important that the figures should be as close to reality as possible.
7. State the Evaluation Criterion: This step involves carrying out investigation of the solution and then putting them against the evaluation criteria. For instance, you could add in your report that the possible solutions of this project are evaluated and compared by the following criteria which are content audit, launch schedule and time frame etc.
8. Review and Analyze the Data
First you should propose the most feasible solution once you have evaluated the solution using the criteria that you have already specified. The solution that you arrive at is supposed to be one that is the most cost effective, within the reach of the organization to achieve, leads to optimal revenue generation and optimally makes use of the resources at the disposal of the business.
You should also review the findings that you have gathered in the course of the feasibility study, reflect on them and then make an informed inference without any form of bias. At this stage you should ask yourself- is there any risk that I did not account for? Has the market conditions changed or is it likely to change before the implementation phase?
If you notice any change, then you should review the affected parts in the feasibility study. Once you have done this, you can go ahead and make your final decision. After you have done all these, you should then summarize and conclude the feasibility study report while reiterating the most feasible option.
Preparing and Writing your Feasibility Study Report
After conducting the feasibility study, you have to package and present your findings in a written document known as a feasibility study report.
Most investors would look at your feasibility study report critically before they invest in your project. Bankers, financial institutions, partners and even employees also do the same as it helps them to understand your reasons for deciding to embark on the project, how viable the project is and whether it is worth their investments or not.
If you want potential investors and project partners to take your project seriously and share in your visions, you have to present them with a professionally written feasibility study report. This however doesn’t necessarily mean that you have to hire a professional to write your feasibility study report.
What Does a Professional Feasibility Study Report Looks Like?
A standard feasibility study report is divided into nine (9) major sections:
- Project Description
- Market Consideration
- Management Team
- Technical Specifications and Production Plan
- Marketing Plan
- Risk Analysis
- Financial and Economic Plans
- Evaluation and Conclusion
This is the first section of your feasibility study report and it is important to engage your audience at this point so that they can be interested in reading the entire report.
In this section, you have to summarize the entire content of the feasibility study report. In the shortest way possible, you have to tell your readers:
- What the project is about
- How the project will benefit your targeted customers/audience
- How much would be required to execute the project
- And most importantly, how the project will be executed
Although this will be the first section of your feasibility study report, it has to be written last, after you must have written other sections because this section is basically a summary of every other section of the report and you will need the details from those sections to write this report.
2. Description of the Project
In this section, you have to explain the objectives of the project or business. Some of the questions that will be answered in this section include:
- What are the objectives of this project (what motivated you to embark on this project?)
- What are the missions and visions of the project/business?
- What resources are currently available for the execution of the project?
- Where will it be located?
This section helps the reader to get a clearer insight into the project, and see what exactly you are trying to achieve.
3. Market Consideration
In this section, you want to show your readers that you have taken time to study your target audience, and how they are likely to respond to your project or business. It also helps you show them how you plan to convert your target market into paying customers. You have to include:
- A demographic description of your target audience especially their age, profession, ethnicity, income, where they live, and so on.
- Details about your industry, competitors, and how you plan to penetrate the market and beat your competitors.
- How you plan to woo your target audience and convert them into dedicated customers.
- Your competitive advantage and why you think you’ll perform better than other current players in the industry.
3. Management Team
The quality and qualifications of the people who would manage a project is very crucial to the success of the project.
In this section, you have to show your readers that those people who would be working on, or managing the project are highly qualified and experienced people who have had admirable results on the other projects they have handled in the past.
You can list out their names, years of experience, names or projects they have worked on in the past, and the achievements that they recorded while working on these projects.
4. Technical Specifications and Production Plan
This section talks about the steps that would be involved in executing the project. It talks about the length of time required for the project and project milestones, the machines that would be used to execute the project, and the time-frame within which the entire project will be completed.
This is also where you will talk about the steps you intend to take to ensure that the project is of the highest quality possible (quality control).
5. Marketing Plan
Your marketing plan is one of the most important aspects of your feasibility study report because it is where you literally show your potential investors where the money is. Every potential investor wants to see how you plan to get your products and services to your customers seamlessly, what promotional strategies you plan to use, how you plan to price your products and services to guarantee faster sales, and how you plan to make your products and services the top choice for your target customers at all times.
6. Risk Analysis
In this section, you want to show your readers that you have taken time to analyze and understand the weaknesses and risks attached to this project, and you are fully prepared to handle any potential risks and stop them from becoming a major problem.
7. Financial and Economic Plan
This is the part where you talk about the financial requirements and economic implications of the project.
Here you will analyze your potential start-up capital, how you plan to spend the money, which assets you plan to acquire, how you plan to generate revenue, your cash flow projections, a statement of your estimated profits and losses as well as your balance sheet.
All the figures in this section would be based on a financial forecast carried out when doing your feasibility study such as your potential sales volume per day, prices, running costs, costs of assets, projected expenses, and potential profits.
8. Evaluation and Conclusion
This is the concluding part of your feasibility study report, and it is important that you finish strong just as you started strong. Here, you have to state your opinions on the viability of the project, and any other observations you might have made during the course of carrying out your feasibility studies.
You can also make relevant recommendations, and include any references used in preparing the report. If you follow the steps outlined in this article, it will not only enable you to write a professional feasibility study, it will also help you write a report that contains all the important details that potential investors and other relevant parties need to see.