If you want to know if an idea for a business is viable or not, then you must conduct a business feasibility study.
This tool is a big help for you to determine whether a business will succeed or not.
A feasibility study is performed by an organization to evaluate if a specific action is viable from an operational or economic perspective.
The goal of the study is to test the feasibility of a specific action and discover any issues that would go against this action.
The common question a feasibility study tries to answer is, “Should we proceed with the specific action plan.”
On top of finding out if a plan is viable, a feasibility study can be used for understanding risks and prepare for them.
You should take note that a feasibility study is not the same as a business plan. A business plan has planning functions and defines actions needed for a business idea to be turned into reality, while a feasibility study only provides an investigation of whether an idea is viable or not.
Both plans are important for startups, a business plan should only be conducted if the idea has been confirmed as attainable by a feasibility study.
You can save on costly ventures by conducting feasibility studies. This tool is usually done when an essential and strategic decision needs to be made.
Some example situations may include:
- purchase of new software or equipment
- change in the location of a business
- acquisition of another business
- the hiring of more employees
- An open mind on marketing of the business and press release distribution services
A feasibility study is at the core of launching a new business. It can be the key to startup success as it identifies future problems and whether the plan is achievable despite the projected problems.
It is a perfect tool for cases where the impact is expected to be huge regarding economic or operational significance.
David E. Gumpert was able to hit the importance of a feasibility study in his book How to Really Create a Successful Business Plan.
Gumpert wrote, “Although (an unsuccessful feasibility study) may appear to be a failure, it’s not. The failure would have been if you had invested your own and others’ money and then lost it due to barriers you failed to research in advance.”
Making a feasibility study can cost you and is a time-consuming process. It would be better to start by doing a preliminary analysis.
This is a pre-screening of the planned action to examine whether a proper feasibility study is worth the time and money.
A good example will be if you plan on acquiring a business and want to check the overall viability of the action. If it is too risky that it can cause you to lose your business, then you don’t need to conduct a proper feasibility study any longer.
The next step is to outline the project scope by being specific about the area of study of your feasibility study.
Here is where you study the different parts of your business that might get affected by the proposed idea or action. Decisions like hiring new employees can impact on some sectors that are not seen.
The key is to know the different end users and participants of the proposed action. For example, you plan to move to a new business location. You need to understand the impact not only on employees but also consumers. It has to be beneficial to both parties concerned or else it might hurt certain aspects of your business.
Knowing the current competitive landscape may give further understanding of whether a proposed idea is achievable or not. If you plan to buy new equipment or use new software, then you need to compare with other similar items on the market.
Another step is to examine the market conditions. There are four points that you need to consider when analyzing the market when it comes to feasibility:
- Define your target market.
- Study the spending patterns of your target market.
- Understand the sale and market share of the proposal.
- Outline the product awareness needed for the use of your product or service.
You want to know the revenue projection if you implement the proposed idea or action. The sales numbers and the promotional activities needed to hit the numbers will all be shown in the study.
The financial cost is a significant aspect of determining if an idea is attainable or not. No matter how novel or innovative your idea is, your income should not go bust in the process.
A thorough review and analysis should be done on your feasibility study. Once you have reviewed the results, then you can now proceed with making the final decision.