A feasibility study can be one of your most valuable marketing tools when you are searching for investors to fund your business' start up. This is why you should know how to conduct a feasibility study.
Determine if you actually need to conduct a feasibility study. If a company is already doing the same thing that you plan to do and they are making a profit, your business idea is feasible and you don't need a study to prove it. However, if you have a novel idea or a new take on a current business, a feasibility study is warranted.
Create an outline for your feasibility study. You may want to use an example of another company's feasibility report to help you in this stage. In general you want to include a cover sheet, executive summary, table of contents, descriptions of your product or service, definition of the technology used, business model, marketing strategies, critical risk factors, financial projections and a conclusion.
Describe your products and/or services. Include a physical description of the product, how it will be used by customers, how it will be tested for safety and effectiveness, and how it will be upgraded in the future.
Describe the technology that will be used by your company. This may be technology used to produce a product, to allow a product to function or to manage the regular operation of the company. Also include information about your research and development plans and needs to keep your company on the cutting edge of the industry.
Describe your market environment. This will need to include a description of your target market, how the customers will benefit from your products or services, what niche or need your products or services will fulfill, estimate of market size, targeted geographical area and factors that will impact the sales volume of your products or services. This might include how frequently shoppers buy items like yours, psychographic factors, and demographic factors.
Describe your competition. Make sure that this section identifies both direct and indirect competition. Also identify key competitors and outline their market share, business strengths, assets, goals, strategies, etc. This section will also need to include barriers that your company will need to overcome to enter the market. Then you will want to list your company's potential advantages, including the uniqueness of your product, your company's assets, etc.
Define your industry. To do this, state what your industry is, what products or services are contained within the industry, how large it is, how fast it is growing, the outlook for the industry, the industry's demands, the industry's current supply factors and any other factors that may influence the health of the stated industry.
Draft your business model. To do this, you will need to identify how your company will generate revenue, what recurring revenue you expect, and include enough detail to support your financial projections (included in a later section).
Describe your marketing and sales strategy. Include information about anticipated marketing partnerships, how you will gain market access, what your basic marketing and sales strategies are, how you plan to distribute your merchandise or services, how you plan to price your products or services, set out an amount you plan on budgeting for the first year's marketing, and identify any other factors that may influence the productivity of your proposed marketing campaign.
Describe both your production requirements and your operating requirements. Include how items will be manufactured, where they will be manufactured, how items will be transported, how much space you will need to manufacture your goods, how much space you will need to contain the operational staff, disclose whether you plan to rent or buy your warehouse facility and headquarters, how much money you plan to use for renovations and how complex it is to manufacture your product. You will need to disclose any information about your suppliers, a description of any pre-existing contracts you have in place, how services will be designed, how services will be delivered to customers, how services can be improved or modified and whether there are any stakeholders already in place.
Describe the management and personnel of your business. This section can be a list of prospective key employee names, titles, respective duties and responsibilities and the costs associated with employing these people. You will also want to outline support staff positions and employment costs.
Describe the intellectual property that your company will develop and utilize. This should include all patents, copyrights and trademarks. Also include any licensing agreements that you have secured for another company's intellectual material.
Describe the regulations and environmental issues that your company will need to address. This should include local, state, and federal laws that you will need to follow, as well as environmental factors like waste disposal plans, international trade policies, etc. that you will need to take into consideration when developing, producing or delivering merchandise or services.
Describe any critical risk factors, like economic stability and forecasts, investments, internal organization of the company, etc.
Outline your start-up schedule. Include important events and projected dates of completion such as having financing in place, etc. Make sure that you also connect the milestone with a specific business function such as financial requirements, personnel requirements, etc.
Provide documentation for your financial projections. You will need to include the following financial reports: balance sheet projection for three years with highlight inflows of capital, cost benefit analysis, income projections for the first year, break-even analysis and income projections for the first year.
Describe your capital requirements and your strategy. This section will need to outline how much capital you need to start up your business, what assets the company has in place to secure financing, what types of funding the company is looking for, the anticipated debt to equity ratio the company hopes to maintain and when investors will be paid a return on their investment.
Outline your final findings and recommendations. This section should analyze the findings outlined in the feasibility study. You should examine the company's market viability, exit strategy viability, technical viability, economic and financial viability, business model viability and management model viability. Then make recommendations on how your start-up plan can be improved, what areas need more research and development, etc.
Draft your executive summary to reflect what will be included in the feasibility study. Keep this section to a maximum of one page. This section is written last but it will need to be positioned at the beginning of the study as an introduction to your report.
Don't cut corners on this report as it will be used to entice investors. Read through example feasibility reports to get a better idea of what is expected. Ask potential investors or grant-giving organizations what information they need to make a decision and then include that in your feasibility study.
Be realistic in your projections, as investors may be wary of an over-stated financial projection. Do your homework. Don't just make up numbers as your investors will probably do research on their own and if the numbers aren't close, they will question your business management abilities.
Tips and warnings
- Don't cut corners on this report as it will be used to entice investors.
- Read through example feasibility reports to get a better idea of what is expected.
- Ask potential investors or grant-giving organizations what information they need to make a decision and then include that in your feasibility study.
- Be realistic in your projections, as investors may be wary of an over-stated financial projection.
- Do your homework. Don't just make up numbers as your investors will probably do research on their own and if the numbers aren't close, they will question your business management abilities.