How to Write a Feasibility Study Step by Step
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A feasibility study looks at the viability of an idea with an emphasis on identifying potential problems. It attempts to answer two main questions: Will the idea work, and should you proceed with it?
You must identify how, where, and to whom you intend to sell a service or product before you begin writing your business plan. You should also assess your competition and figure out how much money will be needed to start your business and to keep it running until it is well established.
A feasibility study addresses things like where and how the business will operate. It provides in-depth details about the business to determine if and how it can succeed, and it serves as a valuable tool for developing a winning business plan.
Why Are Feasibility Studies so Important?
The information you gather and present in your feasibility study will help you:
- Identify all the things you need to make the business work
- Pinpoint logistical and other business-related problems and solutions
- Develop marketing strategies to convince a bank or investor that your business is worth considering as an investment
- Serve as a solid foundation for developing your business plan
Even if you have a great business idea, you'll have to find a cost-effective way to market and sell your products or services. This is especially important for storefront retail businesses where the location you choose could make or break your business.
Most commercial space leases place restrictions on businesses that can have a dramatic effect on income. A lease might limit business hours or days, or parking spaces. It might restrict what products or services you can offer. In some cases, it can even limit the number of customers a business can receive each day.
Components of a Feasibility Study
- Description of the Business: Describe the product or services to be offered.
- Market Feasibility: This includes a description of the industry, the current market, anticipated future market potential, competition, sales projections, and potential buyers.
- Technical Feasibility: This details how you will deliver your product or service, including issues of materials, labor, transportation, where your business will be located, and the technology needed.
- Financial Feasibility: You should project how much startup capital you'll need and detail potential sources of capital and returns on investment.
- Organizational Feasibility: Define the legal and corporate structure of the business. You can also include professional background information about the founders and what skills they can contribute to the business.
- Conclusions: Discuss how the business can succeed. Be honest in your assessment because investors won't just look at your conclusions. They will also look at the data and will question your conclusions if they appear unrealistic.
Feasibility studies contain comprehensive, detailed information about your business structure, your products and services, the market, the logistics of how you will deliver a product or service, and the resources you need to make the business run efficiently.