How feasibility studies help your business to succeed

A friend has some money and a vague idea of business to invest in. How does he determine his next course of action? Many people will proceed to start the business basing on the assurance of a friend who tells them, “With such a business you can never go wrong.” Never mind that the person giving the assurance may have no knowledge or experience of the business.
A better approach is to first conduct a feasibility study to establish your chances of success before spending valuable money and time.

Data collection and analysis
The starting point for the feasibility study is collecting data. This is often a mixture of primary and secondary data.
Primary data is collected using observation and interviews while secondary data is mainly got from reading existing information. The data is analysed and fed into the feasibility study report which is outlined below.

Description of the business
This includes the product or service to be offered and how they will be delivered. For a residential building development, the report will focus on the type of building to be constructed, for example, two bedroom houses for rent or sale.

Market feasibility
This comprises a description of the industry which in the case of our example is a description of the real estate industry.
The market feasibility also covers the current market and future market potential, for example, the demand and supply of housing; direct and indirect competition; sales projections and potential buyers.

Technical feasibility
The main emphasis of the technical feasibility is on how to deliver a product or service. Sticking to our example, the technical feasibility will address the materials you can use, that is the type of material, source, quality, quantity, the human resource requirements, transportation, location of the business, and technology needed.

Financial feasibility
The financial feasibility helps to project how much capital is needed to start the business. It also identifies possible sources of capital, for example, how much will be contributed by the owner of the business and how much will be borrowed from financial institutions.
The financial feasibility section also presents financial or economic analysis of the project and brings out the profitability of the project, breakeven point and how long it will take to recoup the initial investment, among others.

Organisational feasibility
In this section, the legal structure of the business is addressed, whether it will be a company, a partnership or even a sole proprietorship. The corporate structure is also addressed, for example, the governance structure and the management structure.
The organisational feasibility can also bring out background information about the founders and the skills that they are bringing to the business.

Conclusion
This is the last part of the feasibility report and will discuss how the business will succeed. The conclusion has to be informed by the data or findings in the earlier parts of the report. If the conclusion is that the business is viable, then you can move to preparing a business plan that will be your blueprint for implementing the business.

James Abola is the team leader of Akamai Global, a business and finance consulting firm. Email: [email protected].

DEFINITION

What is a feasibility study? A feasibility study is an analysis of how successfully a project can be completed, accounting for factors that affect it such as economic, technological, legal and scheduling factors. Project managers use feasibility studies to determine potential positive and negative outcomes of a project before investing a considerable amount of time and money into it.