Feasibility Study

A feasibility study tells you whether your new venture has potential to make a profit and identifies major risks to consider when crafting a business or marketing plan. Business owners would consider conducting a study such as this before they develop a business plan or invest significant capital in launching the business.

The research focuses on industry/market analysis and projected costs, and provides a preliminary assessment of whether sufficient market demand exists to cover projected capital and operating costs.

1. Executive summary
a. Summarize the proposed project.
b. Provide a rationale for conducting the feasibility assessment.
c. Explain the focus of the assessment.
d. Provide a profitability analysis summary.
e. List the important considerations.
f. Provide final recommendations.

2. Description of the proposed venture
a. Provide details about the proposed project, its short and long-term objectives and its anticipated economic benefits.
b. Include a clear statement of what the business wants to do and why.
c. Explain the focus of the assessment (market and/or operational aspects).

3. Market/demand analysis
a. Give detailed estimates of market size/potential.
b. Identify main customers/target market.
c. Provide an assessment of competitors.
d. Include short and long-term outlook for the current market.
e. Describe trends affecting the market.
f. Identify how market needs will be served.
g. Explain any distance from market/transportation considerations (if any).
h. Explain methods of promotion and distribution.

4. Production/technical analysis
a. Analyze all factors involved in processing (delivering) the product (service) until the time it leaves the business owner's control. These factors include the availability of required inputs, assurance of future input supply, minimum facility requirements (land, equipment, storage needs and capacity, and buildings), adequate labour supply and legal constraints on the business.
b. Identify environmental and regulatory requirements and their associated risks.
c. Conduct risk assessment, including insurance considerations.

5. Profitability analysis
a. Develop assumptions from the market/demand analysis and the production/technical analysis, including eligibility for tax credits (assumptions include sales and price forecasts and costs of operations according to fixed and variable costs).
b. Develop pro forma income statements and balance sheets to gauge the future growth potential and assess financial performance (income projections should cover the next three to five years).
c. Analyze strengths, weaknesses, opportunities and threats (SWOT), particularly the implications of economic, social, technological, environmental, policy or regulatory change.

6. Cost and break-even analysis
a. Analyze fixed costs (e.g. rent, interest, insurance) and variable costs (e.g. direct labour, packaging).
b. Estimate break-even level (determine required sales per day, month or year to be profitable).
c. Calculate the break-even production levels and contribution margin (i.e. sale price per unit minus variable cost per unit).

7. Cash flow analysis
a. Compare cash flow projections with available funds.
b. Analyze cash flow requirements.

8. Capital requirements
a. Identify the amount of capital required, the financing requirements, security available and what repayment strategies and exit strategies will be employed if the plan projections do not materialize.

9. Management and human resources assessment
a. Identify the proposed business owners and managers, including their roles.
b. Assess management capability and experience.
c. Provide information on professionals assisting the business.
d. Assess labour-market considerations and constraints.

10. Assessing the investment
a. Provide an assessment of the risks in the sales and costs forecasts, and thus in the expected income stream.
b. Assess the value of the income stream relative to the capital investment required (i.e., is the venture economically feasible?).

11. Recommendations
a. Consider all information and alternatives to determine the feasibility of the project.
b. Provide a rationale to substantiate the recommendation on whether to proceed with developing a comprehensive business plan for the proposed project.