Wouldn’t it be great if you could determine whether or not your business idea is likely to work before jump in with both feet? You can. Conducting a feasibility study before you write your business plan can help you determine whether or not your idea has true potential to develop into a profitable business. Taking this simple step could save you a lot of time, money and frustration.
“Wait a minute! I thought I just had to write a business plan. Now you’re telling me that I have to prepare a feasibility study too?” Don’t worry—conducting a feasibility study isn’t extra work. In fact, it could actually save you time and money by helping you determine whether or not your proposed business idea will work before you invest more time and money in it. Think of a feasibility study as a mini business plan that you’ll polish up, add to, and further develop into a full-fledged business plan if your idea checks out.
The decision to start a business is a very personal one. Everyone has different needs and expectations in starting a business. What are yours?
Some food for thought:
How much money do you absolutely have to make to satisfy your needs?
- How much money do you realistically expect to make? How soon?
- What return on investment do you expect?
- Do you have the physical and mental stamina to operate this business?
- Do you think that this business will be personally satisfying?
- Is your family supportive?
Consider Your Capacity
As a business owner you’ll have to wear many hats. You need to be solid in general business skills (like management, finance, sales, marketing, and personnel), as well as the specific skills required for your particular business or industry.
- What technical skills will you need? Talk to industry experts to find out what skills and credentials are standard in your industry. Seek out experienced business owners in your industry to find out about the real challenges they face on a day-to-day basis.
- Do you have a solid understanding of how the finances of your business will work? Sure, you can hire an accountant to manage your finances, but you’ll still have to be able to accurately interpret and use the financial data they provide you.
- Ask yourself similar questions about your management, marketing, sales, and personnel skills.
Measure Your Market
To determine the feasibility of your business idea, you’ll need to gather information about your industry, your customers, and your competition. For starters, you’ll want to know:
- What are the trends in your industry, and how will they impact your business?
- Who are your most likely customers? What characteristics do they share?
- Are there enough potential customers to merit further exploration of your idea?
- Who is your competition, and how do they compete?
Crunch the Numbers
If the money doesn’t work, the business won’t work. Finding the answers to these common-sense financial questions will help you determine whether or not your business makes financial sense:
What costs are associated with starting your business? Don’t forget to factor in things like consultative services, marketing, supplies, equipment, inventory, furniture, fixtures, deposits, and anything else you’ll need to launch your venture.
- What ongoing expenses will you incur? Rent, insurance, marketing, utilities, supplies, maintenance, loan payments, and other expenses will be ongoing.
- How much money will you need to cover your living expenses until the business can be reasonably expected to turn a profit?
- Develop a preliminary operating budget that looks at least one year into the future of your business.
- Determine your break-even point.
- Where will you find the money needed to launch your business?