What a Feasibility Study is
A feasibility study is a critical exercise that needs to be done before funds are invested in any project. It is not enough to identify a business opportunity or develop a business idea and immediately believe it is viable, so funds should be invested in it. The viability or otherwise of a business idea or opportunity needs to be tested and proven to be so before any investment is made.
Many cases abound of entrepreneurs venturing into business only to find that their initial beliefs about the business were false and that things were not as they seemed. At this point, it will be too late to recoup funds invested, and the business will invariably head for failure. Furthermore, every investor will want to see evidence of a study that has been professionally undertaken and proves that an investment they are being invited to make is viable. They need this evidence from evidence-based research to give them the comfort and security that their money will not be wasted.
A feasibility study provides all this evidence, and when professionally, they answer every question that anyone may have about whether a business will be viable before an investment decision is made. A feasibility study is a composition of two words feasible, which means the possibility of success in a venture, and study, which refers to learning or exploring. Feasibility study thus means learning about the possibility of success of a venture before making any investments in it.
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What is the difference?
Feasibility Study Vs Business Plan
There is a very thin line between a Feasibility Study and a Business Plan. Even though they are closely linked, one precedes the other. A Feasibility Study is undertaken before a Business Plan. The study is done to prove the viability of a business idea. After completing the survey, the evidence will suggest whether to move ahead to invest in starting the business or project. However, before any such investment is made, there needs to be total clarity on the amount of investment, when and how the funds will be released, how the business or project will be undertaken, the key stakeholders and what they will do, the risks involved and how they will be mitigated, the human resource requirements among others. The business plan is to chart how the business will be undertaken and managed after proof from the feasibility study that it will be viable. Usually, most of the information required for the business plan is developed during the feasibility study, making the business plan less arduous.
When investors look at a business plan alone, they want to see evidence of the viability of the business they are being asked to invest in and how it will be managed. Even though there is information about the viability of the business in the plan, it is not enough as much as it is in the feasibility study. Thus, you are advised to submit a feasibility study and the business plan to the investor to guide their decisions. However, it is easier to first submit the feasibility study for an initial review before the business plan is subsequently sent.
Feasibility Study Goals
The goals for carrying out a feasibility study vary greatly. The key goals for such a study, in any case, are grouped into three:
To determine the capital requirements for starting the project
To determine the sources of financing for the project
To identify the critical financial assumptions for the development of the Pro-forma financial statements
To prepare projected financial statements for the project.
To determine the marketing demand and supply of products.
To formulate a marketing mix (Price, Product, Promotion and Distribution) that will make the project competitive.
To develop a marketing strategy to increase demand for products.
To identify a niche in the market for products.
To determine the type and legal form that will enhance the growth of the business.
To determine the most appropriate form of the set-up of the business.
To identify the duties and responsibilities to be accomplished within the business.
To determine competitive remuneration packages for employees in the business.