SMALL BUSINESS MANAGEMENT - FEASIBILITY STUDIES

SMALL BUSINESS MANAGEMENT 

[FEASIBILITY STUDIES AND HOW RELEVANT IS IT TO A

SMALL OR MEDIUM SCALE BUSINESS]

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QUESTION:

What is Feasibility Studies and how relevant is it to a small or medium scale business?  Also identify the components of a feasibility study. 

ANSWER:

Definition of Feasibility Studies:  A Feasibility study looks at the viability of an idea with an emphasis on identifying potential problems and attempts to answer one main question – will the idea work and should you proceed with it?

Feasibility studies are as important to investors, as theses or dissertations are to the scholars.  They are usually among the important documents on the basis of which banks may grant loans to investors; hence should be taken seriously.

A feasibility study is, therefore, a careful scholarly examination or investigation of a particular project, with the aim of finding out whether it is economically viable and capable of being executed successfully.  In it, the relevant dimensions and variables in the business environment that might come to bear on particular projects are evaluated, and their relationship with total capital investment assessed, in order to determine the potential financial rewards that investors can expect.  Such a study is usually carried out, before any modem business is established.   Though the findings of feasibility studies, a decision is taken either to undertake a project or to abandon it.

Feasibility study is also defined as a “look before you leap” document.  The feasibility study report is normally a technical report which the entrepreneur should at times obtain the services of a management consultant to prepare the report for professional input.

The feasibility study report is always a reference report that should be referred to from time to time to check whether the set target is being met or not.  Entrepreneurs equally use the report to raise funds from the banks, aid in the business planning, and decision-making and a table evaluation of the new business venture during and after execution.

Before you begin writing your business plan, you need to identify how, where, and to whom you intend to sell a service or product.  You also need to assess your competition and figure out how much money you need to start your business and keep it running until it is established.

Feasibility studies address things like where and how the business will operate.  They provide in-depth details about the business to determine if and how it can succeed, and serve 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:

1.      List in detail all the things you need to make the business work

2.     Identify logistical and other business-related problems and solutions;

3.     Develop marketing strategies to convince a bank or investor that your business is worth considering as an investment, and

4.     Serve as a solid foundation for developing your business plan.

Even if you have a great business idea you still have to find a cost-effective way to market and sell your products and services.  This is especially important for store-front retail businesses where location could make or break your business.

For example, most commercial space leases place restrictions on businesses that can have a dramatic impact on income.  A lease may limit business hours/days, parking spaces, restrict the product or service you can offer, and in some cases, even limit the number of customers a business can receive each day.

ESSENTIALS OF FEASIBILITY STUDIES

The entrepreneur from the very day the idea of the project was initiated has to ask himself a number of questions thus:

v  Will this idea be practicable and feasibly?

v  Will it be viable?

v  Will the needed technology be available locally?

v  Will the needed raw materials be available locally?

v  Will we be able to fight effectively other competitors?

v  Will we have the market for the product; what market strategy will we adopt?

v  Will we be able to meet the financial requirement?

v  What equity ration can we provide?

v  How will the remaining capital be raised?

v  What quality of personnel should we employ?

An entrepreneur should sit down and analyze these questions critically and fully before setting off to prepare the feasibility report.

THE COMPONENTS OF A FEASIBILITY STUDY

Description of the Business:  The product or services to be offered and how they will be delivered

Market Feasibility:  Includes a description of the industry, current market, anticipated future market potential, competition, sales projections, potential buyers, etc.

 

Technical Feasibility: Details how you will deliver a product or service (i.e., materials, labour, transportation, where your business will be located, technology needed, etc.).

Financial Feasibility: Projects how much start-up capital is needed, sources of capital, returns on investment, etc..

Organizational Feasibility:  Defines the legal and corporate structure of the business (may also include professional background information about the founders and what skills they can contribute to the business).

Conclusions:  Discusses 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 are unrealistic.