5 Reasons Why You Must Conduct Feasibility Study Before Starting a business
1. A feasibility study will help you to determine the profitability of the business venture. Before starting a business, seasoned entrepreneurs and investors would want to know if the business would be worth their time, effort and resources. It is worthwhile to know that many entrepreneurs have abandoned solid business ideas because the profitability could not be ascertained on conducting a feasibility study on the business idea.
2. A feasibility study will help prove to the entrepreneur, venture capitalists, lenders and investors the existence of the market, the liquidity of the business venture and the expected return on investment.
3. A feasibility study will help you identify the flaws, business challenges, strengths, weaknesses, opportunities, threats and unforeseen circumstances that might affect the success and sustainability of the business venture. Just like the case of my dads business, the business failure and loss of money would have been avoided if we had carried out a feasibility study. We simply jumped in based on someones recommendations because we were flushed with cash and we paid dearly for it.
4. Before starting a business, a feasibility study will enable you estimate the financial, human and technological resources that will be needed to ensure the successful launching of the business. Feasibility study helps to reveal the number and level of skill or unskilled workers to be employed and their salary scale.
5. Feasibility study will help you to determine the amount of capital required to start the business. It will also help you in establishing the budget plan, working capital and cash flow projections of the business
What is the difference between a feasibility study and a business plan?
A feasibility study is not a business plan.
The separate roles of the feasibility study and the business plan are frequently misunderstood.
The feasibility study provides an investigating function that should answer the question:- What should the business be?
The business plan provides a planning function that outlines the actions needed to take the proposal from idea to reality.
How should the business be set up
The feasibility study outlines and analyzes several alternatives or methods of achieving business success. So the feasibility study helps to narrow the scope of the project to identify the best business model.
The business plan deals with only one alternative or model. The feasibility study must narrow the scope of the project to identify and define two or three scenarios or alternatives. The project manager conducting the feasibility study may work with the group to identify the best alternative for their situation. This becomes the basis of the business plan.
The feasibility study is conducted before the business plan.
A business plan is prepared only after the business venture has been deemed to be feasible.
If a proposed business venture is considered to be feasible, then a business plan needs to be constructed that provides a roadmap of how the business will be created and developed.
The business plan provides the blueprint for project implementation. If the venture is deemed not to be feasible, efforts may be made to correct its deficiencies, other alternatives may be explored, or the idea is dropped.