Developing

Feasibility
Studies
and
Business
Plans
Swati Bhatt
• What is a Feasibility Study?
• What is a Business Plan?
• How do they differ?
• What Resources are available to help
develop each?
– Are all Studies created Equal?
What is a Feasibility Study?
• A feasibility study is an analysis of the viability of an
idea through a disciplined and documented process of
thinking through the idea from its logical beginning to
its logical end.

• Provides an Investigating function that helps answer

“Should we proceed with the proposed project idea?
Is it a viable business venture?”

• Determines the viability of an idea BEFORE

proceeding with the development of a business.
Levels of Feasibility Assessment
A feasibility study of an idea is conducted at
three levels
– Operational Feasibility
• “Will it work?”
– Technical Feasibility
• “Can it be built?”
– Economic Feasibility
• “Will it make economic sense if it
works and is built?”
• “ Will it generate PROFITS?”
Why do a Feasibility
Study?
• Provide a thorough examination of all issues and assessment of probability of
business success
• Give focus to the project and outline alternatives
• Narrow business alternatives
• Surface new opportunities through the investigative process
• Identify reasons NOT to proceed
• Enhance the probability of success by addressing and mitigating factors early
on that could affect the project
• Provide quality information for decision making
• Help to increase investment in the company
• Provide documentation that the business venture was thoroughly investigated
• Help in securing funding from lending institutions and other monetary sources
Data Sources for a Feasibility
Assessment
Data required for a feasibility study can come from
primary or secondary sources

– Primary data can include formal interviews and surveys

• Collection of primary data can be expensive and time consuming

– Secondary data can include industry and trade publications,

statistics of industry associations, and government agency
reports
 Steps for an Economic
Feasibility Study
• Identify and Estimate all Capital Expenditures
• Identify and Estimate all Variable Costs related to the Proposed
Business Venture
– Identify People and Skills required to operate
• Determine Wages, Salaries, and Benefits

• Identify and Estimate Project Related Costs

– Infrastructure development or improvements
– Advertising and Promotion
– Legal Fees
– Municipal & State Development taxes
• Identify and Estimate all Fixed Costs
Estimating Total Capital
Requirements
– Assess the “seed capital” needs of the business project and how
these needs will be met
– Estimate capital requirements for facilities, equipment and
inventories
– Replacement capital requirements and timing for facilities and
equipment
– Estimate working capital needs
– Estimate start-up capital needs until revenues are realized at full
capacity
– Estimate contingency capital needs (constructions delays,
technology malfunction, market access delays, etc.)
– Estimate other capital needs
 Equity and Credit
• Estimate Equity and Credit Needs
– Identify alternative equity sources and capital availability
• Producers, Local Investors, Angel Investors, Venture Capitalists
– Identify and assess alternative credit sources
• Banks, Government (direct loans or loan guarantees), Grants, Local and
State Economic Development Incentives
– Assess expected financing needs and alternative sources
• Interest Rates, Terms, Conditions, Covenants, Liens, Etc.
– Debt to Equity Levels
Cost-Benefit Analysis
Utilize data collected to determine economic feasibility:
• Estimate Expected Costs and Revenue
• Estimate the Profit Margin and Expected Net Profit
• Estimate the sales or usage needed to break-even
• Estimate the returns under various production, price and sales levels to
create a “sensitivity analysis”
• Assess the reliability of the underlying assumptions of the financial analysis
• Benchmark against industry averages and/or competitors
• Identify limitations or constraints of the economic analysis
• Project expected cash flow during the start-up period
• Project income statement, balance sheet when reaching full operation EXPENSE
REVENUE
Market Feasibility

• This can be based on a market assessment that

you may have already completed.

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• Industry – Growth drivers/ vulnerability
• Competition
• Market potential -demand and usage trends
• Sales Projection
 • Identify the potential buyers of the
product/service and the associated marketing
costs.
• Investigate the product/service distribution
system and the costs involved.

Access to market outlets

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 • Estimate sales or usage.
• Carefully identify and assess the accuracy of the
underlying assumptions in the sales projection.
• Project sales under various assumptions (i.e.
selling prices, services provided, etc.).

Sales projection
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Technical Feasibility

• Facility needs.
• Estimate the size and type of production facilities.
• Investigate the need for related buildings,
equipment, rolling-stock, etc.

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 • Investigate and compare technology providers.
• Determine reliability and competitiveness of
technology (proven or unproven, state-of-the-art,
etc.).
• Identify limitations or constraints of the
technology.

Suitability of production technology

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 1. Investigate access to:
2. raw materials
3. transportation
4. labor
5. production inputs (electricity, natural gas, water, etc.)
6. Investigate potential emissions problems.
7. Analyze other environmental impacts.
8. Identify regulatory requirements.
9. Explore economic development incentives.

Availability and suitability of site

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 • Estimate the amount of raw materials needed.
• Investigate the current and future availability and
access to raw materials.
• Assess the quality and cost of raw materials.

Raw materials
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 • Investigate the availability of labor including wage
rates, skill level, etc.
• Assess the potential to access and attract qualified
management personnel.

Other inputs
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Organizational/Managerial Feasibility
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 • Identify the proposed legal structure of the business.
• Outline the staffing and governance structure of the business along
with lines of authority and decision making structure.
• Identify any potential joint venture partners, alliances or other
important stakeholders.
• Identify the availability of skilled and experienced business managers.
• Identify the availability of consultants and service providers with the
skills needed to realize the project, including legal, accounting,
industry experts, etc.

Business structure
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 • Character matters - are the people involved of outstanding
character?
• Do the founders have the “fire in the belly” required to
take the project to completion?
• Do the founders have the skills and ability to complete the
project?
• What key individuals will lead the project?
• Is there a reward system for the founders? Is it based on
business performance?
• Have the founders organized other successful businesses?

Business founders
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 • Identify and describe alternative business
scenarios and models.
• Compare and contrast scenarios based on goals of
the producer group.
• Outline criteria for decision making among
alternatives.

Study Conclusions
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 1. The information you gather and present in your
feasibility study will help you:
2. List in detail all the things you need to make the
business work;
3. Identify logistical and other business-related problems
and solutions;
4. Develop marketing strategies to convince a bank or
investor that your business is worth considering as an
investment; and
5. Serve as a solid foundation for developing your business
plan.

Why Are Feasibility Studies so

Important?
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 continue
• 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.

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 • A feasibility study is designed to discover if a business is
"feasible" or not. It will answer questions such as "will your
idea work?" [new window] It is an essential first step
before spending money and time on more detailed plans.
The information gathered is not wasted as it can be
incorporated into the Business Plan.
• On the other hand a Business Plan is a more detailed and
in depth document that incorporates the information
gained from a feasibility study plus specific timelines,
detailed budgets with forecasts and a detailed financial
strategy.

Feasibility studies V business plans

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 • 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 before business plan

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 • 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.

Feasibility is a tool for a business plan

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 • Are you suited to working in a small
business environment? Answer this
checklist [new window 69 kb] or take the
business readiness quiz [new window] to
get an idea if this is what you really want
and whether you have the personality, skills
and temperament to succeed.

Before you get started...

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What Defines
Feasibility?
• A feasible business venture is one where
– the business will generate adequate cash flow and profits,
– the business will withstand the risks it will encounter,
– the business will remain viable in the long-term, and
– the business will meet the goals of the founders.
 What Next?
• After the feasibility study has been completed and presented to
the leaders of the project, they should carefully study and
analyze the conclusions and underlying assumptions
• Next they will decide which course of action to pursue
– Potential Courses of action include
• Choosing the most viable business model, developing a business plan and
proceeding with creating and operating a business
• Identifying additional scenarios for further study
• Deciding that a viable business opportunity is not available and moving to
end the business assessment process
• Following another course of action
Developing a
Business Plan
What is a Business Plan?
• A Business Plan summarizes the plan of action after a course of
action has been determined through the Feasibility Study
• A Business Plan provides a Planning function
• A Business Plan outlines the actions needed to take the
proposal from “idea” to “reality”
• A Business Plan tells How your business will be created and Why
it will be successful
??
• A Business Plan provides a road map for strategic planning
Why Write a Business
Plan?
• Put the Pieces Together—Do the pieces fit together in a
logical manner?
• Create a Blueprint for Action
• Focus Founders and/or Management Team
• Obtain Financing
• Attract Equity Investment
• Attract Key Managers and Employees
• Obtain Contracts
• Create Joint Ventures, Mergers, Acquisitions
What is included in a Business
Plan?
• A Business Plan should be brief, concise & straight to the point
• Main Requirements May Include
– Industry Description
– Market Size
– Customer Base
– Competitive Advantage
– Business Location
– Three years of Financial Projections
– Monthly Tracking of First Year Financials
– Management Experience and Profile
– Personal Statement of Affairs
– Other Sources of Cash, if any
How Effective Is the
Business Plan?
• How effective a Business Plan is depends on how well
the following questions are answered:
– Who are we?
– What do we do?
– What do we have to offer?
– Why will someone pay for our products/service?
– What resources do we have?
– Where are we going?
– What do we need to get there?
– Why will we be successful?
– Why should someone participate or invest?
– How will we measure performance?
The Story a Business
Plan Tells…
• Business Plan should be tailored to the stakeholders
• Be aware of each potential stakeholder’s priorities
• Make sure all priorities are addressed in a balanced
manner in the business plan
• If more than one version of a business plan is written,
make sure each tells the SAME story only with
difference emphasis
Who is the “Target” of a Business Plan?
Issues to Issues to
Stakeholder
Emphasize Deemphasize
Cash-Flow, Assets, Fast Growth, Hot
Banker
Solid Growth Market
Assets, Large Market,
Investor Fast Growth Potential
Management Team
Sales Force, Assets,
Strategic Partner Synergy, Proprietary
Products
Fast Growth, Hot
Large Customers Stability, Service
Market

Key Employees Security, Opportunity Technology

Merger & Acquisition Past

Future Outlook
Specialist Accomplishments
*Portable MBA for Entrepreneurship, William B. Bygrave, John Wiley & Son, Inc., 1994
Feasibility Study vs.
Business Plan
• Feasibility study answers the bottom line question—Is this venture
going to make money?
• Feasibility study outlines and analyzes several alternatives or
methods of achieving business success
• Feasibility study is conducted before a business plan
• Business plan is prepared only after the venture has been deemed
to be feasible
• Business plan deals with only one alternative or scenario that is
determined to be the “best” alternative
• Business plan considers the management side—goals and
objectives of the planned business venture
What resources are available
to help develop each?
• Hired Business Consultants
– Make sure an accurate assessment is given
– Make sure someone is not paid to give the answer the group
wants to hear
– Can be costly

• Third Party Unbiased

– Universities
• Center for Agribusiness & Economic Development

• Small Business Development Center

 THANK YOU FOR
YOUR ATTENTION!!!
QUESTIONS?