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Last updated on August 6, 2013

How to conduct a feasibility study

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Your feasibility study should cover technical viability, market viability and commercial viability. It should also include an overall assessment of risks and your strategies to minimise those risks.

You may need to seek professional assistance as you prepare your feasibility study but it will be worth it so that you can make an informed decision on whether or not to proceed with your business idea.

The following table will guide you through the various elements you need to consider in your feasibility study.

 

What to investigate

Details to include in your study

Purchase of an existing business:

  • Is the business offered for sale a sound investment?
  • Reason(s) the present owner wants to sell.
  • Advantages and disadvantages of the business location.
  • How well the business is performing.
  • The checks and balances you have performed to satisfy yourself that you have an accurate picture of business performance.
  • How other businesses in the same industry are performing.
  • How you would rate the competition.
  • Basis of valuation of all assets to be acquired.

Technical feasibility:

  • Is the product or service that you propose to offer technically viable?

 

  • A description of what you propose to sell, expressed in plain terms so that a non-technical person can understand it.
  • Whether the product or service is ready for sale. If it is not, how far it has been developed. How far away from the marketplace it is and how much this will cost you?
  • The steps you can take to protect your product or service.
  • If your idea cannot be protected, what are its main strengths?
  • What benefits or solutions will your customers gain by purchasing your product or service?
  • The major weaknesses in your product or service and the ways you propose to overcome them
  • The resources (plant, equipment, premises, material inputs, technology and skills) required to provide your product or service.
  • Your capacity to acquire or gain access to such resources.
  • Regulatory standards or requirements that must be satisfied and your capacity to meet them.
  •  

Market feasibility:

  • Can the product or service be sold in sufficient volume at a sustainable price?
  • Is there a market for what you are proposing to offer?
  • How you have carried out market research.
  • What market segments (groups of customers with common characteristics) you intend to target.
  • Why people will buy your product or service.
  • Who your potential customers are.
  • The number of potential customers.
  • Where your potential customers are located.
  • Your potential customers' buying patterns.
  • Who makes the buying decision for your product or service?
  • How you will sell your product or service.
  • Who are your competitors, both present and potential?
  • What do you know about your competitors, in terms of product range, pricing, sales turnover, quality?
  • What are the strengths and weaknesses of your most important competitors?
  • What competitive edge do your most important competitors have?
  • What is your competitive business advantage?

Commercial feasibility:

  • Is your product or service commercially viable?
  • Can you sell your product or service in sufficient volume to generate a profit?
  • Key success factors for your business meaning those factors you MUST have so you can meet your business objectives.
  • Strengths and weaknesses of your business, and the opportunities and threats it faces.
  • How long you expect to be in business before you generate your first sale.
  • How long you can survive before your first sale
  • Potential sales volume.
  • Estimate of fixed and variable expenses.
  • How prices are determined in a business like yours.
  • Your proposed pricing structure.
  • How long it will take to reach break-even sales volume.
  • How sensitive your break-even point is to the price you can obtain.
  • How much money you need to start up.
  • How much money you have available to invest in the business.
  • How much money the business will require by way of working capital to sustain operations.
  • External sources of finance you intend to approach.
  • The return on investment for which you are budgeting.
  • Cash flow analysis and the assumptions on which it is based.

Overall risk:

  • What are the major risks you will have to accept if you go ahead with your business?
  • How do you propose to lessen the risks?
  • The major risks that you face.
  • How sensitive your survival is to each risk identified.
  • How sensitive your profits are to each risk identified.
  • How you propose to minimise the risks.
  • How soon you could be in business.
  • Factors most likely to delay you.
  • When you are likely to be in business.
  • How soon after this will the business be able to support you?
  • How you propose to survive until then.

Fact Sheet - Start a business checklist

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Choosing the right site

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When choosing an appropriate location for your business, consider the following questions before making your decision.

Basics

  • Are you clear about your requirements, e.g. size, street frontage, services?
  • Do you want to lease or buy?
  • Have you found out about the advantages and disadvantages of the site by talking to previous tenants or owners?
  • Is the site suitably zoned?
  • Have you looked at the site in terms of the sales potential of the area, economic and demographic factors, and competition?

Customers

  • Is the site suitably located in relation to your target market?
  • How visible and accessible is your location to both foot and vehicle traffic and car parking facilities?
  • How many people and vehicles pass your planned location each day and how important is each to your business?
  • If location on a particular side of the street is important, is the site you’re looking at on the best side?
  • Does the site project the right image about your business?

Transport

  • Is the availability of nearby public transport important for access to your business?
  • Will the cost of shipping goods to and from the site be a major issue?


Neighbourhood

  • Do neighbouring businesses complement yours and do they appear to be doing well?
  • Are there any vacant premises nearby? Why? How long has this been the case?
  • How have similar businesses fared in this location?
  • Are there any major changes contemplated in the area?
  • Are there any restrictions on signage in the area?


Financial

  • Can you afford the premises? Have you looked at alternatives?
  • If the site is for lease, are the terms on offer suitable?
  • Have you identified and costed all outgoings for which you will be responsible?
  • Do you know what amount of security deposit or bank guarantee is required?
  • Have you determined what insurances you are obliged to have in place?
  • Are you aware of any indemnities you must give to the landlord?
  • Do you know what will happen if you breach the terms of the lease?
  • If you are a company, do you understand fully what providing directors’ guarantees means?


Long-term plans

  • Do the premises offer scope for expansion?
  • Will zoning restrictions conflict with your future needs?


Checklist - Is your home suitable?

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Once you’ve established that you have suitable space and facilities in your home, you’ll need to make sure that your business meets council requirements and that its operation won’t disturb neighbours.

Consider the following questions and think about the actions you may need to take to address the issues that arise.

  • Is the location of your home easy for a new client to find?
  • Is the nature of your business permitted in my council zone?
  • Do you need any council permits to carry out alterations or additions to your home?
  • Do you need signage outside your home?
  • Is it possible to set aside a workspace of adequate size in your home, specifically for your business?
  • Is the area you’ve chosen removed from family activities?
  • Do you have adequate storage space?
  • Do you need office equipment such as computer, photocopier and facsimile machine?
  • Does your business have a requirement for natural light, extra lighting or additional power?
  • Is there an appropriate reception area for clients?
  • Is a separate line for business telephone, fax or computer modem required? Would a mobile telephone service be a viable option?
  • Is there adequate parking space for suppliers, clients and staff?
  • Does provision have to be made for a large letterbox for business mail?
  • Is there a separate entrance for clients?
  • Do you require office furniture (new or second-hand) such as desk, chair and filing cabinets?
  • Will you be able to keep your home tidy during business hours?
  • Will the ‘business’ aspect of your home appear professional to clients?


Checklist: Evaluating the purchase of a business

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It may be tempting to act quickly so that you don’t miss out on what you think is a good opportunity.

It’s worth taking the time and putting in the effort to ensure you make the right decision.

Seek the advice of professional advisers who will help you as you evaluate the following aspects of the business under consideration:

Checklist: Market research and intelligence sources

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