Although [an unsuccessful feasibility study] may appear to be a failure, it’s not. The real failure would have been if you had invested your own and others’ money and then lost it due to barriers you failed to research in advance. David E. Gumpert How to Really Create a Successful Business Plan
Feasibility studies and business plans are identified in Chapter 4 as key steps to starting a cooperative. This section explains two vital issues: how to conduct a feasibility study and how to do market research. First, some definitions.
What is a Feasibility Study?
A feasibility study is designed to provide an overview of the primary issues related to a business idea. The purpose is to identify any “make or break” issues that would prevent your business from being successful in the marketplace. In other words, a feasibility study determines whether the business idea makes sense.
A thorough feasibility analysis provides a lot of information necessary for the business plan. For example, a good market analysis is necessary in order to determine the project’s feasibility. This information provides the basis for the market section of the business plan.
Because putting together a business plan is a significant investment of time and money, you want to make sure that there are no major roadblocks facing your business idea before you make that investment. Identifying such roadblocks is the purpose of a feasibility study.
A feasibility study looks at three major areas:
a. Market issues
c. Financial issues
Again, this is meant to be a “first cut” look at these issues. For example, a feasibility study should not do in-depth long-term financial projections, but it should do a basic break-even analysis to see how much revenue would be necessary to meet your operating expenses.
The purpose of the business plan is to minimize the risk associated with a new business and maximize the chances of success through research and maximize the chances fo success through research and planning. University of California Center for Cooperatives
What is a Business Plan?
If the feasibility study indicates that your business idea is sound, the next step is a business plan. The business plan continues the analysis at a
deeper and more complex level, building on the foundation created by the feasibility study. For example, the financial section of the plan would include pro forma (estimated) financial statements and 2-3 years of financial projections.
A business plan gives you an opportunity to find any weaknesses and reveal any hidden problems ahead of time. It serves two purposes: first, it is an analysis of how well the business will work; and second, it is a written document necessary to obtain a loan.
Although business plans are often submitted to a bank as part of a loan request, that’s not the most important thing about them. The really important thing about this process is that it forces you to think.
A business plan is sometimes described as a document of your thought processes as you analyze your competition, the market, your operating expenses, management and staffing needs, manufacturing process, etc. It forces you to clarify your goals and objectives. Therefore, the feasibility study and business plan are more important for the company’s owners than for anyone else, including loan officers.
Planning, however, won’t guarantee success in business. The plan must be realistic and based on valid assumptions. Most people have to work at retaining their objectivity if they are doing the feasibility study and/or business plan themselves. After all, if you are closely involved in organizing this business, you probably have some emotional investment in it. It is easy for people in this position to overlook or minimize potential problems or hazards. Remember that planning, no matter how good it is, will never make a bad business idea feasible.
Conducting a Feasibility Study
As noted above, the feasibility study is organized into three major sections (market analysis, organizational/technical analysis, and financial analysis). Each section below discusses the key questions which must be addressed in the plan.Market analysis begins by asking:
- What, precisely is the market?