Business Feasibility Study

Business Feasibility Study

1. What is Business Feasibility Study?

A business feasibility study can be define as a controlled process for
ide ntifying problems and opportunities, determining objectives,
describing
situations, defining successful outcomes and assessing the range of costs
and
benefits associated with seve ral alternatives for solving a problem.

2. The Usage of Business Feasibility Study

The business feasibility study is conducted to support the decisionmaking process based on a cost-benefit analysis of the actual business or
project
viability.
The business feasibility conducted during the deliberation phase of the
business
developme nt cycle prior to commencement of a formal business plan.
It is an analytical tool that includes recommendations and limitations, which
are
utilized to assist the decision-makers when determining if the business
concept
viable. is

3. The Importance of a Business Feasibility Study

It is estimate d that only one in the fifty business ideas are actually
commercially viable. Therefore, a business feasibility study is an effective
way
to against wastage of further investment or resources.
safeguard
If a project is seen to be feasible the next logical step is to proceed with the

The research
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Business Feasibility Study

A thorough viability analysis provides a abundance of
information
is
necessary forthat
the business
plan.
A feasibility study should contain clear supporting evidence
for
it
recommendations.
The strength of the recommendations can be
weighte
d study ability to demonstrate the continuity that e
against the
xists
betwee
n theand the proposed business model.
research
analysis
Recommendation
will be data with qualitative, experiencereliant on a mix numerical
based
documentation.
A business feasibility study is heavily de pende nt on market
research and analysis.
A feasibility study provides the stakeholder with varying degrees
of
evidenceconcept
that will infect be viable.
a business

4. Business Feasibility Study and Dimensions of

Business Viability

The business feasibility study finding will be assessed by the

potential regarding their credibility and depth of
investor and stakeholders
arguments.
The business feasibility study places the findings of the
dimensions
of assessment
business into a formal report.
viability model
Its also aligns the findings with functional process of an
enterprise
which
audience can
easilyanunderstand.
Business and marke t analysis contribute considerably to the
business
feasibility should be given to using traditional
study consideration
business
techniqueanalysis
such as SWOT, PERT.

Alan Thompson, (2005). Business Study Feasibility Online, Entrepreneurship

and business innovation.

Business Feasibility Study

5. Types of Business Feasibility Study

5.1.

Market and Real Estate Feasibility:

market feasibility study typically
involves testing geographic locations for a real estate development
project,
and usually involves parcels of the real estate land.
Developers
ofte nstudies to determine the best location with in
conduct market
ajurisdiction, and to test alternative land usages for a given parcels.

5.2.

Technology and system Feasibility:

this involves question such as
whether the technology neede d for the system exists, how
difficult
it will
be to build
and whether the firm has enough experience using
that
technology.

5.3.

Resource Feasibility:
This involves question such as how time is
available to build the new system, when it can be build,
whether
interfacesit with normal operations, type and the amount of
resources
required, dependencies, etc.

5.4.

Cultural Feasibility:In this stage, the projects alternatives are

evaluated for their impact on the local and general cultural,
for
example factors need to be considered. Further and
environmental
enterprise
s can clash with the result of the project.
own culture

5.5.

Economic Feasibility:
It involves question such as whether there will
be cost saving increased re venue , increased profits and
reductions
in
required investme
nt exceed the costs of the developing and
operating
a
proposed system.

5.6.

Legal Feasibility: it determines whether the proposed system

conflicts with legal requirements. When an organization has either
internal
or external legal counsel, such reviews are typical standard.

However,
project maya face legal issue after completion if this factor is not
considere
d
at this stage.
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Business
Study
Feasibility
Entrepreneurship
5.7. period
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Business Feasibility Study

6. Structural out Line of a Business Feasibility

Study
6.1.
Cover sheet
6.2.
6.3.

Executive summary
Table of contents

6.3.1. Introduction
6.3.2. Product or services
6.3.3. Technology
6.3.4. Market environment
6.3.5. Competition
6.3.6. Industry
6.3.7. Business model
6.3.8. Marketing and sales strategy
6.3.9. Market consumption
6.3.10.
Production/operating requirements
6.3.11.

Location of plant

6.3.12.

Description of product

6.3.13.

Production process

6.3.14.

Raw material

6.3.15.

Management and personnel requirements

6.3.16.

Intellectual property

6.3.17.

Regulations/environmental issue

6.3.18.

Critical risk factors

6.4.

Financial projections

6.4.1. Balance sheet projections

6.4.2. Income statement projections
6.4.3. Cash flow projecti ons
6.4.4. Break-even analysis
Alan Thompson,
(2005). Business Study Feasibility Online, Entrepreneurship
6.4.5. Capital
structure, capital requirement and strategy
6.4.6.
6.4.7.
6.4.8.
6.4.9.
Expense estimates
Dividend
Recommendation
Conclusions
policy and finding
and business
innovation.

Business Feasibility Study

6.1. Cover Sheet

It contains:
y Name of the firm
y Title of the study
y Date
In the cover sheet we give the name of the firm for which we are
going
to prepare
the feasibility
study also included the title of the study and the date
on
which it For
s e xample we are preparing a feasibility study for the
conducted.
LAYS
PEPSI chips
so weby
will make cover sheet like this:

Feasibility Study PEPSI

LAYS Chips Project
January, 2011

6.2. Executive Summary

The executive summary is a summary of all key sections of
the
business
feasibility
study and should work as separate, stand-alone
documents.
Key points
to remember:
Write this
document
after
theFeasibility
contents Online,
sections
of business
AlanyThompson,
(2005).
Business
Study
Entrepreneurship
y The
feasibility
is
Although
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executive
the
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should beisno
written
more than
last, itone
is presented
page long.first.
and business
innovation.

Business Feasibility Study

6.3. Table of Content

6.3.1.
Introduction
y History of the group (personal portfolio)
Introduction should include the history of the group whe n
company
started, ments about all the products or services
about its achieve
which
is company
manufacturing
or dealing with. In the above mention our example
of
which
is LAYS
a brand
of PEPSI in that we will mention the History of
PEPSI
the other
productsand
of PEPSI
like 7UP, DEW and Aquafina etc.

6.3.2.

Product/Service

y Describe the e nterprises product or service in simple language.

y If more than one products or services then give the product mix.
y Describe how the customer would use and buy the product or
service.
y Describe key components or raw material that will be used in
the
product
along
with its sources and availability.
y Describe the plans to test the product to ensure it works as planned
and
is
sufficiently
durable.
y Describe plans to upgrade product or expand product line.
In product service explain our product: continuing our lay s
example
we as
describe
our product
Lay's potato chips, potatoes will have been
harvested
from the
ground, cleaned,
cut, cooked into delicious Lay's potato chips and
delivered
to the for this product are grown in the near potato
fair. The potatoes
farms.
Thewill
grow
n at the manufacturing facility where they
potatoes
arrive
will
immediately
unload,
washe d, peeled and cut into the thin slices. Next the
potatoes
be
cooked inwill
the natural
oil and then given a dash of salt. Within the
30
minutes
ofproduction line chips will be inspecte d and sealed
coming
off
preserve
go
after
vitamins
out
the
for
their
and
potatoes
delivery.
minerals
fresh
harvested.
taste.
The
in any
The
chips
varie
finished
Aswill
aty.
snack
One
arrive
goods
ounce
food
atwill
the
(28
Lay
transfer
distributer
gram)
s brand
of
to lay
the s
Alan Thompson,
(2005).
Business
Study
Feasibility
Online,
Entrepreneurship
in
the
bags
to
trucks
with
contain
regular
chips
in
has
that
potato
athe
130
ve
will
24
ry
calories
hours
few and contains 10 gm of fat.
and
business
innovation.

Business Feasibility Study

6.3.3.

Technology

y Describe the technology that will be used by your company.

This may be
technology used to produce a product, to allow a product to
function or to
manage the regular operation of the company.
y Also include information about your research and development
plans and
needs to keep your company on the cutting edge of the industry.
y Explain technical terms enough to be understood by
everybody but not
necessarily technology expert readers.

6.3.4.

Market Environment

y Target market
o Define and describe the target market. Distinguish between end
user
and customers.
o Be clear how end users and customers benefit. How and why
the
y buy the product or service.
would
o What is the projected nee ds your product or service will fulfill
y For Business-to-Business Market
o Who are the key players? Frequency of product purchase,
replacement needs versus expansion, purchasing process.
o Estimates of market size, initial targe ted geographic area.
y For Business-to-Consumer Market
o Demographic factors such as, income level, age, gender,
education,
ethnicity.
o Psychographic factors
o Behavioral factors such as, frequency of purchase and
shopping
behavior.
In this
environment
consumers.
race,
group.
occupation,
Main
part By
we
for
concerne
continuing
will
the
family
business-to-business
tell
d life
segment
about
our
cycle
example
the
or
is sex
target
girls,
and
Lay
and
market
housewives,
has
s what
istarget
not
offor
concerned
the
market
youth
the in
Alan
Thompson,
(2005).
Business
Study
Feasibility
Online,
Entrepreneurship
product
business-towith
eve
and
families.
ry
also
any
societal
what
religion,
targeting
market
and
business
innovation.

Business Feasibility Study

6.3.5.
Competition
y Describe the direct and indirect competition.
y For key competitors give market share, resources.
y List of all key barriers of e ntry.
y Describe what is unique about enterprise s product/service compare
to
the
competitors.

State how difficult it will be for the competitors to copy the

enterprise
s
product/service.

Describe how competitors will most likely react to the enterprises

product
launch and the enter prise s response strategy.

In our e xample the competitors of Lay s are

y Kolson
y Golden
y Smith
y Tripple pm
The product of the competitors is not good as Lay s but the
reason
theirfacility and high margin.
presenceofcredit
Market share of the competitors and Lay s
y Lay s = 45%
y Kolson = 15%
y Golden = 8%
y Smith = 5%
y Tripplepm =15%
y Others = 20%

Alan Thompson, (2005). Business Study Feasibility Online, Entrepreneurship

and business innovation.

Business Feasibility Study

6.3.6.
Industry
y Clearly define and

describe the industry in which the

enterprise
include theoperates
size, growth rate, outlook.

y
y

Describe the demand and supply factor and trends.

Describe the larger forces that drive the market easy
innovation
c ultural
change regulations.

In our example snack foods industry is currently one of the

largest
most
diverse and
in the
Asia-Pacific region, with an estimated value of
$280
million
and
over 2,000
competing
brands. Asian style snacks account for
75%
of the market
and Western
style snacks have become more popular in recent
years,
for theaccounting
remaining 25% of the market. The industry has been
growing
consistently
while consumers
taste and prefere nces are constantly changing
and
becoming
increasingly
sophisticate d.

6.3.7.
Business Model
y Describe the proposed enterprise s

business model. How will

enterprise
generate revenue?

Describe the business model in enough detail to support

financial
projection presented later.

In our example Lay s will generate its revenue by selling its

product to end
customers.

6.3.8.
Marketing and Sales Strategy
y Layout the basic marke ting and sales strate gy.
y Discuss any strategic partnership the enterprise has or is planning to
y form.
Describe the distribution strategy(sell directly to customer
through
salesmail, or internet; sell through manufacturers
force, direct
Alan Thompson, (2005). Business Study Feasibility Online, Entrepreneurship
whole
sellers,
distributers
or retaile
rs)leastfor
yy representatives,
Describe
Quantify
the pricing
intended
marketing
typical
strategy
budget
payment
and
forjustification.
at
terms
onecustomers.
year.
and business
innovation.

Business Feasibility Study

In our example the market and sales strategy we will describe
the
lays like
target
markets
lays is such kind of product which is designe d for the
region
andthe
Asiasub-continent (Pakistan and India) where people
specially
like
kind of
foodsspicy
and snacks
including urban and suburban areas.
Lays is not concerned with any religion, race, occupation,
family
or marke t in every social class. Main
gender life
and cycle
has target
concerned
is
youth
who segment
has experienced
high product consumption level.
But
they families
are alsoas the y understand this influence factor in the
targeting
region.
Except lower classes of our society, every social class is
favorable
company. for the
Lay s is usually concerne d on occasionally basis, providing
the
better quality
at with the convenience to consume. We deeply focus on non
economical
pricealong
users potential users and first time users in readiness
stage
they desirous,
are
unaware,
interested and intending to buy. LAY S is
expecting
the
positive response
from the customers.
Lays is using cost-based pricing strategy. Lay s selling directly
to
the customers
through
wholesaler, distributors and retailers.

6.3.9.

Market Consumptions

y It involves the target market orientation and shows how the

product/service would be used by the consumer in the market.

6.3.10.

Production/Operating Requirements

y Describe how and where the product shall be manufactured.

y What physical premises are required? Give location, size,
condition
capacity ofand
planned production and warehouse facilities and
number
of
shifts planned.
y Will space be owned or lease? Will renovations be required at what
y cost.
How complex is the manufacturing process?
y Describe e quipment needed and cost.
If enterprise
will
out source
or distribute
others mate
AlanyThompson,
(2005).
Business
Study production
Feasibility Online,
Entrepreneurship
rial.ooinnovation.
Describe
Describe
Outline
quality
control.
the
how
supply
relevant
the sources
enterprise
contactplanned
terms to protect its trade secre ts and
and business
10

Business Feasibility Study

In this section we will tell how is the Lay s going to be
manufactured
like wethe
givepotatoes will come from near potato
the example above
farms
andtothe
delivered
thenmanufacturing plant.

6.3.11. Location of Plant

y It shows where the plant should

be situated, preferably it maybe

near
the market.
consumer

6.3.12. Description of product

y Basic features of the product and its

advantages, usage and

benefits
to
customers.
For example the core benefit of they lay s is Public want to buy the
potato
removechips
theirtohunger with little bit crunch and unique taste. And
its
features
spiciness
andlike
salted etc.

6.3.13. Production Process

y Describe the production process

i.e how we are going to

receive
materialthe
andraw
how it is going to be processed.

Production process of the lay s is potatoes grown in the near

potatoes
farms and
then delivered
to the manufacturing unit where they will
immediately
unload,
washed, peeled
and cut into the thin slices. Next the potatoes
will
be cooked
in then given a dash of salt. Within the 30 minutes
the natural
oil and
of
coming off
production
line chips will be inspected and seale d in the
bags
to preserve their
fresh taste.

6.3.14. Raw Material

y Enlist the core raw item

maybe purchase from the suppliers

or
produced
indigenously.

How we are going to utilize raw material.

Alan Thompson, (2005). Business Study Feasibility Online, Entrepreneurship

6.3.15.
y background,
and and
Personnel
List innovation.
theManagement
proposed
experience
key ,managers,
skills
costs.
titles, responsibilities, relevant
and
business

11

Business Feasibility Study

y

Sketch personnel requirements: what people will be needed now, in

ainyear,
the long term? What skills and qualifications are require d
and
what
would
be the financial implications?

6.3.16. Intellectual Property

y Briefly describe patents, copyrights

and trademarks obtaine d

and
in
process.

If enterprise is operating under a licensing agreeme nt, give

name
of the
licensor/assignor
and also give termination or renewal dates.

Lay s is the Brand of PEPIS cola beverages limited.

6.3.17. Regulation and Environmental Issues

y Out line non economic forces that might affect the prospect of the
y firm:
Key government regulation and the enterprise s plans for
y compliance.
Any environme ntal problem on property plans to address the
problems
their costs.and

y
y
y

Environmental factors i.e ways disposal plan its nee ded.

Political stability, if applicable.
Any other regulatory or political issue. This would deal with
proposed
industry regulatory changes, stable versus unstable environments.

6.3.18.
Critical Risk Factors and Start-up Schedule
y Critical Risk Factors: Describe critical risks faced by the
enterprise.
For
example, internal
characteristics, uniqueness, investments,
economic
forecasts, change in regulations and technical obsolescence.

Start-up Schedule: Sketch the major events in the life of the

venture
by timetable/deadlines for completion of phases of
listing the
venture
startup.

Alan Thompson, (2005). Business Study Feasibility Online, Entrepreneurship

and business innovation.

12

Business Feasibility Study

6.4. Financial Projections

Include narrative highlighting key underling assumptions and
theyour projections include financial history if
logic governing
any
and lightly
financing
stages including information about funding sources and
uses.
page Provide
or two aof footnote for each financial spread sheet some
core
are ofcomponents
this report are:

6.4.1.

Balance Sheet Projections3 year(ideally) & highlighted inflows of

capital

6.4.2.

Income projectionsyear 1: monthly or quarte rly: year 2 & 3:

annually

6.4.3.

Cash flow projectionsyear 1: monthly or quarterly: year 2 & 3:

annually

6.4.4.

Break-even analysis: When firm start turn a profit.

Cost-benefit analysis:
Will the business provides a viable
return on investment.

6.4.5.

Capital Requirement and strategy

y How much funding (equity) will the firm need and w hen?
y What the projected revenues and assets does the proposed business
have to secure the financing?

What sources will provide the funding, i.e investor, lending

institutions etc?

y
y
y

What ratio of debt to equity financing will occur?

6.4.6.

When will investor begin to see a retur n?

What is expected return on investment (ROI)?
Expenses estimates(proposed amount)

Capital expenditure at different levels

Alan Thompson, (2005). Business Study Feasibility Online, Entrepreneurship

Saving through
Provision
Revenue
expenditure
for future
extraexpenses
shift
and business y
innovation.

13

Business Feasibility Study

6.4.7.

Dividend policy

y
y

Higher than interest rate

Provision for allowances and reserves

How to conduct a break-even analysis

Break-even =

Fixed Cost

Contribution margin
Contribution margin = sale price per unit variable cost per
unit

6.4.8.

Final Findings and Recommendations

y Recommendation from the feasibility study regarding the viability
of
putting the business idea into practice should be honest short
and
direct.
y A signific ant component of the finding should relate to the
likely
hood of success (dimension of viability), projecte d return on
investment and how any identifie d risk should be mitigated.
y The pur pose of a feasibility study is to consolidate an
argument
based
on factual evidence and analysis to help justify your decision
inrelation to the core question of whether the business venture
is
actually viable.

6.4.9.

Conclusion
y

It is the end product of the feasibility study. These are the final
words
about the viability of the project maybe in favor or not.

Alan Thompson, (2005). Business Study Feasibility Online, Entrepreneurship

and business innovation.

14