Developing
Feasibility Studies
and Business Plans
The tools of the entrepreneur
Points to be Pondered…
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.
A feasibility study provides an Investigating function
that helps answer “Should we proceed with the proposed
project idea? Is it a viable business venture?”
A feasibility study should be conducted to determine
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 EXPENSE
reaching full operation REVENUE
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 ny
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
THANK YOU
QUESTIONS?
