Why you must have Feasibility report Before Starting a business

Posted on August 09, 2015 by Prakash Bhosale, One of Thousands of Entrepreneurship Coaches on Noomii.

1. A feasibility study will help you to determine the profitability of the business venture. Before starting a business, seasoned entrepreneurs and investors would want to know if the business would be worth their time, effort and resources. It is worthwhile to know that many entrepreneurs have abandoned solid business ideas because the profitability could not be ascertained on conducting a feasibility study on the business idea.
2. A feasibility study will help prove to the entrepreneur, venture capitalists, lenders and investors the existence of the market, the liquidity of the business venture and the expected return on investment.
3. A feasibility study will help you identify the flaws, business challenges, strengths, weaknesses, opportunities, threats and unforeseen circumstances that might affect the success and sustainability of the business venture. Just like the case of my dad’s business, the business failure and loss of money would have been avoided if we had carried out a feasibility study. We simply jumped in based on someone’s recommendations because we were flushed with cash and we paid dearly for it.
4. Before starting a business, a feasibility study will enable you estimate the financial, human and technological resources that will be needed to ensure the successful launching of the business. Feasibility study helps to reveal the number and level of skill or unskilled workers to be employed and their salary scale.
5. Feasibility study will help you to determine the amount of capital required to start the business. It will also help you in establishing the budget plan, working capital and cash flow projections of the business.
Project report may have following information.
1. Description of the project. Introduction, Uses and Applications, Properties, Market Survey with future aspects, Present Manufacturers, industry profile.
2. Promoters, Management, man power – tech & non tech, proposed management arrangements, Description of technical arrangements (management, production, marketing, finance etc.).
3. Marketing: Basic market orientation: local, national, regional, or export/import. Projected service volumes, unit prices, sales objectives, and market share of proposed venture.
4. Production of project: – Technical feasibility, manpower, raw material resources, and environment: Brief description of project process. Comments on special technical complexities and need for know-how and special skills.
5. Finance: – Investment requirements, project financing, and returns, Estimate of total project cost, miscellaneous fixed assets, preliminary and preoperative expenses and working capital. Proposed financial structure of venture, indicating expected sources and terms of equity and debt financing. Critical factors determining profitability. Cash Flow Statement, Repayment Schedule, Interest Chart, Depreciation Chart, Projected Balance Sheet for 3/5 Years
6. Time table for project preparation and completion.
7. Guidelines, suggestions on marketing & marketing collateral and tools development.
More about feasibility study report:-
A feasibility project report study is an evaluation and analysis of the potential of the proposed project which is based on extensive investigation and research to support the process of decision making. Feasibility studies aim to objectively and rationally uncover the strengths and weaknesses of an existing business or proposed venture, opportunities and threats present in the environment, the resources required to carry through, and ultimately the prospects for success. In its simplest terms, the two criteria to judge feasibility are cost required and value to be attained. As such, a well-designed feasibility study should provide a historical background of the business or project, description of the product or service, accounting statements, details of the operations and management, marketing research and policies, financial data, legal requirements and tax obligations. Generally, feasibility studies precede technical development and project implementation.
Objective of feasibility project report study:
A feasibility study evaluates the project’s potential for success; therefore, the perceived objectivity is an important factor in the credibility to be placed on the study by potential investors and lending institutions.[citation needed] It must therefore be conducted with an objective, unbiased approach to provide information upon which decisions can be based.
Few common factors of feasibility project report study
Technology and system feasibility:-
The assessment is based on an outline design of system requirements, to determine whether the company has the technical expertise to handle completion of the project. When writing a feasibility report, the following should be taken to consideration:
A brief description of the business to assess more possible factor/s which could affect the study
The part of the business being examined
The human and economic factor
The possible solutions to the problems
At this level, the concern is whether the proposal is both technically and legally feasible (assuming moderate cost).
Legal Feasibility:-
Determines whether the proposed system conflicts with legal requirements.
Operational Feasibility:-
Operational feasibility is a measure of how well a proposed system solves the problems, and takes advantage of the opportunities identified during scope definition and how it satisfies the requirements identified in the requirements analysis phase of system development.
The operational feasibility assessment focuses on the degree to which the proposed development projects fits in with the existing business environment and objectives with regard to development schedule, delivery date, corporate culture, and existing business processes.
Economic Feasibility:-
The purpose of the economic feasibility assessment is to determine the positive economic benefits to the organization that the proposed system will provide. It includes quantification and identification of all the benefits expected. This assessment typically involves a cost/ benefits analysis.
Technical Feasibility:-
The technical feasibility assessment is focused on gaining an understanding of the present technical resources of the organization and their applicability to the expected needs of the proposed system. It is an evaluation of the hardware and software and how it meets the need of the proposed system.
Schedule Feasibility:-
A project will fail if it takes too long to be completed before it is useful. Typically this means estimating how long the system will take to develop, and if it can be completed in a given time period using some methods like payback period. Schedule feasibility is a measure of how reasonable the project timetable is. Given our technical expertise, are the project deadlines reasonable? Some projects are initiated with specific deadlines. You need to determine whether the deadlines are mandatory or desirable.
Other feasibility factors:-
Market Size feasibility:
Market feasibility studies typically involve study geographic locations
Total Market size with other players business analysis .
The project feasibility is estimated and the project scope is defined:
Risks and benefits are identified:
The project structure is elaborated:
Cultural feasibility
In this stage, the project’s alternatives are evaluated for their impact on the local and general culture. For example, environmental factors need to be considered and these factors are to be well known. Further an enterprise’s own culture can clash with the results of the project.
Financial feasibility
In case of a new project, financial viability can be judged on the following parameters:Total estimated cost of the project. Financing of the project in terms of its capital structure, debt equity ratio and promoter’s share of total cost. Existing investment by the promoter in any other business. Projected cash flow and profitability. The financial viability of a project should provide the following information. Full details of the assets to be financed and how liquid those assets are. Rate of conversion to cash-liquidity (i.e. how easily can the various assets be converted to cash?). Project’s funding potential and repayment terms.
Sensitivity in the repayments capability to the following factors:
• Time delays.
• Mild slowing of sales.
• Acute reduction/slowing of sales.
• Small increase in cost.
• Large increase in cost.
• Adverse economic conditions.
Market research study and analysis.
This is one of the most important sections of the feasibility study as it examines the marketability of the product or services and convinces readers that there is a potential market for the product or services. If a significant market for the product or services cannot be established, then there is no project.
Typically, market studies will assess the potential sales of the product, absorption and market capture rates and the project’s timing.
TENTATIVE POINTS OF FEASIBILITY REPORT (CAN BE CHANGED )
Objectives of the report
Mission
Keys to Success
Industry Profile
Company Summary
Company Ownership
Start-up Summary
Start-up Requirements
Start-up Funding
Locations and Facilities
Services
Competitive Comparison
Service Description
Macro-environment
Sales & Marketing
Fulfillment
Technology
Future Services
Market Analysis
Market Segmentation
Target Market Segment Strategy
Market Needs
Market Trends
Service Business Analysis
Distributing a Service
Competition and Market potential analysis
Study & analysis of Competitors
Strategy and Implementation
SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
Marketing Strategy
Pricing Strategy
Promotion Strategy
Positioning Statement
Sales Strategy
Sales Forecast
Strategic Alliances
Management Profile
Organizational Structure
Management Team
Personnel Plan
Financial Plan
Key Financial Indicators
Projected Profit and Loss
Projected Cash Flow
Projected Balance Sheet
Controls
Tracking Focus
Market segment focus
Customer Focus
Appendices
Team; – Guide & mentor, research & analysts, data collection, drafter, graphics creator, proof reader.
Per report: – 250 to 600 pages word document, with basic graphical presentations.
It will include scope of work of CA, production engineer /architect /astrologer etc.