Conducting a Feasibility Study

and Crafting a Business Plan

 Feasibility Analysis

 The process of determining whether

an entrepreneur’s idea is a viable
foundation for creating a successful
business
Elements of a Feasibility Analysis

Financial Feasibility

Industry and Product or

Market Feasibility Service Feasibility
 Industry and Market
Feasibility Analysis

 To determine how attractive an industry is

overall as a ‘home for a new business
 To identify possible niches a small
business can occupy profitably
 Five Forces Model
Potential
Entrants

Threat of new entrants

Rivalry among Bargaining

Suppliers Bargaining Buyers
existing firms Power of
Power of
suppliers buyers

Substitutes
 Rivalry
 Number of competitors is large or few
(less than 5)
 Competitors are not similar in size or
capability
 The industry is growing at a fast pace
 The opportunity to sell a differentiated
product or service is present
 Suppliers
 Many suppliers sell a commodity product to the
companies in it
 Substitute products are available for the items
suppliers provide
 Companies in the industry find it eas to switch
from one supplier to another
 The items suppliers provide account for a
relatively small portion of the cost of finished
products
 Buyers
 Switching costs to competitors is high
 Number of buyers is large
 Customers demand differentiated products
 Customers find it difficult to gather info
on suppliers costs etc
 The items account for a relatively small
portion of the customers’ finished products
 New Entrants
 Advantages of economic scale are not
present
 Capital requirements to enter are low
 Cost advantages are not related to
company size
 Buyers are brand-loyal
 Governments do not restrict entry
 Substitute Products
 Quality substitute products are not readily
available
 Prices of substitute products are not lower
 Buyers’ cost of switching to substitute
products is high
 Product or Service
Feasibility Analysis

 Are customers wiling to purchase our

goods and services?
 Can we provide the product or service to
our customers at a profit?
Financial Feasibility Analysis

 Capital
Requirements
 Estimated

Earnings
 Return on

Investment
 A Business Plan

 A written summary of an entrepreneur’s

proposed business venture, its operational
and financial details, its marketing
opportunities and strategy, and its
managers’ skills and abilities
 3 Functions

 Guides an entrepreneur
 Attracts lenders and investors
Reality Test
Competitive Test
Value Test
 Represents/reflects its creator
Elements of a Business Plan
 Title Page and Contents
 Executive Summary
 Vision and Mission Statement
 Company History
 Business and Industry Profile
 Business Strategy
 Description of the Firm’s Product or Service
 Marketing Strategy
 Competitor Analysis
 Description of Management Team
 Plan of Operation
 Pro Forma Financial Statements
 The Loan or Investment Proposal
What Lenders and Investors Look
for in a Business Plan

 Capital
 Capacity
 Collateral
 Character
 Conditions
 Executive Summary
 The company’s business model and basis
for competitive edge
 The company’s target markets and the
benefits its product or service will provide
 The qualification of the founders and/or
key employees
 The key financial highlights
 Business and Industry Profile
 Overview of industry or market segment
 Existing or anticipated profitability of the
industry
 Company’s general business goals
 Company’s immediate objectives
 Business Strategy

 How to gain competitive edge

 How to achieve the goals and objectives
 Methods to satisfy KSFs of the industry
 Description of Product or Service

 Overview of how customers will use it

 Any patents, trademarks or copyright
 Honest comparison with competition
 Feature (descriptive fact about a product
or service) vs Benefit (what a customer
gains from the product or service)
 Description of production process,
strategic raw materials, sources, costs.
 Marketing Strategy
 Defining the target market
Who?
Where?
How many?
Why?
 Proving that a profitable market exists

Showing customer interest

Documenting market claims
 Marketing Strategy

 Advertising
 Market Size and trend
 Location
 Pricing
 Distribution
 Competitor Analysis

 Each significant competitor

 Advantage over each
Description of Management Team

 Qualifications of those with at least 20%

ownership
 Resumes
 How to avoid primary reasons for business
failures
Plan of Operation

 Organizational chart
 Form of ownership
Pro Forma Financial Statements

 Monthly for 3 years by quarter

 3 sets: pessimistic, most likely, optimistic
 Statement of assumptions
 Loan or Investment Proposal

 Purpose of financing
 Amount requested
 Plans for repayment/exit strategy
 Timetable for implementation
 Evaluation of risks