The First Step in Starting a Business is a Feasibility Study
Written by Lincoln Savings Bank
Are you looking to start a business and want to know the viability of your plan before proceeding with development? Having a Feasibility Study done will help you determine whether or not your business will deliver on its promises in a satisfactory manner, during a reasonable period of time and makes economical sense.
A Feasibility Study is a report including an opinion or finding conducted by an independent qualified consultant who evaluates the economic, market, technical, financial and management feasibility of the proposed project or operation in terms of its expectation for success. This 3rd party review provides the financial decision-makers with additional information on the status of your new or emerging business which can include investors, lending institutions, and government guarantee products.
Conducting a feasibility study can uncover new ideas and address potential issues so you can get your business idea up and running smoothly from the beginning. Let’s walk through the different sections of a feasibility study and the key benefits it can provide to you.
5 main sections of a Feasibility Study:
- Economic: This is a cost-benefit analysis that will look at the economic impact for the community or region in which the business impacts. They will take into consideration the benefits, costs associated and impact on the general public as a whole. Questions such as “How many jobs will this generate?” or “Are there any impacts to the environment?” may be asked.
- Market: A review of the current and future market potential, competition, sales or service estimations including current and prospective buyers or users. This is oftentimes a weak point of the business plan because of how thoroughly you need to review the market data points and competition.
- Technical: Analyzing the reliability of the technology that will be used. This can also analyze the delivery of goods, or services, including transportation, business location, and the need for technology, materials and labor. Looking at and validating new or innovative technologies that can be used in the business for market niche and determine how to make money using it.
- Financial: This will look at the operations' ability to achieve sufficient income, credit, and cash flow to financially sustain the project over the long term, meet all debt obligations, and forecast future performance.
- Management: This is an investigation into the legal structure of the business or operation, ownership board and management analysis. They will look at the competence and quality of the ownership as a whole, how the day-to-day operations will flow and exit strategies.
Once these areas have been inspected, the feasibility analysis helps identify any restrictions the proposed project may face, including:
- Internal Project Constraints: Technical, Technology, Budget, and Resource
- Internal Corporate Constraints: Financial, Marketing, and Export
- External Constraints: Logistics, Environment, Laws, and Regulations
Key benefits of conducting a feasibility study:
- Helps to determine if the project will move forward
- Narrows the business alternatives
- Identifies a valid reason to accept or reject the project
- Enhances the success rate by evaluating multiple parameters
- Helps detect and capitalize on new opportunities.
- Enhances the project teams' efficiency and focus.
The importance of a feasibility study is based on organizational desire to “get it right” before committing resources, time, or budget. A feasibility study might uncover new ideas that could completely change a project’s scope. It’s best to make these determinations in advance, rather than to jump in and learn that the project won’t work. Conducting a feasibility study is always beneficial to the project as it gives you a clear picture of the proposed project.
A feasibility study is required for any new business looking to obtain a USDA loan, and for some existing businesses depending on the type and level of experience. For programs, such as the USDA Food Supply Chain program, a study performed by an independent consultant is required. For Business & Industry programs the agency may require one to be completed when the lender’s analysis, borrower’s business plan, or project information is not sufficient to determine the technical feasibility, market feasibility, or economic viability of the project.
To learn more, talk to one of our USDA Lending experts! Contact us today!