Management

 

 What are Feasibility Studies and Why Do Them?

 

If you have to decide whether some intended activity is more likely to be a success or a failure, you need to do a feasibility study - collect and analyse data relevant to the issue being considered.  For example, if you’re thinking of expanding your operations by adding a new product, opening a new branch or moving to larger premises, a feasibility study could help you decide whether such a move would be wise.  It will give you an idea of the risk involved with taking whatever action you are thinking about.  It will help you avoid 'flying blind', making decisions purely by guess-work and making bad investments. 

 

The most obvious time to do a feasibility study is when you are planning and setting up a new business, but (as indicated in the above paragraph) they can be done at any time for an existing business.  Because the two most fundamental requirements for business survival are: (1) sales, and (2) profit/cash flow, two different but related feasibility studies are essential.

 

The question 'Can we make enough sales (i.e. capture a big enough market share) to create, build and sustain a good business?' can be answered by doing a market feasibility study.  'Will my business be financially viable?' can only be answered by doing a financial feasibility study.   Ask us about how to do a financial feasibility study.    

 

From a 22-year study of more than 45,000 small firms it was found that at least half of them failed to do any sort of feasibility study prior to start-up, and nearly two thirds of these failed within two years.   Over two thirds of the failed firms gave ‘inadequate sales’ as the major cause of their failure.   Either they located where there wasn't enough demand for their product(s) or service(s), or where the competition was too great – the result ? inadequate sales. 

 

In that same study, a sizeable majority of small business owners had no idea whether their net earnings were adequate to provide a fair and reasonable return on their investments of money, time and effort.  You may be in (or going into) a business for any of a variety of reasons, but if it can’t make enough profits or cash surpluses to be worthwhile, it has no future; hence, the need to carry out a financial feasibility study.