Feasibility Study: Benefits and Steps for Your Startup

So, you want to launch a specialty bread brand. Should you or should you not push through with your business idea? You can choose to go with your gut feeling or follow the advice of friends and family. However, the better way to decide is to conduct a feasibility study.

Read on as our feasibility study UAE business advisory firm discusses the benefits of a feasibility study and the steps to conducting one.

Benefits of a Feasibility Study

What is a feasibility study? Why do you need one?

A feasibility study is a systematic analysis of a business idea designed to find the answer to a single question: is the idea feasible or practical? Specifically, it will tell you whether your business idea or business plan is technically, legally, operationally, and financially viable.

Feasibility studies have two main benefits: They save you from wasting your resources and help you discover newer or better opportunities.

Save Time, Energy, and Money

The main benefit of a feasibility study is that it will save you time, energy, and money. No need to spend time, energy, and money on a business when the chances are high that it will not work.

If your feasibility study tells you your business idea is impractical, you can move on from that idea to a workable one.

Discover Opportunities

A detailed feasibility study might point you to an untapped market or a new way to implement your business idea. The market analysis stage, for instance, might shine a light on current market trends or point you towards effective promotional and advertising activities.

How to Conduct a Feasibility Study

The following are the steps for conducting a feasibility study.

1. Perform a preliminary analysis

What is your product or service, and your target market? Look at your business idea in greater depth to assess its viability and whether there’s an insurmountable obstacle that will make failure inevitable.

Specifically, you need to ask yourself if there is a genuine need for your product or service. Is it going to serve an unmet need in the market? Does your business idea have a distinct advantage over similar products or services?

You must also find out whether there are obstacles that will prevent you from bringing your product or service to the market or prevent it from thriving. If the barriers to entry are too steep to overcome, then your business idea is not feasible.

2. Conduct a market survey

If you are launching a specialty bread, survey your geographical target’s bread market.

How big is the market?

Make a list of your competitors, their respective market shares, their promotional activities, and their specific products. Assess your target market’s demographic characteristics (age, location, income), responsiveness to new products, loyalty to existing brands, and purchasing power.

3. Assess technical and operational feasibility

At this stage, you will need to create detailed plans for specific aspects of your planned business operations. You will need detailed plans for the following:

Technical

What equipment do you need, and what will their capacity and utilization be like? What are the technical specifications of your product or service?

Legal

What’s your business structure going to be? What taxes will you need to pay?

Operational

Where are you sourcing raw materials, and what resources do you need? What’s your distribution plan, and where will you put up your store? What are your overheads?

Once you have detailed plans, you can assess your startup’s technical and operational feasibility in depth. You will ‌uncover potential, insurmountable technical and operational obstacles.

4. Make a projected income statement

Also known as a budgeted income statement, this is a forecast of the revenue and expenses of the business for a future period.

You can create a projected income statement for the next three years, divided into yearly increments. Every revenue and expense item on this statement must have a valid basis for inclusion, specifically, the data you gathered from your market research and the result of your technical and operational analysis.

The projected net income is your projected revenue for a specific period minus your projected expenses for that same period.

Suppose you wish to compute the projected income for one year. The projected revenue is the number of products or hours of service you expect to sell in one year, multiplied by the price per unit or hour of service, respectively.

The projected expenses, meanwhile, are a combination of your fixed and variable costs for the same year. This includes that year’s interest payments, salaries, and rent, as well as the cost of producing the units of goods and hours of service you expect to sell in that period.

5. Make a projected balance sheet

The projected balance sheet is a financial statement that shows forecasted changes to your startup’s financial status by the end of a specific period, typically one year.

A projected balance sheet draws a picture of what a company expects to own and owe at a particular point in the future. It contains the following main line items:

• Assets (land, buildings, equipment, patents, etc.)
• Liabilities (wages, taxes, accounts payable, etc.)
• Equity (the difference between assets and liabilities)

The projected balance sheet is essential for estimating how your business decisions in the present will affect your company’s financial position in the future.

It will help you grasp your debt obligations and tell you how much equity you can realize by the end of the analysis period, particularly considering your projected income. More importantly, it should help you understand what you can do within the year to create equity value.

6. Create the feasibility report

Compile all the data and information you have gathered in the preceding steps into a feasibility report. You can use a feasibility study template or a feasibility study example available online for ease of organization.

7. Review the data

Once you have the feasibility report ready, review all the data and information you have gathered in the preceding steps, particularly the validity of your methods and frameworks, to assess the soundness of your projections.

8. Decide

After reviewing your data, it’s time to decide if your business idea is worth pursuing.

Conduct a Feasibility Study Before Starting a Business

A feasibility study will help you avoid wasting your time, money, and energy on a business that is not practical from the start. It’s a must if you’re planning to establish a business.

You can do a feasibility study yourself, but it would be much better to hire a third party with expertise in your industry. It’s similar to how established corporations planning mergers and acquisitions often find it more efficient to let an experienced transaction advisory service firm conduct risk analysis, financial due diligence, business valuation, and research on their behalf.

Do you have a business idea? Find out if it is workable.

Contact us so we can make a feasibility study for you.