Before you can start a business you must be reasonably sure that the business is feasible. One also needs to be certain of the resources required to start the business and then continue managing the business profitably.
What is a feasibility study?
A feasibility study is a due diligence or evaluation process that enables you to determine whether the business you want to start will be financially viable, in other words if this business will generate profits. It also gives you the opportunity to assess the cost of starting the business and sustaining it for at least the first year.
It's probably the most important exercise you will do in the whole process of starting a business. If your business is not viable, you'll know before you've spent any money and will have saved yourself a lot of heartache and debt.
A feasibility study is not limited to starting a new business. You should also do one when buying an existing business. The business should be able to afford the funding requirements placed on it, produce the income required to live and be able to operate as a profitable concern.
The feasibility study is also essential if you need to apply for finance and you'll need to formulate a feasibility questionnaire relevant to your business or industry as, this will lay the foundation of your assessment.
Questions to ask
The questions you should ask yourself before starting your business can be divided into three categories. The nature of your business, what you will need, as well as how you plan to run your business.
1. The nature of your business
First and foremost you must determine the nature of your business. What are you selling and where will you operate from? Will you manufacture your own products or buy from a supplier. Other aspects to be addressed within this framework include:
- Evaluate your target market
- Who else is selling this type of product or service?
- What price will you charge?
- What are your competitors’ prices?
- What will make you different from your competitors so that people will buy from you and not them?
- What will be your basic promotional mediums? Pamphlets, adverts in newspapers, sign boards, sales staff, etc.
- What will that cost you?
- How much turnover do you expect to make every week or month and are your products/services seasonal?
2. What you need to run your business
The second section that should be covered refers to what you need to run your business. For instance:
- Do you need a license or permission to operate your business?
- How much space do you need for your offices/factory?
- Will you rent or buy premises? Costs?
- Check how much electricity and water you will need and what the costs will be.
- Machinery, equipment, vehicles, furniture, computers and telephones – what do you need and what are nice to haves? What are the costs?
- Research your suppliers of your products. Compare prices and look at storage requirements.
- Where do your competitors purchase stock from?
- Are your suppliers reliable?
3. How you plan to run your business
The third aspect you must address is how will you run your business? You need to answer questions like:
- Who will manage the business from day to day?
- What qualifications are required?
- What salary do you need to pay them?
- What other key positions need to be filled and who will fill them?
- Will you allow family to be involved and who will they be? Set out strict guidelines for all employees, including family
- Develop clear job specifications and salary structures so that you know how much your labour costs will be
Most important of all in this whole process: DON’T GUESS.
Take the time to make those phone calls and research every aspect of your business thoroughly. There’s nothing worse than getting a very nasty invoice for services, stock or other costs and you haven’t budgeted for it. It will drain your cash flow.
There are so many questions you need to ask and these do not cover all the aspects that should be researched, but it does give you a guideline as to the kinds of questions you should be asking and answering.
As an entrepreneur you will be investing your very valuable time and skills, perhaps giving up formal employment and then taking on financial risk to achieve your dreams. You owe it to yourself to make sure that you are reasonably certain of your investment decision.
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