Developing

Feasibility Studies
and Business Plans
Dr. Janak V. Shelat

Points to be Pondered
What

is a Feasibility Study?
What is a Business Plan?
How do they differ?
What Resources are available to help
develop each?

Are all Studies created Equal?

What is a Feasibility
Study?
A feasibility study is an analysis of the viability of an idea

through a disciplined and documented process of

thinking through the idea from its logical beginning to its
logical end.

A feasibility study provides an Investigating function

that helps answer Should we proceed with the proposed
project idea? Is it a viable business venture?

A feasibility study should be conducted to determine the

viability of an idea BEFORE proceeding with the
development of a business.

What Defines
Feasibility?

A feasible business venture is one where

the business will generate adequate cash flow and

profits,
the business will withstand the risks it will
encounter,
the business will remain viable in the long-term,
and
the business will meet the goals of the founders.

Why do a Feasibility
Provide a thorough examination of all issues and assessment of
Study?
probability of business success

Give focus to the project and outline alternatives

Narrow business alternatives
Surface new opportunities through the investigative process
Identify reasons NOT to proceed
Enhance the probability of success by addressing and
mitigating factors early on that could affect the project
Provide quality information for decision making
Help to increase investment in the company
Provide documentation that the business venture was
thoroughly investigated
Help in securing funding from lending institutions and other
monetary sources

Levels of Feasibility
A feasibility study of an idea is conducted
Assessment
at three levels

Operational Feasibility

Technical Feasibility

Will it work?
Can it be built?

Economic Feasibility

Will it make economic sense if it works and

is built?
Will it generate PROFITS?

Data Sources for a

Data required for a feasibility study can come
Feasibility
Assessment
from primary or secondary sources

Primary data can include formal interviews and

surveys

Collection of primary data can be expensive and time

consuming

Secondary data can include industry and trade

publications, statistics of industry associations,
and government agency reports

Steps for an Economic

Identify and Estimate all Capital Expenditures
Feasibility
Study
Identify and Estimate all Variable Costs related to the

Proposed Business Venture

Identify and Estimate Project Related Costs

Identify People and Skills required to operate

Determine Wages, Salaries, and Benefits
Infrastructure development or improvements
Advertising and Promotion
Legal Fees
Municipal & State Development taxes

Identify and Estimate all Fixed Costs

Estimating Total Capital

Requirements

Assess the seed capital needs of the business project and how
these needs will be met
Estimate capital requirements for facilities, equipment and
inventories
Replacement capital requirements and timing for facilities and
equipment
Estimate working capital needs
Estimate start-up capital needs until revenues are realized at full
capacity
Estimate contingency capital needs (constructions delays,
technology malfunction, market access delays, etc.)
Estimate other capital needs

Equity and Credit

Estimate Equity and Credit Needs

Identify alternative equity sources and capital availability

Identify and assess alternative credit sources

Banks, Government (direct loans or loan guarantees), Grants,

Local and State Economic Development Incentives

Assess expected financing needs and alternative

sources

Producers, Local Investors, Angel Investors, Venture Capitalists

Interest Rates, Terms, Conditions, Covenants, Liens, Etc.

Debt to Equity Levels

Cost-Benefit Analysis
Utilize data collected to determine economic feasibility:

Estimate Expected Costs and Revenue

Estimate the Profit Margin and Expected Net Profit
Estimate the sales or usage needed to break-even
Estimate the returns under various production, price and
sales levels to create a sensitivity analysis
Assess the reliability of the underlying assumptions of the
financial analysis
Benchmark against industry averages and/or competitors
Identify limitations or constraints of the economic analysis
Project expected cash flow during the start-up period
Project income statement, balance sheet when
EXPENSE
REVENUE
reaching full operation

What Next?

After the feasibility study has been completed and

presented to the leaders of the project, they should
carefully study and analyze the conclusions and
underlying assumptions
Next they will decide which course of action to pursue

Potential Courses of action include

Choosing the most viable business model, developing a

business plan and proceeding with creating and operating a
business
Identifying additional scenarios for further study
Deciding that a viable business opportunity is not available and
moving to end the business assessment process
Following another course of action

Developing a
Business Plan

WHAT is business plan

Its a written document prepared by the

entrepreneur that describes all relevant
external and internal elements involved in
starting a new venture
Where am I now?
Where am I going?
How will I get there

What is a Business Plan?

A Business Plan summarizes the plan of action after

a course of action has been determined through the
Feasibility Study
A Business Plan provides a Planning function
A Business Plan outlines the actions needed to take
the proposal from idea to reality
A Business Plan tells How your business will be
created and Why it will be successful
??
A Business Plan provides a road map for
strategic
planning

Scope of business plan

Its an integration of functional plans like
marketing,finance,manufacturing and human
resource

Helps in determining viability of venture in a

designated market
Guidance to entrepreneur in organizing his planning
activities
Serves as important tool in helping to obtain
financing

Who reads the plan

Employees
Investors
Bankers
Venture capitalists
Suppliers
Customers
Advisors

Information needs
market information

Market objectives
Market positioning
Local competition/strengths & weakness
Local industry trends
Local environmental .& demographic trend
National trend
General environmental & demographic trends

Operations information needs

1.
Location
2.
Manufacturing operations
3.
Raw materials
4.
Equipments
5.
Labor skills
6.
Space
7.
overhead

Financial information

includes preparing budget stating expected

expenditures in 1st year and list of all revenues
including sales and any external available funds

Why Write a Business

Plan?
Put the Pieces TogetherDo the pieces fit

together in a logical manner?

Create a Blueprint for Action
Focus Founders and/or Management Team
Obtain Financing
Attract Equity Investment
Attract Key Managers and Employees
Obtain Contracts
Create Joint Ventures, Mergers, Acquisitions

How Effective Is the

Business Plan?

How effective a Business Plan is depends on

how well the following questions are answered:

Who are we?

What do we do?
What do we have to offer?
Why will someone pay for our products/service?
What resources do we have?
Where are we going?
What do we need to get there?
Why will we be successful?
Why should someone participate or invest?
How will we measure performance?

The Story a Business

Plan
Tells
Business Plan should be tailored to the

stakeholders
Be aware of each potential stakeholders priorities
Make sure all priorities are addressed in a
balanced manner in the business plan
If more than one version of a business plan is
written, make sure each tells the SAME story only
with difference emphasis

Who is the Target of a Business Plan?

Stakeholder

Issues to
Emphasize

Issues to
Deemphasize

Banker

Cash-Flow, Assets,
Solid Growth

Fast Growth, Hot

Market

Investor

Fast Growth Potential

Assets, Large Market,

Management Team

Strategic Partner

Synergy, Proprietary

Sales Force, Assets,

Products

Large Customers

Stability, Service

Fast Growth, Hot

Market

Key Employees

Security, Opportunity

Technology

Merger & Acquisition

Specialist

Past
Accomplishments

Future Outlook

*Portable MBA for Entrepreneurship, William B. Bygrave, John Wiley & Son, Inc., 1994

Feasibility Study vs.

Business
Plan
Feasibility study answers the bottom line questionIs this

venture going to make money?

Feasibility study outlines and analyzes several alternatives
or methods of achieving business success
Feasibility study is conducted before a business plan
Business plan is prepared only after the venture has been
deemed to be feasible
Business plan deals with only one alternative or scenario
that is determined to be the best alternative
Business plan considers the management sidegoals and
objectives of the planned business venture

What resources are available to

help develop each?

Hired Business Consultants

Make sure an accurate assessment is given

Make sure someone is not paid to give the answer the
group wants to hear
Can be costly

Third Party Unbiased

Universities

Center for Agribusiness & Economic Development

Small Business Development Center

What is included in a
A Business Plan should be brief, concise & straight to the point
Business
Plan?
Main Requirements
May Include

Industry Description
Market Size
Customer Base
Competitive Advantage
Business Location
Three years of Financial Projections
Monthly Tracking of First Year Financials
Management Experience and Profile
Personal Statement of Affairs
Other Sources of Cash, if any

Outline of business plan

Introductory page
Executive summary
Industry analysis
Description of venture
Production plan
Operational plan
Marketing plan
Organizational plan
Assessment of risk
Financial plan
appendix

environmental & industry analysis

assessment of external uncontrollable variables that may

impact business plan and reviewing industry trends and
competitive strategies

What are total ind. Sales over past five years?

Who are nearest competitors?
What is anticipated growth of this industry?
What are major economic,technological,legal and
political trends in national and international level?
What is the profile of your customers?
Are sales of each of your customers growing or
declining?

Describing venture:

provides complete
overview of products, services and operations of
new venture

Mission of new venture?

What are your reasons for going into new venture?
Why will you be successful in this new venture?
What are your products and services?
Where will be the business be located?
Why is the building & location right for you?

Production plan:details of how the

products will be manufactured

Will you be responsible for all or part of

manufacturing operations?
Why are these subcontractors selected?
What are the costs of subcontracted
manufacturing?
What are the future capital needs of the
venture?

Operational plan

Marketing plan describes market conditions

and strategy related to how products and

services will be priced, distributed and
promoted

Organizational plan describes form of

ownership and lines of authority and

responsibility of members of new venture

What is the form of ownership?

If partnership, who are the partners?
Who has check signing authority and
control?
Who are the members of manufacturing
team and what are there backgrounds?

Assessment of risk
Identifies potential hazards and alternative
strategies to meet business plan goals and
objectives
Financial plan:projections of key financial
data that determine economic feasibility
and necessary financial investment
commitment

appendix

Resumes of partners
Partnership agreement
Lease agreement
Facility layout
Market research survey results
Marketing brochure with price list

Sources of information
1.
2.
3.
4.
5.
6.
7.

Small business administration

Department of commerce
Federal information centers
Bureau of census
Banks
Chambers of commerce
Trade associations

Measuring plan progress

Inventory control
Production control
Quality control
Sales control
disbursements
Typically projections will be made for 12months,but
plan should be on a periodic basis be
checked( profit loss statement, information on
inventory, sales etc)

Why do plans fail

1.
2.
3.
4.
5.

Goals set are unreasonable

Goals are not measurable
No total commitment to business
No sense of potential threat or weakness
to business
No customer need was established for the
proposed product or services