Entrepreneurship for Engineers

IEng 5362
Assessing the Feasibility of a New Venture
 Introduction
Feasibility analysis is the process of determining whether a business idea is
Practicability
Profitability and
Viability of the business idea.
It is the preliminary evaluation of a business idea, conducted for the purpose of determining whether
the idea is worth pursuing.
Feasibility studies also help companies with new business development to determine:
How it will operate
Potential obstacles
Competition
Market analysis and
The amount and source of financing needed to grow the business.
 Cont.….

• Feasibility studies can help develop marketing strategies to convince

investors and banks that investing in a particular project or business is a
wise choice.
• A feasibility study contains a detailed analysis of what's needed to
complete the proposed project. The report may include a description of
 The new proposed product or venture.
 The technology and labor needed and
 Sources of financing and capital..

3
When To Conduct a Feasibility Analysis
• Timing of Feasibility Analysis
• The proper time to conduct a feasibility analysis is early in thinking through
the prospects for a new business.
• The thought is to screen ideas before a lot of resources are spent on them.

4
Importance of feasibility studies
• A feasibility analysis helps…
 To assess the merit of your business idea,
 Determine whether there is a market for your idea,
 Whether the idea is financially viable, and ultimately, whether or not
it is worth investing your time and money into the venture,
 Overall demand for new products, services, or ideas
 Characteristics of likely customers (such as demographics and
buying behavior)
 Characteristics of likely competitors

5
Sources of information for feasibility study
National Bureau of Statistics
 National Directorate of Employment
 Federal Ministry of Trade and Investment
State Ministries of Commerce and Industry
Commercial Banks
 Chambers of Commerce
 Trade Associations
 Newspapers and Periodicals
 Libraries
 Research Institutes
 Electronic media
 The Internet 6
Feasibility Analysis
 Elements of feasibility analysis in developing business ideas.

7
Elements of a comprehensive feasibility analysis
• Part 1 : product/ service feasibility
A. product/service desirability
B. Product/ service demand
Part 2: industry/ target market feasibility
C. Industrial attractiveness
D. Target market attractiveness
Part 3: organizational feasibility
E. Management prowess
F. Resource sufficiency
Part 4: financial feasibility
G. Total start up cash need
H. Financial performance of similar business
I. Overall financial attractiveness of the proposed venture 8
 Product/Service feasibility
Product/ service feasibility analysis is an assessment of the product/
service being proposed in the sense that it is what customers want and
that have an adequate market.
• To assess the feasibility of products/ services we have to determine:
Nature of the product or service
 Special features of the product
Special benefits to the users/consumers

9
Cont…
Product / service desirability
• To assess the desirability of the product/service we have to ask:
Does it make sense?
 Is it reasonable? 
Product/ service demand
• In order to determine the product/ service demand, we need to talk with
potential customers face to face, and use online tools, such as Google to
assess the demand of your product/ service.

Melese G. 10
Industry/ Target market feasibility

Purpose•
Is an assessment of the overall attraction of the industry
and the target market for the proposed business.

Includes the description of the industry, current market,

anticipated future market potentials, competition, sale
projection, potential buyers etc.

11
Assessing industry Attractiveness
 Target Market Attractiveness

• Target Market Attractiveness

The challenge in identifying an attractive target market is to find a market
that’s large enough for the proposed business.
Assessing the attractiveness of a target market is tougher than an entire
industry.
Is the proposed product/services get market ?
What strategies of market available to sell the proposed products/services?
What is the areas of our products?
Organizational feasibility analysis
Purpose
• Conducts to determine whether the a proposed business idea has
sufficient management expertise, organizational competence, and
resources management to successfully launch a business
Management prowess

A firm should candidly evaluate the prowess, or ability, of its

management team to satisfy itself that management has the requisite
passion and expertise to launch the venture.
Two of the most important factors in this area are:
The passion that the solo entrepreneur or the founding team has for the
business idea.
The extent to which sole entrepreneur or the founding team understands
the markets in which the firm will participate.
 Resource Sufficiency

An assessment of whether an entrepreneur has sufficient financial resources

to launch the proposed business
Examples of resources that may be critical to the successful
launch of a new business
Availability of factory/ lab space for business.
Local and state government support of the business.
Quality of the labor pool available.
Closeness to key suppliers and customers.
Willingness of high quality employees to join the firm.
Possibility of obtaining intellectual property protection in key areas.
Financial Feasibility Analysis
Purpose:
Financial feasibility analysis is uses to analysis:
 Business how much stars up capitals needed
 Sources of capital
 Returns on investment
Total start-up cash needed
Total start-up cash needed
 The first issues refers to the total cash needed to prepare the business
to make its first sale
An actual budget should be prepared that lists all the anticipated
capital purchases and operating expenses needed to generate the
revenues
The point of this exercise is to determine if the proposed venture is
realistic given the total start-up cash needed
 Financial Performance of Similar Businesses

Estimate the proposed start-up’s financial performance by comparing it to

similar, already established businesses
There are several ways to doing this, all of which involve a little ethical
detective work
First, there are many reports available, some for free and some that require a
fee, offering detailed industry trend analysis and reports on thousands of
individual firms
Second, simple observational research may be needed. For example, the
owners of New Venture Fitness Drinks could estimate their sales by tracking
the number of people.
 Overall Financial Attractiveness of the
Proposed Venture
Overall Financial Attractiveness of the Proposed Investment
In the feasibility analysis stage, the extent to which a business
opportunity is must be positive relative to each factor is based on an
estimate rather than actual performance
High percentage of recurring revenue
 client, the client will provide recurring sources of revenue.
 Ability to forecast income and expenses with a reasonable degree of
certainty.
 Internally generated funds to finance and sustain growth.
 Availability of an exit opportunity for investors to convert equity to cash.
Financing of Small Business
• Finance is a key input of production.
• It is a prerequisite for accelerating the process of industrial
development.
• Financial resources are essential for business, but particular
requirements change as an enterprise grows.
• Obtaining those resources in the amount needed and at the time when
they are needed can be difficult for entrepreneurial ventures
because they are generally considered more risky than established
enterprises.
21
Types of finance
• Depending upon the nature of the activity, the entrepreneurs require
three types of finances; i.e.
1. Short term,
2. Medium term and
3. Long term finances.

22
1. Short term
• Short term finance refers to the funds required for a period of less
than one year.
• Short term finance is usually required to meet variable, seasonal or
temporary working capital requirements.
• Borrowing from banks is a very important source of short term
finance.

23
2. Medium term
• The period of one year to five years may be regarded as a medium
term.
• Medium term finance is usually required for permanent working
capital, small expansions, replacements, modifications etc.
Medium term finance can be raised by;
• Issue of shares
• Borrowing from banks and other financial institutions

24
3. Long term finances
• Period exceeding 5 years are usually regarded as long term.
• Long term finance is required for procuring fixed assets, for the
establishment of a new business, for substantial expansion of existing
business, modernization etc…
The important sources of long term finance are;
• Issue of shares
• Borrowing from banks and other financial institutions

25
Types of feasibility study
1. Technical feasibility
• Technical: Hardware and software of technology
• Existing or new technology
• Manpower
• site analysis
• Transportation
2. Financial feasibility
• Initial investment
• Resources to procure capital: Banks, investors, venture capitalists
• Return on investment
26
Cont.…
3. Market feasibility
• Type of industry
• Prevailing market
• Future market growth
• Competitors and potential customers
• Projection of sales
4. Organizational feasibility
• The organizational structure of the business
• Legal structure of the business or the specific project
• Management team’s competency, professional skills, and experience
27
 LICENSES AND REGISTRATION
Here are some examples of the different licenses you may need to get once you
register your business:
Trader’s license: gives individuals permission to operate businesses in specif
ic areas and  permit trading in specific types of business. 
 
Liquor license: must be obtained if your business will be involved in the sale
 of alcoholic  beverages.  
Tour Guiding License: that allows individuals to organize and conduct tours
 in the  region. 
Vehicle Operating License: to operate special equipment, buses, tractor trail
ers,  etc.
28
Legal considerations for legal new business
Legal requirements for your business may include:
• Requirements for registering a business, including procedures for
naming your business.
• Local laws that govern business operations.
• Guidelines that govern the health and care of employees and customers.
• The tax code for small business operations.
• Codes of conduct relevant to specific industries, sectors or professions.

29
Cont….
Governments may offer certain facilities or incentives to entrepreneurs
starting a new business. Such as:
• Grants to set up a small business.
• Micro‐finance opportunities.
• Tax relief.
• Recognition in the community, etc.
• Legal aid.

30
Developing ethical considerations
In developing a code of ethics the entrepreneur should consider the
following items:
• Identify general principles that will lead to fair business practices.
• Identify the values that will guide your interaction with customers and
employees.
• Check with your industry association for basic standards to follow.
• Allow for the fact that ethical questions do not always have a unique,
faultless answer.

31
Cont….
• Write out specific statements that will assist you and others in making
day‐to‐day ethical decisions.
• Apply your code of ethics to a written policy and procedure manual
identifying the major rules for operating your business.
• Train your employees (and family members) to make ethical decisions
about the business.

32
Cont….
Your code of ethics will apply to all types of business operations including the following.
• Handling cash and checks from customers.
• "Negotiating" special prices for a friend without permission.
• Selling damaged merchandise.
• Warranties on products.
• Merchandise return policies for customers and suppliers.
• Accounting procedures for cash sales.
• Employee theft.
• Keeping the premises clean and free from harmful substances or germs.
• Telling customers the truth.

33
THANK YOU!!!

34