Feasibility Study

May 12, 2023

What is a Feasibility Study?

It is an analysis of the viability

of a business idea. It focuses on
helping answer the question
“should we proceed with the
proposed business idea?”
 What is a Feasibility Study?
A feasible business venture is one
where the business will generate
adequate cash flow and profits,
withstand the risks it will encounter,
remain viable in the long - term and
meet goals of the founders.
 What is a Feasibility Study?

Italso allow a business to address

where and how it will operate,
potential obstacles, competition
and the funding needed to get the
business up and running
 FS vs Business Plan
 The feasibility study provides an
investigating function.
 It addresses the question of “Is this a
viable business venture?” whereas the
business plan outlines the actions needed
to take the proposal from “idea to reality”.
A feasibility study is not a business plan
 FS vs Business Plan
The feasibility study is conducted
before the business plan. A business
plan is prepared only after the
business venture has been deemed to
be feasible.
The feasibility study outlines and
analyzes several alternatives or
methods of achieving business success.
 Components of a Feasibility Study

Market feasibility – describes the industry,

the current and future market potential,
competition, sales estimations and
prospective buyers.
 Components of a Feasibility Study

Technical/ Production feasibility – lays out

details on how a good or service will be
delivered, which includes transportation,
business location, technology needed,
materials and labor.
Components of a Feasibility Study
Financial feasibility – a projection of
the amount of funding or startup
capital needed, what sources of capital
can and will be used, and what kind of
return can be expected on the
investment.
Components of a Feasibility Study

Organizational feasibility – a definition of

the corporate and legal structure of the
business; this may include information
about the founders, their professional
background and the skills they possess
necessary to get the company off the
ground and keep it operational.
 Marketing Plan
1. Product and Service to Sell
2. Target Market – breaking the market
into segments
a. Area Coverage
b. Consumer/Customer
 Market Segmentation

1. Geographical Segmentation – based

on region, they live in or work in. ie.
Rural or urban, climate & season
etc.
2. Demographics – age, gender,
occupation, income etc
 Market Segmentation
3. Psychographic refer to the way
people think and what they like to do ie.
activities, opinions, interests, attitudes,
values etc.
4. Behavioral segmentation - actual
customer behavior towards products ie.
Benefit sought, brand loyalty, readiness
to buy, usage rate etc
 Target Market
 Required Information
1. Demographic factors, such as income level, age range, gender,
educational level, ethnicity of the target market;
2. Psychographic factors of the target market.- comsumer’s emotions
and values, desires and lifestyle choices;
3. Behavior factors such as frequency of product purchase and
shopping behavior of the target market;
Example: The target market of the said business is located at______,
with the total population of _______and its female population is ____.
The women from the adolescent to late adulthood are the target
market.
 Data Gathering Techniques
Sampling Techniques
- Probability Sampling
- Non Probability Sampling
 Marketing Plan
3.Demand and Supply Analysis
 Demand

- should pinpoint the specific customers who are

willing and are able to buy the proposed
products;
- done through the process of segmentation
a. Total Potential Demand
b. Present Supplier/ Competition
 How to get the demand of each year?

 Example: If you are in the business of selling

dresses:
Total population = 10,804
Each female buy 1 piece of dress per month - 12
per year
Assume that 15% of female population are willing
to buy dress ;
10,804 x .15 = 1,620 x12 = 19,440
Projected demand- presents data 1-5 years after the
opening of the proposed business;
 Marketing Plan

4. Projected Sales
a. Per month
b. In Volume and in Pesos
 How to get the supply per year?
 Projected supply illustrates the supply 1-5
years after the operations of the proposed
business or product.
 Itis the ability of the suppliers to provide
the products to the market.
 Itrepresents the number of sellers or
producers selling similar or substitute
products , there are also the competitors;
 How to get the supply per year?
Example:
Capacity to make 7 pieces a day (dress)
Working days – 24 days a month ;
Number of months in a year – 12 months
Projected sales - 2016
 Marketing Plan
5. Marketing Program Strategies
a. Practices of the competitors
b. Own Marketing Program strategies
What to do?
- Market Research
- Marketing Plan
- Marketing Mix – Product, Pricing, Place,
Promotion
 Financial Plan/ Financial Analysis
1. TotalProject Cost
2. Sources of Financing
3. Projected Financial Statement
a. Projected Cash Flow Statement
b. Projected Income Statement
c. Projected Balance sheet
 Project costs
1. Capital Expenditures:
- Land and Land Improvements –which includes
fences, water system, sidewalks, driveway, parking
lots and landscaping which are permanent in nature;
- Building and improvements like renovation costs,
reconditioning costs, and other costs required to
bring the building in a condition suitable for its
intended use;
- Machines and Equipment – depreciable assets;
- Furniture and Fixtures – depreciable assets;
 Project costs
Transportation equipment or motor vehicle wholly for
business used;
- leasehold improvements- improvements made by the
lessee to the property being leased;
2. Pre-operating expenses- expenses prior or before the
operation of the business: registration & legal fees, with
the DTI or SEC, business permits with the LGU,
registration to the BIR, printing of business documents
like OR, sales invoices, cash disbursements vouchers and
promotional expenses;
 Project costs
3. Initial working capital requirements – possibly
for the first 3 months of the project’s business
operations until cash has been realized from the
revenue generating activities of the enterprise;
4. Rental deposit and advances – if renting
Note: it is important to prepare a schedule of the
capital expenditure or depreciation schedule;
 Project costs
 Capital needed will be depending on the total project costs;
 Capital contributions to be made may be in the form of cash and
non-cash assets such as inventory, marketable equity & debt
securities, depreciable and non-depreciable assets;

Sources of Capital
1. Personal funds
2. Borrowings – from lending companies, cooperatives, banks etc.
 Assumptions Example
 Sales are 100% of the yearly production.
 Gas and oil expense, promotion and advertisement, repair and
maintenance are assumed to increase by 5% annually.
 Contingencies are 3% of net sales.
 Drawing is 20% of net income.
 Other benefits like seminars and trainings are assumed to increase
by 5% annually.
 Audit fees, permits and licenses are assumed to increase by 5%
annually.
 The initial capital requirement is good for 3 months consumption.
 Production will be maintained at 100 heads per month for the
next 5 years.
 Assumptions Example
. 1. The partners have an initial investment of Php 3,450,000.00;
 Php1,700,000 will be the investment in the form of cash,
 two (2) hectares land worth Php 1,500,000
 truck worth Php 250,000.00.
2. The supplies of the business will increase in 5% annually.
3. Income tax of profit before taxes is 30%.
4. The Straight line method is to be used in depreciation expense.
 Assumptions Example
The Straight line method is to be used in
depreciation expense.
5.The cash flow of the business is mostly
from operating activities
6. Electricity and water in the farm and
office are to increase 5% for every
succeeding years. Telephone bill is assumed
to increase 5% annually.
7. Distribution of profit or loss should be
based on the original capital distribution.
 Projected Income statement
 From your marketing study – demand and supply
analysis
- demand my include major consumers of the
product/services;
- supply includes supply for the past years and the
projected supply;
- product pricing, the expected volume/units to be sold or
the number of clients, users and services to be rendered ;
- proposed marketing strategies/ programs of the
business;
 Projected Income statement
 Compute the unit cost and total costs of the product to be
sold or the cost of services to be rendered;
 Determine the mark –up percentage for the recovery of
total costs and expenses and to determine its net profit
per unit;
 The selling price per unit must be equal to the unit cost
per unit plus the desired mark up;
 The amount of sales/service revenue shall be computed
by multiplying expected total units to be sold or number
of services/clients to be rendered for a given period of
time multiply by the estimated selling price per unit;
Probability Indices/Ratio Analysis
ROI – Return on Investment.
Ratio of net profit over the total cost of
the investment
Net Income /Cost of Investment x100
Payback Period – number of years it takes
to recover the funds invested
Cost of investment /Ave. annual cash flow