For an economy to grow on a sustainable basis, new business need to emerge regularly. Unfortunately, the success rates for small businesses are typically quite low; the chances of a new business surviving for five years are less than 50 percent. As an entrepreneur, perhaps the most crucial problem you will face after expressing an interest in starting a new business or capitalizing on an apparent opportunity in your existing business will be determining the feasibility of your idea. The high failure rate of new businesses indicates that very few ideas prosper into successful business ventures.
This business feasibility checklist is useful in evaluating your business ideas it helps you to screen out ideas that are likely to fail before you invest extensive time, money and effort in them.
The business feasibility study is conducted during the deliberation phase of the business development cycle prior to commencement of a formal business plan. It involves gathering, analyzing and evaluating the basic purpose i.e “Should I go into this business?”
GENERAL PROJECT DESCRIPTION
- Briefly describe the business you want to enter & list the products and/or services you want to sell.
- Describe who will be your target market.
- What is the USP of your product/service& why would someone buy your product/service?
- What kind of location do you need in terms of type of neighborhood, traffic count, nearby firms, etc.
- List your major competitors – those who sell or provide similar products/services.
- List the labor and staff you require to provide your products/services.
To determine whether your idea meets the basic requirements for a successful new project, you must be able to answer at least one of the following questions with a “yes.”
- Does the product/service/business serve a presently unserved need?
- Does the product/service/business serve an existing market in which demand exceeds supply?
- Can the product/service/business successfully compete with existing competition because of an “advantageous situation”, such as better price, location, etc.?
A “Yes” response to questions such as the following would indicate that the idea has little chance for success.
Are there any causes (i.e. restrictions, monopolies, shortages) that make any of the required factors of production unavailable (i.e. unreasonable cost, scarce skills, energy, material, equipment, processes, technology, or personnel)?
- Are capital requirements for entry or continuing operations excessive?
- Is adequate financing hard to obtain?
- Are there potential detrimental environmental effects?
- Are there factors that prevent effective marketing?
The following questions should remind you that you must seek both a return on your investment in your own business as well as a reasonable salary for the time you spend in operating that business.
- How much income do you desire?
- Are you prepared to earn less income in the 1st – 3rd years?
- What minimum income do you require?
- What financial investment will be required for your business?
- How much could you earn by investing this money? (A)
- How much could you earn by working for someone else? (B)
Add the amounts in (A) and (B). If this income is greater than what you can realistically expect from your business, are you prepared to forego this additional income to be your own boss with the prospects of more substantial profit/income in future years?
AVAILABILITY OF SUPPLIERS
- Can you make a list of every item of inventory and operating supplies needed?
- Do you know the quantity, quality, technical specifications, and price ranges desired?
- Do you know the name and location of each potential source of supply?
- Do you know the price ranges available for each product from each supplier?
- Do you know about the delivery schedules for each supplier?
- Do you know the sales terms of each supplier?
- Do you know the credit terms of each supplier?
- Do you know the financial condition of each supplier?
- Is there a risk of shortage for any critical materials or merchandise?
- Are you aware of which suppliers have an advantage relative to transportation costs?
- Will the price available allow you to achieve an adequate markup?
COST BENEFIT ANALYSIS
- Do you know what your expenses will be for: rent, wages, insurance, utilities, advertising, interest, etc.?
- Do you need to know which expenses are direct, indirect, or fixed?
- Do you know how much your overhead will be?
- Do you know how much your selling expenses will be?
- Are you aware of any major risks associated with your product, service and/or business?
- Can you minimize any of these major risks?
- Are there major risks beyond your control?
- Can these risks bankrupt you?
- Are there any major questions remaining about your proposed venture?
- Do the above questions arise because of a lack of data?
- Do the above questions arise because of a lack of management skills?
- Do the above questions arise because of a “fatal flaw” in your idea?
- Can you obtain the additional data needed?
- Can you obtain the additional managerial skills needed?
- Are you aware that there is less than a 50-50 chance that you will be in business two years from now?
Hope you found our views on a business feasibility checklist useful! Stay tuned for more management and research tips to make your business vision a reality!