Developing a Feasibility Analysis and Crafting a Business Plan

The Meaning of a Feasibility Study/Analysis

The launching of a business is possible when an entrepreneur comes up with an idea for a new business concept or approach. Most entrepreneurs all over the world do not lack creativity and are responsible for some of the world‘s most important innovations. However, business success is more than just a great new idea. Once entrepreneurs develop an idea for a business, the next step is to subject it to a feasibility analysis/study to determine whether they can transform the idea into a viable business. Scarborough (2013) defines a feasibility analysis as the process of determining whether or not an entrepreneur‘s idea is a viable foundation for creating a successful business. Its purpose is to determine whether or not a business idea is worth pursuing. If the idea passes the feasibility analysis, the next step is for the entrepreneur is to build a solid business plan for capitalizing on the idea. The entrepreneur drops the idea if it fails to achieve the set goal and moves on to the next opportunity. The entrepreneur has not wasted valuable time, money, energy, and other resources creating a full-blown business plan, or worse, it does not make sense to launch a business that is destined to fail abinitio because it is based on a flawed concept. Most importantly, a feasibility study does not guarantee an idea‘s success but conducting a study reduces the probability that entrepreneurs will waste their time pursuing fruitless business ventures.

In order to corroborate the above definition, Inegbenebor (2006) defines a feasibility study as the process by which an entrepreneur investigates the potential outcome of a project. It may also be seen as the process of checking out the workability and profitability of the proposed business. Rather than depend on trial and error, the entrepreneur painstaking collects, summarizes and analyses data on the different aspects the business in order to decide objectively whether or not to commit funds to the project. The pains and agony of failure of any business may be avoided by subjecting the business idea to systematic analysis. The usefulness of feasibility study can only be appreciated if the techniques of data collection and analysis are objective, valid and reliable. A feasibility report is a document that outlines the various aspects of the study and the conclusions arrived at. For a feasibility report to be useful, it must be properly organized to convey the needed information in a lucid, but simple manner.

The Purpose of a Feasibility Study

A feasibility study may be used to achieve the following objectives/purposes:

1. It helps to determine the profitability level of the project. Most entrepreneurs want to find out if the project will be worth the effort so as to avoid waste of time and resources.

2. It demonstrates to potential lenders and investors of the existence and size of the market, the liquidity or otherwise of the project. By liquidity, we mean the tendency of the project to generate enough cash to repay the loan and interest. Feasibility study is principally carried out for this purpose.

3. A feasibility study enables the entrepreneur to subject his/her ideas to critical investigation in order to identify flaws in the product or service which may jeopardize the success of the project.

4. A feasibility study also point to the financial and human resources that will be required to operate the business successfully. Inadequate capital or inadequate skills may be responsible for most start up businesses failure especially in developing societies.

Problems of Writing a Feasibility Report

Inegbenebor (2003) identified the following problems in writing a feasibility report:

1. Paucity of statistical data: Data is either out-of-date or not available.

2. Pressure from clients: Clients may become sentimentally involved in a project to the point that they may want the report to reflect certain of their expectations.

3. Unethical behavior of consultants: There are ―wait-and-take‖ consultants who simply adapt existing reports by substituting the names of new clients.

4. Unwillingness of sponsor to be guided by the feasibility report: Having used the report to secure a loan, the sponsor may neglect or fails to use the report as a guide in his/her future decisions.

The Meaning of a Business Plan

Scarborough (2014) defines a business plan as a written summary of an entrepreneur‘s proposed business venture, its operational and financial details, its marketing opportunities and strategy, and its managers‘ skills and abilities. There is no substitute for a well prepared business plan, and there are no shortcuts to creating one. The business plan becomes a road map that the entrepreneur will follow in building a successful business.

Benefits of a Business Plan

Kuratko (2014) identified the following benefits of drawing up a successful business plan for both the entrepreneur and the financial institutions:

1. It forces the entrepreneur to analyse all aspects of the venture and to prepare an effective strategy to deal with the uncertainties that may arise.

2. The time, effort, research, and discipline needed to put together a formal business plan force the entrepreneur to view the business critically and objectively.

3. The business plan quantifies objectives, providing measurable benchmarks for comparing forecasts with actual results.

4. The completed business plan provides the entrepreneur with a communication tool for outside financial institutions as well as an operational tool for guiding the business toward success.

5. The business plan provides the details of the market potential and plans for securing a share of that market.

6. Through prospective financial statements, the business plan illustrates the venture‘s ability to service debt or provide an adequate return on equity.

7. The plan identifies critical risks and crucial events with a discussion of contingency plans that provide opportunity for the venture‘s success.

8. By providing a comprehensive overview of the entire operation, the business plan gives financial sources a clear, concise document that contains the necessary information for a thorough business and financial evaluation.

Contents of a Typical Business Plan

There is no rigid rule as to what a business plan should contain. The type of business and the audience the entrepreneur has in mind in preparing it may determine the business plan format that is adopted. Generally, a business plan contain the following. Mason and Sanyot (2012) identified 9 (nine) items to be included in the contents of a typical business plan. They are:

1. Executive Summary: This is the opening chapter of the plan. It usually contains one to three pages in length and highlights all the key points of the plan in a way that captivates the reader‘s interest. It is the unique value proposition and business model that really matters.

2. Company description: This short section describes the company‘s business, location and site, strategy, structure and form of organization. It provides a summary of its goals and plans for the next five years as well as the company‘s capabilities.

3. Products and services: This explains what products or services the company will sell; it also discusses why customers will want the products or services, what problems the product or service will solve and what benefits they will deliver, and how much customers are likely to pay for them.

4. Market analysis: This section discusses the need or demand for the product, who the target customers will be, and why the customers will buy the product. This section also includes a discussion of the company‘s competitors or potential competitors, and why the product or service will have a competitive advantage over similar offerings from competitors. It also addresses the barriers to entry in this market that may prevent the entry of new competitors, such as high capital costs, difficulty in reaching customers or persuading them to switch loyalties, hard-to-get employee skills etc.

5. Proprietary position: This section discusses whether the business enterprise will rely on patents or licenses to patents, this section tells us how these patents will contribute to the company‘s competitive position and assesses whether other patents (i.e. competitors or otherwise) might limit the company‘s ability to market its products. If similar products don‘t already exist, it discusses the alternative means by which customers are likely to meet the needs the product addresses.

6. Marketing and sales plan: This section discusses product, pricing, promotion and positioning strategy as well as how the company plans to attract, retain and maintain customers loyalty.

7. Management team: Investors consider the management team as the most crucial asset that will determine the company‘s growth and help respond to the dynamic nature of the environment. It is on this premise that this section describes the members of the management team in terms of their names, qualifications, age, experience and position of members of the management team including the entrepreneur. The purpose of this is to highlight the competencies and skills available to the company to execute its programmes.

8. Operations plan: This section describes the day-to-day operation of the business, highlighting how the key assets (tools, processes and labour) will be utilize to produce and deliver the products and services. This section includes the location and site of the business.

9. Finance: This section identifies the capital that will be required to build the business and how it will be used. It includes forecasting of revenues and expenditure that show investors how they will get their money back and what return they can expect on their investment.

A business plan is useful only if the different components of it are integrated into a single piece of work. The components are interrelated and the impression must not be created that one component can be written without reference to the others. The success or failure of a business plan is tied to three major elements with which you started the process (a) a good opportunity (including the right timing), (2) the right entrepreneurial team, and (3) the necessary resources and capabilities. A business plan is no substitute for strategy and strong execution.