Business Feasibility Analysis

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There are more than 28 million small businesses in the United States, making up a whopping 99.7 percent of all U.S. businesses, according to the Small Business Administration. When you consider some of the most popular reasons to start a business, including having a unique business idea, designing a career that has the flexibility to grow with you, working toward financial independence, and investing in yourself — it’s no wonder that small businesses are everywhere.

But not every small business is positioned for success. In fact, only about two-thirds of new businesses survive at least two years, and about half survive five years. So, you may be in for a real challenge when you decide to take the plunge, ditch your day job, and become a business owner. The stage is often set in the beginning, so make sure you have very carefully studied how to start successfully.

Here is a detailed Business Feasibility Analysis to help determine if your business idea is really workable.

CRT Group

Business Feasibility Analysis

A business feasibility analysis is a study and evaluation of a proposed business idea to determine its viability and potential for success – and your assessment of whether it is right for you.

Here is a list of steps you might use for a business feasibility study.

  1. Determine Why You Want to Start a Business
    • Your job is no longer fulfilling.
    • You want to make more money.
    • You want to develop long-term wealth.
    • You might want to leave a legacy gift for your family.
    • You want more job security – no one can fire you except you!
    • You want to work in a business you really, really like!
    • You want to be in charge.
    • You want to travel less – or more.
    • So make a list of the reasons why you want to start a business.
  2. Research, Research, Research
    • Conduct extensive research.
    • Use search engines like Google, Bing, DuckDuckGo, etc.
    • Use Artificial Intelligence – it works!
    • Knowledge is absolutely essential.
  3. Personal Assessment
    • Determine what skills, areas of expertise, and passions you have.
    • Evaluate how self-motivated you are.
    • Assess how well you can handle pressure.
    • Do you have the support of your family?
    • Determine your willingness to take a financial risk.
    • Review the lifestyle you want to live considering the commitment in the hours required to operate the business.
    • Assess your readiness to be an entrepreneur.
  4. Determine the Product(s) or Service(s)
    • Describe the product(s) and/or service(s) you will offer.
    • Evaluate any uniqueness and innovation of the product and/or service.
    • Describe how the products/services will meet customer needs.
    • Describe the Features and Benefits.
    • Is the market for the product/service under-served or over-served?
    • Analyze the demand for the product or service.
    • Determine the pricing strategy.
    • Estimate the average sales transaction size and determine how much is needed to be successful.
  5. Potential Customer Analysis
    • Who are the potential customers utilizing segmentation by: age, ethnicity, gender, income level, education, marital status and location?
    • Which customer segments represent the best opportunities?
    • Who are the target customers?
    • Target customers is a set of consumers who have been identified by their shared characteristics as the most likely potential customers for your products or services.
    • Where do the target customers located geographically? Are they within an acceptable area to conduct business with you.
    • How many target customers are there in the potential market?
    • What do they need (have to have) and want(like to have)?
    • What are their attitudes and shopping behaviors?
  6. Industry Analysis
    • Describe the industry size and growth rate (if growing).
    • State any relevant industry trends.
    • Review national and local economic trends.
    • Determine the opportunities provided by the industry.
  7. Competitive Analysis
    • Who are the competitors? Make a list of the more significant ones.
    • What are their strengths and weaknesses?
    • What strengths and weaknesses will you have?
    • How can you match your strengths against the competitor’s weaknesses.
    • Is your product or service superior to the competition?
    • If not, how can it be made superior?
    • How easy would it be for competitors to duplicate your offering?
    • How unique are your products/services?
    • Are there any entry barriers to stop competitors?
    • How will competitors respond to your products or services?
    • How can you choose where and how to compete?
    • Can your product or service successfully compete with existing providers with an “advantage” (hopefully sustainable) such as better service, better value, more convenient location, etc.?
  8. Determine Competitive Positioning Based on One of These Strategies
    • Cost Leadership – a strategy based on being a low-cost value provider.
      Example: Walmart.
    • Differentiation – a strategy that requires uniqueness – a real, or at least perceived, difference that is meaningful to the customers. The difference may be in marketing approach, innovation, technology, reliability, proprietary products, superior service, geographic location, or unique expertise.
      Example: Mercedes Benz.
    • Focus – a strategy of concentrating on a market segment with the exclusion of all other segments. It is characterized by a broader selection of products or services in a selected category. It assumes the market segment is poorly served by broadly-targeted competitors.
      Example: Best Buy.
  9. Determine the Driving Force
    • The concept of “Driving Force” is that there is one element or one aspect of the business, that when done well, is likely to result in maximizing success.
    • It results in the disproportionate, but correct, allocation of limited resources of time and money.
    • Some choices you might make are: Service Driven, Product Driven, Marketing/Advertising Driven, Quality Driven, Dependability/Reliability Driven, Distribution Channel Driven, or Broad Product Selection Driven.
  10. Define the Unique Value Proposition
    • A unique value proposition is a statement that a company uses to summarize why a consumer should buy its products or use its services.
    • The statement should convince potential consumers that the products or services will add more value or better solve a need or want than other similar offerings.
    • It is an “easy-to-understand” reason why a customer should purchase products or services from your specific business.
    • It should be a statement that explains the specifics of the features and benefits.
    • The ideal unique value proposition is brief and compelling, and it appeals to a customer’s strongest decision-making drivers.
    • What Unique Value Proposition can you develop?
  11. Determine the Unique Positioning Strategy
    • Unique Positioning Strategy refers to an overall strategy that aims to make products, services or a brand occupy a distinct position relative to competition.
    • It is the process of identifying an appropriate market niche for a product, service or brand.
    • It brings focus to the development of a marketing strategy and the marketing plan and tactics supporting that strategy.
    • A well-conceived positioning strategy statement has four components.
      • First, it must define the target audience – the attitudinal and demographic description of the target customers to whom you want to appeal.
      • Second, it must define the market category in which the company competes.
      • Third, it should list the features and benefits of the products/services.
      • Fourth, it should give the potential customer a reason to believe the company will deliver on its promises.
    • It is an expression of how a given product, service or brand fills a particular consumer need in a way that your competitors do not.
  12. Marketing Strategy
    • How can you reach your customers and potential customers with cost-effective marketing using a basic group of marketing strategies like:
    • Website: User-friendly and Mobile friendly.
    • Search Engine Optimization
    • Email and Text Marketing
    • Social Media: like Facebook, Twitter, Instagram, Pinterest and LinkedIn
    • Referrals
    • Networking
    • Testimonials
    • Marketing Analytics
  13. Management and Personnel Analysis
    • Determine the Management requirements of skills, knowledge, expertise and successful experience to maximize the success of the business.
    • Determine the Personnel skills, knowledge, expertise and successful experience to maximize the success of the business.
    • Resumes.
  14. Analyze Operational Feasibility:
    • Evaluate the resources required for operations such as personnel, facilities, equipment and equipment.
    • Plan for accounting system and taxes.
    • Business insurance.
    • Plan information technology including computer, accounting software, point of sale, email lists, etc.
    • Consider zoning issues.
    • Plan for a business checking account.
  15. Examine Legal and Regulatory Requirements:
    • Identify and understand relevant laws and regulations.
    • Assess the legal and regulatory environment for the proposed business.
    • Determine any licenses or permits required.
  16. Consider a Business Structure
    • Sole Proprietorship
    • Limited Liability Company (LLC)
    • Partnership
    • Corporation
  17. Select and Register Your Business Name
    • Possibly a name that identifies your business.
    • Select the name in conjunction with selecting a domain name.
    • Consider a logo related to your business name.
  18. Financial Costs Analysis
    • Estimate the amount of financing you will need.
    • How much startup costs will you incur?
    • What will it cost to initially operate your business – say for one year?
    • What volume of profitable sales do you need to break even?
    • How much profit can you expect to make?
    • Assess your willingness to take the financial risk.
  19. Determine Your Ability to Finance the Business
    • You need to consider areas such as:
    • Owner financing.
    • Small business loan from bank.
    • Online lenders.
    • Crowdfunding.
    • SBA guaranteed loan (7a and 504).
    • SBA Forms 413 – Personal Financial Statement
    • SBA Form 912 – Personal History
    • SBA Form 1919 – Borrower Information
    • Personal Tax Returns – 3 years
    • Credit Report – hopefully reading of 700 or better
  20. Calculate Financial Feasibility
    • Develop initial financial projections, including income statements, cash flow statements, and balance sheets.
    • Develop a break-even statement.
    • Calculate the expected return on investment (ROI).
  21. Prepare the Feasibility Study Report
    • Compile all the information and analysis into a detailed feasibility study report.
    • Clearly present the findings, recommendations, and supporting data.
    • Determine the Keys to Success.
  22. Review and Validate
    • Review the feasibility study with key stakeholders, experts, and advisors.
    • Validate assumptions and conclusions.
  23. Decision Making Process
    • Use the feasibility study as a basis for decision-making.
    • Decide to proceed with the business idea, modify it, or abandon it.

A detailed feasibility study provides valuable insights that can guide you in making an informed decision about the viability, profitability and sustainable of the business venture.
Invest your time and research now to either avoid a mistake or to maximize your success.

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