Unfortunately, a majority of new business ventures fail. Some fail quickly and spectacularly while others slowly bleed resources until they are no longer viable. No entrepreneur expects to fail but failure is stalking every business and new businesses are more vulnerable to the dangers in the business world – not unlike the newborn calf is more vulnerable to predation than a more mature herd member. Proper planning is the best defense against business failure. The first step in planning a new venture is a feasibility study. The investment of time and money in a feasibility study will be rewarded with a stronger business better prepared to meet the hidden challenges in the business world.
Not only does a feasibility study identify potential problems facing the new business venture, it can suggest solutions to those problems or steps to avoid them. With this prior knowledge, the business owners become proactive – not simply reacting when problems arise. In the United Arab Emirates a feasibility study is required as part of the business formation process in some of the Free Zones. A completed study is an indicator for the authorities that the business owners are serious about success. The Free Zones are intended to provide business friendly environments and successful businesses in the free zones make the zones more attractive to new businesses. Businesses that are not successful do not add to the free zone’s appeal. The authorities seek to prevent business failure caused by improper planning.
A feasibility study will investigate several facets of business operation: description of products and services being offered; the business’s current and projected use of technology; an examination of the intended marketplace; a discussion of marketing strategies; how the business will be staffed and organized; a proposed schedule for roll out and expansion; financial projections and an overview of findings and recommendations. Feasibility studies performed by independent parties take away the emotional investment by the entrepreneur and deliver more objective analyses of proposed ventures.
One of the first components in a completed feasibility study document is the executive summary. It is a high level overview of the study findings. This summary is usually written after the study is completed but presented at the beginning of the document so decision-makers can get a quick feel for the document content.
Another business characteristic that is analyzed in a feasibility study is the product or service to being considered. This will be a comprehensive, independent analysis of the proposed product or service under consideration by the organization. This detailed product analysis establishes the foundation for the remainder of the feasibility document. It will include an independent assessment of the potential benefits of the offering to both customers and the organization. In the case of business formation in the UAE, the product analysis will consider how the new presence in a UAE Free Zone will increase the availability of the product to a wider market.
The study will look into how technology issues bear upon the proposed venture. This will include a look at whether the company’s current technology base is adequate for the expansion or if additional technology resources will be required. The analysis will include comparing increasing in-house technology resources to meet the greater demand or utilizing outsourced services to fill the need. The costs and time-frames for each option will be part of the investigation and report.
Any feasibility study must include a marketplace analysis. A target market for the product or service will be determined. Competitors in the market will be identified and the reasons why customers will choose the new product over the competition will be detailed. Customer service and product distribution are part of a marketplace analysis. This is a very important consideration because blindly entering a market will always put the new business at a decided disadvantage. No entrepreneur wants to enter a market already saturated with similar products.
After a marketplace has been recognized a marketing strategy is developed to create awareness for the new product in the target market. How the new product will differentiate itself from competitor’s offerings is very important to any marketing strategy. The previous analysis of the target market will suggest the most effective marketing approach for the product. Various ways to focus marketing directly on the target market will be discussed and compared. An examination of the costs of different marketing tools will be part of the marketing analysis. A properly targeted and funded marketing plan will deliver the best return on investment.
No business venture can exist or succeed without some personnel and a defined organizational structure. Both a new venture and an expansion of an existing business require some key personnel and a clear understanding of chain-of-command. The direction of any business is in the hands of the person at the helm and additional people serve to implement the direction. If the new venture is an expansion of an existing organization, the person at the helm may be acting under direction of the parent organization. As the business grows the staffing requirements will change. The feasibility study will look into the growth potential and include staff projections and organizational changes that may be required.
A business does not spring into existence with a full staff, established offices, an expansive sales force and a functioning distribution network. All these must be built up from nothing for a new venture. For an expansion of an existing business the existing resources provide the starting point. In either case, the business needs will change as the business grows. The feasibility study will include a schedule for business development and deployment. Such a schedule makes sure the proper resources are available when they are required. It also provides motivation for project managers to move forward effectively. Some major points in the schedule are defined as to what should be completed at each point. The finer points of project development will be defined by project managers after the project is initiated.
While it may be fun to predict a massive influx of wealth a couple of weeks after a new business venture begins, the reality is very different. To the uninitiated, financial projections can look like either magic or nonsense. The fact is, financial projections are based on established mathematical principles combined with experienced analysis of available data. The data for a financial projection includes initial investment; start up costs; expected operating costs; expected market involvement; expected sales and revenue and more. Expenses for training, recruitment, contract services, insurance and legal fees are also included. Projections usually go out to five years and reflect complex calculations based on known and projected data. This is the most important component of the feasibility study. If a financial projection does not produce a positive result, the proposed business (as defined in the document) will not be viable. Choosing an agency to perform a feasibility study or a financial projection is an important consideration. The selected agency should be well qualified in business accounting and staffed with analysts experienced in financial projections and feasibility study.
Push Digits was started as a business accounting service provider. One of our primary services has always been assistance in the preparation of feasibility studies, business plans and financial forecasts. We can help with current business operations, accounting, loan rescheduling, new projects, M&As, expansion plans, etc. Using years of combined experience and modern accounting software tools, Push Digits experts help clients monitor their business development progress, manage minor emergencies, delegate responsibilities, assess their business opportunities and manage their cash flows.
The final section of a feasibility study is the findings and recommendations. Based primarily on the financial projections but also including the information from the other study sections, a recommendation is made to proceed with the venture or to cancel the process. This section may also suggest changes to the proposed business model that might improve the outlook or provide descriptions of why the venture is projected to fail.
The next step in the business creation process is the business plan. Assuming a positive recommendation, the business plan lays out major components of the business operation in a format intended to promote the business and make it attractive for lenders or investors. A really effective business plan is the logical progression after a positive feasibility study.
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