How To Write A Feasibility Study - Istanbul Future...

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Dr. Ibrahim [email protected]

How

To Write

A Feasibility

Study

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How To Write A Feasibility Study

Introduction

Conducting a feasibility study will help you work out if your business idea has a good chance of success. Your feasibility study should cover technical viability, market viability and commercial viability. It should also include an overall assessment of risks and your strategies to minimize those risks.You may need to seek professional assistance as you prepare your feasibility study but it will be worth it so that you can make an informed decision on whether or not to proceed with your business idea.This book will guide you through the various elements you need to consider in your feasibility study and how to make your own study in no time.

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Chapter 1 What is a feasibility Study

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A feasibility study looks at the viability of an idea with an emphasis on identifying potential problems and attempts to answer one main question: Will the idea work and should you proceed with it?Before you begin writing your business plan, you need to identify how, where, and to whom you intend to sell a service or product. You also need to assess your competition and figure out how much money you need to start your business and keep it running until it is established.Feasibility studies address things like where and how the business will operate. They provide in-depth details about the business to determine if and how it can succeed, and serve as a valuable tool for developing a winning business plan.

Why Are Feasibility Studies so Important?

The information you gather and present in your feasibility study will help you:• List in detail all the things you need to make the business work;• Identify logistical and other business-related problems and solutions;• Develop marketing strategies to convince a bank or investor that your business is worth considering as an investment; and• Serve as a solid foundation for developing your business plan.

Even if you have a great business idea, you still have to find a cost-effective way to market and sell your products and services. This is especially important for store-front retail businesses where the location could make or break your business.

For example, most commercial space leases place restrictions on businesses that can have a dramatic impact on income. A lease may limit business hours/days, parking spaces, restrict the product or service you can offer, and in some cases, even limit the number of customers a business can receive each day.

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Components of a Feasibility Study

• Description of the Business: The product or services to be offered and how they will be delivered.• Market Feasibility: Includes a description of the industry, current market, anticipated future market potential, competition, sales projections, potential buyers, etc.• Technical Feasibility: Details how you will deliver a product or service (i.e., materials, labor, transportation, where your business will be located, the technology needed, etc.).• Financial Feasibility: Projects how much start-up capital is needed, sources of capital, returns on investment, etc.• Organizational Feasibility: Defines the legal and corporate structure of the business (may also include professional background information about the founders and what skills they can contribute to the business).• Conclusions: Discusses how the business can succeed. Be honest in your assessment because investors won›t just look at your conclusions they will also look at the data and will question your conclusions if they are unrealistic.

Summary: Feasibility studies contain comprehensive, detailed information about your business structure, your products, and services, the market, logistics of how you will deliver a product or service, the resources you need to make the business run efficiently, as well as other information about the business.

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Chapter 2 How to write A Market feasibility

Study

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What is a Market Feasibility Study and How Does a Market Feasibility Study Differ from a Marketing Plan?

All feasibility studies should look at how things work, if they will work, and identify potential problems. Feasibility studies are done on ideas, campaigns, products, processes, and entire businesses.Feasibility studies are assessment tools - not just reports to try and sell your business to investors. They should consider both pros and cons and analyze a variety of potential business scenarios.A Marketing Plan maps out specific ideas, strategies, and campaigns based on feasibility study investigations, which are intended to be implemented.Think of market feasibility studies as a logistical study and a marketing plan as a specific, planned course of action to take.

What should be Included in a Market Feasibility Study?

Things to Include in a market feasibility study include:• Description of the Industry• Current Market Analysis• Competition• Anticipated Future Market Potential• Potential Buyers and Sources of Revenues• Sales Projections

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How to Write an Industry Description

Give a brief one to two-paragraph description of the industry your business is categorized as according to the U.S. Department of Labor.Determining your industry is important for receiving government contracts, attracting investors, and for receiving grants (if you form as a nonprofit).

Example: The industrial first aid kit industry is a lucrative, fast-growing field, with contract awards as high as 14$ million dollars in 2006. Fictitious Business Example (FBE) is being established for the purpose of producing and providing, quality industrial first aid kits to the United States Government, privately-held, and publicly-held companies to improve worker›s safety on the job.FCE›s services are classified under the U.S. Department of Labor Standard Industrial Classification (SIC) as SIC Code 5047 and classified as the industry titled, «Medical, Dental, and Hospital Equipment and Supplies.»

Tip: To find your company›s Standard Industrial Classification (SIC) go to the U.S. Department of Labor, OSHA web page located at https://www.osha.gov/pls/imis/sicsearch.html

Analyzing Your Current Market

This section of a market feasibility study describes the current market for your product or service. If you are offering something so unique that there are few market statistics, you can either use related industry information or even conduct your independent study.Several ways to conduct your research for new ideas include: polling Internet forums, questionnaires addressed to targeted consumer groups or the general population, or even customer surveys.Any solid evidence you have that there is a demand (or market) for your product or services will help you sell your idea. This is particularly important if you are marketing something unique, or within a very small, specialized market. You need to show that your

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ideas are novel because you have found a niche and not because there is no existing market for the idea.A good source for finding out what is selling (and what is not) is the Department of Labor. Industries showing employee growth is often a good indicator of an industry›s overall stability. Massive layoffs or few employer or employees, indicates fewer business opportunities.Where there is demand for something, there should be correlating growth in employment, the number of new companies being formed, or in the industry›s overall combined revenue.

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Chapter -3 What is a Technical Feasibility Study?

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The Technical Feasibility Study assesses the details of how you will deliver a product or service (i.e., materials, labor, transportation, where your business will be located, the technology needed, etc.).

Think of the technical feasibility study as the logistical or tactical plan of how your business will produce, store, deliver, and track its products or services.

A technical feasibility study is an excellent tool for troubleshooting and long-term planning. In some regards, it serves as a flow chart of how your products and services evolve and move through your business to physically reach your market.

The Technical Feasibility Study Must Support Your Financial Information

Do not make the mistake of trying to entice investors with your staggering growth projections and potential returns on their investment that only includes income (revenue) to the business. With any increase in revenue, there is always an increase in expenses.

Expenses for technical requirements (i.e., materials and labor) should be noted in the technical feasibility study.You should also not strictly rely on feasibility study conclusions to impress an investor.An experienced investor or lending institution will read your entire report and come to their conclusions. Therefore, it is critical that the technical and financial data in your study reconcile. If other parts of your feasibility study show growth, you will also have to project labor and other costs and the technical ability to support that growth.The technical component serves as the written explanation of financial data because if offers you a place to include detailed information about why an expense has been projected high or low, or why it is even necessary. It demonstrates to potential investors and lenders (and in some cases, potential clients) that you have thought about the long-term needs your business will have as it grows.

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Preparing an Outline for Writing Your Technical Feasibility Study

The order that you present technical information is not as important as making sure you have all the components to show how you can run your business.You do not have to include specific financial information in the technical portion of your feasibility study, but all information in this component must support your financial data represented elsewhere. Basic things that most businesses need to include in their technical feasibility study include:• Materials• Labor• Transportation or Shipping• Physical Location• Technology

Calculating Material Requirements

In this section, you list the materials you need to produce a product or service, and where you will get those materials. Include information such as if volume discounts will be available as your business grows, or if you ever plan to manufacture your parts at some point in time.Things to include in your list of materials:• Parts needed to produce a product,• Supplies (glue, nails, etc.), and• Other materials that are involved in producing or manufacturing your product.

You do not need to include actual financial data in this portion of the study but financial data supporting your narrative assessment should be included in a separate spreadsheet as an attachment.

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If you offer services, how will trainers, educators, consultants, sales personnel get to customers and clients?

If you offer a product that is governed by state or federal law (such as medications or prescription medical supplies), do you need a licensed distributor or pharmacy to ship on your behalf?In the Transportation Feasibility component, list things that will affect how you get your goods or services to other businesses or individuals, including:

• The methods of transportation and shipping services that will be needed to get your product or services to a customer;• Special handling or other unique arrangements required to transport your product;• Any special permits that will be required, including postal rate discounts; and• Cars (company- or privately-owned) and other vehicles needed to conduct your business.

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Physical Location of Your Business

Where you run your business will have an effect on your success. If you are starting out in a home-based office, project whether or not, and when, you might need any of the following:

• A “Brick and Mortar” Office (office space outside your home)• Warehouse Facilities• Your Own Factory• Your Own Trucking Facility• Retail Storefront• Any other purchased or rented facilities needed to conduct your business.

In the Physical Location Feasibility component, you should also discuss the pros and cons of where these facilities will be located. Should they be in one central location, or across state lines? Do you need to have special parking considerations for customers or trucks? Do you need to be near other facilities such as an airport, commerce center, or shopping mall?

Technology Requirements to Run Your Business

Every business needs at least some kind of technology to operate. The Technology component includes discussions about and a list of the following:

• Telephone Answering Systems• Computer Hardware and Software• Inventory Management• Cash Registers, Credit Card Collection, Check Processing• Special Devices to Accommodate the Disabled• Teleconferencing Facilities and Equipment• Cell Phones, PDA’s, or Other Devices Needed to Conduct Business

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• Alarm or Camera Systems• Manufacturing Equipment

Summary of the Technical Feasibility Study

The order in which you present your technical requirements is not as important as making sure that you include all the technical requirements of your business from production to customer receipt.This information will help investors know more about the operations of your business. Having a great idea for a product or business is not enough; you have to show how you can make money from the idea. The technical feasibility study addresses the physical and logistical mechanics of if, and how, you will be able to get something into the product and back out the door to customers.

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Chapter 4 How to write a financial

feasibility study

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A financial feasibility study projects how much start-up capital is needed, sources of capital, returns on investment, and other financial considerations. It looks at how much cash is needed, where it will come from, and how it will be spent.

What is a Financial Feasibility Study?

A financial feasibility study is an assessment of the financial aspects of something. If this case, for starting and running a business.It considers many things including start-up capital, expenses, revenues, and investor income and disbursements. Other portions of a complete feasibility study will also contribute data to your basic financial study.

A financial feasibility study can focus on one particular project or area, or on a group of projects (such as advertising campaigns). However, for the purpose of establishing a business or attracting investors, you should include at least three key things in your comprehensive financial feasibility study:

• Start-Up Capital Requirements,• Start-Up Capital Sources, and• Potential Returns for Investors.

Start-Up Capital Requirements

Start-up capital is how much cash you need to start your business and keep it running until it is self-sustaining. You should include enough capital funds (cash, or access to cash) to run the business for one to two years.

Finding Start-Up Capital Funding Sources

There are many ways to raise capital for your business, but no matter what route you take, investors are more likely to invest, banks are more likely to approve loans, and large

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corporations are more likely to give you contracts if you have personally invested in the business yourself.When you make a list of funding resources, be sure to include anything that you can contribute to the business, including free labor. If you are starting a nonprofit organization, your donated professional time may even be tax deductible for you.

Potential Returns for Investors Feasibility Study

Investors can be a friends, family members, professional associates, client, partners, shareholders, or investment institutions. Any business or individual willing to give you cash can be a potential investor. Investors give you money with the understanding that they will receive «returns» on their investment, that is, in addition to the amount that is invested they will get a percentage of profits.

In order to entice investors you need to show how your business will make profits, when it will begin to make profits, how much profit it will make, and what investors will gain from their investment. The investment return section should offer both a description of how investors will be involved and discuss different variables that will affect the profitability of your business, offering more than one scenario.

How Should I Pay Back Investors?

How investors will be paid will vary according to individual investment offers.Read every offer over very carefully - not all investors may be right for your business.The investment section of your financial feasibility study should not make specific or binding offers to investors. Do not state investors will be paid specific dollar amounts by certain dates. Instead, list general practices for how investments return will be distributed, assuming

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different business scenarios. For example, you might state that investors will be paid X amount of dollars or X% on their investment at the end of any business quarter where profits exceed a certain threshold.

Project total revenue, deduct business expenses, and then from the remaining amount, decide what percentage will be distributed to investors. You should never promise %100 of the remaining amount to investors. You need to keep cash on hand to continue operating your business, to grow your business, and to build reserves.

Most investment returns are typically distributed on a quarterly, bi-annual, or annual basis. Consider how the various distribution cycles could affect your business› cash flow during the first two years of operation. In other words, do not just run one set of numbers, examine each type of distribution and support why you think the option you choose is the best one.

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Chapter 5 Organizational Structure

Feasibility Study

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What is the purpose of an Organizational Feasibility Study? To define the legal and corporate structure of the business. An Organizational Feasibility Study may also include professional background information about the founders and principals of the business and what skills they can contribute to the business.

Your organizational feasibility study should include:

• Description of your business structure• Description of your organizational structure• Internal and external principles and practices of the business• Professional skills and resumes

Description of Your Business Structure

This section contains a narrative description of the legal requirements for establishing your business and why you feel this is the right structure for your business. Discuss the pros and cons of different business structures.

For example, a sole proprietorship leaves the sole proprietor open to both financial and legal liability risks. A high-risk business should never be set up as a sole proprietorship because it will make it difficult to attract investors as well as clients and customers. It is also the hardest and most expensive form of business to insure.

If you wish to become a tax-exempt organization, you will need to incorporate, file for tax exemption with the IRS (and, in some cases, within your own state), and set up a board of directors and officers of the corporation.

You will also need to decide if your organization should be a membership or non-membership organization.

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Organizational Structure

Discuss your business’ organizational structure. One of the best ways to present this information is with an organizational chart.An organizational chart shows the hierarchy or chain of command in your business.It lists key positions and subordinate positions under department heads, supervisors, and managers.

Principles and Practices of the Business

Every business should have a published code of ethics and principals that govern how the company conducts its business. In this section, include both internal and external principals of operations.

Internal Operations Business Principles and Practices

• Businesses that are incorporated must have a board of directors. Do you have a conflict of interest policy in place? Will you use “Robert’s Rules” for conducting meetings?• Do you offer services, where clients need to be screened for eligibility for financial aid, social services, or, are there other prerequisite requirements such being a senior citizen, minority, or disabled?• Do you have hiring and employee training and management practices in place?• Do you have an overall corporate philosophy that inspires, encourages, or offers incentives to employees?• Do you have an anti-discrimination policy in place?External Business Practices and PrinciplesDo you have a customer policy or philosophy? Examples of client/customer philosophies include:• We do not serve clients; we team with clients to meet their goals.

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• We value creativity and imagination and use these to our client’s advantage.• Our employees maintain high ethical standards that reflect on how we treat our clients.

Professional Skills and Resumes

A business’ strengths come from the talent, skills, and experience of those running the company. In this section, you give a brief overview of all founders, employees, and partners involved in the business that will be contributing their skills and input into how the business is operated. You should also include any board members, directors, and officers.

Include in your list of principals (most important people in your business or organization), a brief overview of how their particular skills will serve the business. You can also include accomplishments that relate to the business.

It is also beneficial to attach resumes for at least the top three principals listed.

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Chapter 6 How to Write a Feasibility

Study Conclusion

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A feasibility study is an analysis of a proposal, explaining why it will work. It tells interested parties why your business idea is solid and worth investing in. Learn how to draw on and summarize conclusions from the information you›ve included in a feasibility study, creating a professional and polished final product.

Tips for Writing a Professional Conclusion

It may be easy for you to draw conclusions when you write a document or prepare your own financial statements, but what you see may not always be obvious to your readers.Your feasibility study conclusion should state the facts and information necessary to ensure that the reader clearly understands your points. This is especially important when you›re writing a comprehensive study with many parts that must all be tied in together in a summarized conclusion.Remember that a feasibility study is just that—a study. It weighs the practicality of an idea or plan. Your conclusions must be based on research and verifiable information, not on the simple belief that your idea can work.

A strong conclusion will:

• Discuss how the business can succeed. Explain why, using research-based information that is contained in your study rather than opinions. • If your business idea takes a nontraditional approach, explain why this will help you succeed. For example, most restaurants do not survive beyond two years. What makes your idea different and more likely to succeed beyond that period of time? • Point the reader back to the location of any examples you give by listing section, page title and page number.• Summarize the most important points of your study. Don›t attempt to cover minor or unimportant details. Keep your focus on the major selling points.

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• A good summary or conclusion should be concise, no longer than one to two pages. It should be written in plain, understandable terms.• Don›t attempt to persuade the reader with jargon or an advertising pitch. Feasibility study findings should be objective and based on the research and information you›ve included. • Avoid using phrases like «I believe,» «in my opinion,» «I hope» or «I anticipate.» Do use strong, impersonal and affirmative phrases such as, «Research supports that this industry will continue to grow.»• A summarized conclusion helps to develop an overall impression, but it should not replace the supporting documents. Submit the summary as part of the feasibility study, not as a substitute for the study.

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Chapter 7 Learn How to Present a

Completed Feasibility Study

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How you present your final study is just as important as the information it contains. If you have a lot of material put it in a portfolio or binder.A comprehensive business feasibility study contains detailed information about your business structure, your products, and services, the market, logistics of how you will actually deliver a product or service, the resources you need to make the business run efficiently, as well as other information about the business.

How to Assemble Your Feasibility Study

How you present your final study is just as important as the information it contains.

If you have a lot of material put it in a portfolio or binder. Finding information easily and quickly is important to busy lenders and investors, so include tabs (type them it at all possible) to indicate each component in your study.

Cover letters should not be generic but should be individualized depending upon with whom you are submitting the study. Before you actually submit your study, have someone else proofread it for you to check for content and errors. Typographical errors will make your study appear rushed or unprofessional and if your descriptions and calculations do not make sense to the reader they are worthless.

Although you write your conclusion last, it serves as a summary of all the detail in your study. You can place it at the end of your document (before any exhibits and attachments), but placing it first (after the table of contents) sets the tone and identifies key issues for the reader to be aware of even before they read the rest of the study.

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The following is a checklist of components that should go into your complete feasibility study.

• Cover Letter• Cover Sheet• Table of Contents• Description of Your Business (what you do, a list or products or services, and how you deliver products or services)• Feasibility Study Conclusions• Market Feasibility Study• Organizational Feasibility Study• Technical Feasibility Study• Financial Feasibility Study• (Optional) Legal Risks Feasibility Study• Attachments (spreadsheets)• Exhibits or Appendices (statistics, graphs, examples, literature, contracts, samples, etc.)

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Points to Remember

• A feasibility study is a process in which you look at an idea to see if it is «feasible,» that is, if and how it will work.• A comprehensive feasibility study looks at the entire structure, needs, and operations of a business.• A limited or project feasibility study looks at one specific task, program, idea, or problem.• A feasibility study looks at both sides, considering pros and cons, and troubleshoots potential problems.• A feasibility study is not a business plan but serves as a foundation for developing your business plan.• A market feasibility study is not a marketing plan, but studies markets and market potential, and can be used to support or develop a marketing plan.• In addition to a business plan, an investor or lending institution may require you to submit a feasibility study before considering your request for capita

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Contents

Introduction 1

Chapter 1 – What is a feasibility Study 3

Chapter 2 -How to write A Market feasibility Study 5

Chapter -3 What is a Technical Feasibility Study? 9

Chapter -4 How to write a financial feasibility study 15

Chapter -5 Organizational Structure Feasibility Study 19

Chapter -6 How to Write a Feasibility Study Conclusion 23

Chapter 7 - Learn How to Present a Completed Feasibility Study 26

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