Last week, I talked about the various techniques you can use
to discover viable business opportunities. If you missed that, check the last
edition of Citizen’s Advocate. This week, I want to talk about another
important aspect of starting a business which is ignored by many: “doing a
feasibility study on your new business idea”.
Many good business ideas abound, but not every business idea
can work for you. I might be doing very well in a particular business but you
may not succeed if you try it. It is the same thing in reverse. After you have
discovered what you think is a very good business idea, the next pertinent
thing is to check whether the business will be feasible in the area where you
want to embark on it. Failure to do this will result in a colossal loss of time
and money.
Research
has shown that most start-up businesses fold within their first three years of
operation. It has also been discovered that most of these business failure can
be traced back to neglect of carrying out a feasibility study of their proposed
business idea before carrying it out. No matter how small your idea
might look or whether you are starting full-time or part-time, it is very
important for you to perform a feasibility study on it before committing funds
and time into it.
The essence
of running a feasibility study is to ensure that your idea will survive in the
market and not die like others that have come before it. A thorough feasibility
study increases your chances of succeeding in business by exposing the pros and
cons of the business before starting.
You can do it
yourself or turn to business consultants to help you do it depending on the
simplicity or complexity of your idea. In this edition, I will want to teach
you how you can carry out an effective feasibility study for your business idea
yourself in a very simple manner. Remember, if it looks difficult for you,
simply employ the services of a business consultant.
HOW TO CARRY OUT A FEASIBILITY STUDY:
ECONOMIC AND ENVIRONMENTAL ANALYSIS
This is where your feasibility study should start from. Is the business you intend running allowed in your area? Is the current state of the economy of your country or state encouraging or discouraging such idea? I would ask; what is the essence of carrying out market research or even going ahead to start a business when the economy does not favor doing such business or it is illegal to embark on such business? Analyzing the economy and the laws for or against your proposed business idea will help you align your planned business with the situation on ground.
This is where your feasibility study should start from. Is the business you intend running allowed in your area? Is the current state of the economy of your country or state encouraging or discouraging such idea? I would ask; what is the essence of carrying out market research or even going ahead to start a business when the economy does not favor doing such business or it is illegal to embark on such business? Analyzing the economy and the laws for or against your proposed business idea will help you align your planned business with the situation on ground.
A very common example will be trying to
start an okada business in Abakaliki
town now. Of course, you know it will not be really profitable as the State
Government’s law is against riding okada
in the dual carriage ways. So this limits the routes that okada people can take and thus limits their earnings.
MARKET ANALYSIS
The next thing you should be analyzing is the market for your proposed business idea. Market here, means the number of people who are ready to pay for your product or service. Carrying out a feasibility study on the market will enable you know if there is actually a need or market for your business idea. Most times, when we have a new business idea, you will be so passionate about it and tend to exaggerate the number of people that will be interested in the idea. We feel that as we like the idea, so will others welcome it too. This is usually not so.
The next thing you should be analyzing is the market for your proposed business idea. Market here, means the number of people who are ready to pay for your product or service. Carrying out a feasibility study on the market will enable you know if there is actually a need or market for your business idea. Most times, when we have a new business idea, you will be so passionate about it and tend to exaggerate the number of people that will be interested in the idea. We feel that as we like the idea, so will others welcome it too. This is usually not so.
Market analysis will also help you to
determine the size of the market, where they are located, how they think and
the competition you may have there.
You can conduct a market analysis
through well drafted questioners, opinion polls, oral interview of your target
market, internet forums, etc. You can also do so by bringing in a sample of
your product and letting people review it. Through the sample, you will get to
know how people react to it and their willingness to pay.
It is also during the market analysis
that you will determine the best process of letting people know about the
products or services, i.e. marketing. During your sampling, people might even
suggest some marketing tips for you. It is now left for you to choose the best
out of the strategies you got and use it to market your product and service
when you start out. But make sure you use only cost-effective methods so that
you do not unnecessarily overspend on marketing.
LOCATION ANALYSIS
This is carried out with a view to determine the best location for the business in terms of nearness to where your target market is located, ease of reach to your suppliers, cost of office or store and so on.
This is carried out with a view to determine the best location for the business in terms of nearness to where your target market is located, ease of reach to your suppliers, cost of office or store and so on.
MANPOWER ANALYSIS
This part of a feasibility study deals with the process of estimating the level of skill, professionalism and knowledge required to run the business. If it is a sole-proprietorship, do you have the skill, knowledge and experience to run the business? if you are starting part-time (for example a civil servant), how will you manage the business alongside your current job?
This part of a feasibility study deals with the process of estimating the level of skill, professionalism and knowledge required to run the business. If it is a sole-proprietorship, do you have the skill, knowledge and experience to run the business? if you are starting part-time (for example a civil servant), how will you manage the business alongside your current job?
If you lack any of the required skills or
the time to run such business, then you should consider hiring the services of
others who have the skills you lack or who will work for you.
GROWTH POTENTIAL ANALYSIS
Do you just want to make quick money from the business and jump out of it or do you intend to grow it into a mega business? Can the idea remain saleable over the years? These are salient questions you need to answer. Like any wise entrepreneur, you should be able to look into the future and see how far you will want your new business to go and determine if the business has a future. This will help you avoid over-expectation and fantasies from your new business and enable you do adequate planning to accommodate that.
Do you just want to make quick money from the business and jump out of it or do you intend to grow it into a mega business? Can the idea remain saleable over the years? These are salient questions you need to answer. Like any wise entrepreneur, you should be able to look into the future and see how far you will want your new business to go and determine if the business has a future. This will help you avoid over-expectation and fantasies from your new business and enable you do adequate planning to accommodate that.
FINANCIAL ANALYSIS
This usually is the most difficult part of a feasibility study as it requires a basic knowledge of book keeping and accounting. Financial analysis will be dealing with the estimation of the total capital you will need to start up and run your business till it starts bringing you profits. This includes cost of producing or importing products or rendering service, cost of marketing, cost of registering your business, cost of renting a business space and its fittings, operating cost, etc. It also requires that you do an analysis of cash flow projections, projected sales revenue and profit and loss analysis.
This usually is the most difficult part of a feasibility study as it requires a basic knowledge of book keeping and accounting. Financial analysis will be dealing with the estimation of the total capital you will need to start up and run your business till it starts bringing you profits. This includes cost of producing or importing products or rendering service, cost of marketing, cost of registering your business, cost of renting a business space and its fittings, operating cost, etc. It also requires that you do an analysis of cash flow projections, projected sales revenue and profit and loss analysis.
It is also at this stage that you will
also decide the price you will charge people for your products and services so
as to make a profit.
Everything concerning finance should be
dealt with at this juncture. If you are trying to raise a loan for your small
business startup, then you have to do a clean job on the financial section of
the feasibility report because this is where investors focus on. All they are
interested in knowing is how much is the percentage return on investment and
the payback period.
Remember, if it will be too technical
for you, seek the services of a business or accounting consultant.
SENSITIVITY AND RISK ANALYSIS
This is the last part of a feasibility study and probably the most important. After all other factors have been analyzed and proven viable, sensitivity and risk analysis can come in. Building a business without properly conducting a risk analysis is like flying a plane without regards to weather condition.
This is the last part of a feasibility study and probably the most important. After all other factors have been analyzed and proven viable, sensitivity and risk analysis can come in. Building a business without properly conducting a risk analysis is like flying a plane without regards to weather condition.
Before any business idea is taken to
the marketplace, its risk to reward ratio should be analyzed. You should answer
these: “How many people have tried and failed in this venture? Why did they
fail? How can I avoid the things that made them fail? You should know how much
you will gain if the business succeeds, and how much you will lose if it fails.
The ratio of profit to loss should be at least 70:30. With results obtained
from sensitivity and risk analysis, growth and survival strategies can be
developed for your proposed business.
Finally, if conducting feasibility
study is too technical for you; then consider hiring a business consultant to
do the dirty work for you. It’s going to save you time and energy. Remember, a
feasibility study will help you succeed in business, where others fear to
venture or may have failed and it is also a sine
qua non for any start-up business, no matter how small.
NUGGET:
The sound of the bitter kola in the mouth is not the taste. Take a time out and get real facts about the business you want to start, using the knowledge you have gotten from this column today. Then join me next week here to get more useful insights.
The sound of the bitter kola in the mouth is not the taste. Take a time out and get real facts about the business you want to start, using the knowledge you have gotten from this column today. Then join me next week here to get more useful insights.
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send an email to enyumpatrick@yahoo.com or send a text message only to 07063018638.
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