Defining Features of a Financial Feasibility Study
Market Opportunity Analysis
- Size potential target market locally and beyond
- Research targets customer demographics and psychographic
- Identify market trends and growth projections.
- Describe the competitive landscape, including supplier power.
- Outline the business model, facility needs, and workflow.
- Detail equipment, inventory, and staffing requirements.
- Identify prospective vendors and supply channels.
- Describe the proposed location, licencing, and regulations.
Financial Analysis and Modelling
- Provide historical financial data, if available.
- Develop a projected income statement by month over 3 to 5 years.
- Estimate cash flow needs and key financial ratios.
- Describe assumptions for all revenue and cost inputs.
- Identify cost-minimization and efficiency opportunities.
- Analyse the sensitivity of projections to different scenarios.
- Detail external threats, such as competition.
- Describe operational weak points.
- Assess current and prospective economic conditions.
- Outline risk mitigation strategies.
Deliverables and Next Steps
- Summarise analysis details and findings.
- Provide a clear feasibility recommendation.
- Discuss the growth stages and timeline.
- Highlight key preparatory milestones.
Illuminating Risks and Mitigation Strategies
An accurate picture of inherent risks is crucial for entrepreneurs. By researching operational inputs, customer trends, and market forces, and requiring factual revenue and cost assumptions, a feasibility study highlights risks that may threaten profitability if not planned for. Common examples include:
- Lower customer demand than expected
- Higher costs for talent acquisition and retention
- New competitors with cost advantages
- Shifts in consumer preferences or confidence
- Input cost volatility from inflation or supply shortages
Uncovering these risk factors then allows specific mitigation tactics to be built into operational and financial plans, including:
- Adjusting the hiring timeline to meet sales growth
- Renegotiating vendor contracts
- Increasing working capital reserves
- Budgeting for higher marketing spending
- Leasing equipment rather than purchasing
- Delaying the move to a larger facility space
Informing Strategic Financial Planning
In tandem with risk management, financial feasibility projections generate the granular sales, cost, and staffing assumptions needed to guide smart growth planning. Savvy entrepreneurs use realistic feasibility forecasts to:
- Assess total funding and financing options.
- Set achievable revenue goals by market segment.
- Budget expenses and cash flow by month
- Make decisions on physical expansion space.
- Purchase appropriate inventory levels.
- Add staff incrementally to match sales.
- Create contingency plans if growth is slower than expected.