Feasibility Study vs Business Plan
Setting up a business enterprise can present a lot of challenges for the entrepreneur. The preliminary stage which involves a lot of brainstorming often gets down to preparing two important documents: the feasibility study and the business plan, both of which are quite indispensable if you’re considering starting a business, and doing it properly.
The possibility of success in a venture predicates upon the proper delivery of these documents, which should be written after conducting careful research and critical analysis, and conveyed in formats that others can understand, because you might want to seek for funds or investors, or even solicit for a loan, and so won’t be the only person reading them.
It, therefore, becomes needful for any entrepreneur to be able to distinguish between a feasibility study and a business plan, to know how to go about creating them.
What is a feasibility study?
As the name implies, a feasibility study is an analysis of the viability of an idea. Feasibility studies help answer the essential question, “Should we proceed with the proposed idea?” The objective study may be completed in conjunction with a SWOT planning process, which looks at the strengths, weaknesses, opportunities, and threats that may be present externally (the environment) or internally (resources).
Feasibility studies help determine:
a) does the company possess the required resources or technologies, and
b) does the proposal offer a reasonable return vs. risk from the investment.
So a feasibility study lets you know whether the idea you have for a business is worth the time, effort, and money you are willing to invest in it. It’s just like asking yourself, “Is it advisable that I go into this business?”.
While you might be able to conduct this study yourself, it would be more productive and prudent to get the contributions of different professionals such as accountants, entrepreneurs who have opened successful businesses, and realtors who can advise you on the worth of the location and pricing (values you would need in costing and price estimation), comparing similar businesses in the location where you wish to set up your enterprise.
What is a Business Plan?
A business plan “is a written document describing the nature of the business, the sales and marketing strategy, and the financial background, and containing a projected profit and loss statement”.
A business plan is also a road map that provides directions so a business can plan its future and helps it avoid bumps in the road. The time you spend making your business plan thorough and accurate and keeping it up-to-date is an investment that pays big dividends in the long term.
The business plan comes after you have conducted a proper feasibility study and ascertained that your idea is worth going “all out for”. So creating a business plan is like saying, “Yes I’m convinced about the profitability of this idea. This is how I intend to make it profitable”.
Every business is established for the sole purpose of making a profit. If profiting is not the goal, then it is no business, but rather a non-profit organization. Hence details of how a business will operate and make a profit are contained in the business plan.
This is where you’re going to spell out your financial and other objectives, the methods you plan to use to achieve them, and your proposed organizational structure.
Now, let’s look at what makes a feasibility study and a business plan appear similar.
Similarities between feasibility study and business plan
Comparing the similarities between a feasibility study and a business plan is important because both are used in different ways to help you create a profitable business. Similarities between the two documents include:
Timing: Both are done in the beginning before the work opens, and can be done again later to define the next steps for future ideas.
Inputs: They both involve input from multiple individuals or departments with different skills.
Format: Both contain other documents that are grouped to create the report.
Components: Some of the issues analyzed are similar, including examining the target market, market conditions, and financial costs.
Use: Both help the management of the organization in making decisions, and they can also be shown to potential investors.
By now you should have a considerable understanding of how a feasibility study differs from a business plan. But to expound your knowledge it would do to know what the varying components are.
Purpose: While a feasibility study determines the viability of a business idea, a business plan comes after the decision has been made to go ahead with the business.
Methodology: In essence, a feasibility study is based significantly on research, while a business plan makes projections into the future.
Risks: A feasibility study ascertains the risks associated with the idea, whereas a business plan explains how these risks will be dealt with to ensure that the business makes the desired profit.
Cost: A feasibility study can require hiring professionals with expertise who will conduct thorough studies, whereas a business plan may be written by employees of the business, as part of their jobs.
How do you conduct a Feasibility Study?
If you’re doing the feasibility study yourself, conduct a complete competitive analysis considering the following outlines:
Product demand: Is there a need or want for your product or service? Is the need already being met, or is there room for another product?
Market conditions: Who would buy your product and where are they? Can you serve their location? Is the market saturated, or is there room/need for more products?
Pricing: What do current users pay for similar products? What do you need to charge so that you will be profitable, and will consumers pay your price?
Risks: What are the risks associated with your idea?
Probability of Success: Can you reasonably overcome the risks to become profitable?
Writing a Business Plan?
Writing a business plan may seem daunting, but if you take it step-by-step, it will come to fruition. The Small Business Administration advises that business plans should include the following:
Executive Summary: Include your mission statement, products and or services, some brief information about your leadership team and key employees, as well as the location of your business. To attract investors, add current financial information and projections for growth.
Company description: Detail the problems your business solves; its target market; its competitive advantages, compared with the competition, and anything else that makes your company superior to others: i.e., product awards or recognition, big increases in sales, and so on.
Market analysis: Perform competitive research of what other businesses are doing; their strengths and weaknesses, and how and why your business will be competitive and successful in the market.
Organization or management: State the legal status of your business, such as a corporation or partnership, and include an organizational chart showing management levels, departments, and so on.
Service or product line: State what you will sell or provide and describe the benefits of each. Explain any research done, and any patents filed, and so on.
Marketing and sales: Explain in detail your marketing strategy and how sales will be made.
Funding request: If you are going to be requesting do fund, detail the amount of funding you’ll need for the next five years – specifically, what you’ll do with the funds, and the terms you’re asking for.
Financial projections: This is the business’s financial outlook for the next five years. Include current financial statements, if the business is in operation.
Appendix: This includes supporting documents or requested materials, such as resumes, product photos, letters of reference, patents, licenses, and so on.
In conclusion, it should be obvious by now that a feasibility study and a business plan cannot substitute for each other, and both exist as essential planning documents for successful businesses. If you have the intention of preparing any or both of these documents, it is advisable to seek the aid of a professional writer wherever you might encounter difficulties.