Australian Venture Capital Explained - The Feasibility Study © Paul Wetton

When your business is ready for seed capital it's tempting to focus on the business plan. 

Don't overlook the feasibility study, however.  You must do this first before thinking about a business plan. 

It will help you determine whether or not your business will be profitable. Simply put, it will show if there is demand in the marketplace for your product. 

You need to show that there are enough customers who will purchase enough of your products so that your business will show a profit.

At the most basic level the feasibility study will answer these questions:
1.    Who are you selling to?  Other businesses?  Consumers?
2.    How many of these customers live in your area?
3.    How much do customers typically spend on your type of product every year? 
4.    Do they make the purchase based on price or based on value?
5.    What are the total sales for your type of product in your region every year?
6.    Does your market have a few dominant competitors or are there dozens or hundreds of small players? 
7.    Is there room in your market for another business?

If you determine that there is no market for your product in your region then you will have to decide whether you should give up on the idea or target different customers or a different region.  Eighty percent of businesses fail in the first two years so it's very important that you perform a feasibility study.

The feasibility plan should address the big picture and assess your competitiveness. It should contain the following elements:

1. Technical assessment.
2. Equipment and technology that will be needed and the suppliers of the equipment.  How long will it take to obtain this equipment? 
3. What warranties are available from the suppliers? 
4. Is credit available?
5. Raw material needs and suppliers and credit terms that can be arranged with the suppliers.
6. Cost of purchasing the equipment.
7. Location of suppliers.
8. Costs to maintain and repair the equipment.
9. Facility.  Size, location, costs.  Will you rent or own?
10. How accessible will it be to your customers?
11. Show how the current economy will impact your business.
12. Financial projections.
13. Cost of land and building costs.
14. Start up cost.
15. Wages, utilities,
16. Financing sources.  Venture capital, bank loans, credit from suppliers
17. Projected profit/loss during the first five years.
18. Projected income.  When will the business show a profit? 
19. When will it break even (ideally within 18 months).
20. Management.
21. Organizational structure.
22. Cost to recruit and retain managers.
23. Qualifications for managers.
24. How easy is it to find managers for this type of business?
25. The types of positions that will need to be filled.

Your feasibility study will look at supply and demand and detail all your competitors and examine how your business will fit in your geographical area. 

Study raw materials, trends, market share. 

It will help you see if your financial calculations and projections are realistic. 

It should also describe worst-case and best-case scenarios. 

It is best if you use a third party to conduct your feasibility; someone who will be unbiased and doesn't stand to gain from the success or failure of your business.