Is your idea feasible?

There are plenty of possible ideas out there. Before you start your business plan, you should know whether or not your idea is a real opportunity. A feasibility analysis helps you make this determination before you invest time, energy, and money in the business planning process.

A simple feasibility analysis consists of an industry and market assessment and financial projections. This analysis can consist of educated guesses based on your own research or, if you have the resources, you can hire a professional to do the analysis for you.

Industry and Market Assessment

For your business to succeed, you must have enough customers buying your product or service to make your business profitable. An industry and market assessment describes your business environment, including location, industry, customers, and competition. It compares your product or service to what is already there and explains what differentiates you from your competitors and why the customer will buy your product or service.

Some questions you should consider and be prepared to answer are:

• What are the local, regional and national trends and changes occurring in this industry or line of business?

• Are there raw materials (such as fish) or supplies (such as hides) on which your business will depend to be successful, that may not always be in ready supply?

• Where will your business be located and, based on this location, how many potential customers are there?

• Who will buy your product or service? What are they like? What are they willing to pay for this product or service?

• How many businesses already provide this product or service?

• How does each compete? Do any have expertise or relationships that give them an advantage? What do they charge?

• How successful are they? Are they growing, declining, closing, leaving the area?

• What is required to succeed in this business?

• What is special about what you are proposing? Efficiency? Quality? Pricing?

Look at how competing businesses run and compare your intended approach to theirs. If there are few or no businesses providing the service you want to offer and you have many potential customers, you stand a greater chance of success.

Financial Projections

This part of the feasibility analysis involves projecting the sales and revenue you think your business will generate. Estimate what your sales will be in a best‐case, mid‐point, conservative, and worst‐case scenario. Remember, in order for your business to survive, you must collect more money from customers than it costs to deliver your product or service. You only hurt yourself if your projections aren’t based in reality, so don’t exaggerate when you estimate sales and savings.

There are several steps to take in developing your financial projections:

1. Start‐up costs: These are the one‐time expenditures necessary to operate your business. Examples include equipment (commercial oven, computer, etc.), furnishings, space improvements, and legal and incorporation fees. Typically, these costs are covered through an initial “owner” investment in the business.

2. Fixed costs and overhead: These are the expenses your business will incur day in and day out, regardless of the number of customers you see. Fixed costs typically include rent, utilities, property and liability insurance, and employee salaries. Fixed costs also include the depreciation of start‐up assets – eventually you will need to replace start‐up items.

3. Variable costs: These are costs that increase as you produce more goods or provide more services. Variable costs also include inventory, if you run a general store selling pre‐packaged products, for example. If you are in the business of repairing homes, the more clients you drive to see, the greater your fuel expenditure will be, making fuel one of your variable costs.

4. Price: The price for your product or service should be determined by a combination of factors including the costs of providing your product or service (raw materials, labor, overhead, and desired profit) and the price your potential customers are willing to pay or have been paying your competitors.

5. Sales: Do research and make an estimate of how much of your product or your service you will sell. Carefully study any existing competitors to try to determine their sales. Talk to any of their customers you can. You may want to find a similar business that won’t be a direct competitor and discuss your business idea and community characteristics. This will help you understand whether or not your community can support two similar businesses.

6. Cash flow and break‐even determination: This step is critical – you must understand the business well enough so you not only know if revenues will be more than expenses but so you also understand the flow of revenues. This shows you what expenses you will need to cover until your revenues can be collected. Many business owners obtain loans to cover their cash flow needs as they establish their business.

Once you have assessed your market and projected your revenue, you are well on the way to learning if your business is feasible. Once you calculate your anticipated costs, you should know if your idea is feasible. Even if you know sales will be good, you may not have a viable business if the cost of making the product or operating the service is greater than your sales revenue. Ultimately, you may need the assistance of a professional to make a feasibility determination and to offer unbiased opinions.

When you know your business might be feasible, you can move on to writing the business plan. Be sure to devote the necessary time and energy to this important process. A well‐thought‐out business plan increases your chance of success significantly. Start by writing a rough draft, and keep working on it until it meets your current needs.

Business Plan Outline

The following outline lists the key sections of a typical business plan. If you are seeking money to start up your business, ask potential funders if they have a preferred outline and use that.

This handbook will walk you through the plan with questions, a list of points to address, and examples. Answering the questions asked in each section will help you compile solid information for your business plan. If you find it difficult to answer a question, this usually means you have not thought out this aspect of your business thoroughly enough. If this is the case – stop, so you can research and answer the question fully before continuing.

The bullet list includes the points that you should address in that section. Not every section may apply to your business. For example, if you are the only employee and already have the necessary skills, you will not need an employee training plan. You should still review each section closely, as it may raise important questions to consider.

Make sure the information flows logically and can be easily understood by any reader.

1. Executive Summary

2. Business Description

o Type of Business – Merchandising, manufacturing, service

o Status – Start‐up, expansion, takeover

o Product/Service Description

o Key Production Factors – Raw materials, labor, technical or equipment requirements

o Location and Facilities – Regional, local, and site‐specific facilities

3. Industry Analysis

o Industry Structure

o Major Players – At the local, regional, state, and national levels

o Industry Trends and Anticipated Changes

4. Market Analysis

o Market Description – Key market factors: price, quality, on‐time delivery

o Market Trends – Overall economic activity for product or service

o Marketing Strategy – Specific activities to be undertaken

o Market Projections – Provide estimate or projection of revenues

5. Competitive Analysis

o Competitive Edge – Setting your business apart

o Competitor Profiles – Size, location, management, years in business

o Product/Service Comparison

o Strengths, Weaknesses, Opportunities and Threats

6. Ownership, Management and Staffing

o Business form – Sole proprietorship, partnership, corporation

o Management Plan – Key personnel and availability of needed skills

o Training Plan – How employees will be trained, if necessary

7. Financial Analysis

o Key Assumptions – Production costs, product pricing, and sales volume

o Project budget – Pre‐operational, construction, start‐up, final operational revenue, cost analysis, break‐even estimate, profit and loss statement, balance sheet

o Supporting Statements – Owner/manager resumes, articles of incorporation, legal contracts and lease agreements, letters of reference)

o Sources of Funds – Equity, savings, grants, in‐kind.