Feasibility Study OnlineFile C5-66November 2009www.extension.iastate.edu/agdmDon Hofstrand, co-director Ag Marketing Resource Center641-423-0844, [email protected] Holz-Clause, co-director Ag Marketing Resource [email protected] study is an important step in busi- ness development. What is a Feasibility Study Information File will help you C5-65,understanding the concept of a feasibility analysisand what it means for business development. Information File C5-64, When to Do and How to Usea Feasibility Study provides you with a frameworkand the decision points needed for using a feasibilityanalysis in business development.The outline below can be used to help you throughthe feasibility study process. However, not allfeasibility studies are alike. The elements to includein a feasibility study vary according to the type ofbusiness venture analyzed and the kind of marketopportunities identified. Below is a listing of typical factors to include. However, this may not be acomplete listing of the factors that should be considered in your specific situation. The success of afeasibility study is based on the careful identificationand assessment of all of the important issues forbusiness success. Depending on the business project,additional items may also be important. Remember,the basic premise of a feasibility study is to determine the potential for success of a proposed businessventure.Description of the ProjectIdentification and exploration of businessscenarios• Identify alternative scenarios or business modelsof what the project will entail, how it will be organized, and how it will generate profits. These maycome from the idea assessment or market assessment that you may have already completed.• Eliminate scenarios that don’t make sense.• Flesh-out the scenario(s) that appear to have potential for further exploration.Define the project and alternative scenarios• Describe the type and quality of product(s) orservice(s) to be marketed.• Outline the general business model (i.e. how thebusiness will make money).• Include the technical processes including size,location, kind of inputs, etc.• Specify the time horizon from the time the projectis initiated until it is up and running at capacity.Relationship to the surrounding geographic area• Outline the economic and social impact on localcommunities.• Describe the environmental impact on the surrounding area.Market FeasibilityThis can be based on a market assessment that youmay have already completed.Industry description• Describe the size and scope of the industry, marketand/or market segment(s).• Estimate the future direction of the industry, market and/or market segment(s).• Describe the nature of the industry, market and/or market segment(s). Is it stable or going throughrapid change and restructuring?• Identify the life-cycle of the industry, market and/or market segment(s). Is it emerging, growing,mature, declining?Industry competitiveness• Describe the industry concentration. Are there justa few large producers or many small producers?• Describe the major competitors? Will you compete directly against them?• Analyze the barriers to entry of new competitorsinto the market or industry. Can new competitiveenter easily?• Analyze the concentration and competitiveness ofinput suppliers and product/service buyers.Page 2 File C5-66• Describe the price competitiveness of your product/service.Market potential• Identify whether the product be sold into a commodity market or a differentiated product/service market.• Identify the demand and usage trends of the marketor market segment in which the product or servicewill participate.• Examine the potential for emerging, niche or segmented market opportunities.• Explore the opportunity and potential for a brandedproduct.• Assess market usage and your potential share of themarket or market segment.Access to market outlets• Identify the potential buyers of the product/serviceand the associated marketing costs.• Investigate the product/service distribution systemand the costs involved.Sales projection• Estimate sales or usage.• Carefully identify and assess the accuracy of theunderlying assumptions in the sales projection.• Project sales under various assumptions (i.e. sellingprices, services provided, etc.).Technical FeasibilityFacility needs• Estimate the size and type of production facilities.• Investigate the need for related buildings, equipment, rolling-stock, etc.Suitability of production technology• Investigate and compare technology providers.• Determine reliability and competitiveness of technology (proven or unproven, state-of-the-art, etc.).• Identify limitations or constraints of the technology.Availability and suitability of siteInvestigate access to:• raw materials• transportation• labor• production inputs (electricity, natural gas, water,etc.)• Investigate potential emissions problems.• Analyze other environmental impacts.• Identify regulatory requirements.• Explore economic development incentives.Raw materials• Estimate the amount of raw materials needed.• Investigate the current and future availability andaccess to raw materials.• Assess the quality and cost of raw materials.Other inputs• Investigate the availability of labor including wagerates, skill level, etc.• Assess the potential to access and attract qualifiedmanagement personnel.Financial/Economic FeasibilityEstimate the total capital requirements• Assess the “seed capital” needs of the business project during the investigation process and start-up, andhow these needs will be met.• Estimate capital requirements for facilities, equipment and inventories.• Estimate working capital needs.• Estimate start-up capital needs until revenues arerealized at full capacity.• Estimate contingency capital needs due to construction delays, technology malfunction, market accessdelays, etc.• Estimate other capital needs.Estimate equity and credit needs• Estimate equity needs.• Identify alternative equity sources and capital availability – family, producers, local investors, angleinvestors, venture capitalists, etc.• Estimate credit needs.• Identify and assess alternative credit sources –File C5-66 Page 3. . . and justice for allThe U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs andactivities on the basis of race, color, national origin, gender, religion, age, disability, politicalbeliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to allprograms.) Many materials can be made available in alternative formats for ADA clients. To filea complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC 20250-9410 or call 202-720-5964.Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Jack M. Payne, director, Cooperative ExtensionService, Iowa State University of Science and Technology, Ames, Iowa.banks, government (i.e. direct loans or loanguarantees), grants and local and state economicdevelopment incentives.Budget expected costs and returns of variousalternatives• Estimate the expected revenue, costs, profit marginand expected net profit.• Estimate the sales or usage needed to break-even.• Estimate the returns under various production,price and sales levels. This may involve identifying “best case”, “typical”, and “worst case” scenarios or more sophisticated analysis like a MonteCarlo simulation.• Assess the reliability of the underlying assumptions of the analysis (prices, production, efficiencies, market access, market penetration, etc.)• Benchmark against industry averages and/or competitors (cost, margin, profits, ROI, etc.).• Identify limitations or constraints of the economicanalysis.• Calculate expected cash flows during the start-upperiod and when the business reaches capacity.• Prepare pro forma income statement, balancesheet, and other statements of when the business isfully operating.Organizational/Managerial FeasibilityBusiness structure• Identify the proposed legal structure of the business.• Outline the staffing and governance structure ofthe business along with lines of authority and decision making structure.• Identify any potential joint venture partners, alliances or other important stakeholders.• Identify the availability of skilled and experiencedbusiness managers.• Identify the availability of consultants and serviceproviders with the skills needed to realize the project, including legal, accounting, industry experts,etc.Business founders• Character matters – are the people involved ofoutstanding character?• Do the founders have the “fire in the belly” required to take the project to completion?• Do the founders have the skills and ability to complete the project?• What key individuals will lead the project?• Is there a reward system for the founders? Is itbased on business performance?• Have the founders organized other successful businesses?Study Conclusions• Identify and describe alternative business scenarios and models.• Compare and contrast scenarios based on goals ofthe producer group.• Outline criteria for decision making among alternatives.Next StepAfter the feasibility study has been completed andpresented to the leaders of the project, they shouldcarefully study and analysis the conclusions and underlying assumptions. Next, the leaders will be facedwith deciding which course of action to pursue.Potential courses of action include:• Choosing the most viable business scenario ormodel, developing a business plan and proceedingwith creating and operating a business.• Identifying additional scenarios for further study.• Deciding that a viable business opportunity is notavailable and moving to end the business investigation process.• Following another course of action.
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