A feasibility study for small business is an in-depth research and financial analysis that recommends if one should pursue a business idea or product. The study contains estimates of items such as income, costs, obstacles, and technical challenges. Typically, a feasibility study for a small business costs a minimum of $5,000. However, they can cost up to $100,000 for businesses that have a multimillion dollar startup budget.
Throughout this article, we discuss what a feasibility study is and how it differs from a business plan, so that you can decide whether or not you really need one for your business.
How the Feasibility Study Works
Usually, businesses conduct feasibility studies to determine if their idea or product is worth pursuing. It's one of the more complicated and costly ways to test a business idea.
Depending on the idea's complexity and scope, a study can take weeks or months to prepare. With the help of templates or programs, business owners can conduct feasibility studies on their own. However, because of the in-depth research and complicated financial projections, they often hire an expert to create the study.
Feasibility studies do not determine the final decision but present all the evidence and make a strong recommendation on whether or not it's best to move forward. The entrepreneur, stakeholders, and/or other authorities decide whether to go ahead with the business idea or product, using the study as a guide.
Who Should Get a Feasibility Study?
Small business entrepreneurs use a feasibility study to prevent the costly mistake of launching an unsuccessful business, product, or project. You can use a study to help make strategic decisions, such as determining whether you should:
- Start a new business
- Open a new store or factory
- Change product lineup or approach
- Expand to a new area or market
- Acquire another company
- Make a significant investment in new technology
- Enter an already crowded or competitive market segment
- Invest personal capital into a project
Feasibility Study vs Business Plan
A feasibility study often comes before the business plan, because the information and data uncovered in the study are included in the business plan. Plus, if the feasibility gives a recommendation not to move forward, you may want to rethink your business idea or product altogether before creating a plan.
Feasibility Study vs Business Plan
Feasibility Study | Business Plan | |
|---|---|---|
Question Answered | “Should we do this?” | “How do we do this?” |
Process Involved | Researching | Planning |
Who Puts It Together | Often outsources, third-party | Usually in-house |
Final Product | Points out problems, makes suggestions | Sets out steps based on decisions |
Purpose | Examines the specific function of the business and how likely it will succeed | Defines actions needed to make the business a reality |
How Info Is Presented | Calculations and analysis | Tactics and strategies |
When It's Prepared | Before the decision | After the go-ahead |
What Should Be in a Feasibility Study?
Depending on the project or business, you will use each of the aspects below to a certain degree. The feasibility study's organization may vary depending on its focus—you may have a section for each of these topics:
- Executive Summary: This summarizes the project and business. The ultimate conclusions are outlined here. It should be about a page long.
- Demand: A marketing analysis determines the need for your product or business in the industry you want to sell. Even if you have a brick-and-mortar business, you should consider online aspects as well.
- Technical issues: What tool, hardware, or software do you need to create your business or product? Will you create the tech, buy it, or rent it? This section also includes the facilities, including layout, shelving, offices, and manufacturing space.
- Logistics issues: This piece outlines vendors, pricing schedules, exclusive agreements, and franchised product contracts. It may include getting supplies and delivering finished products or working online elements like an ecommerce site. Location issues can be placed here.
- Legal concerns: Do you need permits? Are there regulations or prohibitions to consider? What about environmental, historical, or legacy issues to negotiate?
- Marketing strategy: This section will define the target market as specific as possible: How you will meet their needs, and how you will target them?
- Required staffing: How many employees will you need? What are their qualifications? What is the typical salary in your area? You can include a sample organizational chart along with a corresponding discussion of who among your current employees may change jobs to fill new positions.
- Scheduling: This section includes milestones for financials as well as physical projects and a timeline for completion.
- Financials: In addition to anticipated expenses and potential profits, this section will include an opening day balance sheet that lists total assets and liabilities on your business's first day. This financial data gives you an indication of your return on investment (ROI).
- ROI: If you don't see a return on investment, it makes no sense to start or expand your business. A feasibility study estimates when you'll earn profits and what or how much they may be.
- Analysis: You will see discussions answering questions like: Does it seem realistic? Are the sources strong? Are there outlying data points to consider? Also, analyze potential risks: What are the worst-case scenarios, and how likely are they?
- Recommendations: This gives a go or no-go recommendation and breaks down specific suggestions based on the main elements. If the project is not feasible, it may offer alternatives.
Cost of a Feasibility Study
A feasibility study for small business takes an average of 60 to 90 days to complete and may cost anywhere from $5,000 to $10,000. As a general rule of thumb, a feasibility study will cost 1% of the business's total cost to open or a product's cost to build. So if you're requesting a feasibility study for a complicated business with millions in startup costs, be prepared to spend more than $10,000.
The cost is also determined by the study's depth, the tools needed to conduct it—survey software, focus groups, and lawyers—and the scope of the project. For example, a study to determine if a business should bring manufacturing back to the US from overseas will cost more than a study on whether to open a restaurant.
Here are costs for various feasibility study projects:
Project | Cost |
|---|---|
California condo real estate development | $6,000 - $15,000 |
$5 million national technology roll-out | $15,000 to $30,000 |
$20 million school building | $30,000 to $60,000 |
Family Entertainment Center | 1% to 1.5% of an FEC's total cost |
Who Provides Feasibility Studies?
You may find it challenging to find a firm that only produces feasibility studies. Often, a market research firm will provide feasibility studies in addition to other services. For example, Drive Research in Syracuse, New York, offers a host of market research services, including feasibility studies.
There are also business plan writing companies that specialize in feasibility studies. Wise Business Plans provides a study with in-depth market research and industry analysis.
If you'd like to connect one-on-one and choose your own independent market researcher for a feasibility study, you could look to the freelancer platform Upwork. You can find several market research experts and analysts that may be interested in tackling your specific project. Upwork is an excellent platform to find market researchers, because you can review a freelancer's past work to see if they'd be a good fit.
Tips and Best Practices to Follow When Purchasing a Feasibility Study
- Conduct a preliminary analysis first: Before paying thousands of dollars for a feasibility study, do a minor check to ensure there are no insurmountable technical, legal, or financial obstacles to the business idea or product.
- Involve stakeholders: Before, during, and after the study, keep people relevant to the business in the loop. Get their input, suggestions, and feedback.
- Review research: Review the feasibility study data and see if you come to a similar conclusion as the research analyst. You may also want to pay for a second expert's opinion on the final determination.
- Assess your current company or situation: Before making any decision on a business idea or product, consider your own strengths, weaknesses, and financial situation in the final decision to move forward or not.
Frequently Asked Questions (FAQs) for a Feasibility Study
Is it better to hire out for a feasibility study?
Most likely, yes. Feasibility studies typically contain in-depth expert data analysis and financial projections. Hiring out the work will ensure you get an objective evaluation of the project and its potential downfalls and successes. It's human nature to bias our own ideas, and a third party can avoid.
How much should I invest in a feasibility study?
For a simpler study on a business idea or product, expect to pay anywhere from $5,000 to $10,000. The general rule of thumb is that a feasibility study will cost 1% of the expected project budget or business's cost to build.
Should feasibility studies include solutions as well as pointing out obstacles?
Yes, the more information the study provides, the better it will aid in the decision-making process. Feasibility studies should provide an objective determination because of the time and expense involved.
Can my feasibility study become my business plan?
Many times, yes. With some changes in focus and scope, a feasibility study can be re-imagined into a business plan. However, be sure it meets the purpose, which outlines the strategic and tactical steps needed to make the business work.
Bottom Line
Feasibility studies can cost thousands of dollars, but they can save you millions you may lose from making a poor business decision. They examine a new business or product idea by researching the endeavor's technological, financial, and operational aspects. The study analyzes the data and offers a recommendation on if you should move ahead with your project or idea and how to maximize its success.
