What is the importance of conducting feasibility study before starting a business? Can conducting feasibility study give your business an advantage and help reduce the high rate of business failure? Well, i advice you read on.
A feasibility report is an often ignored but vital prerequisite to building a successful business from scratch. In fact, not doing feasibility is one of the silly mistakes entrepreneurs make when starting a business. So in this article, i will be stressing the need to conduct feasibility study.
“Starting a business is like jumping out of an airplane without a parachute. In mid air the entrepreneur begins building a parachute and hope it opens before hitting the ground.” – Rich Dad.
Few years ago, before starting a business of my own, I was privileged to assist my dad in overseeing the affairs of his business. Our little company was in the business of importing and distributing sanitary wares. Business moved on smoothly for many years till we began to experience a decline in sales and decrease in profit margin due to stiff competition and inconsistent government policies. My dad decided to diversify so he made a move into the clothing line based on the recommendation of a nephew.
Since he started his first business from scratch without conducting a feasibility study, he thought he could repeat the feat in the clothing line. As expected, the business flopped in less than two years due to many unforeseen factors I wouldn’t want to mention here and we lost a lot of money. Though this experience was painful, I learned a lesson I will never forget in my life and that is: “The Importance of Conducting a Feasibility Study before Starting a Business.”
I know many out there have made this same business mistake and many are still to bound to make it. Having shared my story; let me highlight five reasons why you need to conduct feasibility study before starting a business.
5 Reasons Why You Must Conduct Feasibility Study Before Starting a business
1. A feasibility study will help you to determine the profitability of the business venture. Before starting a business, seasoned entrepreneurs and investors would want to know if the business would be worth their time, effort and resources. It is worthwhile to know that many entrepreneurs have abandoned solid business ideas because the profitability could not be ascertained on conducting a feasibility study on the business idea.
2. A feasibility study will help prove to the entrepreneur, venture capitalists, lenders and investors the existence of the market, the liquidity of the business venture and the expected return on investment.
3. A feasibility study will help you identify the flaws, business challenges, strengths, weaknesses, opportunities, threats and unforeseen circumstances that might affect the success and sustainability of the business venture. Just like the case of my dad’s business, the business failure and loss of money would have been avoided if we had carried out a feasibility study. We simply jumped in based on someone’s recommendations because we were flushed with cash and we paid dearly for it.
4. Before starting a business, a feasibility study will enable you estimate the financial, human and technological resources that will be needed to ensure the successful launching of the business. Feasibility study helps to reveal the number and level of skill or unskilled workers to be employed and their salary scale.
5. Feasibility study will help you to determine the amount of capital required to start the business. It will also help you in establishing the budget plan, working capital and cash flow projections of the business.
As a last note, my advice to you is this:
“Never invest a dime without first carrying out feasibility study on the business idea.”