Maybe it’s a Eureka moment or something you’ve been planning for a long time—a new business idea that’s a guaranteed success.
How certain are you, though? When planning a business, you’ll have to work out its financial feasibility to determine whether it has a good chance of success.
What is Financial Feasibility?
A financial feasibility study does at least two things:
- project how much working capital is needed; and
- assess the prospects for success.
It is part of the initial stages of any project and is conducted to identify the strengths and weaknesses of a potential business, threats and opportunities present, and the resources required for the project. It also looks at how much cash is required, where it will be sourced, and how it will be spent.
Working with a financial modelling company can help you assess the financial feasibility of your business idea using a spreadsheet that reviews your position in the market. Here, we have created a list of questions to help you determine the potentials of your project.
How to Test the Feasibility of a Business Idea
- What is your business idea?
Get a clear picture of the product or service. How is it going to work? What needs will it address? Is there a demand for it? If it’s something already being offered by other businesses, what will be your key selling point? You may have to find gaps in what they offer and fill those in with your product, service, or technology.
- Is there a market for your product/service?
Who are the customers that will benefit from what you offer? What is the size of a potential consumer base? Market research can reveal the answer to these questions, including data on consumer behaviour and preferences. In the case of a survey, your vision must align with customer expectations. Otherwise, it may just not work out.
- Who are your competitors?
As indicated above, you have to set yourself apart from the competition. But, to do this, you first have to know who your competitors are, what they offer, and how good they are at it. A competitor analysis lets you know more about your competitors, which is essential in coming up with products that match if not exceeds theirs—even if it’s just in packaging.
- Do you have the skills?
What are the skills required for the business? More important question—do you have those skills? Evaluate yourself along with the idea and make sure that one of your skills is entrepreneurial. But, don’t worry, whatever you lack in skills, you can outsource if needed.
- How much can you sell it?
In determining the cost of your products or services, take the following into account:
- How much your customers are willing to pay
- How much your competitors charge
- How much it costs to produce and supply your products/services
Simply matching a price can be dangerous—you have to make sure that all the costs are covered, including overhead expenses. You can opt to charge a premium for your services, an average of the price of your competitors, or lower than that to hopefully attract more customers. You may have to try these options to see what works best for you.
- Do you have the financial resources?
The bottom line to these is, do you have the financial capacity to start this idea? How much do you have in savings? You may have to fund your start-up by applying for a loan or trying other alternatives such as asking for family and friends to finance your business.
Testing the financial feasibility of your business idea also involves determining the costs to keep it running. How long will it take for your business to break even and make a profit?
Where Financial Feasibility Matters
A financial feasibility study can help answer these questions by projecting figures that estimate what it will take to make your business feasible. It also factors in start-up costs and operational expenses to calculate your break-even point.
While a valuable guide, financial feasibility doesn’t guarantee the success of your business. But, remember this—if your product solves a problem and you are passionate about it, then there’s already a great chance that you’re creating a profitable business.
Work with a financial modelling company today and see for yourself the importance of a feasibility study!
Have you ever tested the financial feasibility of a business idea? How did it help you? Let us know by leaving a comment.