Are you thinking about buying a business opportunity? Do you know if the business is even feasible?
A feasibility analysis is an important step before purchasing a business opportunity or franchise. As an entrepreneur, you can greatly increase your chances of success by analyzing the business concept, your market place, your industry and competition, and your financial and organizational structures. Whether you plan to expand an existing business, acquire an existing business, or start a new business, a feasibility analysis will evaluate a business idea to see if it is worth pursuing.
Use this condensed checklist as a way to begin judging whether your business idea will be successful and profitable.
Identify your Core Competency: a special skill, technology, process, knowledge, expertise, or ability that is unique to the business and done better than any competitors. A core competency may be:
- Valuable – a large revenue generator
- Rare – not easily found in other businesses
- Non-substitutable – it’s cannot be replaced by any of your other capabilities.
- Costly to imitate – it will be expensive for your competitors to try to duplicate
Develop a Concept Test: a process of showing a representation or proto-type of the product or service to prospective customers with the purpose to gauge customer interest, desirability, and purchase intent.
- Identify a preliminary target market and survey at least 25-30 people about their needs and how your product/service provides the benefits they seek.
Based on your findings, you can move forward or back up and reevaluate your idea.
Conduct Market and Industry Research: Obtain information about the current market by researching trends and analyzing the competition.
- What is the estimated size of the market for your product/service?
- What is your projected market share?
- Is the current market attractive for your product/service?
- Are there any predictions for future trends?
- Based on research refine your target market
Conduct an Organizational Feasibility Analysis: determine whether the proposed business has sufficient management expertise, organizational competence, and resources to be successful.
- Evaluate Management Expertise – the ability of the entrepreneur and management team.
- Designate Responsibilities – determine whether the responsibilities are too great or too small for the entrepreneur. Do any of the duties need to be outsourced?
- Evaluate non-financial resources – is there a sufficient labor pool (quality and quantity), availability of office space, protection for property, patents, etc.?
- Prepare a Financial Feasibility Analysis: evaluate start-up and other capital requirements, your projected rate of return, and the overall attractiveness of the investment.
- Estimate Sales on monthly and/or annual basis – Do not count on promises; be conservative; estimate sales using different methods and compare figures (both in units and dollars).
- Estimate Costs – Identify both fixed costs and variable costs.
- Estimate Break-even Point and Profitability
After completing the financial feasibility analysis, think about your personal income and financial needs. For example, if you need at least $30,000 annually to keep you and your family financially stable, will the new venture be able to provide you with $30,000 of profit in the first year? Even the best business ideas often require several years to take off and reach a desired profit. It may be best for you to allow time to work while starting your business or put off the start-up until sufficient resources are on hand to give you a regular source of income.
Identify the Strengths, Weaknesses, Opportunities, and Threats (SWOT Analysis) of your idea:
- What are the strengths and weaknesses of your business or potential business?
- Who are your competitors and what are their strengths and weaknesses?
- What is your competitive advantage over your competitors?
If the business opportunity:
- Has a core competency
- Passes the concept test
- Would be a timely and attractive entry into the market
- Has a competitive advantage over your competitors
- Is organizationally cohesive
- And is financially viable
Then, and only then, is it time to move forward!
