Almost all business decisions require some degree of thoughtful analysis before a decision is made. Small business owners want to find the answers that determine if they should proceed with a proposed idea or not. Business feasibility reports provide the answer to that question.
What Is a Business Feasibility Report?
Business feasibility reports are analyses of a proposed venture or project that looks into the following areas:
- A description of the idea or project
- Analysis of the market for the products or services
- Technical issues involved
- How the organization will be structured
- Financial projections
What Is the Proposal?
A feasibility study starts with a description of the products or services to be marketed, and it outlines a model of how the business intends to make a profit. It describes the types and quality of products that will be offered and a timeline for preparation, implementation and the time it will take to reach profitable production volumes.
A description of the project also includes its social, economic and environmental impact on surrounding communities.
What Is the Market?
The market portion of the feasibility study identifies the target market segments and describes the scope and size of the overall industry. It includes estimates of the future direction and strength of the demand for the products and services. What are the demographics of the potential consumers? How will the goods get distributed to the market?
Is the market stable or are future changes expected that will offer opportunities for the new venture?
What About the Competition?
Is the competition concentrated in a few large manufacturers or spread among numerous small producers? Who are the major competitors, and how will the new venture compete against them? What are the barriers to entry into the market?
Your business reports should outline a pricing strategy designed to attract customers from competitors and grow the sales of the company.
What Are the Technical Considerations?
The study will identify the type, size and location of any production facilities. It will outline the necessary buildings, equipment, distribution areas and inventory requirements and storage. Discuss any technologies that will be employed.
Describe the needed access to raw materials and labor. Who will be the potential suppliers and where are they located? What is the availability of the necessary skills in the local labor market?
A section of the feasibility study should discuss the environmental impact of the project and any potential regulatory issues or emissions problems.
How Will the Venture be Organized?
For any new project to achieve success, it must have an organizational structure designed to manage and control its operations, marketing and sales. What are the positions that will be required, and are there people available with the necessary skills to fill these positions?
What Are the Financial Projections?
Any new proposed ideas or ventures usually have an objective of somehow making a profit. Projections of future sales, expenses, profits and cash flow are intended to impart some understanding of the possible results of the project.
Financial considerations would describe the initial capital requirements, working capital needs and availability of supplier credit. They would also discuss possible alternative sources of funds, such as bank loans or venture capital partners.
What is a business plan?
If you’ve ever jotted down a business idea on a napkin with a few tasks you need to accomplish, you’ve written a business plan—or at least the very basic components of one. At its heart, a business plan is just a plan for how your business is going to work, and how you’re going to make it succeed.
How often should you revise your business plan?
In all cases, the most important element of business planning is the review schedule—set specific times to review your progress toward your goals. That’s as simple as “the third Thursday of every month” to cite one obvious example.
Specifically, it’s the time to review your progress on milestones and to compare your actuals against your financial projections. A real business plan is always wrong—hence the regular review and revisions—and never done, because the process of review and revising is vital.
Who needs a business plan?
If you’re just planning on picking up some freelance work to supplement your income, you can skip the business plan. But, if you’re embarking on a more significant endeavor that’s likely to consume a significant amount of time, money, and resources, then you need a business plan.
If you’re serious about business, taking planning seriously is critical to your success.
Unfortunately, many people think of business plans only for starting a new business or applying for business loans. But business plans are also vital for running a business—strategic planning—whether or not it needs new loans or new investments. Existing businesses should have business plans that they maintain and update as market conditions change and as new opportunities arise.
Every business has long-term and short-term goals, sales targets, and expense budgets—a business plan encompasses all of those things and is as useful to a startup trying to raise funds as it is to a 10-year-old business that’s looking to grow.
1. Startup businesses
The most classic business planning scenario is for a startup, for which the plan helps the founders break uncertainty down into meaningful pieces, like the sales projection, expense budget, milestones, and tasks.
The need becomes obvious as soon as you recognize that you don’t know how much money you need, and when you need it, without laying out projected sales, costs, expenses, and timing of payments. And that’s for all startups, whether or not they need to convince investors, banks, or friends and family to part with their money and fund the new venture.
In this case, the business plan is focused on explaining what the new company is going to do, how it is going to accomplish its goals, and—most importantly—why the founders are the right people to do the job. A startup business plan also details the amount of money needed to get the business off the ground, and through the initial growth phases that will lead (hopefully!) to profitability.
2. Existing businesses
Not all business plans are for startups that are launching the next big thing. Existing businesses use business plans to strategically manage and steer the business, not just to address changes in their markets and to take advantage of new opportunities. They use a plan to reinforce strategy, establish metrics, manage responsibilities and goals, track results, and manage and plan resources including critical cash flow. And of course, they use a plan to set the schedule for regular review and revision.
Business plans can be a critical driver of growth for existing businesses. Did you know that businesses that write plans and use them to manage their business grow 30 percent faster than businesses that take a “seat of the pants” approach? A study by Professor Andrew Burke, the founding Director of the Bettany Centre for Entrepreneurial Performance and Economics at Cranfield School of Management, discovered exactly this.
For existing businesses, a robust business planning process can be a competitive advantage that drives faster growth and greater innovation. Instead of a static document, business plans in existing businesses become dynamic tools that are used to track growth and spot potential problems before they derail the business.
What to include in your formal business plan
While we just discussed several different types of business plans, there are key elements that appear in virtually all business plans. These components include the review schedule, strategy summary, milestones, responsibilities, metrics (numerical goals that can be tracked), and basic projections. The projections include sales, costs, expenses, and cash flow.
These core elements grow organically as needed by the business for the actual business purpose.
The order doesn’t matter a whole lot, so don’t sweat having the “right” outline as long as you have an outline that works. Here’s what they normally include:
Just like the old adage that you never get a second chance to make a first impression, the executive summary is your business’s calling card. It needs to be succinct and hit the key highlights of the plan. Many potential investors will never make it beyond the executive summary, so it needs to be compelling and intriguing.
The executive summary should provide a quick overview of the problem your business solves, your solution to the problem, the business’s target market, key financial highlights, and a summary of who does what on the management team.
While it’s difficult to convey everything you might want to convey in the executive summary, keeping it short is critical. If you hook your reader, they’ll find more detail in the body of the plan as they continue reading. You could consider using your one-page business plan as your executive summary. And LivePlan offers an excellent alternative with what it (as of August 2018) calls the Pitch page, a standard summary.
One often useful section of a formal plan describes the market, including market analysis, data, projections, descriptions, and competition.
As critical as it is that your company is solving a real-world problem that people or other businesses have, it’s equally important to detail who you are selling to. Understanding your target market is key to building marketing campaigns and sales processes that work. And, beyond marketing, your target market will define how your company grows.
Describe the most important changes happening in your target market right now. Are the needs, demographics, or preferences of potential customers changing in a notable way? Ideally, explain how those trends will favor your products or services over those of your competitors.
For example, if people in your market are increasingly using their smartphones for tasks that they used to do on a computer, perhaps the mobile app you are developing is well-positioned to capture a bigger part of the market.
Explain how your target market has been growing or shrinking in recent years. Research is key here, obviously. You can use Internet searches, trade associations, market research firms, journalists who cover your market, or other credible sources to gauge market growth. A growing market is encouraging since it suggests a stronger demand for your solution in the years to come. That said, you can still be successful in a weak or contracting market. It’s just important to acknowledge that you are swimming against the tide.
What other options do your customers have to address their needs, and what makes your solution better for them?
Products and services
The products and services section of your business plan delves into the core of what you are trying to achieve. In this section, you will detail the problem you are solving, how you are solving it, the competitive landscape, and your business’s competitive edge.
Depending on the type of company you are starting, this section may also detail the technologies you are using, intellectual property that you own, and other key factors about the products that you are building now and plan on building in the future.
Marketing and sales
The marketing and sales plan details the strategies that you will use to reach your target market. This portion of your business plan provides an overview of how you will position your company in the market, how you will price your products and services, how you will promote your offerings, and any sales processes you need to have in place.
Depending on the specifics of your business, include plans related to locations and facilities, technology, and regulatory issues.
Milestones and metrics
Plans are nothing without solid implementation. The milestones and metrics chapter of your business plan lays out concrete tasks that you plan to accomplish, complete with due dates, and the names of the people to be held responsible.
This chapter should also detail the key metrics that you plan to use to track the growth of your business. This could include the number of sales leads generated, the number of page views to your web site, or any other critical metric that helps determine the health of your business.
For external plans, the company overview is a brief summary of the company’s legal structure, ownership, history, and location. It’s common to include a mission statement in the company overview, but that’s certainly not a critical component of all business plans.
The company overview is often omitted from internal plans.
The management team chapter of a business plan is critical for entrepreneurs seeking investment but can be omitted for virtually any other type of plan.
The management team section should include relevant team bios that explain why your management personnel is made up of the right people for the roles. After all, good ideas are a dime a dozen—it’s a talented entrepreneur who can take those ideas and turn them into thriving businesses.
Business plans should help identify not only the strengths of a business, but areas that need improvement and gaps that need to be filled. Identifying gaps in the management team shows knowledge and foresight, not a lack of ability to build the business.
The financial plan is a critical component of nearly all business plans. Running a successful business means paying close attention to how much money you are bringing in, and how much money you are spending. A good financial plan goes a long way to help determine when to hire new employees or buy a new piece of equipment.
If you are a startup and/or are seeking funding, a solid financial plan helps you figure out how much capital your business needs to get started or to grow, so you know how much money to ask for from the bank or from investors.
A typical financial plan includes:
- Sales forecast
- Personnel plan
- Profit and loss statement
- Cash flow statement
- Balance sheet
For more details on what to include in your business plan, check out our detailed business plan outline, download a business plan template in Word format, or read through our library of sample business plans so you can see how other businesses have structured their plans and how they describe their business strategy.
Using your business plan to get ahead
I mentioned earlier in this article that businesses that write business plans grow 30 percent faster than businesses that don’t plan. Taking the simple step forward to do any planning at all will certainly put your business at a significant advantage over businesses that just drive forward with no specific plans.
But just writing a business plan does not guarantee your success.
The best way to extract value from your business plan is to use it as an ongoing management tool. To do this, your business plan must be constantly revisited and revised to reflect current conditions and the new information that you’ve collected as you run your business.
When you’re running a business, you are learning new things every day: what your customers like, what they don’t like, which marketing tactics work, which ones don’t. Your business plan should be a reflection of those learnings to guide your future strategy.
This all sounds like a lot of work, but it doesn’t have to be.
Tips to extract the most value from your plan in the least amount of time
- Use your one-page business plan to quickly outline your strategy. Use this document to periodically review your high-level strategy. Are you still solving the same problem for your customers? Has your target market changed?
- Use a Lean Plan to document processes that work. Share this document with new employees to give them a clear picture of your overall strategy.
- Set milestones for what you plan to accomplish in the next 30 days. Assign these tasks to team members, set dates, and allocate part of your budget if necessary.
- Keep your sales forecast and expense budget current. As you learn more about customer buying patterns, revise your forecast.
- Compare your planned budgets and forecasts with your actual results at least monthly. Make adjustments to your plan based on the results.
- The final, most important aspect of leveraging your business plan as a growth engine is to schedule a monthly review. The review doesn’t have to take longer than an hour, but it needs to be a regular recurring meeting on your calendar. In your monthly review, go over your key numbers compared to your plan, review the milestones you planned to accomplish, set new milestones, and do a quick review of your overall strategy.
It’s easier than it sounds and can put you in that “30 percent growth” club faster than you think.
A Business Feasibility Report Versus a Business Plan
A business feasibility report is not a business plan. A feasibility study is an investigative process that seeks to determine the viability of a business venture. It is conducted before a business plan is even considered.
A business plan describes the steps needed to take a proposal from an idea to the reality of implementation after the decision has been made to go ahead with the project.