1. What is a Business Feasibility Study?
A business feasibility study is a comprehensive analysis that evaluates whether a proposed business idea or project is viable, profitable, and worth pursuing. It examines all aspects of the business—market demand, competition, financial requirements, operational needs, and potential returns—to determine if the venture has a reasonable chance of success.
Unlike a business plan (which outlines how you'll run the business), a feasibility study answers one fundamental question: "Should we proceed with this business idea?"
"A feasibility study is your first line of defense against investing time and money into a venture that won't work. It's cheaper to discover problems on paper than in reality."
Feasibility Study vs. Business Plan
| Aspect | Feasibility Study | Business Plan |
|---|---|---|
| Purpose | Determine if idea is viable | Map out execution strategy |
| When Created | Before committing resources | After deciding to proceed |
| Key Question | "Should we do this?" | "How will we do this?" |
| Typical Length | 10-30 pages | 30-100 pages |
2. Why Feasibility Studies Matter
Creating a thorough feasibility study before launching your business offers several critical benefits:
For Entrepreneurs:
- Validates your idea with data rather than assumptions
- Identifies potential problems before you invest significant resources
- Clarifies financial requirements so you know how much capital you need
- Sets realistic expectations for profitability and timeline
For Investors and Banks:
- Demonstrates due diligence and professional preparation
- Provides credible financial projections with supporting assumptions
- Shows market understanding and competitive positioning
- Reduces perceived risk by addressing concerns proactively
According to a study by CB Insights, 42% of startups fail due to "no market need"—something a proper feasibility study would have revealed before launch.
3. Key Components of a Feasibility Study
A comprehensive feasibility study includes these essential sections:
Executive Summary
A 1-2 page overview of the entire study, including the business concept, key findings, financial highlights, and recommendation. Write this last, but place it first.
Market Analysis
- Market Size: Total addressable market (TAM), serviceable available market (SAM), serviceable obtainable market (SOM)
- Target Customers: Demographics, psychographics, buying behavior
- Market Trends: Growth drivers, emerging opportunities, threats
- Competitive Landscape: Direct and indirect competitors, their strengths/weaknesses
Technical/Operational Feasibility
- Location Requirements: Space, accessibility, zoning
- Equipment and Technology: What you need and costs
- Staffing: Roles, skills required, availability in market
- Supply Chain: Suppliers, logistics, dependencies
Financial Analysis
- Startup Costs (CAPEX): One-time investments required
- Operating Costs (OPEX): Ongoing monthly/annual expenses
- Revenue Projections: Sales forecasts with assumptions
- Profitability Analysis: P&L, cash flow, break-even
- Return Metrics: NPV, IRR, ROI, payback period
Risk Assessment
- Market Risks: Demand fluctuations, competition
- Operational Risks: Supply chain, staffing, technology
- Financial Risks: Cash flow, interest rates, currency
- Mitigation Strategies: How you'll address each risk
4. Step-by-Step Creation Process
Follow this process to create your feasibility study:
Step 1: Define Your Business Concept (Day 1)
Clearly articulate what your business will do, who it serves, and how it makes money. Be specific about:
- Products or services offered
- Target customer segments
- Revenue model (how you charge)
- Geographic scope
Step 2: Conduct Market Research (Days 2-7)
Gather data on your market through:
- Primary Research: Surveys, interviews with potential customers
- Secondary Research: Industry reports, government statistics, competitor analysis
- Competitive Analysis: Study 5-10 competitors' pricing, positioning, reviews
Step 3: Assess Technical Requirements (Days 8-10)
Document everything you need to operate:
- Physical location and lease terms
- Equipment, vehicles, technology
- Staff positions and salary benchmarks
- Licenses, permits, certifications
- Insurance requirements
Step 4: Build Financial Projections (Days 11-14)
Create detailed financial models including:
- Year 1: Monthly projections
- Years 2-5: Annual projections
- Three scenarios: Base case, best case, worst case
Step 5: Analyze Risks and Validate (Days 15-17)
Stress-test your assumptions:
- What if sales are 30% lower than projected?
- What if costs are 20% higher?
- What if a key competitor enters the market?
Step 6: Write and Review (Days 18-21)
Compile everything into a professional document. Have trusted advisors review it for gaps or overly optimistic assumptions.
5. Financial Projections Deep Dive
The financial section is where most feasibility studies succeed or fail. Here's how to get it right:
Revenue Projections
Build revenue from the bottom up, not top down:
Wrong approach: "The market is $10 billion, we'll capture 1% = $100 million"
Right approach: "We can serve 50 customers/day × $25 average ticket × 26 days/month = $32,500/month"
Key Financial Metrics to Calculate
| Metric | Formula | What It Tells You |
|---|---|---|
| Gross Margin | (Revenue - COGS) / Revenue | Profitability before overhead |
| Net Margin | Net Profit / Revenue | Bottom-line profitability |
| Break-Even | Fixed Costs / Contribution Margin | When you start making profit |
| ROI | (Gain - Investment) / Investment | Return on invested capital |
| Payback Period | Investment / Annual Cash Flow | Time to recover investment |
Industry Benchmarks
Compare your projections against industry benchmarks to ensure they're realistic:
| Industry | Typical Gross Margin | Typical Net Margin |
|---|---|---|
| Restaurant | 55-75% | 3-15% |
| Retail | 20-50% | 2-10% |
| SaaS | 70-90% | 10-30% |
| Professional Services | 50-80% | 15-40% |
| Solar Installation | 15-35% | 5-15% |
6. Common Mistakes to Avoid
- Overly Optimistic Revenue Projections: Be conservative. Investors have seen thousands of plans and can spot unrealistic numbers.
- Underestimating Costs: Include a 10-20% contingency buffer for unexpected expenses.
- Ignoring Competition: "No competition" is a red flag—it usually means no market.
- Unrealistic Timeline: Everything takes longer than expected. Build in buffer time.
- Missing Working Capital: You need cash to operate before revenue comes in. Account for 3-6 months of operating expenses.
- Confirmation Bias: Seek out information that challenges your assumptions, not just supports them.
7. Tools and Templates
Creating a professional feasibility study is easier with the right tools:
SimpleFeasibility (Recommended)
Our AI-powered platform generates complete feasibility studies in minutes:
- ✅ Industry-specific benchmarks for 40+ business types
- ✅ Automatic financial projections (P&L, Cash Flow, Balance Sheet)
- ✅ Data validation to catch unrealistic assumptions
- ✅ Shareable reports for investors and banks
- ✅ Excel export for further customization
Create Your Feasibility Study Now
Use our AI-powered tool to generate a professional study in minutes.
Start Free Analysis →Other Resources
- SCORE Templates: Free business plan templates from the SBA
- LivePlan: Business planning software
- Excel/Google Sheets: For custom financial modeling
Next Steps
Ready to create your feasibility study? Here's what to do:
- Try SimpleFeasibility free to generate your initial financial model
- Use the AI validation to identify unrealistic assumptions
- Refine your projections based on industry benchmarks
- Generate a shareable report for investors or banks
Have questions? Contact our team for assistance.