- January 10, 2019
- Posted by: Yumna Nashashibi
- Category: Financial Advisory
The Nuts and Bolts of a Feasibility Study
Many entrepreneurs seem to be unsure on whether or not they should invest in a feasibility study. Many come to us with statements like: “why spend money on predicting numbers when we know that the reality will still be different no matter what”. This statement may only apply to the financial forecast section. It cannot apply to the feasibility study as a whole.
The reason why we hear such statements is that, many entrepreneurs seem to mistake a feasibility study for a financial forecast. They pass their judgement accordingly. As a firm offering advisory services, we do acknowledge that the financial forecast cannot be 100% accurate. As a matter of fact, saying otherwise is a lie.
Then why do we – like many other advisory firms – still provide this service and recommend it to our clients. Additionally, why does the bank financing your project require you to submit a feasibility study with your papers?
Qatar Development Bank (QDB) for example not only requires you to submit a feasibility study. They go as far as partially financing it. If a feasibility study is such a waste of money, we assure you that a bank will never require you to submit one.
The major components of a feasibility study
We, at BusinessBOX, would like to tell all entrepreneurs that a feasibility study is not a financial forecast built on dreams. The financial forecast is just another component in any decent feasibility study. Before the financial forecast is done,
- we look into the legal feasibility. It answers to whether or not there are legal hindrances to your precious idea.
- Then comes the market research. The hardest most time-consuming task. We dig deep into the market to know who your competitors are, what they offer, and how your business can stand-out. We explore your target market and their potential willingness to buy what you will soon to offer. And we help you price and plan your reach according to that market.
- Your operations come next. The technical feasibility of your project based on your project’s requirements from location to live operations.
- Legal Feasibility
- Market Research
- Technical Feasibility
- Financial Forecasts
Only at this point, after loads of work and lots of data and information gathering, we are able to do the financial forecast. It is merely a reflection of the facts we managed to gather with estimations that are based on your industry’s market averages and, well, some good old logic.
Now, and after we are done with the feasibility study, we give it a nice polish and send it over to you. Then we will sit with you to walk you through our findings and answer any inquiries you may have. We cannot tell you to go for your project or to forget about it. We just present the facts, advise you on certain issues and give you some recommendations and leave it all to you.
The entrepreneurs must understand that it is their decision to make. Our task is not to make the decision for them. It is rather to inspire their decision to be an informed one. Informed decision based on facts and a slight hint of reasonable expectations.
The relevance of the feasibility study to your business does not stop at that early stage. It doesn’t stop when you want to decide if you will go with the idea or kill it. It is still a reference you can use when you try to make an informed decision after your business comes to life.
You still feel skeptical?
If you still feel skeptical about the financial forecast section, we are here to tell you it is totally OK. Because that is exactly how you are supposed to feel. After all they are expectations and we have already established that. However, to explain the relevance of the financial forecast section to your decision making process, think of it as a what-if analysis or a scenario analysis. It allows you to see how the numbers flip if you sell too much or too little. How they change if your suppliers raise their prices. How it is affected if a new law requires you to cut-down working hours for your employees… Isn’t that fun?
You may also think of it as a boring template if you wish. Which, by the way, took a lot of hard work and complicated equations to build. You may think whatever you want… But please do remember that it is just a component in a feasibility study like a chocolate chip to a cookie. In Bakery terms, we at BusinessBOX would recommend cookies with those fun chips every time we’re asked.
Finally, as a self-financed start-up, we do respect and relate highly to the fact that every penny spent, should be spent wisely. Money doesn’t come easy. It is only right that an investor or an entrepreneur looks into the costs and benefits of conducting a feasibility study. We encourage all investors to do that. However, what we urge investors to consider even more is the cost of not conducting a feasibility study.
You may choose to skip the study altogether to save some money. BUT, the impact of entering the market spontaneously may cost you more than what you would save by skipping this step.