Before starting a new business, entrepreneurs need to know the importance of conducting feasibility studies. With the help of a feasibility study, you can determine if your business idea will be successful. It will give you an overall idea of investment profits and many other factors.
With the help of market analysis and identifying risks, an entrepreneur can reduce risks, effectively allocate investment, and make other decisions based on this information. The main objective of a feasibility study report is to increase the possibility of making a Business Plan successful by finding risks at the beginning and taking action to make this business idea successful. Let us look at the importance of conducting feasibility studies in detail.
Importance of a Feasibility Study
Here are 5 importance of feasibility study for entrepreneurs starting a new business in the UAE,
Helps Make Decisions
With the help of a feasibility study, companies can understand the market, competition, financial stability, and risks of the Business Idea. This way, the company can decide whether to process their idea, make adjustments, or choose another business idea.
Helps Reduce Risks
A feasibility study report will help you identify possible risks ahead of time, making it easy to take precautions and tackle the problem. This way, you can avoid the loss of capital and time and improve your chances of success.
Shows Financial Credibility
With the help of a feasibility study, you can show your credibility to your investors and creditors. This document will help them understand your dedication and understanding of the market, increasing confidence in your business idea.
Resources Allocation
How much money and other resources do you need for a business plan? A feasibility study report can help you estimate the incorporation cost and how much workforce you need so that there is no financial mismanagement.
Understanding Competitors
With thorough market analysis, you can understand how your competitors work and what strategies they use to make their business successful. By utilizing this information, you can plan to attract customers and make your business successful.
How to make a Feasibility Study Report: Process
The process of conducting a feasibility study can be different depending on the type of business you have. The main steps involved are as follows,
Initial Analysis
A company can have unique goals for its business, and there are certain steps that a company can take for a feasibility study,
- With the help of initial analysis, companies can get reviews from investors on whether their idea is workable.
- Companies can study and ask queries about the information obtained in the initial analysis to ensure it is valid.
- The market analysis helps the companies identify the market’s demands and how they should pursue their project.
- Write down your business plan and identify how much it will cost, how many workers you need, and its timeline.
- Make a record of a financial statement, which should summarize the income and costs involved.
- Make an income statement for the company’s launch day.
- Determine any obstacles and difficulties and solutions to resolve them.
- Initially, the company should decide if its business idea is feasible.
Important Elements of Feasibility Study Report
After the initial analysis, the company needs to focus on some important factors. Some important elements of a feasibility study are as follows.
Financial Feasibility
With the help of a feasibility study, a company can determine how much financial gains they will get with their business idea. It provides a precise comparison between the company’s expenses and profits.
With the help of this information, entrepreneurs can avoid costly mistakes. It gives a business idea’s viability summary of fees and costs involved from the beginning of the project to its completion.
Economic Viability
With the help of a feasibility study, entrepreneurs can find out if their idea is workable. Estimating initial costs and ongoing costs until the completion of the project. This analysis shows the project’s initial costs, which is an essential part of starting a firm.
After the initial analysis, it becomes easy to determine sources of capital. The return on investment (ROI) also helps determine the profits and losses by comparing costs. It also shows how long it will take for the company to earn returns.
Market Feasibility
With the help of a feasibility study of the market, companies can determine relevant information about the industry. What is the size of the sector, market value, and trends?
All of this information is included in this document. The company can determine the current market and how it will work. This thorough analysis helps to make plans to stay in the market competition.
The company can identify a suitable location with the help of target customers’ locations. The companies can also make suitable products according to their demand. An appropriate price and other decisions are also made.
Technical Capability
A company’s success depends on its supply network and efficient business performance. A feasibility study helps the company select a logistics option for their business. After identifying logistics, the company can allocate labor, materials, and technology resources.
The company can also identify its strengths and weaknesses and find solutions for them. It also necessitates estimating different systems, including the requirement of the system’s hardware, software, and other elements.
Functional Viability
The company also examines how much human resources are needed. Here, the company’s expertise and other professional demands are determined. Any kind of weakness in Human Resources and experience in work is also determined.
If the company does not have an experienced team, they can hire workers with the help of a feasibility study. Thus, a complete commercial and regulatory framework for the company is created. This analysis also determines if the company has enough finances for operative efficiency.
Future Planning
Different phases of business are inspected and planned in this category. The whole process of achieving the company’s goals and schedule is made. A list of all the activities and at what time they should be done are all listed.
Lawful Possibilities
There are certain laws that every business must follow and take into consideration before starting to run their business. A feasibility study report will help find any legal obstacles affecting the company.
Through this analysis, it becomes easy to investigate every law that can conflict with the company and how to avoid them by taking precautions. Learning the legal framework will help the company operate smoothly in the country, avoid penalties, and save time.
Project Reliability
A considerable amount of resources and investment is needed to make a project successful. The goal of a company is to make full use of them and earn profits. A feasibility study will help a company plan its project by providing necessary financial data. The company must select a plan that will work in the long term and avoid the loss of investment.
Discover Limitations
With the help of this analysis, a company can identify any type of limitations that their business may face. These limitations can be technical, financial, marketing strategies, logistics, allocation of resources, and more. Evaluation of these restrictions will help the company to identify future risks and their causes.
Key Decisions
The main goal of preparing a feasibility study report is to decide to process the business project. It provides a clear image of all the business-related elements. The company will take necessary action to allocate human resources carefully and avoid costly mistakes. The company can protect itself from financial losses by identifying its profits compared to its investments.
Benefits of Feasibility Study Report
There are several benefits of conducting a feasibility study for businesses, such as
- It helps the head of the project determine the benefits and drawbacks of a project before making investments.
- It provides all types of necessary information that will help the company to enter a risky business.
- The feasibility study report also helps investors understand why investing in a business or project can benefit them.
- This analysis helps the company determine its future growth, operational methods, potential risks, market competition, and more.
Final Thoughts!
The bottom line is that the importance of feasibility study to an entrepreneur starting a new business is critical. This analysis will help managers determine the viability of their business idea or project by identifying important factors in attaining success.
It helps identify any risks, competition in the market, and the need for human resources, capital, and technology. This way, the company can decide whether or not to move forward with the business idea.
To conduct a feasibility study, you can reach out to Al-Riyady. Our experienced team will help you write a detailed feasibility study report and save time and energy. Our other services include Accounting, Auditing, Tax Consultancy, etc.
