Feasibility study
From WikiTextbook
The Absolute Basics
You should complete this piece of coursework on a computer. You will need to create a new folder where you can keep all of the files that relate to your coursework. Keep a back up of all the work you do.
Deciding Upon a Title
This piece of coursework will help to determine what grade you get or even whether you pass or fail. It is possible that you will have 25% of your final mark before you sit your first exam – this is obviously a great help! An outstanding piece of coursework is the ticket to a first rate grade, conversely a poor piece of coursework can only lead to a disappointing grade.
The first thing you must do is decide upon the title of your coursework. The basis for the title will be:
Is there scope for a new business in the local area?
You need to decide what that new business will be and what the local area will be. I would suggest that you keep your business as simple as possible, i.e. a shop that sells a small range of goods or services. You may want to choose a particular type of business if you have relatives working in it. You should decide upon a title like one of these:
Is there scope for a new gym in Torquay? Is there scope for a new hairdressers in Budleigh Salterton? Is there scope for a new computer games shop in Brixham?
The Primary Objective
Your title will have given the examiner a clear idea of what you hope to achieve in the project, i.e. is it feasible to open a new business in your local area. It is important that you achieve this objective rather than rambling on about some unrelated topic! In order to give the project a clear focus you should state what the primary objective is, for example:
To make fully justified recommendations on the feasibility of starting up a new business in the local area.
Secondary Objectives
To help you stay focused on the primary objective you should list a number of secondary objectives here. By completing these secondary objectives you will collect the evidence needed to answer the primary objective. I would suggest the following secondary objectives:
- Describe the product or service your business will offer.
- What are the aims and objectives of the business?
- Identify your target market.
- Analyse the local market using geographical mapping.
- Analyse the local market using market mapping.
- Do a footfall / traffic count in potential locations.
- Investigate the cost of potential locations.
- Identify the initial costs of the investment (start up costs)
- Forecast the level of cash outflows (fixed and variable costs).
- Outline the marketing mix for the good or service
- Complete a questionnaire.
- Produce a sales forecast.
- Complete a cash flow forecast.
- Complete a breakeven analysis.
- Analysis and evaluation of external factors.
- SWOT analysis
Each secondary objective will form a separate section of the project. Your findings from each secondary objective will help you decide upon an answer to the primary objective, i.e. is there scope to open the business?
At the start of each secondary objective section you must go through the following steps:
- Method - how are you going to do this secondary objective? You should include details about where you are going to get the information from (primary and secondary sources), how you are going to use that information and describe any business theories you are to use. Make sure you use business terminology and theory whenever appropriate.
- Results - present your results in a clear and concise fashion. Choose chart types carefully and only use them when they help to show the results - do not just go through all of the chart types in Excel.
- Analysis - you need to analyse the results. We will look at how to analyse in much greater detail later, but for now ask yourself:
o what are the implications of the results for the new business?
o should the business change its USP?
o how does this compare with the rest of the industry?
- Evaluation - this needs to be included for each secondary objective. Evaluation is not just something you slip in at the end of the project. We will look at how to evaluate in much greater detail next.
Analysis and Evaluation
If you are going to achieve a top grade in this piece of coursework it is important that you analyse and evaluate throughout. These notes should give you some help in doing this.
How to Analyse
Analysis involves looking at the effects of your ideas, research or findings. You could try and look at the:
CAUSE IMPACT CONSEQUENCE
| Cause | A majority a people who will visit your shop will drive there. | You have a very specific target market. |
|---|---|---|
| Impact | If you want to accommodate their needs you will have to provide a car park or recommend an alternative. | There is no point spending money in promoting your good or service to other market segments. |
| Consequence | This will make it easier for customers to visit your shop. This may increase the level of revenue and profit. | You should only promote in media that your target market will see. This should lower costs and increase profits. |
In addition to this way of analysing, you could try the following:
- Consider more than one point of view and then look at alternatives and discuss them.
- Look at the impact of your decisions. This will involve discussing the consequences of your ideas, backed up with specific evidence.
- Explore every point you make in detail. Include the impact, e.g. increases in cost, revenue and profit.
How to Evaluate
It is possible to evaluate the previous examples of analysis:
| Cause | A majority a people who will visit your shop will drive there. | You have a very specific target market. |
|---|---|---|
| Impact | If you want to accommodate their needs you will have to provide a car park or recommend an alternative. | There is no point spending money in promoting your good or service to other market segments. |
| Consequence | This will make it easier for customers to visit your shop. This may increase the level of revenue and profit. | You should only promote in media that your target market will see. This should lower costs and increase profits. |
| Evaluation | Providing a car park will increase the costs of the business which may lead to a reduction in the profits of the business. | As the business only advertises to a very specific market it may lose out on customers who would buy the product as a gift. |
All I have done to here is to provide an alternative to the present consequences.
Other ways of evaluating can be:
- Judging which solutions you are putting forward are best, e.g. of the ideas I have put forward I think it would be best to do ……. because……..
- Prioritising points in order of their importance and give reasons why, e.g. I think it is more important to do …… than ……. because ……..
- Rank your ideas in time order (what should be done in the short run and long run) with reasons why, e.g. I think that …….. should be done in the short term because……., but ……... should be left to be done in the long term because …….
- Assessing the extent to which your suggestions will work and explain any assumptions you have made, e.g. your competitors will not lower their prices in response to you opening the business.
- Identifying what information is missing and explain why it might be required/used. You may want to try and explain how you think the extra information would effect your decision, e.g. I would have preferred to have made my decision if I had known……. I could have found this out by…….. If I had this information I think it would have changed my decision in the following ways…….
You might find the following phrases help you to evaluate:
- Therefore …
- On the other hand …
- The effect of this is …
- This is likely to result in …
- This will lead to …
- However …
- The disadvantages / advantages of this are…
- The consequence of this is …
- The likelihood of his happening is …
- The impact of this is …
- Overall …
- On balance …
- In the short-term/long-term …
- The most likely cause is … because …
- The greatest effect this will have on the business is … because …
- The most appropriate solution out of those discussed is … because …
- In these circumstances it is more likely/less likely that … because …
- This may be more/less important when … because …
- If X happens then Y might occur, but if A happens then B might occur.
- Whether this leads to … depends upon …
- Whether this works depends upon …
- The extent of the impact of this issue will depend upon…
- Thus...
Describe the Product or Service Your Business Will Offer
To help you with this section you may want to answer the following questions:
- What good or service do you intend to sell?
- Why will people want to buy your product or service?
- Does your good or service have a unique selling point (USP)?
- Can you identify where your good or service is on the product life cycle?
- Are there any extension strategies that you could use in the period of decline?
- Do you need to consider patents?
Why did you decide to open this particular business? You should discuss the possible strengths and weaknesses of your decision.
| Method | Strength | Weakness |
|---|---|---|
| Identifying a business suited to your own skills, e.g., after redundancy. | You will have an excellent knowledge of the marketplace. | You may ignore the needs of the marketplace, by relying on your own qualities. |
| Analysing gaps in the local market. | The chances of success should be increased due to the market research that has been undertaken. | There maybe a gap due to the lack of demand, or if successful rivals will enter the market. |
| An innovative idea based upon a strong knowledge of the market. | A differentiated product based upon market knowledge. | Danger of rivals entering if market is sufficiently large. |
| Opening a franchise with a proven track record. | Relatively low risk. | Careful research necessary to determine viability of franchise. |
What Are the Aims and Objectives of the Business?
Notes on business aims and objectives
Method
Why is it important for you business to have aims and objectives. How are you going to research the possible aims and objectives of your business? What are the different type of aims and objectives that you could choose.
Results
What aims and objectives have you decided upon? You should clearly highlight the sources of all the information.
Analysis
What is the purpose of having your aims and objectives? Will they help with the running of the business?
Evaluation of Your Aims and Objectives
You should justify your aims and objectives. Why did you choose those aims and objectives rather than the others? Do you anticipate any problems with the aims and objectives that you have chosen?
Identify Your Target Market
Notes on target markets and market segmentation
Method
How are you going to decide who your target market is going to be? What research do you plan to undertake or are you just going to use your own knowledge of the market?
Results
What is your target market going to be? You should clearly highlight the sources of all the information.
Analysis
What are the implications of choosing this target market? Will this affect the way you run your business?
Evaluation
You should justify your choice of target market? Is there any research that supports your decision (either primary or secondary)? Do you foresee any problems with choosing the target market you have?
Analyse the Local Market Using Geographical Mapping
It is necessary to be aware of what potential competitors are doing at present, opening a business that simply replicates another good or service would be unwise in a small marketplace. A business directory (e.g., Yellow Pages) can be used to identify what competitors are offering and where. By marking competitors on a map it may become obvious that one area is under served by a particular good or service, this is called geographical mapping.
Method
Explain how you are going to do the geographical mapping. Multi map can be used to find the area you wish to analyse. Right click on the mouse and copy it into Power Point (or similar program). You can now add colour coded dots (or numbered stars etc.) to the map to show the location of competitors. Use a key on the side of the map to identify the businesses.
Results
These should be clear to the reader. You should clearly highlight the sources of all the information.
Analysis
Now analyse these results and the implications, e.g. are there gaps in the market or are there clusters? Sometimes it can be beneficial to be in a cluster as that is where people head for to buy a certain good or service. Write about the costs and benefits of locating near to your competitors. What are the costs and benefits of locating away from your competitors?
Evaluation
Can you evaluate the results at all? Can you be sure that you have found all of your potential competitors? If not, why not?
Analyse the Local Market Using Market Mapping
Market mapping allows you to plot the characteristics of our competitors. In the market map below you would rate the quality of the product (economy to luxury) and the length of time it had been on the market (young to old)
Method
How did you do the market mapping? How did you research where all of the business should be placed on the market map? You need to decide upon the criteria you are going to use along the x and y axis, make sure they are relevant to your market, e.g.
Results
You should have a clear market map with a key (using the same key from the geographical mapping might be a good idea). You might find that PowerPoint is the easiest programme to use for this task.
Analysis
Once you have plotted the positions of all of the businesses from your geographical mapping you may be left with a gap in the market or there may be a cluster of a number of clusters. The analysis should focus upon how market mapping has helped you decide upon the type of good/service you are going to offer. Should you offer a similar good/service to your competitors or should you try and offer something different? What are the benefits and costs of offering a similar good/service to your competitors? What are the benefits and costs of offering a different good/service to your competitors? If there is a gap in the market it may be there due to a lack of demand.
Evaluation
Any evaluation of your methodology should relate to how you could have improved you market mapping. How do you know that how you rated the business would coincide with other people views?
Investigate the Cost of Potential Locations
Searching the internet and visiting local estate agents are the most popular ways of finding a property. If you have a location in mind you could go there and see if there are any suitable properties for sale.
Method
Explain how you researched for properties. List the places you went to (include website and actual estate agents). The following estate agents have a commercial section:
Results
Provide information about possible locations. Estate agents will be happy to give you information about properties or you can download it from the internet. You should clearly highlight the sources of all the information.
Analysis
Are these properties suitable? Would the choice of any of these properties have implications for you business idea?
Evaluation
Are you happy with the way you looked for properties? Could there be other properties that are more suitable, but you just haven’t been able to find them?
Do a Footfall / Traffic Count in Potential Locations
This will allow you to find out which of your potential locations are the busiest in terms of people passing by. This may influence your choice of location.
Method
How did you carry out the footfall and traffic counts?
Result
A simple table in which you can place a tally should suffice.
Analysis
How does this information influence your decision about where to locate?
Evaluation
What were the limitations of your footfall/traffic count. How could you have done it better?
Decide upon a location
You must now make a decision about where you are going to locate your business. It is very important that you justify your location decision based upon the information you have already presented, e.g. costs, competitors, footfall/traffic count etc. This is also the place to introduce any extra information that you have about each of the locations.
Evaluation
What other information, in an ideal world, would you have liked to have access to before making this decision?
Identify the Initial Costs of the Investment (Startup Costs)
Start up costs are those costs that a business must pay before it can open, examples of these include paying for market research and buying premises, machinery and fixtures and fittings.
Alliance and Leicester’s start-up cost calculator is excellent.
Method
How are you going to obtain all of the information about the start up costs for your business.
Results
Present the information clearly - a table would be sensible. It is important that you include all of the sources of your information.
Evaluation
issues include:
- Have you included all of the items you would need to start up your business?
- Are the prices from Alliance and Leicester accurate?
- Could you have gotten better value if you had the time to shop around?
Forecast the Level of Cash Outflows (Fixed and Variable Costs)
Method
You need to identify the cash outflows. You will have to list both variable and fixed costs. If there are costs that are difficult to classify you should make a justification for one or the other.
You will also have to estimate how often you will incur these costs, i.e. are they weekly / monthly / annual costs?
Results
Produce a table that clearly shows your fixed and variable costs. Calculate your monthly variable, fixed and total costs. You should clearly highlight the sources of all the information.
Evaluation
Are you happy with the estimates of the costs? Is there any way that you could have made more accurate estimates?
Useful Links
Torbay Council Business Rates[1]
Market Research and the Questionnaire
Method
You need to highlight how you are going to select your questionnaire sample and how many people are you going to ask (minimum of 50)
I would suggest that you try and stick to closed questions as the results from them are easier to collate and present.
You will base your sales forecast upon the questionnaire results; you will need to ask a question similar to this:
• At a price of £X would you buy the product weekly/monthly/yearly (or other).
Yes, definitely___________________
Yes, very probably_______________
Yes, possibly ___________________
Probably not____________________
Definitely not____________________
In addition to this question there will be a number of things you might want to ask, for example:
• Age
• Sex
• Where do you live?
• Do you use **** at the moment?
• How would you get to ****?
• Which of the following brands would you like stocked?
• How far would you be prepared to travel for a ****?
• What day do you go to ****?
• What time would you go to****?
• Would you be interested in a delivery service?
I would expect you to think of questions that are relevant to your potential business and will help you make decision about your business/product/servic
Results
Analysis
Evaluation
Help for calculating business tax-businesslink.gov.uk[2]
http://www.mybusinessrates.gov.uk/home/liability_indicator.jsp
Produce a Sales Forecast
Decide upon price, perhaps using market research (combine with 3 below). What factors influence the price.
- 3 methods of sales forecasting:
1. Averaging the existing sales per outlet – total sales ÷ outlets = sales per outlet.
2. Forecasting sales in relation to sales at an existing outlet – find out sales of one store. Then compare to your location the population, foot traffic, car traffic to get at sales for new store. Remember in evaluation that this isn’t perfect, ie, loyalty etc. will factor in.
3. Forecasting sales based up on market research findings. a. Survey of target market (sample size 50+) b. Ask: At a price of Xp would you buy the product regularly. Yes, definitely Yes, very probably Yes, possibly Probably not Definitely not c. Apply the 90/30 role; take 90% of the definitely + 30% of the very probably. d. Find out the target market size and multiply by the 90/30 percentage. e. This figure needs to multiplied by the price and how many times produced per period (use questionnaire for this as well).
e.g
13.7% of people living in Torbay are between the ages of 16 and 29.
13.7% x 129,706 = 17,770
This is the figure for both males and females in the Bay. Halve this figure (unless you can find other statistics) to get the number of men = 8,885
Sample of 50:
Yes, definitely = 5
5 x 0.9 = 4.5
Yes, very probably = 3 3 x 0.3 = 0.9
This means that 5.4 people per 50 in the target market will buy your product in the time period you specified.
This is equal to 10.8%
To find the number of customers per time period 8,885 x 10.8% = 960
These figures are for Torbay – are town results for relevant for you?
Complete a Cash Flow Forecast
Notes on cash flow forecasting
Method
You need to describe how you are going to produce the cash flow forecast. You might think about the following questions: • Where did you get the figures for the cash flow forecast from? • What software did you use to produce the cash flow forecast? • How many years are you going to produce your cash flow forecast for? (I would suggest that a year would normally suffice).
Remember that your method will contain much more information than this.
Results
Produce a copy of the cash flow forecast.
Analysis
What does the cash flow forecast tell you? The chances are that you will have a negative closing balance at the start of the trading year (probably for a lot longer). How are you going to finance this negative closing balance? You need to think about possible sources of finance. Look at the advantages and disadvantages of each source of finance for your business. The chances are that you will use a mixture of sources of finance, e.g. owners funds, loans, trade credit and leasing.
You need to explain why you have chosen to use one particular source of finance rather than another one. Once you have made your decision you can put this information into the cash flow forecast; this may include doing the following:
- Under cash in you will have a heading of finance where any money coming (such as owners’ funds and loans) into the business will be placed.
- Loan repayments will be put under cash out.
- You can delay the payment of supplies by a month as you are able to get trade credit rather than paying for stock immediately.
- Initial set up costs could be reduced as items are hired or leased rather than bought outright.
Your new business is likely to be financed by a mixture of your own funds and loans. Once the business has opened there are a number of different places you can get money from. Your new business is unlikely to start as a limited company so is not likely to issue shares. The sources of finance you could look at are:
- Owners’ funds;
- loans and overdrafts;
- trade credit
- government grants;
- hiring and leasing;
- issuing shares;
- venture capital.
Notes on different sources of finance
Evaluation
It is very important that this section is evaluated carefully. Some areas for evaluation are:
- How accurate are your sales forecast figures?
- How accurate are your cost figures?
- Are there any assumptions that you have based your cash flow on that may not happen?
- Is your solution to debt a satisfactory one? Do you foresee any problems with your solution?
You will be able to think of other areas that can be evaluated.
Complete a Breakeven Analysis
Method
How will you carry out the break even analysis? What information will you use and what tools do you need?
Results
Show the break even chart. You should also calculate the break even point using the formula.
Analysis
What are the implications of the break even point for you business? Is your sales forecast above or below the break even point? If your projected sales are above the break even point you need to talk about the importance of the margin of safety for your business.
Conclusion
This will answer your primary objective, i.e. is it feasible to open the business? You should provide an answer and then justify using evidence from throughout the project. It is important that you highlight the potential problems of opening; this is key to you obtaining maximum evaluation marks.
Do a SWOT analysis of where you expect your business to be in the future, e.g. 1 year.
Evaluation
- What could you have done better?
- What assumptions have you made?
- How did your project go?
- What further information would you like to obtain before opening the business?
