Every business venture starts with a plan. However, it is a sad truth that most businesses fail rapidly. The Bureau of Labor Statistics reported that new establishments begin to fail from year one to year six. Their chart shows a plummeting success rate that slides from 100% rapidly to 70% around year three.
Why is this happening? Why are new businesses failing? Are economic factors pressuring new entrants to close down? Or is poor management the reason for these failures? Regardless of the reason, the underlying issue here is the lack of long-term planning.
That’s what a feasibility study is all about. Through a feasibility study, business owners can assess the survivability and longevity of their ventures by carefully considering various key factors that affect a business.
Proper Definition of Feasibility Study
A feasibility study is an assessment of the business plan or project’s practicability. This study answers the question, “is this business feasible?” The simple truth is, not all business ideas are feasible.
There are many factors considered in a feasibility study. Factors like political and economic environment, human resources, capital sources, and the likes are critical considerations in a project’s feasibility, whether it’s for a small business or a large venture.
Goals of a Feasibility Study
In an ideal and perfect world, capital is unlimited. Investors and business owners can put in unlimited amounts of capital. However, we are not in an ideal world. In other words, there are limits to capital infusion.
That’s primarily why successful businesses today conduct feasibility studies.
Wise businesspersons are skeptical. It is a business, after all — before they put money on the table, they first assess if this particular business can give them a good return on investment (ROI).
With a feasibility study, investors can:
- Assess the profitability of a business venture
- See the required capital infusion
- Understand the various aspects of the project plan
- Foresee potential problems that would threaten the continuity of the business
- Decide whether this business venture is viable
When to Conduct a Feasibility Study?
Generally, you can conduct a feasibility study before starting your business. However, you can also use a feasibility study whenever you’re planning to expand or upgrade your business.
For example, your senior living community can accommodate about 50 seniors with mild medical and health needs. To generate more profit and attract more customers, you’re planning to offer hospital-grade facilities to accommodate seniors who require 24/7 medical attention.
If you think about it, that’s a significant amount of investment. At the very least, you’ll need to put up some solid capital to get these things up and running. To make this money worth investing in, you need to conduct first a feasibility study.
Overview of the Feasibility Study Process
In the previous section, you’re planning to upgrade your senior living community to accommodate more patients with special medical needs. Here’s a brief and informal overview of the thought process involved:
Are you a pioneer?
If the answer is yes, you’re in a great spot since you don’t have a competitor. If you have competitors, you’ll need to differentiate your products from them. Moreover, you also need to consider the distance of your competitors. The farther the competitors, the greater the opportunity you have.
How much human resources are needed?
You’ll need skilled personnel like nurses, physical therapists, psychiatrists, and other medical professions in-house. Are these professionals available in the community? If not, you’ll have to look for them in nearby states.
What about political factors?
Consider State or Federal laws relating to medical and allied health. You also need to check for accreditation requirements, certificates of authorization, business permits, and many more.
How much money can it bring to the business?
After examining all the factors, you’ll need to translate them quantitatively. Every move you make costs something. You’ll have to project your expected revenues, costs, and profit. You’ll also need to consider financing options to bring in the required capital.
In effect, you’ll prepare projected financial statements for the next five years, analysis of revenue growth, capital infusion estimates, financial ratios, and so on.
How About Hiring a Consultant Instead?
The reality is that conducting a feasibility study is a tad too much workload for the average business owner. Your aim shouldn’t be about learning how to do a feasibility study for your business. It’s about hiring someone to deliver its benefits to your company.
If you’re starting a senior living community, it’s best to hire a senior living consultant and let them do their job while you tend to other pressing matters in your business. There are no holidays for entrepreneurs, after all.
Read our blog to know more reasons why you should hire a consultant.