Anyone who wants to create a new company faces a lot of challenges. First and foremost, they have to come up with an excellent business plan, which is the proof that the company will be profitable. Some people get it mixed up with a feasibility study, which is carried out before the very first draft of the business plan.
Is a business plan the same as a feasibility study? Are there any differences? What should you know before starting a new venture?
I recommend you read on to find the answers to these questions.
Business Plan vs. Feasibility Study
The main purpose of conducting a feasibility study is to determine if a business idea is a viable option for developing.
I know that you’re thinking right now. “Doesn’t a business plan have the same goal?”
Well, not exactly. A feasibility study, which is also called a business opportunity analysis, is a different thing. In fact, there are six major differences between them:
- Difference #1: startuppers conduct feasibility study to find out the workability and profitability of the future business. At this point, no investments are made. A business plan, on the other hand, is designed after a startupper established the business opportunity and begins investing time, resources, and effort.
- Difference #2: Business strategies and tactics are the core of a business plan. They define the activities that need to be conducted to grow the business. A feasibility study, on the other hand, has lots of calculations, projections, and analysis.
- Difference #3: they have different target audiences. For example, business plans target future executives and managers, leaders, and investors. The future owner of the business is the audience of a feasibility report.
- Difference #4: Unlike business plan that helps to raise startup capital, a feasibility study identifies revenue potential of an idea.
- Difference #5: Business plan is concerned with the growth and sustainability of the venture while feasibility study is focused on the viability of the idea.
- Difference #6: importance for the business. For example, a venture will definitely fail if a feasibility report is done poorly the very first time. A business plan, on the other hand, is designed to evolve and change.
So, it could be said that a feasibility study “gives the green light” to a preparation of a business plan because it answers the question whether the idea works. No ideas and investments are put there before viability of the idea is established. It’s called a business opportunity analysis for a reason, right?
Can You Skip a Feasibility Study when Starting a New Venture?
Of course you can. You’ll be facing some critical problems if you do, though. Why? Let me explain five reasons why must not skip a feasibility study before starting a new business, real quick.
- No business plan can address weaknesses and opportunities like a feasibility study. In many cases, businesses that lost a lot of money could have prevented their failure if they analyzed the viability of their ideas.
- Your investors want to know if your idea is worth their money. Can a business plan be the evidence? Well, no. A feasibility report, on the other hand, is a much more effective method to determine future profitability.
- A business plan often cannot identify the amount of capital needed to start a venture. A feasibility report can. Moreover, it helps to establish the budget plan and cash flow forecast.
- It is critical to estimate technological and human resources required to launch a business successfully. A feasibility study is designed just for that, said Brian from Awriter.
Let’s get you more acquainted with a feasibility study by reviewing one of its types.
How to write a Financial Feasibility Study
The main purposes:
- Make capital projections (how much money you’ll need to start the business and keep it working for at least one year. After this time, the business should become sustainable).
- Identify sources of capital (banks, investors, and large corporations can approve loans and give contracts to you).
- Determine returns on investment (a detailed description of how investors will receive their returns and factors affecting the profitability. Never promise a 100 percent return immediately because you need money to keep running your business).
In addition to finances, there are lots of other aspects to consider before you even get to developing a business plan.
A business plan and a feasibility study are two different things. A feasibility report should be completed prior to the business plan because it identifies whether the idea is viable. It is filled with projections, calculations, and analysis that provide data suggesting if the venture is worth investments and effort.
Tom Jager is professional blogger. He works at Proessaywriting. He has degree in Law and English literature. Tom has written numerous articles/online journals. You can reach him at G+ or Facebook.