How to Calculate Business Feasibility

Determining the feasibility of a business is a vital step in the process of starting your own company. You want to make sure that there is a chance your business will succeed before you ever start doing the work of starting the business. You must determine that there is a market for your product, that you and your business partners have the skills to manage the business, and that there is enough capital available to successfully get the business off the ground before you begin to work on starting the business.

Evaluate yourself and your business partners to determine if you have the management skills necessary to start and run a small business of the type you are planning to open. Understand that a good business plan cannot make a good business by itself. However, a skilled manager can take a non-optimal business plan and make it work. Ensure that you have the ability to make decisions, take charge of situations and work as hard as necessary to succeed.

Assess the market for the product or service your business will be selling. Collect information on your potential customers and possible competitors. Determine an advertising strategy, a pricing strategy and a distribution strategy. Calculate the costs of these things and compare them to your estimated revenue to see if you will turn a profit large enough to make the business feasible. Perform research in different ways. You can conduct surveys, use the Internet and read the trade publications for your industry.

Figure your estimated startup costs. Include at least three months of operating expenses in your startup costs; it will likely take at least this long for your business to begin to turn a profit. Determine how much of the startup costs you can fund out of your own capital. Look to bank loans, investors or business partners for the additional startup capital. Ensure that you have enough capital to start and run the business effectively until it becomes profitable before you start spending money.

Evaluate your potential for success based on these criteria. Ask others for their evaluation based on your calculations and predictions. Ensure that emotion is not part of the equation and everyone evaluates your prospects for success objectively. If you determine that the business is not feasible for some reason, work on modifying your business plan to rectify the problems and increase the feasibility of your proposal.

Tips

  • Be completely objective when determining the feasibility of a business. Not opening a business that is likely to fail can save you a lot of money.

References

About the Author

David Somerset has been a writer intermittently for 11 years. He attended New Mexico Tech and earned a Bachelor of Science in technical communication in 2007. From being published in the "Bucksworth Community News" to writing how-to articles for eHow, his experience is quite diverse.