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Tuesday, January 13, 2009

Why Should I Do a Feasibility Study?

When putting up a business, a feasibility study will serve as your road map, benchmark, and guide.

Q: I have been in the photocopying business for four years now, and I have been fairly successful. With the profits I made from this business, I want to put up a new venture — a computer rental business. My friend, who works in the bank, tells me I should have to prepare a feasibility study. Why should I do that? I don't need to pencil-push to tell me that there is a demand for computer and Internet services.

— JACOB, Paco, Manila

A: Your friend knows that a project feasibility study would give you an edge as you venture into this new business you are planning to start. It will:

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Minimize the risk of losing money on a poor business idea. With a project study, you will be able to evaluate and determine the prospects of a business opportunity before you invest your hard-earned money. A new venture may sound attractive and “foolproof” because you know many people who have been successful in it. But that is not a guarantee. You have to consider location, competition, and other factors.
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Avoid expensive mistakes. Preparing a study involves mapping out activities to be undertaken, including the details of starting and running a business. You can save on costly mistakes by writing down and analyzing different activities and determining actual requirements.
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Calculate financial requirements. The study will enable you to estimate how much money you need and when.
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Program activities in advance. Often, one decides to do something because it “sounds” or “feels” right. Preparing the study will force you think out and organize your plans not according to gut feel but logically. You will then be able to provide for the expected and the unexpected.
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Evaluate actual performance against targets. A study will enable you to set targets in terms of sales and costs. In time, you can compare actual business operations against the targets you have set in order to see how well you are doing.
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Borrow from a bank. For many banks, a feasibility study is a prerequisite in lending money to businesses. With a study that shows your business' great potentials, you wouldn't have a hard time convincing a bank to approve your loan application.

Source:Philstar

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