Feasibility Studies vs. Business Plans

 

Often we asked about the differences between a business plan and a feasibility study. As it relates to the business plan, this document is specific for raising capital and showcasing what the business intends to do over a three year to five year timeframe. Additionally, the business plan features information regarding the anticipated financial results within a comprehensive financial model. Almost all business plans feature a profit and loss statement, cash flow analysis, balance sheet, breakeven analysis, and business ratios page. The business plan also features a significant amount of industry and market research specific to the type of business that is being operated. One of the other things that is found within a business plan but not within a feasibility study is a comprehensive marketing plan in regards to how the business intends to acquire customers. The business plan itself should be considered one of the sales document for a potential funding source or a business partner. Additionally, a business plan does not contain any of the legal risks or legal disclosures that would be normally found within a feasibility study or a private placement memorandum.

 

A feasibility study on the other hand focuses much more on the detailed operations the business on a day-to-day basis. Issues that are covered within the feasibility study consist of legal risks, operational risks, economic risks, and related financial risks. As relates to legal risks, a feasibility study will outline the potential liabilities that the business may have as it progresses through its operations. For instance, a medical practice feasibility study may focus significantly on the risks relating to rendering services as it relates to malpractice claims. Additionally, using the same example of the economic risks associated with this type of business could include changes in regulation and impact Medicare or Medicaid reimbursement. These are all things are much more thoroughly discussed within a feasibility study and a business plan. Often, many entrepreneurs in conducting a substantial amount of due diligence will focus on developing both documents so that the business plan can be used for raising capital while a feasibility study can be used for addressing all the risks and issues at the business may have as it develops its business operations. Most business plan writing firms do not provide feasibility studies as this is something that is usually completed by an economic consulting firm. An economic consulting firm has a much greater understanding of the detailed day-to-day operations of the business rather than just focusing specifically on how the business will be using capital that may be raised and the anticipated financial results.

 

Much like a business plan, a feasibility study usually has around 4 to 5 chapters that goes in depth for each of the issues that needs to be discussed and examined by the entrepreneur. Foremost, one of the things that these two documents to have in common is at the industry and market research is usually included in both documents. Although some economic consulting firms will omit the industry research section – it is generally considered to very important so that a individual reader understands the direction that the industry is taken for any specific type of company. One of the other things that is much more thoroughly discussed within the feasibility study is the critical risks and problems with the company. This includes a very detailed overview of each potential risk that the business will have and how the entrepreneur will work to remedy that problem. Generally speaking, most feasibility studies run about 30 to 40 pages depending on the complexity of the business. Companies that have very complex operating procedures can even have feasibility studies that run upwards of 100 pages depending on the scope, scale, and size of the organization.

 

Most entrepreneurs who are starting a small business like a new retail location or a small service company do not really require a full feasibility study. These analysis are typically done for much larger scale organizations where potentially millions of dollars to be put at risk for the development of a new operating segment, development of new business, or expansion of existing operations. Typically, a feasibility study usually takes a month to complete foremost economic consulting firms that engage in this type of business. As relates to cost, a feasibility study can run anywhere from $1,000 following a $50,000 depending on the size of the organization and how in depth the feasibility study needs to be in order to clearly outline risks and strategies.

 

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