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The Kentucky Center for Agriculture and Rural Development offers a wide array of business planning services to entrepreneurs, including feasibility studies. Feasibility studies are an important part of fully investigating a potential business idea with a new business starting up or an established business that is looking to expand into a new venture.
“We were looking to expand beyond our current CSA model to provide prepared foods for our customers, but while the idea sounded great to us we knew we needed help evaluating the business idea,” said Michelle Howell of Needs More Acres farm in Bowling Green. “That is when we decided to turn to KCARD to have them help us with a feasibility study to evaluate the project before we started investing in the venture.”
In the the process of a feasibility study business owners are challenged to look at the strengths, weaknesses, opportunities, and threats associated with a potential business venture. The analysis centers on three general areas: marketing feasibility, management feasibility, and production or technical feasibility.
In evaluating the marketing feasibility KCARD works with the entrepreneurs to analyze the market for the proposed product or service. Key questions that are answered in the analysis include: What is the most likely selling price for the product/service and how much product can the market bear? Answers to these questions will give an estimate of potential revenue for the business.
Along with identifying the potential market for the product the study will evaluate the management of the business to make sure the entity has the knowledge base for the prospective venture. Many businesses fail soon after startup because of poor decisions and ill management in the beginning. It is critical that the potential owner or manager of a business has the skills and experience needed or can hire people with those skills; otherwise this will weaken the chance of success.
The final general area of evaluation in a feasibility study is the production or technical feasibility. In this part of the analysis the focus is to evaluate whether it is possible for the business to produce the product on an appropriate scale. To complete this part, it often entails bringing in experts in specific production and building technology fields to develop cost estimates for the needed buildings, equipment, and other items.
“In the process KCARD asked a lot of questions we had not even thought of in the development of the business idea,” said Howell. “If they had not pointed these issues out to us as they worked on the feasibility study, these issues would have been problems for us down the road.”
After the analysis is complete, pro forma financial statements are drafted to reflect the estimates of costs and revenue to determine if and when the business can generate profits. These usually include the income statement, cash flow statement, and balance sheet projected out a number of years. If the business can generate cash flow and produce a profit for the owner after an acceptable time period, then in general the project is considered to be financially feasible.
“I felt like once we received our feasibility study it showed us where we should go with the project,” said Howell. “Also the in-depth business plan with financial projections is a document we can use if we choose to go for grants or loans to show people that we are taking this project seriously and we are ready to take it to the next step.”
The overall benefit of the feasibility study is to give entrepreneurs and existing business owners the insights and evidence they need as they make the difficult decision to proceed with a business venture.
“I think in the end just seeing your project on paper, seeing that in-depth analysis of an idea, knowing if it can be successful long-term or if you need to go in another direction, is just really helpful,” said Howell.