Most Entrepreneurs face challenges when creating a new venture especially because they do not know that there are differences between a Business Plan and a Feasibility Study. Although a business plan is one of the well-known documents in business, the feasibility study may be just as important. Most people even use them interchangeably.
Before an entrepreneur can seek funding for the business, he or she must demonstrate that the business idea is truly a good one. This he can do by knowing the difference and preparing a good business plan and feasibility report.
We have taken an overview of a Business Plan and a Feasibility Study but before we delve into the details of their differences you should check out the Difference Between a Business Plan and a Business Proposal.
What is a Business Plan and a Feasibility Study?
Both Business plans and Feasibility studies are vital tools for business analysis. They aid the Entrepreneurs in making major decisions in a business. A business plan is not the same as a feasibility study and should not be confused as such.
A feasibility study gives a recommendation or conclusion while a plan makes use of some of the contents of the feasibility study to augment its details.
A feasibility study is done to ascertain if a proposed business has a high probability of success before it can be undertaken. Feasibility studies are carried out to find out how viable a business is before the entrepreneur can venture into it.
A feasibility study is always done before any entrepreneur or company can invest in a business or launch a new product. This is to weigh the capital investment with the Return Of Investment (ROI).
Rochester.edu defined a feasibility study as “a controlled process for identifying problems and opportunities, determining objectives, describing situations, defining successful outcomes, and assessing the range of costs and benefits associated with several alternatives for solving a problem.”
Businesspersons use the feasibility study to find out if they should launch a new product in their existing industry or to forge into another market. Feasibility studies are regarded as cost and benefit analyses because the estimated costs of the project are weighed against the expected benefits.
To create a feasibility study, entrepreneurs have to define the dimensions of business viability like market viability, business model viability, technical viability, management model viability, exit strategy viability, and economic and financial model viability.
Business plans are blueprints used to map out the implementation actions that have been deemed feasible by the organization. A business plan is like a road map to the goals of a business and how those set goals are to be achieved.
Business plans give the directions that a company may consider taking to maximize their revenue and reach their profit objectives in the future. It contains an agglomeration of the different decisions that have been reached by the company management on how the organization would be run. A Business Plan and a Feasibility Study are done sequentially; the business plan comes after the feasibility studies.
If a feasibility study returns negative, then the entrepreneur cannot proceed with writing a business plan. On the other hand, if the feasibility study returns positive, then a business plan that will map out the plans and strategies of the business will be developed.
Some of the Business goals that a business plan seeks to achieve include: Market penetration, Revenue Generation, Customer Acquisition, Sales, Marketing, Branding, and Advertising, amongst others.
A business plan can be used both internally and externally. By internal use, a business plan is for the use of the management, staff, and board members of the business. By external use, the business plan is used by the Investors, shareholders, to give out bank loans and to meet the demands of the customers.
The Main Purpose Of a Business Plan and a Feasibility Study
To describe a Business Plan and a Feasibility Study briefly; a feasibility study is a conclusion reached from researching a business while a business plan gives the road map for entering into the business.
A feasibility study helps an entrepreneur find out if a business or idea is viable. By extension, a feasibility study is done even before a dime is spent on the business.
You cannot start meeting with investors on a project without first taking a feasibility study on the business or project. The investors or stakeholders need to be convinced that the business where they would be putting their money would be viable and yield profits in the long run. Therefore, a feasibility study is a recommendation for a business plan.
A business plan on the other hand outlines the strategies that can be used to achieve success in a business. You would need a business plan before you can meet with investors for business support or loan leases.
Some investors ask for both the feasibility study and business for the project or enterprise.
Outline Of a Business Plan and a Feasibility Study
A Good Outline For A Feasibility Study includes:
2. Product or Service
4. Market Environment
7. Business Model
8. Market and Sales Strategy
9. Production Operations Requirements
10. Management and Personnel Requirements
11. Regulations and Environmental Issues
12. Critical Risk Factors
13. Financial Predictions Including Balance Sheet, Cash Flow Statement, Income Statement, Break Even Analysis, and Capital Requirements. Want to learn how to write a business plan? Read it here: How to Write an Effective Business Plan.
A Good Outline For A Business Plan includes:
1. Executive Summary
2. Business/Company Overview
4. Market/Industry Analysis
6. Operation Plan
7. Management/Personal Plan
8. Sales Forecast
9. Financial Plan
10. Appendices and Exhibits
Challenges Of A Business Plan And A Feasibility Study
Both the Feasibility study and business plan attempt to predict the future outcomes of a business using assumptions. These assumptions are grounded on what may happen in the Business and the business environment like Government Policies, Competitions, The Market, Risks, etc.
A feasibility study that is poorly done may affect the overall outcome of a business. For instance, a business that would not have been viable may be said to be viable from a poorly handled feasibility study. This will lead to a failed business and its operations, and loss of the capital invested in the business.
A poorly written business plan which is evident in the business models, analysis, strategies, poor projections, environmental factors among others can be adjusted easily in the course of the business. However, this is not the same for the feasibility study, as a poorly handled feasibility study affects the foundations of a business.
A feasibility study is not the same as a business plan. The feasibility study is completed before the plan. The feasibility study helps ascertain whether a business is a viable option. A business plan is developed after a business opportunity is created.
StrategicBusinessTeam.com related that “A feasibility study is carried out to find out the workability and profitability of a business venture. Before anything is invested in a new business venture, a feasibility study is carried out to know if the business venture is worth the time, effort, and resources. A feasibility study is filled with calculations, analysis and estimated projections while a business plan is made up of mostly tactics and strategies to be implemented in other to grow the business.”
While they may seem similar, it is important to note that the feasibility study is developed before the venture.
And as StrategicBusinessStream explained, “a feasibility study can readily be converted to a business plan.” It is necessary to think of a business plan relatively with the growth and sustainability of the business, while the feasibility study is in terms of the viability of the idea.