9 Major Areas to Be Covered By a Good Feasibility Report

1. Introduction

This aspect deals with the provision of background information about the proposed business, data collection method, the proposed name, and the purpose of the business.

• Who are the investors?
• Do they have the experience and skill to successfully launch the business?
• What motivated you to establish the business?
• How did you come about the business idea?

2. Description of the Business

This section deals with the statement about the business, the product to be offered, the nature of the industry, and the opportunities available to exploit.
Issues addressed here include:

• What are you going to sell?
• To whom it will be sold
• What will the product be used for?
• Will the target market purchased the product?
• What are the factors that will affect the proposed business positively and negatively?
• How will the product/service be used?
• What will you offer that will account for market penetration?
• What are the destructive features that will not enable your product to compete effectively?
• Are there opportunities for future expansion?

3. Market Consideration – A Preliminary Evaluation

This involves determining current and potential demand for the product in the market area of your interest, the social-economic characteristics of buyers, and sales forecast over the first three years. This section is one of one most difficult to prepare and yet one of the most important.

Almost all aspect of the feasibility report depends on market consideration. It is therefore advisable that prospective entrepreneurs should prepare this section before they do any other aspect. In addition, enough time and skill should be devoted to this aspect.

Issues addressed by this aspect include:

• Who are the customers for the proposed product or service?
• Who and where are the major purchasers of the product or service?
• What aspect of the product appeals to potential customers?
• What aspect of the product may be disapproved by the customer?
• How will you overcome negative customer reactions?
• What is the site of the current total market for the product or service rendered?
• Is there a possibility for potential annual growth of the total market for your product?
• What are the factors affecting market growth?
• What are the sources of data and methods used to arrive at this information?
• Who are your competitors?
• How do the competitors fit into the market?
• Are they more or less profitable?
• What are the competitors’ weaknesses and how will you use the weakness to get customers?
• What is the competitors’ strength?
• Is there any way of offsetting this strength?
• How will you continue to assess your target Market?
• What will you use as a guide for product improvement?

4. Management Team

The Management Team is the key to the successful launching of a new business venture. Prospective entrepreneurs must look for a committed management team with balanced technical managerial and business skills and experience in launching the product or proposed business.

The sector will provide a description of the key management personnel and their primary duties, the organizations’ structure, and the board of directors. The questions answered by this section include:

• Who are the key management members?
• What are the key management roles in the company?
• Who will fill each position?
• What are the exact duties and responsibilities of the key members of the management team?
• What is the philosophy of the organization as to the size and composition of the board of directors?
• Will the business be independently managed by you or are you employing specialists?
• How many numbers of skilled, semi-skilled, and unskilled workers would you require?
• Do you require supportive professional service?
• What is the monthly cost of labor?
• What is the annual cost of labor?

5. Technical Specification

This section describes the facilities, plant location, space requirement, inventory control decisions, purchasing, production control, factory, and administrative building, machinery and equipment, raw materials and components utilities, etc.

• Where will the company be located and why?
• What are the facilities needed to conduct the proposed business e.g. building, space?
• How and when will the plants’ space and equipment be expanded to meet the sales projection?
• What are the manufacturing processes involved in the production of your product?
• What are the raw materials for your product? The vendors and price? Are the materials available?
• What are the machines needed for your production system vendors? Availability? And the price?
• What is the normal full production capacity of the machine?
• What is the input-output ratio of raw materials to end products?
• What method will the company use to control inventory, quality, and scheduling of production?
• What is the volume of utilities e.g. electricity and water needed for the successful launching of the business?

6. Marketing Plans

The marketing plans describe how the sales projection will be made. The plans also describe the overall marketing strategy, sales and service policies, pricing, distribution, and advertising strategies. The questions addressed by the marketing plan include:

• What kinds of customer groups will be the target for initial intensive selling efforts and later selling efforts?
• How will specific customers be identified and contacted?
• What features of the product will be reemphasized to generate sufficient sales?
• What types of pricing strategy will be adopted and why?
• What are the prices to be charged and how do these prices compare with those of your major competitors?
• What is the relationship between price, market share, and profit?
• Is there any discount allowance for prompt payment?
• What methods will the company use to distribute and make sales for the product or service?
• Will the company use its own sales force, sales representative, and distributors?
• Are there ready-made manufacturers or sales representatives already selling related products that can be used?
• How many distributors are required by the company?
• What approaches will the company use to bring its product to the attention of prospective purchasers?

7. Examination of Critical Risks and Problems

Business plans must identify and describe the implicit assumption about the major risks and problems of the proposed investment opportunity.

This should include a description of the risks relating to your industry, your company and its personnel, your product’s market appeal and the timing and financing of your startup, Identification, and description of risks of a proposed investment the demonstrate the skills of the entrepreneur and increase the credibility of the business venture. Among the issues addressed are:

• What is the impact of potential price relation by competition on organization success?
• What are the threats posed by the potential changes in the industry?
• Will the design and manufacturing costs exceed the budget?
• How are sales projections likely to be achieved?
• Will the production schedule and delivery time be met?
• What are the difficulties likely to encounter in the procurement of raw materials?
• Will the company face difficulties in obtaining the needed credit facilities?
• What impact will the government policies have on needed credit facilities?
• What impact will the government policies have on the business?
• What are the potential challenges likely to pose by the competition?

8. Financial and Economic Plan

The financial and economic plan provides the basic foundation for the evaluation of an investment opportunity. The purpose is to indicate the ventures, potential, and timetable for financial viability.

The areas covered include:

• Preparation of proforma profit and loss account
• Preparation of proforma cash flow analysis
• Preparation of proforma balance sheet
• Preparation of the break-even analysis anti charts

Description of the methods of cost control. The issues addressed in this section can be summarized in the following questions:

• How much do you need for the business, now and in the future?
• How will the capital requirement be raised? Issuing of Shares?
• Debentures? Loans?
• What is the unit price and the total amount of securities to be offered?
• How many shares will be held by members of the management team?
• How will the funds be used?
• What are the major areas of expenditure?
• How much do you know of government policies on small-scale industries tax, interest rate, etc?
• What is the tile profit? How do you determine this?
• How will the balance sheet look like?
• How will the cash now statement look like’)
• At what level of sales and production ill cash is covered? Break-even point.
• How will the company monitor and control cash in order to meet the projected income and cash flows?

9. Evaluation and Conclusion

This section deals with the use of various methods to evaluate the worth of the investment proposal. These include the average rate of return on investment or equity, payable period, discounted cash flow methods, and the profitability index.

In evaluating project proposals, an entrepreneur intends to answer the following questions:

• What are the profitability, productivity, and feasibility of the proposed project?
• Will the business venture meet the obligations to the current creditors?
• What is the number of years required to receive the initial cash investment?
• What is the cost-benefit ratio of the proposed venture?
• Will the present value of future net cash flow be positive or negative?

The conclusion of the report should highlight the contribution of the business to the larger society. Such issues as employment opportunities, provision of inputs for industrial development, export potentials, and revenue to be generated will be addressed by this aspect.

DOWNLOAD: Download Feasibility Report Sample

Photo by Lukas from Pexels