Feasibility Study Outline

Reviewed July 2020

Ag Decision Maker

www.extension.iastate.edu/agdm

File C5-66

A feasibility study is an important step in business

development. Information File C5-65, What is a

Feasibility Study, www.extension.iastate.edu/

agdm/wholefarm/pdf/c5-65.pdf, will help you

understanding the concept of a feasibility analysis

and what it means for business development.

Information File C5-64, When to Do and How to

Use a Feasibility Study, www.extension.iastate.

edu/agdm/wholefarm/pdf/c5-64.pdf, provides

you with a framework and the decision points

needed for using a feasibility analysis in business

development.

The outline below can be used to help you

through the feasibility study process. However,

not all feasibility studies are alike. The elements to

include in a feasibility study vary according to the

type of business venture analyzed and the kind of

market opportunities identiﬁed.

Below is a listing of typical factors to include.

However, this may not be a complete listing of

the factors that should be considered in your

speciﬁc situation. A “well-done” feasibility

study is based on the careful identiﬁcation and

assessment of all of the issues important to your

speciﬁc business idea. Depending on the business

project, additional items may also be important.

Remember, the basic premise of a feasibility

study is to determine the potential for success, or

viability, of a proposed business venture.

Description of the Product or Service

Identification and exploration of business

scenarios

• Identify alternative scenarios or business

models of what the project will entail, how

it will be organized, and how it will generate

profits. These may come from the idea

assessment or market assessment that you may

have already completed.

• Eliminate scenarios that don’t make sense.

• Flesh-out the scenario(s) that appear to have

potential for further exploration.

Define the project and alternative scenarios

• Describe the type and quality of product(s)

or service(s) to be marketed.

• Outline the general business model (i.e. how

the business will make money).

• Include the technical processes including size,

location, kind of inputs, etc.

• Specify the time horizon from the time the

project is initiated until it is up and running at

capacity.

Relationship to the surrounding geographic area

• Outline the economic and social impact on

local communities.

• Describe the environmental impact on the

surrounding area.

Market Feasibility (Strategy)

This can be based on a market assessment that you

may have already completed.

Industry or marketplace description

• Describe the size and scope of the industry,

market or market segment(s).

• Estimate the future direction of the industry,

market or market segment(s).

• Describe the nature of the industry, market

or market segment(s). Is it stable or going

through rapid change and restructuring?

• Identify the life-cycle of the industry, market

or market segment(s). Is it emerging, growing,

mature, declining?

Industry competitiveness

• Describe the industry concentration. Are

there just a few large producers or many small

producers?

• Describe the major competitors? Will you

compete directly against them?

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Feasibility Study Outline

• Analyze the barriers to entry of new

competitors into the market or industry. Can

new competitors enter easily?

• Analyze the concentration and competitiveness

of input suppliers and product or service

buyers.

• Describe the price competitiveness of your

product or service.

Specific market potential

• Identify whether the product will be sold

into a commodity market or a differentiated

product or service market.

• Identify the demand and usage trends of

the market or market segment in which the

product or service will participate.

• Examine the potential for emerging, niche or

segmented market opportunities.

• Explore the opportunity and potential for a

branded product.

• Assess market usage and your potential share

of the market or market segment.

Access to market outlets

• Identify the potential buyers of the product or

service and the associated marketing costs.

• Investigate the product or service distribution

system and the costs involved.

Sales projection

• Estimate sales or usage.

• Carefully identify and assess the accuracy

of the underlying assumptions in the sales

projection.

• Project sales under various assumptions

(i.e. selling prices, services provided, etc.).

Technical Considerations

Facility needs

• Estimate the size and type of production

facilities.

• Investigate the need for related buildings,

equipment, rolling-stock, etc.

Suitability of production technology

• Investigate and compare technology providers.

• Determine reliability and competitiveness of

technology (proven or unproven, state-of-the-

art, etc.)

• Identify limitations or constraints of the

technology.

Availability and suitability of site

• Investigate access to:

- raw materials

- transportation

- labor

- production inputs (electricity, natural gas,

water, etc.)

• Investigate potential emissions problems.

• Analyze other environmental impacts.

• Identify regulatory requirements.

• Explore economic development incentives.

Raw materials

• Estimate the amount of raw materials needed.

• Investigate the current and future availability

and access to raw materials.

• Assess the quality and cost of raw materials.

Other inputs

• Investigate the availability of labor including

wage rates, skill level, etc.

• Assess the potential to access and attract

qualified management personnel.

Financial Projections or Economic

Feasibility

Estimate the total capital requirements

• Assess the “seed capital” needs of the business

project during the investigation process and

start-up, and how these needs will be met.

• Estimate capital requirements for facilities,

equipment and inventories.

• Estimate working capital needs.

• Estimate start-up capital needs until revenues

are realized at full capacity.

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Feasibility Study Outline

• Estimate contingency capital needs due to

construction delays, technology malfunction,

market access delays, etc.

• Estimate other capital needs.

Estimate equity and credit needs

• Estimate equity needs.

• Identify alternative equity sources and capital

availability – family, producers, local investors,

angel investors, venture capitalists, etc.

• Estimate credit needs.

• Identify and assess alternative credit sources

- banks, government (i.e. direct loans or

loan guarantees), grants and local and state

economic development incentives.

Budget expected costs and returns of various

alternatives

• Estimate the expected revenue, costs, profit

margin and expected net profit.

• Estimate the sales or usage needed to break

even.

• Estimate the returns under various production,

price and sales levels. This may involve

identifying “best case”, “typical”, and “worst

case” scenarios or more sophisticated analysis

like a Monte Carlo simulation.

• Assess the reliability of the underlying

assumptions of the analysis (prices,

production, efficiencies, market access,

market penetration, etc.)

• Benchmark against industry averages and/or

competitors (cost, margin, profits, ROI, etc.)

• Identify limitations or constraints of the

economic analysis.

• Calculate expected cash flows during the

start-up period and when the business reaches

capacity.

• Prepare pro forma income statement, balance

sheet, and other statements of when the

business is fully operating.

Organization Structure and Managerial

Feasibility

Business structure

• Identify the proposed legal structure of the

business.

• Outline the staffing and governance structure

of the business along with lines of authority

and decision making structure.

• Identify any potential joint venture partners,

alliances or other important stakeholders.

• Identify the availability of skilled and

experienced business managers.

• Identify the availability of consultants and

service providers with the skills needed to

realize the project, including legal, accounting,

industry experts, etc.

Business founders

• Character matters - are the people involved of

outstanding character?

• Do the founders have the “fire in the belly”

required to take the project to completion?

• Do the founders have the skills and ability to

complete the project?

• What key individuals will lead the project?

• Is there a reward system for the founders? Is it

based on business performance?

• Have the founders organized other successful

businesses?

Study Conclusions

After the feasibility study has been completed and

presented to the leaders of the project, they should

carefully study and analyze the conclusions and

underlying assumptions. It is important that the

study conclusion:

• Identifies and describes alternative business

scenarios and models.

• Compares and contrasts scenarios based on

goals of the producer group.

• Outlines criteria for decision making among

alternatives.

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Feasibility Study Outline

Reviewed by Gary Wright, extension farm management ﬁeld specialist, [email protected]

Originally written by Don Hofstrand, retired extension value added agriculture specialist and

Mary Holz-Clause, former co-director, Ag Marketing Resource Center, former associate vice president

for ISU Extension and Outreach

www.extension.iastate.edu/agdm

This institution is an equal opportunity provider. For the full non-discrimination statement or

accommodation inquiries, go to www.extension.iastate.edu/diversity/ext.

Next Steps

This ﬁnal outline step is sometimes referred to as

the “go/no go” decision. The leaders will be faced

with deciding the speciﬁc course(s) of action

to pursue. This schedule of potential courses of

action may include:

• Choosing the most viable business scenario or

model; and then (a) developing that scenario’s

business plan; (b) proceeding with creating;

and (c) operating the project or business.

• Identifying additional scenarios for further

study.

• Deciding that a viable business opportunity is

not available and moving to end the business

investigation process.

• Following another course of action.

For more information on feasibility and business

plans, visit the Ag Decision Maker website, www.

extension.iastate.edu/agdm/vdstart.html.

Note: this publication is for informational purposes

only, the authors do not conduct or assist with

feasibility studies.