Only 30% of new businesses survive their first five years. Most new businesses fail because entrepreneurs behind them do not conduct sufficient feasibility analysis on their business ideas. The document by Norman and Reilly titled “Starting a Small Business: The Feasibility Analysis” highlighted the key elements of a business feasibility analysis. According to Norman and Reilly, three elements of business feasibility analysis include defining the scope of the business idea, determining the competitiveness of the business idea, and conducting financial projections.
Regarding the scope of a business idea, any business idea must aim to address a specific business need. The scope of a business project encompasses defining the distinct industry/business sector of the business idea (Norman and Reilly, 02). Knowing the business sector is necessary while processing for business permits from local authorities. Also, defining the scope of a business involves delineating the boundaries between the direct and the indirect participants in the business. Direct participants include customers, employees, and project sponsors, while indirect participants include the local community and the government regulatory agencies. A properly defined scope provides a sense of directionality to a business idea.
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Regarding the competitiveness of a business idea, entrepreneurs must conduct adequate market assessments to identify current and future opportunities and threats. Opportunities include untapped market niches and high demand for the business products and services (Norman and Reilly, 03). Contrarily, threats include existence of substitute products and services and presence of established competitors in the market. In feasibility analysis, market assessments indicate whether a business idea will attract any customers.
Lastly, entrepreneurs must perform financial feasibility analysis to determine the ability of a business idea to turn in a profit. Financial projections determine the expected costs and expenses, cash flows, and revenue streams (Norman and Reilly, 04). Also, financial projections help determine the break-even point. Break-even points are crucial in strategizing the operational plans of a business.
- Norman, Millikin and Reilly, Michael. “Staring a Small Business: The Feasibility Analysis”. msuextension.org. Web September 21, 2017.