If you have to decide whether some intended activity is more likely to be a success or a failure, you need to do a feasibility study - collect and analyse data relevant to the issue being considered. For example, if you're thinking of expanding your operations by adding a new product, opening a new branch or moving to larger premises, a feasibility study could help you decide whether such a move would be wise. It will give you an idea of the risk involved with taking whatever action you are thinking about. It will help you avoid 'flying blind', making decisions purely by guess-work and making bad investments.

For many new business ideas, one of the main questions to answer is, 'Can we make enough sales to create, build and sustain a viable and financially rewarding operation?'

This can be answered by doing a market feasibility study.

From a 22-year study of more than 45,000 small firms it was found that at least half of them failed to do any sort of feasibility study prior to start-up, and nearly two thirds of these failed within two years.

Over two thirds of the failed firms gave 'inadequate sales' as the major cause of their failure. Either they were located where there wasn't enough demand for their product(s) or service(s), or where the competition was too great - the result... inadequate sales.

In that same study, a sizeable majority of small business owners had no idea whether their net earnings were adequate to provide a fair and reasonable return on their investments of money, time and effort.

You may be in (or going into) a business for any of a variety of reasons, but if it can't make enough profits or cash surpluses to be worthwhile, it has no future. Hence, the need to carry out a financial analysis that confirms the viability of the initial findings from the marketing feasibility study.

Adapted from articles contributed by Principa