How To Analyze The Financial Feasibility Of Your Business Idea

How To Analyze The Financial Feasibility Of Your Business Idea?


Having completed the product or service feasibility analysis and also conducted one for the market and industry, you can complete the process by assessing the financial viability of your business idea. This analysis does not need to be detailed. At this point, addressing capital requirements, revenues, costs, and earnings should suffice.

The amount of start-up capital required will be a function of the size and type of organization you are starting. For example, a business that is bringing a patented technology to market by assembling components manufactured by other companies will have lower capital costs than one that manufactures and assembles the parts. Some businesses require very little start-up capital (less than $35,000), whereas others might require millions of dollars before making a single sale. A complete financial feasibility analysis will forecast and incorporate such factors.

An entrepreneur can assess feasibility better with a reasonable projection of revenues, based on anticipated pricing and volume. Using industry comparable data, particularly any growth statistics for similar firms, can help to make such estimates valid. There is often a temptation to be either overly optimistic or overly pessimistic at this stage, so tempering these extremes with solid data can be significant.

Finally, cost factors should be calculated and returns on investment projected. The earlier analysis of the product or service viability feeds directly into this calculation. By understanding projected costs and offsetting them against revenues, profit projections are possible. With these projections in hand, you can evaluate the return on the capital invested to make a go/no go decision.

The outcome of the feasibility analysis will be to show whether the business idea can be a profitable venture with a sufficiently large return on investment. This is a step in the filtering and selection process that narrows and focuses the business idea so that it can be further developed in a business plan or set aside for a stronger concept.