A feasibility analysis tests whether an entrepreneurial idea, project, or new business is achievable before substantial time and money are committed. This lesson explains the purpose of the analysis and how to assess whether a venture has the management capabilities and nonfinancial resources it needs.
A feasibility analysis evaluates whether a proposed venture is possible and viable. It examines areas such as the management team, market, financial outlook, and potential obstacles. It is generally numbers-driven and can be more detailed in its investigation than a business plan.
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How does a feasibility study differ from a business plan?
A feasibility study assesses whether a venture appears achievable and viable; a business plan sets out strategies and actions for executing it.
What is organizational feasibility?
An assessment of whether a venture has capable management and sufficient essential nonfinancial resources.
What is the difference between TAM and SAM?
TAM is the potential customer pool within a venture’s sphere of influence; SAM is the portion the specific business can attract and serve.
What does a cash-flow projection show?
Expected timing of cash receipts and payments, helping assess funding needs and working capital.
What is a go-or-no-go decision?
A decision to proceed, revise, investigate further, delay, or stop based on established feasibility criteria.
Quiz questions
A venture estimates 500 potential customers within its geographic reach. Only 120 are likely to be attracted to and served by its offering. Which figures represent TAM and SAM, respectively?Answer: TAM is 500; SAM is 120.
What should a market analysis of a proposed business site examine?Answer: Nearby competitors, likely customers, demand, access, and site suitability.
A sales projection uses the number of targeted customers and average revenue per customer. How is the projection calculated?Answer: Multiply the targeted customer count by average revenue per customer.
A projected balance sheet lists assets of $90,000 and liabilities of $35,000. What is owners’ equity?Answer: $55,000
A feasibility team finds that one important criterion is unmet. What is an appropriate response?Answer: Address the gap, revise the plan, gather more evidence, delay, or stop.
Based on Entrepreneurship by Michael Laverty, Chris Littel (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.