What is Financial Feasibility for Small Business?

Navigating the world of small business can be a challenge that sets your heart racing, even on a dull day. You’ll be set a large number of targets, all on different approaches with different boundaries, most of which you will ignore. One of these tick-boxes that will pop up on your screen of very important things you will ignore is financial feasibility. Okay, so pro tip from a seasoned business owner; don’t ignore this one.

Financial feasibility is the evaluation of a project or business to determine if it is economically viable and if it can generate a satisfactory return on investment.

It’s a mouthful I know but think of financial feasibility as a check for, “Can this idea make money?” It’s like taking a business idea or project in your head for a test drive to see if it can work financially. You’ll look at costs, potential earnings and all the other money bits to see if your idea is a goldmine or a money pit. 

Basically, before diving in headfirst, you’re just making sure your idea won’t sink your ship. It’s all about being smart with your money and future! 😊🚀💰

How does financial feasibility relate to you, the ambitious Australian small business owner?

That’s why I’m writing this article for you – to give you a solid concept of what financial feasibility is, why you need it for your small businesses, and how using it can drastically influence the success trajectory of your budding business. 

Read through for essential tips to ensure your business venture stands on a solid financial foundation.

What is Financial Feasibility?

At its core, financial feasibility is an assessment. This assessment gauges whether a specific project or business idea is financially viable. Questions covered include:

• Can it be executed within the projected budget?
• Will it generate profits? 

For small business owners, embarking on a new project without this evaluation can be like setting sail on rough seas without a compass.

The Importance in Small Business

Small businesses are more nimble and flexible but they often operate on tighter financial margins than larger corporations. That means that every dollar invested needs to have a clear purpose and a projected return. Undertaking a financial feasibility study provides a clear picture of potential risks, rewards and return on investment. 

For businesses where competition can be fierce and market shifts are frequent, having this foresight can mean you swim, rather than sink.

Key Components

A typical financial feasibility analysis will consider various components, including;

• Projected costs (both initial and ongoing)
• Expected revenues
• Market analysis
• Financial forecasting
• Risk assessment

Each component plays a pivotal role in determining whether a particular business endeavour is worth pursuing.

We cover everything you need to know to conduct a feasibility study on your business in detail below. If you need any help with making adjustments that fit your unique business, you can book a free session with us.

How do I Conduct a Financial Feasibility Study for my business?

Conducting your own financial feasibility study as a business owner isn’t necessarily “hard”, but it can be challenging for a few reasons:

Lack of Objectivity

It’s your idea, and you’re passionate about it. This emotional connection can sometimes cloud judgment, making you overly optimistic about certain aspects or overlooking potential pitfalls.

Complexity

If you’re not familiar with financial frameworks, market analysis and risk assessment, it can be a bit overwhelming. There’s a lot to factor in, from startup costs and potential revenues to market conditions and competitor analysis.

Time-Consuming

Doing a thorough financial feasibility study isn’t something you can rush. It requires meticulous research, data gathering, and analysis, which can be time-consuming, especially if you’re also juggling other responsibilities.

Access to Data

Some information, like specific market data or industry benchmarks, might not be readily available to an individual. Professionals or firms often have better access to such data.

That said, many business owners kick off a preliminary assessment on their own to gauge the viability vs feasibility of their idea. If the idea still looks good after this initial check, it’s a great idea to seek assistance from professionals like business coach or mentor.

In the end, if you’re serious about your business idea, it’s always wise to get a second pair of eyes on it, whether that’s from a mentor, consultant or another trusted source.

Financial Feasibility Steps 

Financial feasibility isn’t just a box to tick off; it’s a vital process for every small business. By understanding your financial position and the viability of your projects, you can save resources, time, and money.

Step 1: Define Your Objectives

Every feasibility study starts with a clear set of objectives. What do you want to achieve with your business or project? Are you aiming for a specific revenue target, or is your goal more about market penetration? It’s crucial to align these objectives with the current market landscape and future predictions – which might mean you need to redo the study if you shelve your project for a few months.

Step 2: Gather Relevant Data

Collecting data will be the backbone of your feasibility study. You’ll need as much data as you can get your hands on; data about potential costs, expected revenue streams, market demographics and competitive analysis. You can widen your net by utilising your local resources, governmental reports and industry insights to gather this information.

Step 3: Analyse and Interpret

Once you have all the necessary data, it’s time to analyse. Use financial modelling techniques to project potential profits and losses. Consider various scenarios – best case, worst case, and most likely. This step provides a realistic view of what to expect and helps in making informed decisions.

Why is Financial Feasibility so Essential for Small Businesses?

In the context of small business, where resources might be limited and competition high, your financial feasibility study will come with a big batch of benefits including:

Protection Against Potential Losses

One of the primary reasons to conduct a feasibility study is to safeguard against potential losses. By understanding the financial implications of a project beforehand, businesses can avoid investments that might lead to significant losses.

Offering A Competitive Edge

In a market like Australia, where numerous businesses might offer similar services or products, having a clear financial strategy can provide a competitive edge that helps your business find its niche or stand out from the crowd. It ensures that your business decisions are based on data, research, and sound financial reasoning so that the investments and directions you take on will give back in terms of brand strength and visibility.

Local Market Understanding

With a focus on the Australian market, you can uncover insights specific to local consumers, trends and challenges as well as local grants, incentives, and resources that might be available to support small businesses. This could be financial aid, training programs, or even partnerships that can drive growth.

Adapting to Market Changes

Regular financial feasibility checks ensure that businesses remain adaptable and resilient in the face of market shifts, be it economic, technological, or social.

Leverage for Funding and Investments

A comprehensive financial feasibility report can be a powerful tool when seeking external funding or investments. Whether approaching banks for loans or investors for capital injection, a detailed feasibility study showcases the business’s viability, seriousness and preparedness.

What are The Biggest Impacts on Financial Feasibility?

Just about anything can bowl a business over. The more prepared you are, financially and mentally, the faster you can dust off and regroup. Some risks are not easy to predict but others are more likely to have an impact on a business’s financial feasibility in the near future, namely:

The Economic Climate

The economic health of Australia is far from stable. Inflation rates, interest rates and unemployment figures can have a profound influence on financial feasibility outcomes. Following macroeconomic indicators (not gossip and media sensational hype) will help dictate consumer spending habits and gauge the cost of doing business.

Technological Innovations

A project deemed feasible today may become obsolete tomorrow due to a new technological breakthrough. Businesses must factor in potential technological disruptions or innovations in their respective industries and keep abreast of industry-related technology trends to ensure their business isn’t left behind.

Regulatory and Tax Implications

Australia’s unique set of business regulations and tax structures make business life….um, interesting. Do factor this in, because tax costs can bite. There are new laws coming (and going) rapidly so keep an ear to the ground and stay on top of any regulations that might affect what you want to achieve. It’s not just about avoiding unforeseen financial pitfalls, it’s about helping your business operate within the confines of the law so you have a smoother run and less red tape.

Harnessing Financial Feasibility for Long-Term Success

Once to get your finances stable and on track, how do you keep them that way? While your financial feasibility study will be conducted before you launch your business you can’t just expect things will keep going your way permanently. Even the best-laid business plans need your ongoing attention, maintenance and adjustment – for the life of the business. In terms of feasibility, here are the top priorities you need to stay on top of:

Continuous Evaluation

With changing market dynamics, evolving customer preferences, and internal business growth, continuous evaluations are crucial. Periodic reassessment also ensures alignment with your business goals and market realities. Seek out feedback and take suggestions on board from customers, team members, suppliers and partners.

Risk Management

Financial feasibility studies provide insights into potential risks ahead, allowing businesses to develop strategies to mitigate those risks or reconsider the venture. It’s also a great way to come up with new products, services or operating methods that bypass the risks and create better outcomes for your target audience.

What is Financial Feasibility for Small Business? – Final Thoughts

Navigating the business landscape is both challenging and rewarding. Being forewarned is absolutely your ticket to arming yourself to face the rough patches – and jump onto those highly rewarding opportunities so you can love what you do in your business and get the lifestyle you’ve been vision-boarding about. 

Your financial feasibility study will help you make informed decisions, pair up with successful ventures and achieve long-term growth. Remember, the journey of the business owner is filled with uncertainties, but with tools like financial feasibility under your belt, you can be better equipped to find your unique selling point and drive it home. 

For help understanding if your business is financially feasible, book a call today.

You can also join our Facebook group for daily tips and advice to help you grow your business.

What is Financial Feasibility – FAQs

1. Why is financial feasibility important?

Financial feasibility is crucial because it helps assess whether a business venture or project is viable from a financial perspective. It ensures that your goals are achievable within your financial constraints, reducing the risk of financial failure. By evaluating the financial feasibility, you can make informed decisions, attract investors, secure loans, and set realistic financial objectives, increasing the chances of long-term success.

2. What does feasibility mean in business?

Feasibility in business refers to the practicality and viability of an idea, project, or venture. It involves evaluating various aspects, including financial, operational, technical, and market factors, to determine whether the business concept can be executed successfully. Business feasibility studies help entrepreneurs and organizations make well-informed decisions by assessing the potential risks and rewards associated with a particular initiative.

3. What is an example of financial feasibility?

Imagine a small restaurant owner considering expanding their business by opening a second location. To determine financial feasibility, they would need to analyze factors such as startup costs, operating expenses, expected revenue, and market demand. If the projected income exceeds the expenses, and they can secure funding or investment to cover initial costs, then the expansion is financially feasible. If not, they may need to reconsider or adjust their plans.

4. How to do financial feasibility?

Assessing financial feasibility involves several steps:

a. Market Research: Understand your target market, its size, trends, and potential customer base.

b. Cost Analysis: Estimate all expenses, including startup costs, operating costs, and ongoing expenses.

c. Revenue Projections: Forecast potential revenue based on market research and realistic assumptions.

d. Cash Flow Analysis: Create a cash flow projection to understand the timing of income and expenses.

e. Break-Even Analysis: Determine when your venture will become profitable and cover its costs.

f. Risk Assessment: Identify potential risks and develop strategies to mitigate them.

g. Financial Model: Develop a financial model or use financial software to perform sensitivity analysis and “what-if” scenarios.

h. Seek Expert Advice: Consider consulting financial experts or conducting a feasibility study.

5. How do you identify feasibility?

To identify feasibility, consider these key factors:

a. Market Demand: Determine if there’s sufficient demand for your product or service.

b. Financial Resources: Assess if you have the financial means to start and sustain the venture.

c. Competitive Analysis: Analyze the competitive landscape and your unique value proposition.

d. Operational Capacity: Evaluate your ability to execute the plan effectively.

e. Regulatory and Legal Compliance: Ensure you meet all legal requirements and regulations.

f. Risk Assessment: Identify and mitigate potential risks that could impact success.

g. Resource Availability: Confirm the availability of necessary resources, such as skilled personnel, equipment, and suppliers.

h. Market Trends: Stay updated on industry trends and adapt your plan accordingly.

By thoroughly evaluating these aspects, you can determine the feasibility of your business concept and make informed decisions for its success.