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Feasibility Checklist For Starting A Small Business

Last Verified: 2006-04-01

Summary

This publication is a checklist for the owner-manager of a small business enterprise or for one contemplating going into business for the first time. The questions concentrate on areas you must seriously consider to determine if your idea represents a real business opportunity and if you really know what you are getting into. You can use the checklist to evaluate a completely new venture proposal or an apparent opportunity in your existing business.

Perhaps the most crucial problem you will face after expressing an interest in starting a new business or capitalizing on an apparent opportunity in your existing business will be determining the feasibility of your idea. Getting into the right business at the right time is simple advice, but advice that is extremely difficult to implement. The high failure rate of new businesses and products indicates that very few ideas result in successful business ventures, even when introduced by well established firms. Too many entrepreneurs strike out on a business venture so convinced of its merits that they fail to thoroughly evaluate its potential.

This checklist should be useful in evaluating your business idea. It is designed to help you screen out ideas that are likely to fail before you invest extensive time, money, and effort in them.

Preliminary Analysis

A feasibility study involves gathering, analysing and evaluating information with the purpose of answering the question: "Should I go into this business?" Answering this question involves a preliminary assessment of both personal and project considerations.

General Personal Considerations

The first seven questions ask you to do a little introspection. Are your personality characteristics such that you can both adapt to and enjoy small business ownership/management? Answer the following questions with a YES or NO. Where the answer is NO, you have some work to do.

	Yes	No
Do you like to make your own decisions?	____	____
Do you enjoy competition?	____	____
Do you have will power and self-discipline?	____	____
Do you plan ahead?	____	____
Do you get things done on time?	____	____
Can you take advice from others?	____	____
Are you adaptable to changing conditions?	____	____

The next series of questions stress the physical, emotional, and financial strains of a new business.

	Yes	No
Do you understand that owning your own business may entail working 12 to 16 hours a day, probably six days a week, and maybe on holidays?	____	____
Do you have the physical stamina to handle a business?	____	____
Do you have the emotional strength to withstand the strain?	____	____
Are you prepared to lower your standard of living for several months or years?	____	____
Are you prepared to lose your savings?	____	____

Specific Personal Considerations

	Yes	No
Do you know which skills and areas of expertise are critical to the success of your project?	____	____
Do you have these skills?	____	____
Does your idea effectively utilize your own skills and abilities?	____	____
Can you find personnel that have the expertise you lack?	____	____
Do you know why you are considering this project?	____	____
Will your project effectively meet your career aspirations?	____	____

The next three questions emphasize the point that very few people can claim expertise in all phases of a feasibility study. You should realize your personal limitations and seek appropriate assistance where necessary (i.e. marketing, legal, financial).

	Yes	No
Do you have the ability to perform the feasibility study?	____	____
Do you have the time to perform the feasibility study?	____	____
Do you have the money to pay to have the feasibility study done?	____	____

General Project Description

Briefly describe the business you want to enter. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

List the products and/or services you want to sell. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Describe who will use your products/services. _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Why would someone buy your product/service? _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

What kind of location do you need in terms of type of neighbourhood, traffic count, nearby firms, etc._ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _

List your product/services suppliers. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

List your major competitors - those who sell or provide similar products/services.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

List the labour and staff you require to provide your products/services.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Requirements For Success

To determine whether your idea meets the basic requirements for a successful new project, you must be able to answer at least one of the following questions with a "yes."

Does the product/service/business serve a presently unserved need?

Does the product/service/business serve an existing market in which demand exceeds supply?

Can the product/service/business successfully compete with existing competition because of an "advantageous situation", such as better price, location, etc.?

	Yes	No
Does the product/service/business serve a presently unserved need?	____	____
Does the product/service/business serve an existing market in which demand exceeds supply?	____	____
Can the product/service/business successfully compete with existing competition because of an "advantageous situation", such as better price, location, etc.?	____	____

Major Flaws

A "Yes" response to questions such as the following would indicate that the idea has little chance for success.

	Yes	No
Are there any causes (i.e. restrictions, monopolies, shortages) that make any of the required factors of production unavailable (I.e. unreasonable cost, scarce skills, energy, material, equipment, processes, technology, or personnel)?	____	____
Are capital requirements for entry or continuing operations excessive?	____	____
Is adequate financing hard to obtain?	____	____
Are there potential detrimental environmental effects?	____	____
Are there factors that prevent effective marketing?	____	____

Desired Income

The following questions should remind you that you must seek both a return on your investment in your own business as well as a reasonable salary for the time you spend in operating that business.

How much income do you desire? _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Are you prepared to earn less income in the 1 - 3 years? _ _ _ _ _ _ _ _

What minimum income do you require? _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

What financial investment will be required for your business? _ _ _ _ _ _

How much could you earn by investing this money? (A)_ _ _ _ _ _ _ _ _

How much could you earn by working for someone else? (B) _ _ _ _ _ _

Add the amounts in (A) and (B). If this income is greater than what you can realistically expect from your business, are you prepared to forego this additional income to be your own boss with the prospects of more substantial profit/income in future years?

Supply

	Yes	No
Can you make a list of every item of inventory and operating supplies needed?	____	____
Do you know the quantity, quality, technical specifications, and price ranges desired?	____	____
Do you know the name and location of each potential source of supply?	____	____
Do you know the price ranges available for each product from each supplier?	____	____
Do you know about the delivery schedules for each supplier?	____	____
Do you know the sales terms of each supplier?	____	____
Do you know the credit terms of each supplier?	____	____
Do you know the financial condition of each supplier?	____	____
Is there a risk of shortage for any critical materials or merchandise?	____	____
Are you aware of which suppliers have an advantage relative to transportation costs?	____	____
Will the price available allow you to achieve an adequate mark-up?	____	____

Expenses

	Yes	No
Do you know what your expenses will be for: rent, wages, insurance, utilities, advertising, interest, etc.?	____	____
Do you need to know which expenses are direct, indirect, or fixed?	____	____
Do you know how much your overhead will be?	____	____
Do you know how much your selling expenses will be?	____	____

Miscellaneous

	Yes	No
Are you aware of any major risks associated with your product, service, and/or business?	____	____
Can you minimize any of these major risks?	____	____
Are there major risks beyond your control?	____	____
Can these risks bankrupt you?	____	____

Venture Feasibility

	Yes	No
Are there any major questions remaining about your proposed venture?	____	____
Do the above questions arise because of a lack of data?	____	____
Do the above questions arise because of a lack of management skills?	____	____
Do the above questions arise because of a "fatal flaw" in your idea?	____	____
Can you obtain the additional data needed?	____	____
Can you obtain the additional managerial skills needed?	____	____
Are you aware that there is less than a 50-50 chance that you will be in business two years from now?	____	____

Source: U.S. Small Business Administration
Prepared by: Saskatchewan Regional Economic and Co-operative Development

Phone: 306-956-2323 Toll Free: 1-800-667-4374 Fax: 306-956-2328

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Last Modified: 2006-04-01

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