Question

Describe what a financial feasibility analysis is, explain its importance, and discuss the most critical issues to consider when completing this analysis?  

Answer 1

What is Financial feasibility analysis?

A financial feasibility analysis  projects how much start-up capital is needed, sources of capital, returns on investment, and other financial considerations.

It is considered to be one of the key pillars for making investment decisions. The financial feasibility study measures the extent of the project’s commercial profitability, and determines the sources of finance and the structure of this proposed project finance.

The study considers how much cash is needed, where it will come from, and how it will be spent.

Why it is important?

The importance of feasibility analysis can be narrated as follows:

• It will look at how a certain proposal can work in a long-term basis or endure financial risks that may come.
• It is also helpful in recognizing potential cash flow.
• Another important purpose is that it helps planners focus on the project and narrow down the possibilities.
• When it comes to the operational aspect, the analysis determines whether the plan has the necessary resources for it to be practicable.
• Additionally, it imparts knowledge on the trends because a feasibility analysis looks at the present-day market and studies the anticipated growth of your target business sector.
• moreover, it is prevalent in many business sectors like  Hotel, Hospitality, Restaurant, Real Estate, Medical etc.

Thus, it is very helpful for different types of businesses n saves Time and Money.

Issues to be considered :

1 Technical feasibility: It includes the questions to be answered like

• What is the proposed product or service?
• Is the product or service already on sale? If not, how far is it from an existing marketplace and what will the introduction cost?
• How can you protect the product or service from the competition?
• What are the strengths of the product or service?
• What are the main benefits to customers or users?
• What resources are required for producing or providing it?
• How capable is the organization to acquire these resources?

2 Market feasibility: Market feasibility should answer the following questions

• What market segments are you targeting?
• Why would people buy the product or service?
• Who are the potential customers and how many of them are there?
• What are the buying patterns of these potential customers?
• How will you sell the product or service? Where?
• Who are your competitors? Including past, current and future competitors.
• What are the strengths and weaknesses of your competitors?

3 Commercial feasibility:The questions that require answering as part of the commercial feasibility study include:

• What are the strengths and weaknesses of your business?
• What are the potential sales volumes of the product or service?
• What is the pricing structure you’ll use?
• What are the sensitivity points for your business in terms of sales?
• What is the ROI?

4 Overall risk assessment:

The overall risk assessment should answer the following questions:

• What are the major risks associated with the operation?
• What is the survival outlook for each of the above risks?
• How sensitive are the profits?
• What are the best ways to minimize these risks?

Thus, these are the critical issues to be considered while completing financial feasibility analysis.