Feasibility Analysis - Part Two

Fortunately, these decisions are purely theoretical, meaning that you can change your choices based on what you discover for yourself. To paraphrase Rommel, you can't become absorbed in your own theories; you must adapt them to the conditions. The Desert Fox was speaking of tank warfare, but the modern economy is a battlefield as savage, if not as bloody, as any other.

Picking up from the earlier parts of the feasibility analysis, the third step of a feasibility analysis is defining your start-up's organizational structure. It can be as loose or as tight as you desire, but it should take the nature of your business into account. For example, a localized accounting firm will demand a tighter organization than a web design business, though these are only broad generalizations. A second important consideration is considering who you need in your organization to run your business, as well as who will be doing what within your business. Your third consideration in plotting out your business is the matter of physical locations and where the people will be working. Granted, it's not always a major concern for some businesses, but for others, such as restaurants or retail outlets, the right location and staffing can mean the difference between success and failure.

Get out your calculators and your old math class notes, because the fourth step, financing issues, will require every mathematical skill you've got. For the feasibility analysis, you'll want to plan for costs for the first full year of operation. Your first concern is that year's expenses. Start-up costs, such as buying the space and tools you need, are probably going to be the most daunting and discouraging task of the analysis, but you still must continue to expect the worst. Though you'll probably end up cutting costs somewhere, don't skip buying vital items entirely, though finding lower prices for these items will probably help you immensely. You'll also have to tend to personnel costs for your first year; find out what positions you'll need to hire people to fill and how much you'll need to pay those people for those positions. Similarly, you'll also want to provide money for your own survival. There will also be operating costs, ranging from shipping costs to rent to power and water bills.

There a few figures you'll want to total up at this stage of the analysis. The first is your total fixed costs (TFC), which are expenses that the cost of which won't change. The second is the price of a single unit of what you're selling (P). The third is the variable costs (VC), the cost to you, the business owner, of producing a single unit of your product, whatever it may be. The number of products you need to see for your business will to for itself (the break even point, or BE), can be calculated by dividing your total fixed costs by the number you get after subtracting the price of each unit by the cost to produce each unit, or BE = TFC % P - VC.

You'll want to reevaluate your figures if you're not sure you can sell that many units within a year. Fortunately, you're still at the point where you can change your plans, and you may even have to rethink everything from scratch. There's no shame in changing your original plan. From here, though, you leave solid planning to focus on a less predictable matter; marketing.

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