What is a feasibility study? Definition, components and types
A feasibility study answers one question before you spend: is this project worth investing in, on what terms, and at what risk? This guide explains it the way we prepare studies at Madrous.
Definition
A feasibility study is a structured analysis of a project idea before it is executed. It gathers market, cost and licensing data and turns it into a financial model that tells you what the project costs, when it covers its costs and what could make it fail.
A good study is not a marketing document. Its purpose is a decision based on verifiable information, even when the decision is “do not invest in this form”.
The four components
Market study: demand, target customers, and competitors around your location with their actual prices. See the market study guide.
Technical and operational study: location and size, equipment at supplier prices, staff and salaries, and daily capacity.
Regulatory study: the licences, requirements and authorities that apply to your activity, in the order you obtain them.
Financial study: set-up costs, projected financial statements, break-even, payback and scenarios. See the financial feasibility guide.
Types of feasibility study
- Pre-feasibility: a quick read that decides whether a detailed study is worth it.
- Detailed feasibility: the full four-part study for a specific project in a specific location.
- Expansion study: for an existing business planning a new branch or activity, built on its actual figures.
- Study for financing: a detailed study arranged around what a lender needs. See feasibility study for financing.
When do you need one?
- Before signing a lease or buying equipment.
- Before applying for financing or presenting to a partner or investor.
- Before opening a new branch or adding an activity.
- When the amount at risk is too large to decide on instinct.
How to read the result
The result is not just “profitable” or “not”. At Madrous the decision comes from the safety margin: how far demand can fall before the project starts losing money, on a five-step scale from “do not invest now” to “feasible”.
Read three numbers with it: total investment before the first sale, the maximum cash deficit in the early months, and break-even in customers or orders per day.
Feasibility study vs business plan
A feasibility study asks whether to start; a business plan asks how to execute once you have decided. The study comes first, and much of the plan is built on its numbers.
Frequently asked questions
Is a feasibility study required to open a business?
Commercial registration and licences do not usually require one, but some lenders and partners ask for it. More importantly, it protects you from an expensive decision before you make it.
How long does a study take?
Madrous delivers a custom study within 7 to 14 days of receiving your project data.
Is a ready-made study enough?
It helps you understand the activity, but it does not know your location, rent or competitors. See ready-made vs custom.