Feasibility analysis for new businesses

Feasibility analysis involves assessing your new business idea in detail to determine if it will be viable. This can build on any initial research you've already done.

A feasibility analysis helps you consider the costs and activities required to set up and run a business, and how to make an informed decision about whether to start a business and how to do it.

Most importantly, it will give you a picture of the costs involved that you'll need to consider and the revenue and profit you can realistically expect to generate.

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To determine if your business idea is practical and achievable, there are areas you can investigate and study.

Ask yourself these practical questions and how they relate to your situation as a starting point.

  • Is the business logistically achievable?
  • Does current technology meet your needs?
  • What are the risks?
  • How will your products or service differ from what is on the market?
  • What is the trajectory of the market?
  • Do you have the finances to make the business achievable?
  • Is there a time constraint for establishing the business?

How to analyse the feasibility of your business

To conduct a feasibility analysis, you will need a detailed understanding of:

  • your business idea, product or service
  • the nature of the market
  • the needs of your customers
  • the costs involved and the revenue you are forecasting
  • your business model and plan
  • the human resources and skills available to support the business.

A feasibility analysis – to provide details for a formal business plan – may be necessary when preparing a pitch to investors, lenders or potential partners for your business, and when applying for government funding.

Steps for feasibility analysis

Follow these steps to analyse the feasibility of your business.

  1. Create and define the project parameters – for example, analyse:
    • the financial feasibility of starting the business (read below)
    • the legal requirements for operating it
    • the operational capacity as outlined in your business plan.
  2. Research the industry, market, customers, business model and staffing – how will they affect the feasibility of your business?
  3. Review your research findings to determine if the business idea, product or service is viable.

Types of feasibility analysis

There are different types of feasibility analysis that you can use. Each type will focus on a specific part of your business operations.

Use this type of analysis to determine if your business has adequate economic resources to meet its goals (e.g. funding, capital, profit).

Consider:

  • What is the financial position of the business?
  • Is the business able to access necessary funding?
  • Can the business make a profit?
  • Does the business have enough money to meet its obligations?

Use this type of analysis to determine if your business successfully meets the necessary legal requirements to operate (e.g. business registrations, permits and licences).

Consider:

  • Does the business have all relevant registrations, licences and permits in place?
  • Does the business have access to legal advice as necessary?

Use this type of analysis to determine if your business has the operational resources it requires to be successful (e.g. business structure, premises, suppliers, human resources and equipment).

Consider:

  • Is the business structure confirmed?
  • Are the business premises and location suitable?
  • Does the business have access to a variety of suppliers?
  • Does the business have the necessary staffing and equipment to operate?

Include feasibility analysis in your business plan

The business plan template contains an action checklist that you can use to help assess your business's financial, legal and operational feasibility.

Read more about preparing a business plan.

Financial viability

Financial viability is your business's capacity to generate enough income to meet its operating costs while maintaining required service levels.

Make sure you've calculated the costs required to start your business and that you have funds to cover these.

To assess the financial viability of your business, consider if your business:

  • is profitable
  • can give you an income, salary or return on investment
  • is meeting all business obligations
  • has adequate cash resources
  • could sustain operations through a phase of no profit.

Assessing your business's financial viability

You will need to:

  • calculate key profit figures
  • determine the break-event point of your business
  • develop a cash flow statement and use it to estimate how long the business can survive without making profit

Your cash flow, key profit figures and budget will contribute to your business plan. You might choose to compile this financial information yourself or work with a financial adviser.

For more information, see:

Starting lean

'Starting lean' describes the method for starting a business or introducing a product or service as efficiently as possible.

Starting lean can help you to determine the feasibility of your business while minimising costs, time commitment and resources.

Starting lean may involve:

  • scheduling a research phase early in your start-up preparation before the business opens or new product launches
  • starting with a concept or product that can be developed and tested quickly and at low cost – this will help you validate the level of demand in the market before making a larger financial commitment
  • continuing the testing phase for as long as necessary – viability increases when you make improvements between a series of tests, as opposed to a one-off test.

When the business concept, idea or product is validated, you can proceed to establishing your business.

Product and service viability

Product and service viability is a type of analysis that looks specifically at considerations associated with business products and services, rather than the business itself.

Product viability refers to the potential that business products have to generate demand in the market and be profitable.

To help you determine if a product is viable, consider the following:

  • Is the product safe?
  • Will the product fit into the market?
  • How quickly can we get the product into the market?
  • Does the current product need to be improved?
  • How will you manage the research and development?
  • Can you partner with industry or research partners to innovate? Take the innovation readiness quiz.
  • Do you have the time and money available to innovate?
  • Is there a gap in the market for this product?
  • Do you have the funding to develop the new product?
  • How will you manage and protect intellectual property?

Long-term viability of products and services

It can be beneficial to consider the long-term value of your business products or services when determining their viability and how much to invest in production or marketing.

Consider the following:

  • Will your products and services be viable in 5–10 years or will trends diminish their value?
  • Are the products and services dependent on other products and services (e.g. maintenance, parts, servicing requirements)? If so, will those still be available in 5–10 years?
  • Can your products and services adapt to industry changes and meet market needs in new ways in the future (e.g. integrate with new technologies, such as renewables)?
  • What capital requirements will be needed in the long term?
  • Will the potential income be worth the capital investment?

Customer needs now and in the future

Customers are the end-users of your products and services. Considering both the current and future needs of your customers is key to determining if your business idea, product or service is feasible.

To help ensure that your customer needs are met, consider:

  • conducting usability testing—the process of testing a product or design with a group of users that are representative of your target customers
  • implementing universal design principles—used to ensure products and services are accessible to the widest range of customers.

Customer feasibility checklist

You can use the following checklist to help you consider if your business idea, product or service will be feasible.

  • Will you conduct usability testing?
  • Will you apply universal design principles?
  • How will your pricing affect the size of the market?
  • How will competitors affect your price position in the market?
  • Will the customer need to purchase maintenance packages or pay for regular upgrades?

Business model considerations

A business model outlines the core attributes of a business. It defines the business products and services, target market and costs, and details a high-level strategy for how the business plans to make a profit.

You should consider the long-term operation of the business when assessing its feasibility – the business must be viable in the start-up phase and be able to maintain this viability into the future.

Consider:

  • The ownership structure of the business – is it fit for purpose? Could it be changed to better suit your business goals?
  • The capital required from lenders or investors – what capital do you need to make your business profitable in the short and long term?
  • The distribution channels available – do you have channels available to distribute your products and services efficiently?
  • The potential to licence or sell products and services in the future – will you require specific licences to sell your products and services? Will you be able to meet the necessary requirements?
  • The future export potential – will you export your products or services? If so, are they any existing or potential trade barriers?

Choosing the ideal team

Part of analysing a business's feasibility is analysing its human resources. You should consider the attributes people, within and outside the business, should have to help your business succeed.

  • The owner or director is responsible for the business.
  • Are they the right person to manage and lead the business now and in the future?
  • Will they be the best person to help the business grow or will you need more people to provide support?
  • What kind of capital does your business need?
  • Equity partners might help you reach your business goals.
  • Make sure you have identified the amount of equity you are prepared to give to others before engaging in partnership discussions.
  • Your staff are vital to your business success.
  • Both managers and general staff are needed to lead and operate the business.
  • Think about the staff you have and the staff you may need in the future.
  • Independent contractors can help you meet specialist needs in both the short and long term.
  • Consider the potential skills gaps within your business and opportunities for outsourcing.

Other key people may benefit your business and help you build capacity for growth and improvement, such as:

  • researchers
  • financial advisers
  • intellectual property specialists
  • lawyers
  • mentors
  • accountants
  • bookkeepers
  • IT specialists
  • advertising and marketing managers.