The feasibility study of your business should allow you to match your initial enthusiasm and optimism with conservative forecasts. If your study shows that the business is destined to be financially feasible, you can open the champagne! The next step is to develop a fuller business plan that includes tactics and strategies to take the business forward.

A business plan includes financial, marketing, distribution, operational and administrative issues that will make the business work. A key feature of your business plan is to show how you will take advantage of opportunities and strengths, overcome weaknesses and head off threats (SWOT analysis).

Strengths

Competitive advantage is that special edge that allows a business to deal with the market and other external factors better than its competitors. Examples include:

• skilled work force
• strong reputation / brand in the market
• quality of service
• excellent product or product concept
• market share
• management skills
• strong financial position

Or, if you are planning to start a business, your strengths might include: 

• strong analytical skills
• excellent knowledge of, or profile in the market
• previous business skills
• excellent knowledge of financial management

Weaknesses

A clear understanding of weaknesses within your business will help to form a realistic response to overcoming them. Examples include:

• outdated facilities, equipment or technology
• undercapitalisation / constantly needing funds
• an unstable work force
• poor customer relations

Or if you are starting a new business, your weaknesses might include:

• lack of business knowledge
• lack of management skills
• little exposure to managing quality and suppliers
• little exposure to the management of financials

Opportunities

External forces can change rapidly and management needs to be vigilant and respond quickly. Profitable opportunities may be available to your business through:

• new and changing customer needs
• development of new products, services or territories
• government policies
• changing economic factors
• new technologies
• other factors, including legal issues

Threats

You will need to consider your response to the following:

• actions taken by competitors, including:
  • pricing
  • special offers and discounting
  • promotions
  • strategic alliances (business co-ownership that creates businesses through co-operation of two or more firms) 
• changes in customer preferences and buying behaviour
• changes in lease conditions, etc
• economic factors
• shortages of resources, e.g. materials, skilled staff
• legal issues:
  • legislation (national and state)
  • contract law
• developments in technology

Below are two simple tables for effecting a SWOT analysis. Consider the factors above and list the SWOT position of your business. Should you decide that, on balance, you have the right ammunition, go ahead and develop a SWOT action plan. Be honest - really assess and document your weaknesses, as they are what will bring you down. Know what opportunities are out there and the big threats that might attack you! Be realistic - the biggest fools are the ones that fool themselves.

SWOT 3 x 3 action plan

The SWOT action plan is the next step in your feasibility study. It illustrates the relationship between the current internal features of your business and the future external features with which you meet challenges, grow and develop the business. And this is the reality of what happens in your business: the internal present is challenged by the external future.

The 3x3 table lets you see this interaction and determine if you have the right skills needed to make your business work. The four boxes marked 1, 2, 3 and 4 have very important (and yet different) actions that will determine how successful your business can and will be.

Download a copy of the SWOT 3 x 3 action plan.

Capital requirements

There are important funding issues that must be addressed before you start your business:

• What will your initial capital investment be?
• Will you have enough capital?
• How much working capital will you need?
• How deep do your pockets need to be?

The following expenditures need to be considered as important cash outflows that must be funded from the start. These are the one-off investments you need to make:

• capital costs, including office and factory equipment, tools, computer / software, copier
• other set-up costs such as major consumables, artwork, brochures, signage, stationery, etc
• now add 20 per cent just to make sure your initial estimate is adequate.

Many small businesses fail because they are undercapitalised and run out of cash before the business is established and ongoing operations can provide the funds required.

About the author: John Petty FCPA