National Restaurant Association divides a restaurant feasibility study into five steps, which are 1)

identifying market area and gathering of demographic data such as age, sex, income, dining-out
habits and other characteristics of potential customers 2) concept development, which involves
using the data about the population in the market area and forming and evaluating a restaurant
concept that fits the area's needs and preferences. 3) site analysis, a process to determine whether
the characteristic of the site and the competitive environment around the restaurant will support
such a concept. 4) competitor analysis, which involves investigating competitors in the market area
through a competitor analysis worksheet. 5) financial analysis, a process of specifying revenue
generating criteria, computing estimated average-check and revenue figures, estimating operating
expenses, analyzing and interpreting the financial statement, and finally, developing an
implementation plan. The chapter will include published knowledge that correlates with the five
steps excluding step two, because in this study the concept has already be firstly chosen, thus
including four sections. The first section will look at literature about how a trade area or market area
should be determined, literature of the demographic characteristics and consumers spending
patterns of the market area. The second section will comprise literature about competition analysis,
and the third section will include literature about site-selection analysis for a start-up restaurant,
and the last section will include literature of financial analysis.

What to investigate Details to include in your study

Purchase of an existing business:  Reason(s) the present owner wants to sell.

 Advantages and disadvantages of the business location.
 Is the business offered for sale a  How well the business is performing.
sound investment?  The checks and balances you have performed to satisfy yourself
that you have an accurate picture of business performance.
 How other businesses in the same industry are performing.
 How you would rate the competition.
 Basis of valuation of all assets to be acquired.

Technical feasibility:  A description of what you propose to sell, expressed in plain

terms so that a non-technical person can understand it.
 Is the product or service that you  Whether the product or service is ready for sale. If it is not, how
propose to offer technically viable? far it has been developed. How far away from the marketplace it
is and how much this will cost you?
 The steps you can take to protect your product or service.
 If your idea cannot be protected, what are its main strengths?
 What benefits or solutions will your customers gain by
purchasing your product or service?
 The major weaknesses in your product or service and the ways
you propose to overcome them
 The resources (plant, equipment, premises, material inputs,
technology and skills) required to provide your product or
service.
 Your capacity to acquire or gain access to such resources.
 Regulatory standards or requirements that must be satisfied and
your capacity to meet them.
 Market feasibility:  How you have carried out market research.
 What market segments (groups of customers with common
 Can the product or service be sold in characteristics) you intend to target.
sufficient volume at a sustainable  Why people will buy your product or service.
price?  Who your potential customers are.
 Is there a market for what you are The number of potential customers.
proposing to offer?  Where your potential customers are located.
 Your potential customers' buying patterns.
 Who makes the buying decision for your product or service?
 How you will sell your product or service.
 Who are your competitors, both present and potential?
 What do you know about your competitors, in terms of product
range, pricing, sales turnover, quality?
 What are the strengths and weaknesses of your most important
competitors?
 What competitive edge do your most important competitors
have?
 What is your competitive business advantage?

Commercial feasibility:  Key success factors for your business meaning those factors
you MUST have so you can meet your business objectives.
 Is your product or service  Strengths and weaknesses of your business, and the
commercially viable? opportunities and threats it faces.
 
Can you sell your product or service How long you expect to be in business before you generate your
in sufficient volume to generate a first sale.
profit?  How long you can survive before your first sale
 Potential sales volume.
 Estimate of fixed and variable expenses.
 How prices are determined in a business like yours.
 Your proposed pricing structure.
 How long it will take to reach break-even sales volume.
 How sensitive your break-even point is to the price you can
obtain.
 How much money you need to start up.
 How much money you have available to invest in the business.
 How much money the business will require by way of working
capital to sustain operations.
 External sources of finance you intend to approach.
 The return on investment for which you are budgeting.
 Cash flow analysis and the assumptions on which it is based.

Overall risk:  The major risks that you face.

 How sensitive your survival is to each risk identified.
 What are the major risks you will  How sensitive your profits are to each risk identified.

have to accept if you go ahead with How you propose to minimise the risks.
your business?  How soon you could be in business.
 How do you propose to lessen the Factors most likely to delay you.
risks?  When you are likely to be in business.
 How soon after this will the business be able to support you?
 How you propose to survive until then.
 Feasibility Study vs. Business Plan
A feasibility study is not a business plan. The separate roles of the feasibility study and the business plan are
frequently misunderstood. The feasibility study provides an investigating function. It addresses the question of “Is
this a viable business venture?” The business plan provides a planning function. The business plan outlines the
actions needed to take the proposal from “idea” to “reality.”

The feasibility study outlines and analyzes several alternatives or methods of achieving business success. The
feasibility study helps to narrow the scope of the project to identify the best business scenario(s). The business
plan deals with only one alternative or scenario. The feasibility study helps to narrow the scope of the project to
identify and define two or three scenarios or alternatives. The person or business conducting the feasibility study
may work with the group to identify the “best” alternative for their situation. This becomes the basis for the
business plan.

The feasibility study is conducted before the business plan. A business plan is prepared only after the business
venture has been deemed to be feasible. If a proposed business venture is considered to be feasible, a business
plan is usually constructed next that provides a “roadmap” of how the business will be created and developed.
The business plan provides the “blueprint” for project implementation. If the venture is deemed not to be feasible,
efforts may be made to correct its deficiencies, other alternatives may be explored, or the idea is dropped.

Reasons to Do a Feasibility Study

Conducting a feasibility study is a good business practice. If you examine successful businesses, you will find
that they did not go into a new business venture without first thoroughly examining all of the issues and assessing
the probability of business success.

Below are other reasons to conduct a feasibility study.

 Gives focus to the project and outline alternatives.

 Narrows business alternatives
 Identifies new opportunities through the investigative process.
 Identifies reasons not to proceed.
 Enhances the probability of success by addressing and mitigating factors early on that could affect the project.
 Provides quality information for decision making.
 Provides documentation that the business venture was thoroughly investigated.
 Helps in securing funding from lending institutions and other monetary sources.
 Helps to attract equity investment.

The feasibility study is a critical step in the business assessment process. If properly conducted, it may be the
best investment you ever made.

Description of the Project

Identification and exploration of business scenarios.

 Identify alternative scenarios or business models of what the project will entail, how it will be organized, and how
it will generate profits. These may come from the idea assessment or market assessment that you may have
already completed.

 Eliminate scenarios that don’t make sense.

 Flesh-out the scenario(s) that appear to have potential for further exploration.

Define the project and alternative scenarios

 Describe the type and quality of product(s) or service(s) to be marketed.

 Outline the general business model (i.e. how the business will make money).
 Include the technical processes including size, location, kind of inputs, etc.
 Specify the time horizon from the time the project is initiated until it is up and running at capacity.
 Relationship to the surrounding geographical area.

 Outline the economic and social impact on local communities.

 Describe the environmental impact on the surrounding area.

Market Feasibility
This can be based on a market assessment that you may have already completed.

Industry description

 Describe the size and scope of the industry, market and/or market segment(s).
 Estimate the future direction of the industry, market and/or market segment(s).
 Describe the nature of the industry, market and/or market segment(s). Is it stable or going through rapid change
and restructuring?
 Identify the life-cycle of the industry, market and/or market segment(s). Is it emerging, growing, mature,
declining?

Industry competitiveness

 Describe the industry concentration. Are there just a few large producers or many small producers?

 Describe the major competitors? Will you compete directly against them?
 Analyze the barriers to entry of new competitors into the market or industry. Can new competitive enter easily?
 Analyze the concentration and competitiveness of input suppliers and product/service buyers.
 Describe the price competitiveness of your product/service.

Market potential

 Identify whether the product be sold into a commodity market or a differentiated product/service market.
 Identify the demand and usage trends of the market or market segment in which the product or service will
participate.
 Examine the potential for emerging, niche or segmented market opportunities.
 Explore the opportunity and potential for a branded product.
 Assess market usage and your potential share of the market or market segment.

Access to market outlets

 Identify the potential buyers of the product/service and the associated marketing costs.
 Investigate the product/service distribution system and the costs involved.

Sales projection

 Estimate sales or usage.

 Carefully identify and assess the accuracy of the underlying assumptions in the sales projection.
 Project sales under various assumptions (i.e. selling prices, services provided, etc.).

Technical Feasibility
Facility needs.

 Estimate the size and type of production facilities.

 Investigate the need for related buildings, equipment, rolling-stock, etc.

Suitability of production technology

 Investigate and compare technology providers.

 Determine reliability and competitiveness of technology (proven or unproven, state-of-the-art, etc.).
 Identify limitations or constraints of the technology.

Availability and suitability of site

Investigate access to:

 raw materials
 transportation
 labor
 production inputs (electricity, natural gas, water, etc.)
 Investigate potential emissions problems.
 Analyze other environmental impacts.
 Identify regulatory requirements.
 Explore economic development incentives.

Raw materials

 Estimate the amount of raw materials needed.

 Investigate the current and future availability and access to raw materials.
 Assess the quality and cost of raw materials.

Other inputs

 Investigate the availability of labor including wage rates, skill level, etc.
 Assess the potential to access and attract qualified management personnel.

Financial/Economic Feasibility
Estimate the total capital requirements

 Assess the “seed capital” needs of the business project during the investigation process and start-up, and how
these needs will be met.
 Estimate capital requirements for facilities, equipment and inventories.
 Estimate working capital needs.
 Estimate start-up capital needs until revenues are realized at full capacity.
 Estimate contingency capital needs due to construction delays, technology malfunction, market access delays,
etc.
 Estimate other capital needs.

Estimate equity and credit needs

 Estimate equity needs.

 Identify alternative equity sources and capital availability - family, producers, local investors, angle investors,
venture capitalists, etc.
 Estimate credit needs.
 Identify and assess alternative credit sources - banks, government (i.e. direct loans or loan guarantees), grants
and local and state economic development incentives.

Budget expected costs and returns of various alternatives

 Estimate the expected revenue, costs, profit margin and expected net profit.
 Estimate the sales or usage needed to break-even.
 Estimate the returns under various production, price and sales levels. This may involve identifying “best case”,
“typical”, and “worst case” scenarios or more sophisticated analysis like a Monte Carlo simulation.
 Assess the reliability of the underlying assumptions of the analysis (prices, production, efficiencies, market
access, market penetration, etc.)
 Benchmark against industry averages and/or competitors (cost, margin, profits, ROI, etc.).
 Identify limitations or constraints of the economic analysis.
 Calculate expected cash flows during the start-up period and when the business reaches capacity.
 Prepare pro forma income statement, balance sheet, and other statements of when the business is fully
operating.

Organizational/Managerial Feasibility
Business structure

 Identify the proposed legal structure of the business.

 Outline the staffing and governance structure of the business along with lines of authority and decision making
structure.
 Identify any potential joint venture partners, alliances or other important stakeholders.
 Identify the availability of skilled and experienced business managers.
 Identify the availability of consultants and service providers with the skills needed to realize the project, including
legal, accounting, industry experts, etc.

Business founders

 Character matters - are the people involved of outstanding character?

 Do the founders have the “fire in the belly” required to take the project to completion?
 Do the founders have the skills and ability to complete the project?
 What key individuals will lead the project?
 Is there a reward system for the founders? Is it based on business performance?
 Have the founders organized other successful businesses?

Study Conclusions

 Identify and describe alternative business scenarios and models.

 Compare and contrast scenarios based on goals of the producer group.
 Outline criteria for decision making among alternatives.

Next Step
After the feasibility study has been completed and presented to the leaders of the project, they should carefully
study and analysis the conclusions and underlying assumptions. Next, the leaders will be faced with deciding
which course of action to pursue. Potential courses of action include:

 Choosing the most viable business scenario or model, developing a business plan and proceeding with creating
and operating a business.
 Identifying additional scenarios for further study.
 Deciding that a viable business opportunity is not available and moving to end the business investigation
process.
 Following another course of action.