Feasibility Studies or better known as financial modelling are very useful to determine if a particular business opportunity has the potential to achieve the owner’s objectives.
In simple terms, financial modelling summarises “How hard you need to work, just to break even, compared to how much future growth is actually possible?” (Based on current known parameters)
From this information a financial model is developed. Unlike traditional simple cash flow or budget projections this financial model determines three likely scenarios. The visual graph created, instantly portrays a picture of the likelihood of success.
Plot point 1/ The maximum optimistic trading result
Plot point 2/ Least likely and/or Break-even point.
Plot point 3/ Realistic likely scenario that would achieve business objectives.
Visually, these three dots on a page will trigger an emotional response. That gut-feeling of seeing how hard you need to work just to break even, compared to the point needed to achieve your objectives, and limited maximum, may be enough to prompt more questions. This simple exercise is priceless, and has been a benchmark for many business decisions.
The key benefit of this type of feasibility study is to recognise areas that could be changed prior to incurring any major cost.