How to Do a Feasibility Study:
the First Step in Starting a Small Business

Story 1996; Links added 11/18/97 BOZEMAN - Starting a small business is a familiar American dream--especially in a era when news of corporate and government downsizing force people to think about new ways to make a living. Healthy local economies stem from the formation of new businesses, say two professors in the MSU College of Business. Unfortunately, the chances of a new business surviving for five years are between 30 and 50 percent, according to MSU's Michael D. Reilly.

In an attempt to increase the odds of success, Reilly and his colleague Norman L. Millikin have written "Starting a Small Business: The Feasibility Analysis" which has been published by the MSU Extension Service as one of its MontGuide fact sheets.

The publication leads would-be entrepreneurs through a step-by-step look at whether their business idea makes sense. The first step, the authors say, is to understand the personality and individual characteristics of successful entrepreneurs. They provide a checklist so aspiring business owners can consider factors such as their own decision-making style, desire to be master of their own financial destiny and willingness to work hard. Small business owners, Millikin says, often make less money than they would working for someone else--and work longer, harder and more stressful hours. Their real income, according to Millikin, is psychic--the satisfaction that comes from doing what they know is right.

The publication details ways to make a market assessment (a tricky but critical part of a feasibility analysis) and shows how to determine if a proposed business is financially feasible. Several sales estimation methods are described. Then the authors discuss how to determine costs and the break-even point for the proposed business. Beginning business owners often underestimate the amount of money needed not only to open the business but to provide working capital to finance an inventory. Reilly and Millikin also stress the impact of taxes and benefits when hiring staff. They conclude with a discussion of the cash flow problems of small businesses that grow too fast.

To view and print a copy of this MontGuide in Adobe Acrobat PDF format, click here. If you need to download Adobe Acrobat first (which is free), click here. Montanans can get a free copy of this publication from their local MSU County Extension office near you. To order a copy of the publication for a fee, click here .

If you read this, we need to know who you are! Please send your name and state or country to Carol Flaherty, MSU Communications Services, 416 Culbertson Hall,
Bozeman, MT 59717.

Go to feature stories index arranged by category.

You are the 12681st person to access this page.