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MT 9510 Human Resource Development

Starting a Small Business: The Feasibility Analysis

by Michael D. Reilly, Ph.D. and Norman L. Millikin, Ph.D. College of Business, Montana State University-Bozeman

Healthy local economies stem from the formation of new businesses. Unfortunately, the success rates for small businesses are typically quite low. Depending on which statistics you believe, the chances of a new business surviving for five years are between 30 and 50 percent. As an entrepreneur, you can greatly increase your chances for success by analyzing your idea, your marketplace and your management team before beginning.

• Assess the market for your new business idea; • Estimate the basic financial feasibility of your business, including potential sales revenues, fixed and variable costs, and break-even figures; • Identify the pitfalls many new small businesses encounter—and study how you can avoid them; and • Finally, make an informed choice about whether or not your idea is still attractive and practical.

The Feasibility Analysis

Whether you plan to expand an existing business, acquire an existing business or start your own new business, this MontGuide will show you how to perform a basic economic feasibility analysis: a preliminary evaluation of your business idea to see if it’s worth pursuing. In performing your feasibility analysis, you will: • Evaluate whether you and your management team possess the characteristics most common to entrepreneurial success;

Characteristics of Successful Entrepreneurs

Studies show that the personalities and individual characteristics of the entrepreneurs who start new businesses may be the most important factors of success. An individual’s management skills have become so important that venture capitalists have begun to revise the way they look at potential new venture deals. Rather than betting on the “horse” (i.e., the business idea and the business plan), they are now much more likely to bet on the...