These are studies on operating companies that aim to assess whether they are viable for the next few years or not. The basic assumption is that the company for which this study is concluded continues its operation with relatively stable current conditions. Some assumptions can be made about changes in sales, prices, staff costs, energy costs, taxation, insurance contributions, etc. However, no viable strategy change, adding or removing of a branch, opening new production facilities, developing through a franchise system, and other such substantial changes are provisioned.
A sustainability study shall be prepared either:
- for the company’s own use, so that it aims to assess its course in the immediate future and to promptly identify any cash difficulties or other complications that may arise, either
- for presentation to third parties and usually banks, investors or key partners (e.g. suppliers, representatives of foreign firms, etc.) in order to demonstrate the viability of the company and to proceed with an agreement e.g. granting or restructuring loans, redemption, investment etc.
The feasibility study looks like a business plan, but it also has a few differences. For example, its assumptions are much better studied and, in general, all data on production costs, sales prices, miscellaneous costs, equipment required, etc., must be much more accurate. And of course, the biggest difference is that in the feasibility study, interest is mainly placed on cash flow projections, from which the viability of the business is documented or not. Businesses do not “die” because of losses but because of lack of liquidity, which is not necessarily the same thing.