What a lender looks for in a market study

Inès wants to open a bicycle repair workshop. The situation is fictitious and runs through all three modules: her forecast shows €48,000 of turnover excluding VAT in the first year. Her bank's business adviser does not argue with the arithmetic; he asks a single question: where does this number come from? The whole answer lies in the market study. Without it, the €48,000 is only a wish.

A market study is four descriptions

The official French business creation guidance defines a market study as the precise description and detailed analysis of the four elements that make up your market. Four, not one: a file that only talks about the product, or only about customers, remains incomplete in the sense of that guidance.

• The offer: the product or service you are going to sell
• The demand: the customers who will buy it
• The environment: the period, the place, trends, technologies, competitors, legislation
• The way you sell: distribution channels and commercial strategy

The same guidance adds that the analysis must rest on the reality of the field, meaning the market, and on figures, and that the study combines quantitative and qualitative information. Both matter: a figure with no explanation convinces no more than an intuition with no figure.

The forecast flows from the study

The official guidance places the financial forecast at the seventh step of the process and states that it flows from the commercial strategy defined in your market study. The forecast therefore comes after the study and depends on it: it cannot be sounder than the study it rests on.

The first table of the forecast is the three-year income statement, and its first line is turnover. Purchases consumed, margins, profit and the capacity to repay all follow from it. If turnover is wrong, everything else is wrong, even when every calculation is correct.

The guidance says it from the lender's side as well: banks rely on the forecast financing plan to examine a loan application and work out the loan. Yet that plan rests on turnover, which rests on the study.

The guidance does not say in which order a lender reads the documents in the file. This course therefore advises rereading it backwards, from the amount requested all the way to the study, to check that every amount leads back to a written assumption.

For Inès, the chain fits on one line: 2,000 households × 20 % = 400 customers, who come twice a year on average, giving 800 jobs at €60: €48,000. Each of these four numbers must be traceable to a page of the study. That is what this course calls a justified assumption.

These four numbers are not of the same kind. The 2,000 households are a finding, drawn from a public statistic and a survey. The two visits a year are another finding: the same questionnaire asks each household how many repairs it has had done in twelve months.

The 20 % is a choice, which the study must make reasonable. The price is a decision, backed by the prices noted at competitors. Finding, choice, decision: they are not defended in the same way.

A finding can be checked: the calculation is redone from the source. A choice must be justified: you show the evidence that makes it plausible and say what happens if it turns out too optimistic. A decision must be owned: you explain why this price, compared with those charged nearby. The third module returns to each one.

What the reader checks, part by part

On the offer, the guidance asks for answers to precise questions, including what added value the product brings compared with competitors' products. The answer must give a reason why a customer would change habits. Without one, the targeted market share has no foundation.

On demand, the guidance asks descriptive questions: who the offer of products or services is aimed at, and where future customers live. The reader checks that customers are described precisely enough to be counted, which is the condition for turning a description into a number.

Cyclists in general cannot be counted; households in a given area that have had a bicycle repaired during the year can. The first wording describes an audience, the second a customer base. Only the second can become the first line of an income statement.

On the environment, the guidance lists the market trend, the main competitors, any upcoming event that would change the context, the technological environment and any specific legislation. This part must name the risks the founder has identified, and say for each one what is planned.

On commercial strategy, the guidance asks in particular what your prices will be and who your suppliers will be. Price is the second half of turnover; suppliers set a large part of variable costs. These answers flow straight into the forecast.

Doing it yourself, or having it done

The guidance is clear on this point: you do not need to have studied economics to carry out your market study; you only need to take the necessary time. The founder can therefore conduct it alone, using questionnaires, visits and public sources.

It can also be entrusted to a third party, but the guidance sets a firm condition: it is imperative that you are closely involved. As a future entrepreneur, it adds, you must take part in your own market study rather than simply receive it.

The guidance names three kinds of provider: public or non-profit bodies, whose service costs little or nothing; business school students; and private research firms, whose cost it puts at roughly €2,000 to €7,000, noting that funding is possible.

This condition has a practical reason: it is the founder, not the consultancy, who presents and defends the file. Why this area, why this price, why 20 % and not 30 %: those answers must come from the founder. A purchased study whose assumptions the founder cannot defend weakens the file instead of strengthening it.

A traceable study: every figure has an address

A traceable figure says three things: where it comes from, when it was collected, and what scope it covers. A public statistic is cited with its name, its reference year and its area. A survey result is cited with the number of answers and the question asked.

An observation is cited as a dated finding: price displayed by a given competitor, noted on 3 March. The discipline looks heavy; it saves time. The day a figure is challenged, you know at once whether to defend it, correct it or replace it.

No tool, and no artificial intelligence, can supply the size of your local market: that number exists nowhere until you have built it. ActioFin's calculators chain your assumptions together without inventing any; market figures come from you and from the sources you cite.

A layout that can be read in ten minutes

A study that follows a predictable order lets whoever reads it, adviser or lender, go straight to what they are looking for. The order below follows the four elements of the official guidance, and adds what bridges the gap with the forecast: the list of quantified assumptions, each one with its source.

• A summary page: the project, the area, the target customers and the turnover that follows from them
• The offer: what is sold, which need it meets, what sets it apart from competitors
• Demand: who buys, where, how many potential customers and how they were counted
• The environment: competitors identified, practice rules, trend, upcoming events, seasonality
• Commercial strategy: prices, channels, suppliers, communication
• The assumptions register: every number used in the forecast, with its source and date
• Appendices: questionnaire, price surveys, list of competitors, interview notes

The assumptions register is an item this course recommends adding to the four elements of the guidance, because it is the only one that links the two documents together. With it, the reader no longer has to rebuild the reasoning: they check the lines that matter to them, then move on to the financing plan.

Where to find help without handing over the thinking

To gather information, the official guidance advises questioning your competitors, entrepreneurs in the sector, your future customers and business support advisers. It names the chambers of trades and crafts, non-profit networks such as Réseau Entreprendre, BGE, Initiative France, France Active or Adie, as well as France Travail and business incubators.

These advisers review, ask questions and point you towards sources. They do not replace fieldwork: you are the one who will run the business, and it is your knowledge of the area that the study must show. An adviser who has reviewed the study can, however, confirm that it holds together.

What a market study is not

It is not a national sector report. INSEE, for instance, produces through its Ésane system an annual snapshot of the population of businesses and their main characteristics. That is valuable for comparing ratios, but it describes a whole sector, not the customers of one street or one catchment area.

Nor is it a box to tick to obtain a loan. The official guidance recalls that the study tells you whether your project has a chance of being profitable or not. A study concluding that the project must change its area, its price or its size has done its job.

Finally, it is not a fixed document. The guidance states that forecast data must then be updated every six months after the business is created. The market assumptions that feed it follow the same rhythm: they are compared with actual sales, and corrected.