You've got an idea for a business. Is it right for you?
So, you've come up with a great idea for a business. At least you think it's a great idea. After all, you've got a picture in your head of a smooth-running, efficient, profitable operation. It must be good...right?
Well, let's stop for a few minutes and think about some things you may not have considered before envisioning this prospective enterprise, which you imagine will become a cash-cow.
Let's focus on some basic factors about your potential business and consider some fundamental questions the answers to which should give you a better concept of whether your idea is worth pursuing as a business.
First, what is your idea for a business? Does it focus on a product or a service? If it's a product you must decide if your business will manufacture that product. Manufacturing entails locating raw materials from dependable sources at the right price. It also will entail assembling a trainable, reliable manufacturing workforce.
Or will your business distribute a product made by some other firm? Again, you will need a dependable supplier to provide the finished product at the right price, so you can in turn sell it to your customers at a profit. If you plan to provide a service, are you prepared to meet the needs of the market by providing a thorough, reliable and cost-effective service that also can provide a profit for your business?
Answers to all those questions lead to the second basic factor you must consider when seriously evaluating a business idea: what is the market for the business you plan to start? Is there a need for what you plan to offer? Who will buy your product or service?
What characteristics best identify the general group or market to which your customers belong? Will you offer your wares to the general public or will your firm be a business-to-business effort? If it's business-to-business, can you narrow your target market to a specific industry? Or, is government—federal, state or local—the best potential group on which to focus? And, can you logically target a specific government office or agency as your market focus?
If your target market is the general public, how well can you identify the demographic characteristics of your prospective customers? Such factors as age, sex, household income, location, family status, education, and race or ethnicity are some of the descriptors by which members of your potential audience could be categorized and identified as likely prospects for your venture.
And, how far will your market range geographically? Markets can be as confined as neighborhoods and small towns. They can stretch across states and regions. Or, they could be national or international in scope. How far will your company go to reach its market?
The third big consideration when starting a business: marketing and promotion.
How will you communicate the availability of your product or service? Paid advertising offers many channels of communication including: newspapers, radio, television, direct mail, outdoor (i.e. billboards), Internet, magazines, point-of-purchase displays and even the basic business card. Use market demographics to best identify the most appropriate channels to reach potential customers with your message. While paid advertising requires money it also ensures your specific message will appear as you designed it, at a time of your choosing and in the specific medium you selected.
Public relations and media relations efforts can focus on newsworthy activities, events or products related to your business. PR efforts require no money to buy space or time on a channel of communication, but your message is frequently modified and may not appear in the time or place you prefer.
Sales is another element of marketing. A primary point to consider regarding sales: Is your business retail or wholesale? Will your customers will be coming to you at a store or office, or will you be going to them with a mobile sales force? The answers to these questions will have a significant bearing on how you market your business to your intended clientele.
Number four on the list of factors to consider when sizing up a business idea: identifying the competition.
Who or what will your business compete against in your market?
What are the strengths and weaknesses of your competition?
How can you combat those strengths and take advantage of the weaknesses?
The more specific you can identify characteristics of your competition, the more likely you can take advantage of opportunities and be able to defend against possible threats to your business.
A fifth factor to consider: Start-up costs. How much money will you need to get going? Each expense factor is important because they eat up capital and need to be closely monitored by you.
A list of potential start-up-cost categories includes: inventory, facility rent or purchase, facility renovation and remodeling, utility deposits, prepaid insurance, vehicles, licenses and permits, tools and supplies, furniture and fixtures, equipment, travel, working capital, payroll, and professional services, such as legal and accounting.
These are all one-time costs to get your business up and running.
Point six: revenue projections for the first three years of operation. What are reasonable and justifiable numbers to expect for your gross profit (sales revenue minus cost of goods sold) and net profit (gross profit minus expenses)?
To get a solid idea of your projected annual sales revenue multiply the numbers you estimate from the following categories:
-number of different customers you anticipate in a 12-month period;
-number of times the average customer will purchase something;
-how much the average customer will spend per purchase.
Multiplying these three numbers provides the basis for an annual sales revenue goal for your business. Monitoring your firm's daily, weekly and monthly intake allows you to compare actual revenue with projections. If the two aren't close, adjustments will be necessary.
To estimate your gross profit, subtract the projected cost of goods sold from the projected sales revenue.
Determining your net profit requires subtracting monthly expenses from gross profit. Monthly expenses would include such items as: salaries, wages and payroll taxes; rent; telephone and ISP; utilities; office supplies and postage; loan payments; interest; depreciation; advertising and promotion; vehicles; travel; taxes, licenses and permits; professional services; insurance; repairs and maintenance; bad debts; and miscellaneous expenses. Reducing your gross profit by all those expenses leaves you with your net profit.
Those are some of the major points to consider—idea for you business, market, marketing and promotion, competition, start-up costs, and revenue projections—when seriously considering going into to business.
You've just reviewed a treasure trove of questions that you must seriously consider if you are truly serious about starting a business. The questions are straightforward. Now you must provide equally straightforward answers for yourself so you can objectively determine if your business idea is workable. And when conducting this self-exercise, remember the words of William Shakespeare: "To thine own self, be true."
So, you've come up with a great idea for a business. At least you think it's a great idea. After all, you've got a picture in your head of a smooth-running, efficient, profitable operation. It must be good...right?
Well, let's stop for a few minutes and think about some things you may not have considered before envisioning this prospective enterprise, which you imagine will become a cash-cow.
Let's focus on some basic factors about your potential business and consider some fundamental questions the answers to which should give you a better concept of whether your idea is worth pursuing as a business.
First, what is your idea for a business? Does it focus on a product or a service? If it's a product you must decide if your business will manufacture that product. Manufacturing entails locating raw materials from dependable sources at the right price. It also will entail assembling a trainable, reliable manufacturing workforce.
Or will your business distribute a product made by some other firm? Again, you will need a dependable supplier to provide the finished product at the right price, so you can in turn sell it to your customers at a profit. If you plan to provide a service, are you prepared to meet the needs of the market by providing a thorough, reliable and cost-effective service that also can provide a profit for your business?
Answers to all those questions lead to the second basic factor you must consider when seriously evaluating a business idea: what is the market for the business you plan to start? Is there a need for what you plan to offer? Who will buy your product or service?
What characteristics best identify the general group or market to which your customers belong? Will you offer your wares to the general public or will your firm be a business-to-business effort? If it's business-to-business, can you narrow your target market to a specific industry? Or, is government—federal, state or local—the best potential group on which to focus? And, can you logically target a specific government office or agency as your market focus?
If your target market is the general public, how well can you identify the demographic characteristics of your prospective customers? Such factors as age, sex, household income, location, family status, education, and race or ethnicity are some of the descriptors by which members of your potential audience could be categorized and identified as likely prospects for your venture.
And, how far will your market range geographically? Markets can be as confined as neighborhoods and small towns. They can stretch across states and regions. Or, they could be national or international in scope. How far will your company go to reach its market?
The third big consideration when starting a business: marketing and promotion.
How will you communicate the availability of your product or service? Paid advertising offers many channels of communication including: newspapers, radio, television, direct mail, outdoor (i.e. billboards), Internet, magazines, point-of-purchase displays and even the basic business card. Use market demographics to best identify the most appropriate channels to reach potential customers with your message. While paid advertising requires money it also ensures your specific message will appear as you designed it, at a time of your choosing and in the specific medium you selected.
Public relations and media relations efforts can focus on newsworthy activities, events or products related to your business. PR efforts require no money to buy space or time on a channel of communication, but your message is frequently modified and may not appear in the time or place you prefer.
Sales is another element of marketing. A primary point to consider regarding sales: Is your business retail or wholesale? Will your customers will be coming to you at a store or office, or will you be going to them with a mobile sales force? The answers to these questions will have a significant bearing on how you market your business to your intended clientele.
Number four on the list of factors to consider when sizing up a business idea: identifying the competition.
Who or what will your business compete against in your market?
What are the strengths and weaknesses of your competition?
How can you combat those strengths and take advantage of the weaknesses?
The more specific you can identify characteristics of your competition, the more likely you can take advantage of opportunities and be able to defend against possible threats to your business.
A fifth factor to consider: Start-up costs. How much money will you need to get going? Each expense factor is important because they eat up capital and need to be closely monitored by you.
A list of potential start-up-cost categories includes: inventory, facility rent or purchase, facility renovation and remodeling, utility deposits, prepaid insurance, vehicles, licenses and permits, tools and supplies, furniture and fixtures, equipment, travel, working capital, payroll, and professional services, such as legal and accounting.
These are all one-time costs to get your business up and running.
Point six: revenue projections for the first three years of operation. What are reasonable and justifiable numbers to expect for your gross profit (sales revenue minus cost of goods sold) and net profit (gross profit minus expenses)?
To get a solid idea of your projected annual sales revenue multiply the numbers you estimate from the following categories:
-number of different customers you anticipate in a 12-month period;
-number of times the average customer will purchase something;
-how much the average customer will spend per purchase.
Multiplying these three numbers provides the basis for an annual sales revenue goal for your business. Monitoring your firm's daily, weekly and monthly intake allows you to compare actual revenue with projections. If the two aren't close, adjustments will be necessary.
To estimate your gross profit, subtract the projected cost of goods sold from the projected sales revenue.
Determining your net profit requires subtracting monthly expenses from gross profit. Monthly expenses would include such items as: salaries, wages and payroll taxes; rent; telephone and ISP; utilities; office supplies and postage; loan payments; interest; depreciation; advertising and promotion; vehicles; travel; taxes, licenses and permits; professional services; insurance; repairs and maintenance; bad debts; and miscellaneous expenses. Reducing your gross profit by all those expenses leaves you with your net profit.
Those are some of the major points to consider—idea for you business, market, marketing and promotion, competition, start-up costs, and revenue projections—when seriously considering going into to business.
You've just reviewed a treasure trove of questions that you must seriously consider if you are truly serious about starting a business. The questions are straightforward. Now you must provide equally straightforward answers for yourself so you can objectively determine if your business idea is workable. And when conducting this self-exercise, remember the words of William Shakespeare: "To thine own self, be true."