Determining the Feasibility of Your Business Idea

This chapter is a checklist for the owner/manager of a business enterprise or for one contemplating going into business for the first time. The questions concentrate on areas you must consider seriously to determine if your idea represents a real business opportunity and if you can really know what you are getting into. You can use it to evaluate a completely new venture proposal or an apparent opportunity in your existing business.

Perhaps the most crucial problem you will face after expressing an interest in starting a new business or capitalizing on an apparent opportunity in your existing business will be determining the feasibility of your idea. Getting into the right business at the right time is simple advice, but advice that is extremely difficult to implement. The high failure rate of new businesses and products indicates that very few ideas result in successful business ventures, even when introduced by well established firm. Too many entrepreneurs strike out on a business venture so convinced of its merits that they fail to thoroughly evaluate its potential.

This checklist should be useful to you in evaluating a business idea. It is designed to help you screen out ideas that are likely to fail before you invest extensive time, money, and effort in them.

Preliminary Analysis

A feasibility study involves gathering, analyzing and evaluating information with the purpose of answering the question: "Should I go into this business?" Answering this question involves first a preliminary assessment of both personal and project considerations.

General Personal Considerations

The first seven questions ask you to do a little introspection. Are your personality characteristics such that you can both adapt to and enjoy business ownership/management?

1.  Do you like to make your own decisions?

2.  Do you enjoy competition?

3.  Do you have will power and self-discipline?

4.  Do you plan ahead?

5.  Do you get things done on time?

6.  Can you take advise from others?

7.  Are you adaptable to changing conditions?

The next series of questions stress the physical, emotional, and financial strains of a new business.

8.  Do you understand that owning your own business may entail working 12 to 16 hours a day, probably six days a week, and maybe on holidays?

9.  Do you have the physical stamina to handle a business?

10.  Do you have the emotional strength to withstand the strain?

11.  Are you prepared to lower your standard of living for several months or years?

12.  Are you prepared to loose your savings?

Specific Personal Considerations

1.  Do you know which skills and areas of expertise are critical to the success of your project?

2.  Do you have these skills?

3.  Does your idea effectively utilize your own skills and abilities?

4.  Can you find personnel that have the expertise you lack?

5.  Do you know why you are considering this project?

6.  Will your project effectively meet your career aspirations

The next three questions emphasize the point that very few people can claim expertise in all phases of a feasibility study. You should realize your personal limitations and seek appropriate assistance where necessary (i.e. marketing, legal, financial).

7.  Do you have the ability to perform the feasibility study?

8.  Do you have the time to perform the feasibility study?

9.  Do you have the money to pay for the feasibility study done?

General Project Description

1.  Briefly describe the business you want to enter.

________

2.  List the products and/or services you want to sell

________

3.  Describe who will use your products/services

________

4.  Why would someone buy your product/service?

________

5.  What kind of location do you need in terms of type of neighborhood, traffic count, nearby firms, etc.?

________

6.  List your product/services suppliers.

________

7.  List your major competitors - those who sell or provide like products/services.

________

8.  List the labor and staff you require to provide your products/services.

________

Requirements For Success

To determine whether your idea meets the basic requirements for a successful new project, you must be able to answer at least one of the following questions with a "yes."

1.  Does the product/service/business serve a presently unserved need?

2.  Does the product/service/business serve an existing market in which demand exceeds supply?

3.  Can the product/service/business successfully compete with an existing competition because of an "advantageous situation," such as better price, location, etc.?

Major Flaws

A "Yes" response to questions such as the following would indicate that the idea has little chance for success.

1.  Are there any causes (i.e., restrictions, monopolies, shortages) that make any of the required factors of production unavailable (i.e., unreasonable cost, scare skills, energy, material, equipment, processes, technology, or personnel)?

2.  Are capital requirements for entry or continuing operations excessive?

3.  Is adequate financing hard to obtain?

4.  Are there potential detrimental environmental effects?

5.  Are there factors that prevent effective marketing?

Desired Income

The following questions should remind you that you must seek both a return on your investment in your own business as well as a reasonable salary for the time you spend in operating that business.

1. How much income do you desire?

2. Are you prepared to earn less income in the first 1-3 years?

3. What minimum income do you require?

4. What financial investment will be required for your business?

5. How much could you earn by investing this money?

6. How much could you earn by working for someone else?

7. Add the amounts in 5 and 6. If this income is greater that what you can realistically expect from your business, are you prepared to forego this additional income just to be your own boss with the only prospects of more substantial profit/income in future years?

8. What is the average return on investment for a business of your type?

 

 

Say that you're the type who is starting new small business. You Have given focus to the general opportunities for success, and
have selected the new company you wish to establish.

What technical problems will you face in establishing the business? How Much money will you require for beginning new small
business? Where can you obtain it? What kind of business organization will you have? Where should you locate the company? (start
business tips to follow along )

The very first question you want to answer is: Just how much money will I need? However, this question can't be answered until
other questions are answered and several decisions are made.

To decide how much cash is needed to start a company, enter all Of your prospective income and all your planned expenses on a work
sheet or form.

Even though you might feel that This Type of preparation is more than You need to initiate a simple small business it's useful to
begin with this approach to management which puts figures down in black and white. You'll discover exactly the exact same approach
valuable in an established small business.

First, estimate your sales quantity. This will depend on the overall Quantity of business in the region, the number and ability of
opponents now sharing that company, and your capability to compete for the consumer's dollar. Obtain assistance in producing your
sales quote from wholesalers, trade associations, your banker, and other business-people. A number of business and statistical
publications could be useful in making sales volume quotes.

In reaching your final quote of sales do not be over-enthusiastic. A brand new business generally develops slowly at the start. If
you overestimate sales you're most likely to spend too much in gear and first stock, and devote yourself to heavier operating
expenses compared to your real sales volume will warrant. Since you are just beginning you might have no sales for the first
couple of months. At any rate you can expect your first few months to be quite low.

You must also determine what percentage of your earnings will be money And what percentage will be offered on credit. If you guess
that a particular portion of the earnings will be on charge then you have to figure when you are likely to get the money for all
these earnings. One month? 2 months? More? Never?

Next, in our guide to beginning new small business, estimate how Much money will be paid out. Remember that in starting a business
you might be purchasing equipment, paying fees and licenses, making deposits on rent, utilities and so on, several months until
you open the door. Some of these expenses are simple to estimate. In case you've decided to lease a building (more about that
later) then you know what your deposits will be and how much you will have to pay out each month. You are probably able to get the
cost of fees, permits and utility deposits with a few telephone calls.

Other expense figures may take a little more work to get. 1 way Is to obtain average operating ratios for the kind of business in
which you are interested. Among the sources for such ratios include Dun & Bradstreet, Inc., trade associations, publishers of
trade magazines, specialized accounting firms, industrial companies, and schools and universities. The typical ratios for your
kind of company multiplied by your estimated sales volume will serve as bench marks for estimating the various items of
expenditure. However, do not rely solely on this way of estimating each cost item. Verify and modify these quotes through
evaluation and quotations in the particular market place where you intend to operate.

Do not forget to pay yourself also. You Might Need cash to live on if You need to quit your job. If your partner is working and
may encourage the household for a while you might not need to withdraw money from the business. The more time you can go without
taking cash out, the faster you will develop a solid cash position. Now you've estimated your cash receipts and expenses, write
down the amount of money you will put into the business to begin. This goes online 1 at the example below. Next, add lines 2 and 1
for the first month to get line 3. Then add up all the expenses to get line 5. Subtract line 5 from line 3 to get line 6. This
money in the end of month then goes to line 1 for the start of the following month, and so on.

Should you continue this for the entire year, very shortly you'll find You've got negative amounts or even a negative cash flow.
About this time you will also realize that you ought to be working on this kind with a pencil which has a fantastic eraser.

In this overly-simplified illustration, you notice that by the end of June you're minus $200 in money. Two options can be
attempted - reduce your purchases at June by $200 or start with $200 more. You may not be able to reduce expenses (they will
probably go up as your business starts). So you'll have to put in $200 more to start with. If all you've got is $4000 then the
additional $200 you need is funding you must get from somewhere else.

Do not be fooled by this very simple illustration. Many small businesses Begin with the $200, and try to acquire the $4000 from
someplace else. Since a Major cause of failure in the early phases of a business is Under-capitalization, be very careful in your
planning at this stage. You can Almost always aim on some unexpected expenses and a few flaws in anticipated income.

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