You have an amazing idea. But you don’t know a whole lot about business. How in the world do you begin to see if it is a money making venture? Where do you possibly start? Do you approach a bank for a loan? Do you spend money you have saved for emergencies? What are the first steps to take if you think you have the best idea, but no one will listen?
Statistics show that 80% of new businesses fail within the first year. So before you even decide to start a business, do yourself a big favor, and follow the 8 steps below to see if it is even a viable idea first!! These steps are important because they only cost you time, not money, and will save you money in the long run!
1. Do your own marketing research. What does this mean? Create a survey, and go to similar businesses and ask them questions. But you can’t just go to one business. Go to as many as you can. Ask every question you can. Some businesses will be more helpful than others, but it’s amazing what you learn when you ask. Doing your own research will help determine if there is room in the industry for one more similar business…..Be observant. Are they making money? How busy are they? What do they do right? What could they do better? How would you make it better? This is a very important step! Do not miss out on doing your own research! If there is no similar business or product, ask anyone what they truly think? Get them to be as honest as possible. Ask strangers, not friends who may tell you what you want to hear. Create a survey, ask dozens, if not hundreds for answers, compile the results, and be honest with yourself about the results.
2. Research all your possible costs. I mean everything. Variable costs? Fixed costs? If you need to build a website, what does that cost? If you need to build a building, what does that cost? Phone? Utilities? Advertising? Employees? Taxes (sales, income, etc)? Permits? I mean everything. Once you figure out what your costs are, add 50% to it. There are always hidden costs. Then add another 10% for good measure.
3. Do a break even analysis. What can you sell your product/service for? What costs are associated with each sale (variable cost)? What portion of your fixed costs are associated with each sale? After subtracting your variable and fixed costs from your sale, is there enough money left to make the effort of starting a business worthwhile? Be honest! This is the time to really do your “due diligence”, and discover whether the idea really will generate positive cash flow. Look at your profits and costs like an income statement. What is your estimated gross revenue for a year? What are your variable costs? What are your fixed costs? Do you still have money left over?
4. Once you determine if the venture could be profitable, then you need to consider Opportunity Costs. This is where you look at the opportunity cost of the time and money you are about to invest in a business, to see if other uses of the time and money could be better. Could you make just as much money investing your initial investment in something else, and still have your time? Could you make just as much money being employed somewhere else?
5. If you do not know what a “break-even analysis” is, or what “due diligence”, “positive cash flow”, “fixed costs”, “variable costs”, “opportunity costs”, “Income Statement” or “initial investment” (and many other terms) means, then you need to find out all of these terms and understand what they mean before you continue. Try looking them up on wikipedia to start…
6. Most people who start their own business are good at something, like it, so want to do it for a living. For example, they like to carve. So they open a wood carving store, and make and sell beautiful, decorative carvings. Or they like to bake cookies, so they open a bakery. But what they don’t realize is that instead of just carving wood, or just baking cookies, they also have to become a marketer, a sales person, have to give great customer service, have to manage cash flow, create financial statements, pay bills, make deposits, keep the place clean…..and the list goes on. Many great wood carvers, plumbers, bakers, etc.., become discouraged business owners because they didn’t realize all the responsibilities required to run a business. Ask yourself if you are prepared for all the responsibilities of being a business owner.
7. Look into Government regulations, permits, licenses, tax requirements, and any other government requirements, that you may need. This may be a roadblock itself. Great resources exist that tell you what you may need in order to build, sell, or whatever your venture requires. But find out now how long, if at all, it takes to get the necessary government requirements looked after!
8. Now, after considering all of the 7 steps above, consider if you still will be profitable, and still want to continue with the idea. If the answer is yes, only now do you start to create a business plan….Which is still a huge step to take before start-up begins! Yes, it is a long process, but well worth the effort if done properly!
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