BUSINESS READINESS
Before you set out on your entrepreneurial journey, you must ask yourself some questions listed in the Feasibility study below. This feasibility is designed to help you better understand and evaluate your readiness and the nitty-gritties for starting a business. Don’t just read this and move on. Make sure you figure out the answer to each questions so that you understand your personal goals but also your business goals. The more you understand the leap you are about to make into starting a business, the better chances it will be a successful one. You should know your personal limitations and seek appropriate assistance where necessary (i.e., marketing, legal, financial). Few people have expertise in doing a feasibility study. Financial statistics are available from most businesses, trade and industry associations, private companies, banks, universities, public libraries and government agencies. To determine whether you are ready to start a business, you must answer each of the following question with a "YES" or "NO" or "SELECTING," the appropriate answer. At the end of answering these questions, you will be able to know if you should go into business or not.
General Personal Considerations
The first series of questions ask you to do self-introspection.
- Do you know why you are considering going into business? (Select all that apply)
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Unhappy with current job
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Better lifestyle
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Family reasons
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Expanding on an interest or hobby
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Seeking more flexibility and control
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Taking advantage of an opportunity
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Capitalising on my skills and knowledge
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To help others
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Making lots of money
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Financial security
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Fulfilling a dream
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Currently not working
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Other
- Will this business effectively meet your career aspirations?
- Are your personality characteristics such that you can adapt to and enjoy small business ownership/management?
- Do you like to make your own decisions?
- Do you enjoy competition?
- Do you have willpower and self-discipline?
- Do you plan ahead and get things done on time?
- Can you take advice from others?
- Can you adapt to changing conditions?
- Why do you want to start your own business?
- Do you understand the risks of business ownership?
- Do you have an idea what you’re passionate about?
- Do you know what’s important to you?
- Can you see yourself doing this, five years from now?
- Do you have support for your business from family and friends?
- Have you discussed your business idea, business plan, or proposed business with a business coach or mentor?
- Do you consider yourself a leader and self-starter?
- Would other people consider you a leader?
- Would others consider you a team player?
- Do you have enough confidence in yourself and your abilities to sustain yourself in business, if or when things get tough?
- What are your goals? Short term? Long term?
- Do you have experience in the industry that you plan to start your business?
- Do you have business management experience or qualifications?
- Have you ever taken a course or seminar designed to teach you how to start and manage a small business?
- Do you feel comfortable using a computer or other technology to improve business operations?
- Do you know which skills and areas of expertise are critical to the success of your business?
- Do you possess these skills and know how to effectively utilize them?
- Will your business always rely on you or can you delegate responsibility?
The next series of questions stress the physical, emotional, and financial strains of a new business.
- Do you have the physical stamina and emotional strength to handle a business?
- Are you willing to commit long hours to make your business work?
- Do you understand that owning your own business means working 12-18 hours a day, maybe six days a week and holidays?
Business Planning Considerations
The following questions should remind you that business planning is very crucial in starting a business.
- Do you have a business plan for the business you are planning to start?
- Do you know and understand the components of a business plan?
- Do you know why some consider business planning to be the most important factor determining business success?
- Have you thought about your marketing strategy and how you will attract customers to your business?
- Have you prepared a marketing plan?
- Have you completed a SWOT (strengths, weaknesses, opportunities and threats) analysis to identify internal and external factors that may impact on your business?
- Do you know what you will charge for your products and services?
- Do you know where your business will be located?
- Have you organised suppliers (e.g. for stock or equipment)?
- Will you need to hire staff?
- Do you know how to find the right personnel who have the skills, abilities, and expertise you lack?
- Have you calculated the cost of starting your business?
- Do you have a customer service strategy in mind or in place?
- Do you have a payroll process planned for your business?
- Do you know if your business should have some form of intellectual property protection?
- Do you understand your business’s legal and regulatory requirements?
- Have you chosen a legal structure for your business (e.g. sole trader, partnership, company, trust)?
- Do you know if your business will require a special license or permit and how to obtain it?
- Do you understand the tax requirements associated with your business?
- Do you know where to obtain information about regulations and compliance requirements that impact your business?
- How will you exit your business?
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.
- How much income do you desire?
- Are you prepared to lower your standard of living for several months or years or until your business is firmly established?
- Are you willing to invest a significant portion of your savings or net worth to get your business started?
- Can you afford to lose your savings?
- Are you prepared to earn less in the first 1-3 years?
- What minimum amount of income do you require?
- How much could you earn by investing this money?
- How much could you earn by working for someone else?
Preliminary Income Statement and Sales
You need to know the how much money you will need to start your business as well as, business income and expenses. Show profit/loss and derive operating ratios on income statements.
- What is the average return on investment for a business of your type?
- What financial investment is required for your business?
- Can you start small without huge capital investment?
- How much money will your idea cost to start?
- Do you know how to come up with the financial “break-even point” for your business?
- Do you know how to come up the start-up costs for your business?
- Do you know about the various loan programs that are available from banks in your area?
- Do you understand how a business loan can impact your credit?
- Do you plan to mark down products occasionally to eliminate inventories?
- If you do not carry over inventory, have you adequately considered the effect of mark-down in your pricing? (profit margin may be too low)
- How do you plan to advertise/promote your product/service?
- Do you know how to prepare and/or interpret a balance sheet, income statement, and cash-flow statement?
- What is the normal mark-up in this line of business, i.e., the dollar difference between the cost of goods sold and sales, expressed as a percentage of sales?
- What is the average cost of goods sold percentage of sales?
- What is the average inventory turnover, i.e., the number of times the average inventory is sold each year?
- What is the average gross profit as a percentage of sales?
- What are the average expenses as a percentage of sales?
- What is the average expenses net profit as a percent of sales?
- Take the preceding figures and work backwards using a standard income statement format and determine the level of sales necessary to support your desired income level.
- From an objective, practical standpoint, is this level of sales, expenses and profit attainable?
- Are you optimistic/pessimistic in your forecast of sales?
- Determine the total sales volume in your market area.
- How accurate is your forecast of total sales? Is it based on concrete data?
- Is the estimated sales figure "normal" for your market area?
- Is the sales per square foot for your competitors above the normal average?
- Are there conditions or trends that could change your forecast of total sales?
- Forecast the total market share you can realistically expect-as a dollar amount and as a percentage of your market.
- Is your sales forecast greater than the sales amount needed to guarantee your minimum income?
- Can you create enough competitive advantages to achieve the market share in your forecast of the previous question?
- Are you willing to hire an expert to refine the sales forecast if needed?
Market Analysis
The primary objective of a market analysis is to arrive at a realistic projection of sales. This will help you determine whether your business idea will make you money.
1. Customer Base
- Do you really believe in your idea?
- Does your idea provide value to the customer?
- What level of interest is there for your products and services? (Please select the most appropriate answer)
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My research shows there is a high demand for what I plan to offer.
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My research shows there is a niche in the market that I believe I can fill.
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My family and friends think it is a great idea.
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I haven't done any research yet.
- Define the geographical areas from which you can realistically expect to draw customers.
- What is the makeup of population in these areas, average family size, age distribution and per capita income?
- What do you know about the population growth trend in these areas?
- What is the consumer's attitude, shopping/spending patterns of business?
- Is the price of your product or service important to your target market?
- Can you appeal to the entire market?
- If you appeal to only a portion of the market, is that segment enough to be profitable?
- Is your business scalable?
- Is the market for your business big enough to support your idea?
- What is the most effective way to reach your customers?
- Are you sure your planned business fills a specific market need?
- Do you know your target market?
- Do you know how to prepare a marketing strategy for your business?
- Do you understand marketing trends in your business industry?
2. Competition
- Have you assessed the level of competition for your products and services?
- Is there healthy competition around your industry?
- Can you stand out from the pack?
- What will make people buy from you rather than your competitors (known as your competitive advantage)? (Select all that apply)
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Marketing
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Quality
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Uniqueness
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Exceptional service
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Price
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Reputation
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Prestige
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Convenience
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Location
- Who are your major competitors and their strengths/weaknesses?
- Do you know how to learn about your business competitors?
- Are you familiar with factors concerning your competitors' price structure, product lines (quality, breadth, width), location, source of supply, promotional activities and image from a consumer's viewpoint?
- Do you know of any new competitors or competitor's plan for expansion?
- Has any business in your line of business gone out of business lately? If so, why?
- Do you know the sales and market share and profit levels of each competitor?
- Do you know whether the sales and market share and profits of each competitor are increasing, decreasing or stable?
- Can you compete with your competition?
3. Supply
- Can you make an itemized inventory list of operating supplies needed?
- Do you know the quantity, quality, price ranges, technical specifications and name/location of potential sources of supply?
- Do you know delivery schedule, credit terms and sales of each supplier?
- Do you know the risk of shortage for any critical materials or merchandise?
- Do you know if the price allows you to achieve an adequate mark-up?
- Do you know which supplies have an advantage relative to transportation costs?
4. Expenses
- Do you know your necessary expenses rent, wages, insurance, utilities, advertising and interest, etc.?
- Do you know which expenses are direct, indirect or fixed?
- Do you know how much overhead will be?
- Do you know how much selling expenses will be?
5. Miscellaneous
- Are you aware of the major risks associated with your product/business/service?
- Can you minimize these major risks or are they beyond your control?
- Can these risks bankrupt you?