|
Checklist For Starting A Business
This
guide 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?
- Do you like to make your
own decisions?
- Do you enjoy competition?
- Do you have will power and
self-discipline?
- Do you plan ahead?
- Do you get things done on
time?
- Can you take advise from
others?
- Are you adaptable to
changing conditions?
The next series of questions
stress the physical, emotional, and financial strains of a
new business.
- 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?
- Do you have the physical
stamina to handle a business?
- Do you have the emotional
strength to withstand the strain?
- Are you prepared to lower
your standard of living for several months or years?
- Are you prepared to loose
your savings?
Specific Personal Considerations
- Do you know which skills
and areas of expertise are critical to the success of your
project?
- Do you have these skills?
- Does your idea effectively
utilize your own skills and abilities?
- Can you find personnel
that have the expertise you lack?
- Do you know why you are
considering this project?
- 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).
- Do you have the ability to
perform the feasibility study?
- Do you have the time to
perform the feasibility study?
- Do you have the money to
pay for the feasibility study done?
General Project Description
- Briefly describe the
business you want to enter.
- List the products and/or
services you want to sell
- Describe who will use your
products/services
- Why would someone buy your
product/service?
- What kind of location do
you need in terms of type of neighborhood, traffic count,
nearby firms, etc.?
- List your product/services
suppliers.
- List your major
competitors - those who sell or provide like
products/services.
- 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".
- Does the
product/service/business serve a presently unserved need?
- Does the
product/service/business serve an existing market in which
demand exceeds supply?
- 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.
- 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)?
- Are capital requirements
for entry or continuing operations excessive?
- Is adequate financing hard
to obtain?
- Are there potential
detrimental environmental effects?
- 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.
- How much income do you
desire?
- Are you prepared to earn
less income in the first 1-3 years?
- What minimum income do you
require?
- What financial investment
will be required for your business?
- How much could you earn by
investing this money?
- How much could you earn by
working for someone else?
- 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?
- What is the average return
on investment for a business of your type?
Preliminary Income Statement
Besides return on investment, you need to know the income
and expenses for your business. You show profit or loss and
derive operating ratios on the income statement. Dollars are
the (actual, estimated, or industry average) amounts for
income and expense categories. Operating ratios are
expressed as percentages of net sales and show relationships
of expenses and net sales.
For instance 50,000 in net
sales equals 100% of sales income (revenue). Net profit
after taxes equals 3.14% of net sales. The hypothetical "X"
industry average after tax net profit might be 5% in a given
year for firms with 50,000 in net sales. First you estimate
or forecast income (revenue) and expense dollars and ratios
for your business. Then compare your estimated or actual
performance with your industry average. Analyze differences
to see why you are doing better or worse than the
competition or why yo ur venture does or doesn't look like
it will float.
These basic financial
statistics are generally available for most businesses from
trade and industry associations, government agencies,
universities and private companies and banks.
Forecast your own income statement. Do not be influenced by
industry figures. Your estimates must be as accurate as
possible or else you will have a false impression.
- What is the normal markup
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 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?
ANY BUSINESS,
INC.
Condensed Hypothetical Income Statement
For year ending December 31
Item Amount Percent
Gross sales 773,888
Less returns, allowances,
and cash discounts 14,872
________
Net sales 759,016 100.00
Cost of goods sold 589,392 77.65
________ ________
Gross profit on sales 169,624 22.35
Selling expenses 41,916 5.52
Administrative expenses 28,010 3.69
General expenses 50,030 6.59
Financial expenses 5,248 0.69
________ ________
Total expenses 125,204 16.50
Operating profit 44,220 5.85
Extraordinary expenses 1,200 0.16
________ ________
Net profit before taxes 43,220 5.69
taxes 19,542 2.57
________ ________
Net profit after taxes 23,678 3.12
Market Analysis
The primary objective of a market analysis is to arrive at a
realistic projection of sales. after answering the following
questions you will be in a better positions to answer
question eight immediately above.
Population
- Define the geographical
areas from which you can realistically expect to draw
customers.
- What is the population of
these areas?
- What do you know about the
population growth trend in these areas?
- What is the average family
size?
- What is the age
distribution?
- What is the per capita
income?
- What are the consumers'
attitudes toward business like yours?
- What do you know about
consumer shopping and spending patterns relative to your
type of business?
- Is the price of your
product/service especially important to your target
market?
- Can you appeal to the
entire market?
- If you appeal to only a
market segment, is it large enough to be profitable?
Competition
- Who are your major
competitors?
- What are the major
strengths of each?
- What are the major
weaknesses of each?
- Are you familiar with the
following factors concerning your competitors:
- Price structure?
- Product lines (quality,
breadth, width)?
- Location?
- Promotional activities?
- Sources of supply?
- Image from a consumer's
viewpoint?
- Do you know of any new
competitors?
- Do you know of any
competitor's plans for expansion?
- Have any firms of your
type gone out of business lately?
- If so, why?
- Do you know the sales and
market share of each competitor?
- Do you know whether the
sales and market share of each competitor are increasing,
decreasing, or stable?
- Do you know the profit
levels of each competitor?
- Are your competitors'
profits increasing, decreasing, or stable?
- Can you compete with your
competition?
Sales
- Determine the total sales
volume in your market area.
- How accurate do you think
your forecast of total sales is?
- Did you base your forecast
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?
- Do you expect to carry
items in inventory from season to season, or 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? (Your gross profits margin may be too low.)
- How do you plan to
advertise and promote your product/service/business?
- Forecast the share of the
total market that you can realistically expect - as a
dollar amount and as a percentage of your market.
- Are you sure that you can
create enough competitive advantages to achieve the market
share in your forecast of the previous question?
- Is your forecast of dollar
sales greater than the sales amount needed to guarantee
your desired or minimum income?
- Have you been optimistic
or pessimistic in your forecast of sales?
- Do you need to hire an
expert to refine the sales forecast?
- Are you willing to hire an
expert to refine the sales forecast?
Supply
- Can you make a list of
every item of inventory and operating supplies needed?
- Do you know the quantity,
quality, technical specifications, and price ranges
desired?
- Do you know the name and
location of each potential source of supply?
- Do you know the price
ranges available for each product from each supplier?
- Do you know about the
delivery schedules for each supplier?
- Do you know the sales
terms of each supplier?
- Do you know the credit
terms of each supplier?
- Do you know the financial
condition of each supplier?
- Is there a risk of
shortage for any critical materials or merchandise?
- Are you aware of which
supplies have an advantage relative to transportation
costs?
- Will the price available
allow you to achieve an adequate markup?
- Can you obtain the
additional data needed?
- Are you aware that there
is less than a 50-50 chance that you will be in business
two years from now?
How to Know
That it's Time to make a Radical Shift in your Business
Certain business realities
signal us that we should make a shift if we are to
survive. Herewith, a list of some of those signals.
1. You find
more and more competitors in your market.
An indication that it's a
good market, but being fractioned. Unless what you offer
is both different and better, look for another niche.
2. Your
market disappears.
OK, you make the world's
best buggy whips! Wake up.
3. Your
interests and values are out of sync with your business.
A formula for business
disaster and personal misery. Revisit your vision and
mission--and align them with your values. Now start again.
4. Your
customers are leaving for your competition.
Either figure out why and
fix it or find another business.
5. You dread
going to work in the morning.
Figure out why. If it can't
be changed, do something else.
6. You notice
your competitors changing.
Have you noticed that, like
it or not, it's a race? Do what it takes to win or join
another race.
7. Working on
the business is taking more time than working in the
business.
If your revenue can't
support more help, find a way to simplify and streamline
your business (your competitors probably are).
8. You're
losing key employees to your competitors.
A sure sign of "trouble in
River City!" Conduct "exit interviews" with departing
employees--figure out what the competition's got that you
don't.
9. Your
business no longer supports your lifestyle.
Well, change either one or
the other until they're in sync.
10. You're
neither learning nor having fun any more.
Certain death if you stick
it out. Time for a fresh start
|
