Setting up your own business is exciting, so it’s easy to get carried away. However, before you jump straight in and invest your time and money into your new business idea, take a step back and give some serious consideration as to whether your business idea will work and give you a reasonable return on your investment.
To help you answer the big question, “Will your business idea really work?,” we have put together a simple checklist.
If you can answer yes to all these questions, then congratulations start drawing up a business plan to get the wheels in motion. If not then maybe your idea needs a bit more thought .
1. Do you have a unique selling point?
The world of business is tough. Your product or service will compete against other similar products to gain customers and market share. So make sure your product or service stands out from the crowd by asking yourself the following questions:
- Does it offer customers more than its competitors can?
- Does it solve a problem better than other available products?
A yes to these questions means that your product or service has a unique selling point which is essential for success as it allows your product or service to stand out from competition and allows you to compete on more than just price.
So if you can answer yes to this question , move on to the next . However, if you’re not sure whether your product or service adds value that customers can’t find elsewhere, brainstorm a few ideas that can differentiate your product.
If you can’t differentiate the product itself, maybe you can differentiate using the service you offer. Several years ago, Pizza Hut differentiated themselves in what would seem to be a ‘me to’ market and won a huge market share. They considered what customers saw as the major issues of ordering a takeaway pizza i.e. it takes ages to arrive, its always cold when we get it ,then they came up with the following guarantee “We will deliver your pizza to you hot within 30 mins of you ordering it, or your money back” this instantly differentiated them, yet they were still selling exactly the same product as their competitors.
2. Is there a market for your product?
It is easy to get so excited when you come up with a business idea that you can easily overlook one of the most important needs in running a business. Is there actually a market for your product? Your friends may think your idea is great, but would they actually part with their cold hard cash to buy it?
So take some time to research the following;
- Who would buy your product and why?
- How big is your potential market?
- What is the estimated number of potential customers?
- How often will they purchase your product?
- How will they purchase it?
It is essential that you really understand and know your market. Also, find out what motivates your potential customers in choosing your product or service.
The more you understand your market, the easier it will be to position your product with potential customers and create your marketing strategy. Note that people of different age groups and backgrounds respond to different types of advertising.
The next step is to look at your competitors. Find out their respective advantages, pricing and market strategies. This can be done by reviewing their websites and social media, visiting their stores, calling their sales line and collecting their advertising material.
Once you have gathered all the information and decided that there is a potential market for your product or service you need to see if the numbers add up. After all, you want your business to make a profit.
3. Do the numbers add up?
Now is the time to crunch those numbers to see if your business idea can actually make you money.
Think about the following:
- How much would producing your product or service cost (including materials, rent, salaries)?
- How much will you need to charge to cover your costs and make a profit?
- How much do your competitors charge?
- How much would customers be prepared to pay for your added value product or service?
- How many people are there in your potential market?
- How often will they purchase your product?
- How much income will these sales generate on a weekly, monthly and yearly basis?
- Will the income cover the cost of running the business?
- Are the margins high enough to break even after a few months and then start trading at a profit?
- What sort of return-on-investment will you get?
Is your business going to do more than just keep you busy? Is it going to make you money? There’s little point in investing a lot of money, time and effort in running a business if you earn less than the returns you’d get from putting your money into a term deposit.
If the numbers stack up, and your business looks like it will make you money, you need to consider if you have enough money to support yourself until the business is profitable?
4. Do you have enough money to last until your business is profitable?
The last test is the question of whether you have enough money to not only meet the startup costs of the business but also cover any unforeseen and operating costs the business will have until it starts making a profit.
You also need to be prepared for the fact that it will take time to establish yourself. This means sales at the start may be slow.
In addition to covering your operational expenses, you will also need to meet your personal expenses for quite a while before you break even and if you’re borrowing money, you’ll also need to meet the interest payments when they fall due.
Make sure you map out all of your business and personal expenses, plus a bit extra for unexpected costs. Poor cash flow is the reason over 90% of businesses close down.
So will your business idea work?
If you’ve answered yes to all of the questions above, chances are your business idea has potential. Now is the time to put together a business plan. This will document exactly how you will turn your dreams into reality.
If you need help researching your market download our FREE guide: “Undertaking your own market research.” Also check out our free resources section, you’ll find lots of tools to assist you to run your business.
Alternatively if you would like more tailored advice, give us a call and we can catch up, the coffee will be on us.