Feasibility study

Checklist for Going Into Business

Owning a business is the dream of many people ... starting that business converts your dream into reality. But there is a gap between your dream and reality that can only be filled with careful planning. As a business owner, you will need a plan to avoid pitfalls, to achieve your goals and to build a profitable business.

The "Checklist for Going into Business" is a guide to help you prepare a comprehensive business plan and determine if your idea is feasible, to identify questions and problems you will face in converting your idea into reality and to prepare for starting your business.

 

Operating a successful small business will depend on:

  • a practical plan with a solid foundation;
  • dedication and willingness to sacrifice to reach your goal;
  • technical skills; and
  • basic knowledge of management, finance, record keeping and market analysis.

As a new owner, you will need to master these skills and techniques if your business is to be successful.

 

Identify Your Reasons

As a first and often overlooked step, ask yourself why you want to own your own business. Check the reasons that apply to you.

1. Freedom from the 9-5 daily work routine. ___

2. Being your own boss. ___

3. Doing what you want when you want to do it. ___

4. Improving your standard of living. ___

5. Boredom with your present job. ___

6. Having a product or service for which you feel there is a demand. ___

Some reasons are better than others, none are wrong; however, be aware that there are tradeoffs. For example, you can escape the 9 to 5 daily routine, but you may replace it with a 6 a.m. to 8 p.m. routine.

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A Self-Analysis

Going into business requires certain personal characteristics. This portion of the checklist deals with you, the individual. These questions require serious thought. Try to be objective. Remember, it is your future that is at stake!

 

Personal Characteristics

  Answer each question with Yes or No

1. Are you a leader?

2. Do you like to make your own decisions?

3. Do others turn to you for help in making decisions?

4. Do you enjoy competition?

5. Do you have will power and self discipline?

6. Do you plan ahead?

7. Do you like people?

8. Do you get along well with others?

Personal Conditions

This next group of questions though brief is vitally important to the success of your plan. It covers the physical emotional and financial strains you will encounter in starting a new business.

  • Are you aware that running your own business may require working 12-16 hours a day six days a week and maybe even Sundays and holidays?
  • Do you have the physical stamina to handle the workload and schedule?
  • Do you have the emotional strength to withstand the strain?
  • Are you prepared if needed to temporarily lower your standard of living until your business is firmly established?
  • Is your family prepared to go along with the strains they too must bear?
  • Are you prepared to lose your savings?

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Personal Skills And Experience

Certain skills and experience are critical to the success of a business. Since it is unlikely that you possess all the skills and experience needed you'll need to hire personnel to supply those you lack. There are some basic and special skills you will need for your particular business.

By answering the following questions you can identify the skills you possess and those you lack (your strengths and weaknesses).

  • Do you know what basic skills you will need in order to have a successful business?
  • Do you possess those skills?
  • When hiring personnel will you be able to determine if the applicants' skills meet the requirements for the positions you are filling?
  • Have you ever worked in a managerial or supervisory capacity?
  • Have you ever worked in a business similar to the one you want to start?
  • Have you had any business training in school?
  • If you discover you don't have the basic skills needed for your business will you be willing to delay your plans until you've acquired the necessary skills?

 

Finding a Niche

Small businesses range in size from a manufacturer with many employees and millions of dollars in equipment to the lone window washer with a bucket and a sponge. Obviously the knowledge and skills required for these two extremes are far apart but for success they have one thing in common: each has found a business niche and is filling it.

The most critical problems you will face in your early planning will be to find your niche and determine the feasibility of your idea. "Get into the right business at the right time" is very good advice but following that advice may be difficult. Many entrepreneurs plunge into a business venture so blinded by the dream that they fail to thoroughly evaluate its potential.

Before you invest time effort and money the following exercise will help you separate sound ideas from those bearing a high potential for failure.

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Is Your Idea Feasible?

  • Identify and briefly describe the business you plan to start.
  • Identify the product or service you plan to sell.
  • Does your product or service satisfy an unfilled need?
  • Will your product or service serve an existing market in which demand exceeds supply?
  • Will your product or service be competitive based on its quality selection price or location?

Answering yes to any of these questions means you are on the right track; a negative answer means the road ahead could be rough.

 

Market Analysis

For a small business to be successful the owner must know the market. To learn the market you must analyze it a process that takes time and effort. You don't have to be a trained statistician to analyze the marketplace nor does the analysis have to be costly.

Analyzing the market is a way to gather facts about potential customers and to determine the demand for your product or service. The more information you gather the greater your chances of capturing a segment of the market. Know the market before investing your time and money in any business venture.

These questions will help you collect the information necessary to analyze your market and determine if your product or service will sell.

1. Do you know who your customers will be?

2. Do you understand their needs and desires?

3. Do you know where they live?

4. Will you be offering the kind of products or services that they will buy?

5. Will your prices be competitive in quality and value?

6. Will your promotional program be effective?

7. Do you understand how your business compares with your competitors?

8. Will your business be conveniently located for the people you plan to serve?

9. Will there be adequate parking facilities for the people you plan to serve?

This brief exercise will give you a good idea of the kind of market planning you need to do. An answer of no indicates a weakness in your plan so do your research until you can answer each question with a "yes".

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Planning Your Start-up

So far this checklist has helped you identify questions and problems you will face converting your idea into reality and determining if your idea is feasible. Through self-analysis you have learned of your personal qualifications and deficiencies and through market analysis you have learned if there is a demand for your product or service.

The following questions are grouped according to function. They are designed to help you prepare for "Opening Day".

Name and Legal Structure

1. Have you chosen a name for your business?

2. Have you chosen to operate as sole proprietorship partnership or corporation?

 

Your Business and the Law

A person in business is not expected to be a lawyer but each business owner should have a basic knowledge of laws affecting the business. Here are some of the legal matters you should be acquainted with:

1. Do you know which licenses and permits you may need to operate your business?

2. Do you know the business laws you will have to obey?

3. Do you have a lawyer who can advise you and help you with legal papers?

4. Are you aware of

Occupational Safety and Health requirements?

Regulations covering hazardous material?

Local ordinances covering signs snow removal etc.?

Tax Code provisions pertaining to small business?

Workmen's Compensation laws?

Protecting Your Business

It is becoming increasingly important that attention be given to security and insurance protection for your business. There are several areas that should be covered. Have you examined the following categories of risk protection?

  • Fire
  • Theft
  • Robbery
  • Vandalism
  • Accident liability

Discuss the types of coverage you will need and make a careful comparison of the rates and coverage with several insurance agents before making a final decision.

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Business Premises and Location

1. Have you found a suitable building in a location convenient for your customers?

2. Can the building be modified for your needs at a reasonable cost?

3. Have you considered renting or leasing with an option to buy?

4. Will you have a lawyer check the zoning regulations and lease?

 

Merchandise

  • Have you decided what items you will sell or produce or what service(s) you will provide?
  • Have you made a merchandise plan based upon estimated sales to determine the amount of inventory you will need to control purchases?
  • Have you found reliable suppliers who will assist you in the start-up?
  • Have you compared the prices quality and credit terms of suppliers?

Business Records

  • Are you prepared to maintain complete records of sales income and expenses accounts payable and receivables?
  • Have you determined how to handle payroll records tax reports and payments?
  • Do you know what financial reports should be prepared and how to prepare them?

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Finances

A large number of small businesses fail each year. There are a number of reasons for these failures but one of the main reasons is insufficient funds. Too many entrepreneurs try to start and operate a business without sufficient capital (money). To avoid this dilemma you can review your situation by analyzing these three questions:

1. How much money do you have?

2. How much money will you need to start your business?

3. How much money will you need to stay in business?

The chart below will help you answer the second question: How much money will you need to start your business? The chart is for a retail business; items will vary for service construction and manufacturing firms.

The answer to the third question (How much money will you need to stay in business?) must be divided into two parts: immediate costs and future costs.

 

Start-up Cost Estimates

  • Decorating, remodeling        
  • Fixtures, equipment
  • Installing fixtures, equipment
  • Services, supplies
  • Beginning inventory cost
  • Legal, professional fees
  • Licenses, permits
  • Telephone utility deposits
  • Insurance
  • Signs
  • Advertising for opening
  • Unanticipated expenses
 

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Total start-up costs __________

From the moment the door to your new business opens a certain amount of income will undoubtedly come in. However this income should not be projected in your operating expenses. You will need enough money available to cover costs for at least the first three months of operation. The chart below will help you project your operating expenses on a monthly basis.

 

Expenses for one month

  • Your living costs
  • Employee wages
  • Rent
  • Advertising
  • Supplies
  • Utilities
  • Insurance
  • Taxes
  • Maintenance
  • Delivery/transportation
  • Miscellaneous
 

Total expenses __________

Now multiply the total of the chart above by three. This is the amount of cash you will need to cover operating expenses for three months. Deposit this amount in a savings account before opening your business. Use it only for those purposes listed in the above chart because this money will ensure that you will be able to continue in business during the crucial early stages.

By adding the total start-up costs to the total expenses for three months (three times the total cost on The chart above) you can learn what the estimated costs will be to start and operate your business for three months. By subtracting the totals of the charts from the cash available you can determine the amount of additional financing you may need if any. Now you will need to estimate your operating expenses for the first year after start-up.

The first step in determining your annual expenses is to estimate your sales volume month by month. Be sure to consider seasonal trends that may affect your business. Information on seasonal sales patterns and typical operating ratios can be secured from your trade associations.

(NOTE: The relationships among amounts of capital that you invest levels of sales each of the cost categories the number of times that you will sell your inventory (turnover) and many other items form "financial ratios." These ratios provide you with extremely valuable checkpoints before it's too late to make adjustments. In the reference section of your local library are publications such as "The Almanac of Business and Industrial Financial Ratios" to compare your performance with that of other similar businesses.

Next determine the cost of sales. The cost of sales is expressed in dollars. Fill out each month's column in dollars total them in the annual total column and then divide each item into the total net sales to produce the annual percentages. Examples of operating ratios include cost of sales to sales and rent to sales.

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After Start-up

The primary source of revenue in your business will be from sales but your sales will vary from month to month because of seasonal patterns and other factors. It is important to determine if your monthly sales will produce enough income to pay each month's bills.

An estimated cash flow projection will show if the monthly cash balance is going to be subject to such factors as:

  • Failure to recognize seasonal trends;
  • Excessive cash taken from the business for living expenses;
  • Too rapid expansion; and
  • Slow collection of accounts if credit is extended to customers.

Use the following chart to build a worksheet to help you with this problem. In this example all sales are made for cash.

 

Conclusion

Beyond a doubt preparing an adequate business plan is the most important step in starting a new business. A comprehensive business plan will be your guide to managing a successful business. The business plan is paramount to your success. It must contain all the pertinent information about your business; it must be well written factual and organized in a logical sequence. Moreover it should not contain any statements that cannot be supported.

If you have carefully answered all the questions on this checklist and completed all the worksheets you have seriously thought about your goal. But . . . there may be some things you may feel you need to know more about.

Owning and running a business is a continuous learning process. Research your idea and do as much as you can yourself but don't hesitate to seek help from people who can tell you what you need to know.