Many business idea are truly sound from the word go, but the facts remain that many elements of the idea must become solidified before approaching a bank or other financial institution for their immediate funding and for on-going support. Your project needs to be put to the test, and your ability to answer questions about it will more than likely tell you more than you had previously been aware. The purpose of this article is to prompt you to delve deeper into your idea and strengthen your belief, confidence and knowledge before proceeding further.
Get out a pencil and a note pad and write down all the answers to the following questions, and all the ideas that spring to mind in the meantime.
Section 1 – WHAT IS IT THAT YOU REALLY WANT TO DO?
You have probably reached this point with many plans about what you want to do, but it is time to look at you alternatives.
- What can you do?
- What do you like doing?
- What can you do that could generate an income?
Section 2 – ARE YOU STARTING FROM SCRATCH?
A new business venture requires much more careful thought than an already established operation. A brand new product or service requires research, surveys and statistics gathering. The vicious circle here is that no matter how much research you do, you will never truly know the potential of a market until you are up and running, but without research results and solid justified data, no financial institution will give you the chance to find those real truths. If your product or service is established in the marketplace, you’ll need an edge, a unique selling point (USP) in order to stand out above all your competition.
- What is your USP?
- Who will be your market?
- How will your offering draw people away from existing sources of that product or service?
- A brand new product with a USP and a defined market segment will most likely grow slowly at first, until the product has gained publicity, confidence through referrals and generally by becoming knowledgeable of the existence of your offering.
- How will you generate that knowledge within the market place?
- Is there a specific gap in the current market which you can fill?
Section 3 – Buying a business, franchise or Developing an existing business?
Many entrepreneurs tend to shy away from being the first with a new product, and also fear the unknown of a new business all together. The options are:
- Buying an already operating business?
- Buying into a franchise, which is basically renting an established business name and paying royalties?
- Developing your existing business? This could mean purchasing new equipment to enable you to manufacture at a more cost effective rate, or to employ trainees which would free your own time to develop more business contacts etc.
Section 4 – HOW CAN THE RISKS BE MINIMIZED?
Although there is no way of safely predicting a sure thing in this world, if it were possible, we would all have more competition. On the other hand, it is always possible to build a better chance of survival and minimize the risk for all parties involved.
- Am I diving into unproved territory?
- Do I know enough about my products and services?
- How soon will I be paid?
- Can it be a cash only business or will I have to offer credit terms from day one?
- Will I be close enough to my customers to chase slow payments at minimal cost?
- How much will it cost me to offer a small discount for prompt payment?
Keep in mind that if you offer a 1.5% discount for prompt payment, anticipating it will bring payment in two weeks sooner, you are in effect giving 39% discount: (52 weeks per year divided by two weeks multiplied by 1.5% = 39%). Can you afford to offer such a big discount. Keep in mind also that a customer indebted to you for say £100/or dollars – is only risking 1.50 (you can now see that more than 1.5% would be a better incentive, but would cost you even more), and therefore most buyers would still let the invoice run beyond the due date.
I have always found that the best way to prompt speedy payment is by getting to know your contact well and by being open and honest, let him/her know that a small business can not really afford to be giving away credit but you are happy to allow them a week – believe me, that friendship will get you paid pronto. I know, I use that method all the time, and they remain valued customers. Remember, when dealing with businesses, they understand because they all had to start somewhere.
Section 5 – Can I afford the risk of being stuck with the assets?
- What needs to be OWNED from the start?
- Is there someone else, even a competitor, who would let me use their equipment for a few hours now and then for a fee?
- It is surprising how many would take 20 pounds or dollars from a competitor rather than leave the machine stood idle.
- Can I rent, lease, or simply borrow for the first six months?
- Five years is a long time, be absolutely sure before signing any lengthy lease or rental agreement. You may need to trade up, down or sideways sooner than you think.
- How much hard cash can I actually afford to risk been tied up in business assets for the next 2 – 5 years? (Ask your partner to help with this, you still have to eat.)
Section 6 – Why do I really want to do it?
- To earn money? If so, how much?
- To be involved in something interesting? Is the interest worthy of all the risks?
- For my own independence?
- Do you have the discipline and drive to go to work more days, more hours, and commit more effort?
- I don’t have a job? So, why risk everything just to have a job, c’mon, find a better reason, this is a life long commitment, like marriage.
Section 7- What is my true Business Mission?
- This is the true Who What Why Where When How question
- I want to offer WHAT to WHO in WHERE because WHY every WHEN and I’ll do it HOW.
- I want to succeed? And to succeed I will?
- I want to build my business to WHAT level within HOW long? And how?
- I want to offer WHAT, because there is a market for it in WHERE?
- Example Mission Statements:
- I want to be the top printer in (town) and offer full color printing with no waiting.
- I want to expand my private car hire by 5 cars every year, and have 15 cars in 5 years.
- I want to open 8 shops in my neighboring towns over 5 years.
- And Yours….
Section 8 – Can I really do it?
- What aspects of the business am I best suited for?
- What aspects of the business could require hired help?
- How much would the help cost, and how much more could it generate?
- Am I realistic about my own capabilities?
- Do I have full support from my family?
- How well do I get along with people?
- Can I make careful decisions?
- Can I cope under pressure and stress?
- Can I motivate others?
- Do I fully understand and accept the risks?
Section 9 – Can I cover the costs in the WORST months?
- What are the costs in the worst scenario?
- How many cost will have to be paid regardless of revenue?
- Who will support the start up costs?
- What will the interest cost during low turnover months?
- What other costs may arise before turnover grows?
Section 10 – Is the SHORT TERM POTENTIAL greater than the LONG TERM RISK?
- Can I convince the bank that any risks are justified by the short term and the long term plans?
- If not, what can I change to implement a more solid plan?
- How will I impress my bank to get their support?
- How long will I need the support?
- When will I approach my bank for funding and am I fully prepared?
- If not, what else do I need to prepare?
One more thing, something so few new business starters ever consider is, “am I right for the task ahead?” Have you ever done a Self Assessment Profile or an Individual Profile Analysis? Maybe now is the right time to look into it. The procedure is simple, quick, and totally pain free, but can answer so much about you and your true capabilities, strengths, weaknesses, and more. Do all your planning now, when your business is up and running there’ll be little spare time. Good luck with your venture. Quick fix advice may get you around the next corner, solid advice will help you sour to new levels – safely.