Are you ready to start a business? The prospect of starting a business is exciting. It’s hard not to get carried away with the excitement of a new business venture – but make sure you don’t fall into the trap of being too eager and so excited that you get blinded by the dream.
When planning the episode topics of our podcast, Small Business All Figured Out, we decided that a really important topic to present to small business owners in Australia is ‘Are you ready to start a business’. If you missed Part 1 of this topic you can read it here. Or you can listen to the entire podcast episode below.
In Episode 6 of the Small Business All Figured Out podcast, Corinne and Sheryl walk you through the Small Business All Figured Out Pre-Business Plan Framework to help you identify if you are ready to start a business.
To listen, click play below.
As small business accountants in Melbourne, and marketing strategists, who work with a range of small business owners, we see too many entrepreneurs dive right into their business venture without pausing to thoroughly assess and evaluate their business idea in the context of the market that they plan to serve.
Before you invest considerable time, effort and money into a new or startup business venture, you need to find a way to evaluate how viable your business idea will be. Does it have the potential to succeed or is it likely to fail?
Pre Startup Business Phase
When thinking about starting a small business, the pre-startup phase is where you need to be very pragmatic. You need to stay focused and not be too hasty to get started as this is when the biggest mistakes and oversights occur.
There’s a quote by Joel Barker which says “Speed is only useful if you’re running the right direction” and it’s very relevant to starting a business. This is why careful research and planning is needed before you set the wheels in motion for your new or startup business idea.
Even if you have all the right personal attributes, skills and the know-how needed to run a business, you still run the risk of business failure if you haven’t tested your business idea and determined the existence of a real market and a genuine need for your product or service.
You must take the time to work out whether your business idea has merit and ascertain whether people will be willing to pay money for your product or service.
Is your startup business idea feasible?
To assess and evaluate your business idea in the context of your market, there are four key steps to work through:
- Evaluate your business idea
- Analyse your market
- Consider your competition
- Assess the environment
1. Evaluate your business idea
Will people be interested in what you are offering?
Ask a wide range of people what they think about your idea. Would they buy your product or service? Why or why not?
Be mindful of how you ask people what they think of your idea. The way you frame the question may influence their answer.
Conduct some market research to test whether there will be adequate demand for your product or service.
Research your market using the internet and interview family and friends. You can also look for industry groups on LinkedIn or Facebook, or listen to podcasts that may be focused on your specific industry.
Have you considered a range of business ideas?
Make a list of the advantages and disadvantages for different options, such as buying a business, buying a franchise or starting from scratch and turning your idea into a business.
2. Analyse your market
In this step you will consider your market to answer the questions:
- Who is your ideal customer?
- What type of people will buy from you and who will you target?
We recommend that you create a detailed profile of who your target customer is, noting any segments within your overall target market. A part of profiling your target customer is making sure you understand their needs, pain points and desires. This will help you to laser-focus your marketing strategy and tactics.
During this step, give some careful thought as to how you will reach different segments of your target market. Start to think about the sorts of marketing strategies you’ll use to attract and entice customers to your business.
You’ll dive deeper into this analysis when you prepare your business and marketing plan. However, giving some thought now as to who your market and target customer is will help you to gauge the overall feasibility of your business idea.
3. Consider your competition
Research the level of competition for your product or service
Assess the level of competition for your product or service in your particular location. Your location could be the area in which you live, it could be nation wide or it could even be global.
To get started, use online resources to determine the number and type of competitors based around your potential business location. Does the level of competition mean that you should reconsider the proposed location of your business? Or, are there benefits to being located near your competitors?
If you’re a bricks and mortar business do you need to consider a few different potential locations? If you’re an online business, location may not be relevant, but your target market may be. So the question might be ‘Do you need to refine your target market’?
Pay attention to what your competitors are offering
Spend some time researching exactly what products and services your competitors are providing. Review everything about them, from their printed materials to their price lists. Look at their websites and their social media activity.
Compare the websites and digital marketing tactics used by your competitors. Are there similarities or differences in what they are offering and can you offer something to serve and unmet need?
What can your business offer that is better than your competitors?
Consider the features and benefits that your target customers are looking for in your product or service. Are these being offered by your competitors? What features or benefits of your product or service differ to what your competitors are offering?
4. Assess the environment
In this step you will assess the environment in which your business will operate.
What external factors might affect your business?
Try to determine any trends or impacts that could affect your industry. These factors may have a positive or negative effect.
Also think about political, global, technological, social and environmental issues that could affect your business positively or negatively. For example, Issues such as climate change or significant advances in artificial intelligence are important to note. Will these pose a threat or an opportunity to your business?
Assess the different types of risks associated with operating a business, such as potential loss from fire, or the impact of higher energy costs, and the possible flow-on effects to your business. How will your business deal with the various types of risks?
What are the features of your location and how might this impact on your success? If you’re a bricks and mortar business, are you operating in an area that’s experiencing a growth in population? Or are you in an area where customers could suddenly disappear if a key local industry were to come to cease i.e. a mining region, or an area whose population relies heavily on a particular manufacturer for employment.
What internal factors might affect your business?
To answer this question, we recommend you conduct a SWOT analysis. By doing this you’ll uncover the strengths and weaknesses of your business.
How will you use your strengths to your full advantage? Conversely, what strategies will you put in place to address your weaknesses? Will your strengths compensate for your weaknesses?
What is the future outlook for the industry you are entering?
It’s essential that you get as much information as you can about the trends in your industry to know with more certainty whether your industry is in a phase of growth or decline.You need to know how this will impact your business. There is little point to entering an industry that’s in decline. There are a lot of free and paid resources online that will assist with your research on this matter.
Finally, how will your business withstand competition should an unexpected competitor enter the market you’re serving? Your preliminary research and analysis might signal that your business idea is great, but what would happen if a more powerful competitor entered the market? What impact would this have on your business and on you personally?
Once you have determined there is a market for your product or service, you will move on to assessing the commercial feasibility of your idea. This includes all the financial aspects and considerations of your business idea.
Commercial feasibility is beyond the scope of this article however it will include a review of the following:
- How much money does your startup business require? How do you intend to fund your business during the start up phase?
- How long do you expect to be in business before you make your first sale? What is your sales forecast?
- Cash flow analysis – What is your break-even point? How much working capital will you need to sustain operations?
- How much money do you need to make to meet your living expenses?
You will also need to give consideration to things such as:
- Licenses, fees, permits, regulations specific to your business
- You’ll need to choose the right property to rent (or buy) if your business requires a physical premises
- Legal requirements – review of lease agreement, employment contracts etc
- Accounting and tax compliance and bookkeeping
- Protecting your business – including insurance and other risk management strategies
Over to you
Before you invest considerable time, effort and money on a business or startup business you need to find a way to evaluate your ability to run a business as well as your proposed business idea.
Our Pre-Business Plan Framework helps you to work through the personal considerations of starting a business as well as consider the feasibility of your business idea
This really will help you to identify whether you and your business idea have the potential to succeed.
Do you need professional assistance to ensure your startup business is a success? We’re experienced Small Business Accountants in Melton, Melbourne who specialise in Startup Business Accounting. Contact us on (03) 9746 6479 or online here.