You may not need to write a complete business plan. While many business plans are written to convince a banker or investor to lend money, other business plans are prepared to get ready to test if the proposed idea can be turned into a viable business. Before you start a business, you need to know that it has the potential to be profitable.
If this is your situation, a “quick start” business plan will work for you, whether you are thinking about starting a business from scratch or buying an existing business.
Research the following five questions in order to learn if the business idea you are considering is worth your time.
1. Is there a market for it?
A lot of people want to start a business by selling products or providing services just because they have a passion for it, or they think it may work. This is the same as hoping it will work, which is all speculation. In order to make a business startup successful, you need to make sure in advance that other people will want to buy your product or service.
Without proper market research, you may be trying to sell ice cream on a cold day. Once you find out there is no market for the product or service, there is no point going further with the business plan.
Test your business idea by starting small first (try to sell your products on eBay or at local markets or trade shows), and do a lot of research on the market while in the field. Keep good notes and crunch the numbers. Watch for human interest levels and read people in addition to numbers. If the results are not good, move on to another business idea.
2. What is the profit potential of this business?
In order to determine whether a business idea has potential, it is necessary to have a market for that product or service. It is not enough just to have an idea that you think is cool – if no one is willing to pay for it, it will not be profitable.
If a business idea takes up too much of your time and does not allow you to continuously scale then it is not profitable.
What products or services are needed to create your product? How much do they cost, and how much time is needed to make them? What amount of money should you be earning? You need to know this because if you want to scale up, you will need to replace yourself as you run the business, and no one works for free.
3. Is the market saturated?
There may be a market for the product or service you have in mind, and a lot of potential profit, but you aren’t the only one who thinks so. There are likely dozens of others in the same line of business.
For example, two friends were thinking of starting a used bookstore in a small town. There was already one other bookstore, and just as they were in the process of finalizing their business plan, another one opened. Looking at the potential size of the market, they closed the business plan, realizing that there would be no market space for a third used bookstore locally. (Later, a third bookstore did open – but, proving them correct, the new one closed within six months.)
Study the competition carefully in light of your ideas for your new business. What exactly do they offer and what will you offer? How will you differentiate your products and/or services from theirs?
How many markets will you be able to enter?
Are there cross markets you can see the product or service successfully entering? If your product is cupcakes then you already know children’s birthdays are a great market segment. Additionally, how about aligning with corporate events for corporate birthdays or company milestone celebrations? Cupcakes are easier to eat at an office desk or in the board or break room.
4. What are the obstacles to my business plan and are they surmountable?
You may think your business idea which appears safe, you know there is a market for, and you know you have a competitive advantage in your space is going to be a money maker.
For example, you might want to start a limousine service only to find that you can’t get the licensing you need. Or you want to improve an existing resort, but learn that the necessary changes are impossible because of zoning restrictions.
Maybe you want to start a home-based business, but find out that home businesses are banned in your area.
Take the time to fully investigate all municipal, provincial, and federal bylaws, regulations, and laws that will affect your business plan. In some places, you can overcome various obstacles if you know the right people. But you may not be able to do what you want to do where you are located.
At this point, you have the option to leave your business plan, until a more favorable climate develops, find another place to start it, or come up with a new plan.
5. Do I have what I need to see through this?
Getting started is hard. I can’t say anything more. You will probably work more hours than you ever have before, and you may have to work that hard longer than you thought – even if you buy an existing business. If you are not ready to fulfill your personal commitments, your business plan will not physically overcome the challenge, so it is best to terminate your business plan for a moment.
Cash flow is also a problem for many starting a business. You need to not only have the capital to start your own business, but you’ll also need personal living expense money to support yourself until your business profits. While some address these start-up issues in advance with savings or investors, starting a business can really test your financial endurance.
If you have gone through the fifth question of this business plan, congratulations! You have a sustainable business idea!
Buying a Business:
Just because a company has been profitable in the past is no guarantee that the business will continue to be profitable in the future. Study the competition carefully. It is possible that changes in market share or difficulties in competition are the reason why the owner wants to sell the business.
Legal issues (of one kind or another) are also a common reason to sell a business. Be sure to do a search to see if there are any outstanding or past lawsuits that involve the business you are considering buying.
Where to go from here?
Use a spreadsheet to track all possible expenses on one tab, all possible markets and how much of that market you realistically believe you can target on another tab, and build a third tab to list all possible worst-case scenarios.
When I was in New York, I was infatuated with the food industry. I had worked in technology my entire career, but I wanted to be in the culinary business because I love to cook and my recipes are fantastic. I spent a whole Christmas break writing a business plan for homemade organic soups. I had all the stores I could sell to, all the details, the cost of every ingredient and the costs of the potential losses. It wasn’t going to come anywhere near the profit margins I was accustomed to, but would require 2-3X the work. I decided to leave it.
My main point is to be realistic about your dream. You are excited today about this idea, but will you be in three weeks, three months, three years? How about ten years? It’s a big financial and time investment to start a business, so make sure it is going to be worth your time. Subscribe for more posts on business, sales and investing. Have a lovely day
