Is your business idea worth writing a business plan?
Maybe you don’t need to write a complete business plan. While many business plans are written to persuade bankers or investors to lend money, many other “quickie business plans” are prepared just to see whether or not a proposed business idea can be turned into a viable business.
If that’s why you want to write a business plan, this business plan evaluation will work for you – whether you’re starting a business from scratch or thinking of buying an existing business. Just answer these five questions to the best of your ability, and you’ll know if this business idea is worth pursuing.
1. Is there a market for it?
Many people want to start businesses selling products or providing services just because they always wanted to do that. But rule one of starting a business is that other people have to want to buy the product or service involved. Otherwise, you’re trying to sell ice cream cones on a cold day – there’s no point in going any farther with this business plan.
Many people want to start businesses selling products or providing services just because they always wanted to do that. But rule one of starting a business is that other people have to want to buy the product or service involved. Otherwise, you’re trying to sell ice cream cones on a cold day – there’s no point in going any farther with this business plan.
Test your business idea by starting out small (such as trying to sell your products on eBay or at local markets/fairs) and doing some market research. Keep notes. If the results aren’t good, move on to another business idea.
Buying a business: You have a leg up here if you’re buying an established business with a proven market. The trick is ascertaining the truth of the information you’re being given.
2. What’s the profit potential of this business?
In other words, is there any money in it – or at least enough money to make it worth your while? You may have a flaming desire to sell fine jewelry, but if no one wants to buy the items you buy and make, there’s no profit in it.
In other words, is there any money in it – or at least enough money to make it worth your while? You may have a flaming desire to sell fine jewelry, but if no one wants to buy the items you buy and make, there’s no profit in it.
Likewise, if the process is so time-consuming that you can only produce one piece of jewelry a month, you’re not going to see enough of a profit to even make this a viable part-time business. Your business plan for this business idea ends right here and now.
Buying a business: Check the financials. How much money has this business made in the past? What are the projections for future income? Can you trust the numbers?
3. Is the market saturated?
There may be a market for the product or service you have in mind for your business plan, and plenty of potential profit – for those who are already doing it. Sometimes there’s just too much competition for any new business in the same business arena to prosper.
There may be a market for the product or service you have in mind for your business plan, and plenty of potential profit – for those who are already doing it. Sometimes there’s just too much competition for any new business in the same business arena to prosper.
For instance, at one point I was thinking of starting a video rental store in my small town. There already was one, and just as I was in the process of putting a business plan together, another one opened. Looking at the potential size of our market, I shut the business plan down, figuring that there’d be no market space for a third video rental store locally. (Later, a third such video rental store did open – but 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 much of the market will you be able to get?
Buying a business: Just because a business has been profitable in the past is no guarantee that that business will continue to be profitable. Study the competition carefully. It may be that changes in market share or the difficulties of competing are why the owner wants to sell the business.
Is Your Business Idea Worth Writing a Complete Business Plan?
Remember that the purpose of the evaluation process is to determine whether or not a particular business idea has the potential to become a viable business. So there are two more business plan questions that you have to ask yourself:
Remember that the purpose of the evaluation process is to determine whether or not a particular business idea has the potential to become a viable business. So there are two more business plan questions that you have to ask yourself:
4. What are the obstacles to my business plan and can they be overcome?
Sometimes you have a business idea that seems to be a sure-fire winner. You know there’s a market for it, you know you’ve got the edge on the competition, and you know it will be a money maker – but there are show-stopper problems that you just can’t get around.
You might, for instance, want to start a limo service, only to discover that you can’t get the licensing you need. Or want to improve an existing resort, only to find that the necessary zoning change is impossible. Or want to start a home-based micro-business in your residence, only to discover that home-based businesses are forbidden in your neighborhood or sub-division.
Take the time to fully investigate all the local, state and federal laws; regulations and laws that will affect your business plan. In some places, you can overcome or go around various obstacles – if you know the right people. But it may be that you just can’t do what you want to do where you are. At this point, you have the choice of abandoning your business plan, shelving it until a more favorable climate develops, or finding another more amenable place to do it.
Buying a business: Legal issues (of one kind or another) are a common reason for trying to sell a business. Make sure you do a search to see if there are any outstanding or past court cases involving the business you’re thinking of buying.
5. Do I have what I need to see this through?
Starting a business is a grueling task. I can’t say it in any simpler terms. You will probably work more hours than you ever have before – and may have to keep doing it for longer than you thought possible – even if you’re buy an existing business. If you’re not prepared to make the personal commitment your business plan would take, or aren’t physically up to the challenge, shelve your business plan for the moment.
Cash flow is also a big issue for many who start businesses. You need to have in hand not only the money to start your business, but the money to support yourself until your business takes off. While some deal with this issue by starting part-time businesses, working while starting a business can really test your endurance.
If money is the only thing you’re missing, then it’s just a matter of finding the money you need.
OK… If you’ve gotten all the way through question five of this quickie business evaluation, congratulations! You’ve got a viable business idea!
Where to from here? If you envision your business as a part-time venture – and it doesn’t take an investment of funds above your comfort level – you might decide to plunge in, start the business, and see how it goes.
If you plan for this business to be a full-time venture - or it requires funding – then you should work through a complete business plan.
