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Is Your Small Business Model or Idea Viable?
If you employed people including managers to run
every aspect of your business would you still be in profits? If you
answered yes, then you passed the first test of being a viable business
for the longer term.
1st Test of Viability
Most
businesses make or show a little profit mainly because their owner and
founder is working a 90 hour week and taking out very little. Will your
business still make profits if you removed yourself from the equation
and paid proper salaries to your managers?
Business is all about
making money. It is great to be in a business that you love, but if the
money isn't pouring in by year 3 then it is definitely time to look at
other ideas.
2nd Test of Viability
Can you sell it?
If you have a business model that can only work if the buyer has a lot
of specialised knowledge then it is going to be difficult to sell.
If
the reason for the profitability is all in your head and hard to
duplicate then it is really not viable for any purchaser. Speak to your
accountant and find out how easy or difficult it would be to sell your
business.
3rd Test of Viability
Is the marketplace
for your products declining? Is the competition getting fiercer by the
day? If you have a small business then perhaps you can get away with
being in a declining, mature and competitive market. However if you
control a larger company then it is time to start diversifying and
enter a market place that is also viable for the longer term.
Starting a New Business?
If
you are thinking about starting a new business the first step in
evaluating your business idea is to create a business plan. This is the
first step in working out if your business idea would pass the
viability test of your accountant and bank mangers.
You will need to ask yourself some key questions like:
- What size of premises do you need initially?
- How many staff will be required in the first year?
- How much money will you require to inject in the business?
- How will you raise extra funding?
- What are the strengths and weaknesses of your competitors?
- What qualities to do you bring to the business?
The more detailed your business plan is the more likely you are to raise funding. Remember that the banks do not get a share of the profits but instead make small margins by charging you interest and bank charges.
They do not care if you stand to make a fortune. They are mostly concerned with your ability to repay the loan and therefore your business idea must be viable and make economic sense.
They will also evaluate you as a person to see if you have the qualities required to take your idea from paper and turn it into reality. You will need to demonstrate that you have the required knowledge to enter the market place and if required the right people for the key positions like sales and marketing.
As you can see there is a lot of preparation work required before you even approach the banks.
Naz Daud is the founder of CityLocal. This Business Franchise Opportunity is for people who would like to work from home and be their own boss.
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