It is always good practice to do a rough viability study before putting your idea into practice and putting together a formal business plan. The viability study is made up of 4 steps and will be useful when you put together youtr formal business plan.
Speak to others who are currently in the same business
Other business owners are the best source of information you can get about a particular industry. They will give you practical information and let you know if your ideas are possible or not. They can advise you on any area of their business, from cost estimates to an understanding of their industry’s culture. Ask them directly what they think of your idea and the risks, obstacles, and costs involved in beginning a business. Be as open and honest as possible. You’ll have to decide for yourself how much and with whom you want to discuss your ideas. Most business owners are unexpectedly receptive and willing to assist. They understand the value of networking and forming relationships. They may also love talking to others about their busines. Having said that, you should not approach business owners who will be your direct competition and remember that business owners often don’t have much time available so set up a specific time for your appointment and stick to it. If you can’t make an appointment with a business owner, getting straight to the point and asking the first question might occasionally help. It’s common for business owners to react to a single question, and once they start talking they will just carry on.
Do some financial calculations
Although it is important to have technical skills related to your idea, in order to start your own business you need you need to have business skills as well. This necessitates a knowledge of finance and how to deal with money. You must know how much your idea will cost you, as well as whether it will generate enough income to cover the costs of running the business. Even if you have an accountant on staff, you should have enough knowledge to answer some fundamental questions about your firm at any time. There are 3 aspects you should be familiar with about your idea:
- What do you need to buy to start the business?
- How much will your monthly expenses be?
- How many months before your business starts to make enough money to pay its own expenses.
Do some market research
You should ask yourself broad questions relating to your idea. For example, “Are there enough people in this area to support a new video shop”, “Is there a video shop here already?’ and “How many people walk past that corner where I want to set up my supermarket?”
Do a SWOT anayis
SWOT stands for Strengths, Weaknesses, Opportunities and Threats. If you are able to describe these aspects of your potential business, you will be able to deal with them in the appropriate manner. The SWOT analysis needs to be as honest an appraisal as possible – it is no use, ignoring facts, exaggerating truths or lying about your firm’s real circumstances. A SWOT analysis sets the scene for further planning within your company. The four areas that make up the SWOT analysis can be better understood if you consider that “Strengths” and Weaknesses” are internal factors (whereas “Opportunities” and “Threats” are external factors.
INTERNAL FACTORS
Strengths and weaknesses focus on the internal factors relating to your firm’s resources, abilities and skills. Strengths describe the activities that an organisation does well and that set it apart from competitors, such as a skilled labour force. Weaknesses, on the other hand, refer to the areas in which a company needs to improve if it does not want to loose advantage to competitors, such as a lack of capital.
Strengths
Examples of strengths include
- Access to finances
- Technical abilities
- Good family support
- I already have a good reputation
EXTERNAL FACTORS
Opportunities and threats focus on the external factors present in the external environment, that are likely to impact on the success of failure of your firm. Opportunities, for example, consist of the situations in the external environment that the organisation can exploit to its benefit, such as a new customer need that arises that the firm is in a position to fulfill. Threats, however, refer to the situations that exist in the external environment which your firm cannot exploit to its advantage. For example, the introduction of a newer, better and cheaper product introduced by the competition would be considered a threat to your firm.
Weaknesses
Examples of weaknesses include
- Lack of technical ability
- Lack of business knowledge
- Unable to source finances
Opportunities
Examples of opportunities include
- No competition by other businesses in my location
- Recent legislation has eased restrictions on the business I want to start
Threats
Examples of threats include
- There is a chance that regulations covering my industry will become stricter
- There is a lot of competition in the field I want to go into
If you feel that you can use your strengths to make use of opportunities and overcome threats and that you can build up skills or compensate for your weaknesses, then you have an idea that you can invest some more time and energy in. You are ready to create a full business plan.