You have a business idea.....

Maybe you have dreamed of becoming your own boss and have an idea for a great start-up business. Or, your retired looking to make some extra income, staying active. Here is a simple method for evaluating your business idea. 

• Product or Service - Identifying, or defining your specific product, then determining who will want or need it will help you understand your potential customer base. First, is your product or service a "want" or "need"? Maybe you are a plumber then your services are more of a need even though you may offer remodeling services. Second, can your product or service be broadened to reach a larger customer base? Consider a consultant specializing in retail manufacturing specific to plastics. Consider expanding your services to other areas of retail manufacturing. 
• Customer base - You need to identify who your customers are, where they are, and what their needs are specific to your product or service. Knowing your product will help. Then determine approximately how many potential customers there are. If you are starting a local based business, it is important to determine how many potential customers you can reach in your area. Expect that you will only reach a small portion of your customer base. You can find several sites online that will help you explore the demographics of your customer base. Identify the competition and understand their business models. How will they impact your business?
• Determining Costs - The most important step, and often the most difficult, in developing your business is to determine the cost for your products or services. Remember the goal is to make money, but you don't want to overprice your offerings. Start by identifying similar products or services and learn their costs. Identify all of the costs required to operate your business, i.e. licensing, advertising, office supplies/operating costs, phones, etc, etc, etc. Consider that the base cost will have to sustain your business when requests for your products or services are less than desirable. When starting a business, you can expect that your sales will be low to start with. Hopefully, with marketing and word-of-mouth advertising, your sales will slowly increase. If the cost for your products or services is much greater than the competition then identify ways to reduce your costs, making your pricing strategy competitive. 

By gathering the information for these three information items will help you  identify and define your business. With this information you can determine whether your business has a chance of becoming profitable, or how long you may need to operate on a minimum profit margin to get your business started. Most beginning business owners fail to prepare for the slow start-up time. It takes a while to get your business going, for sales to pick up, so be prepared for the long term business start up path.

Here are a few pitfalls to avoid: 

• "I'll create a web page and customers will come to me." - In today's marketplace, a web page is a requirement. Most customers, even if they are familiar with your business will look for your web page. Consider that you will need to carefully develop your web page content, ensure it works on multiple devices from computers to smartphones, and you will need an advertising budget. Relying on a self made web page alone for your marketing seldom works without an advertising budget. Base, or minimum, advertising budgets with the major search engine providers will start at $300-400 a month. You need to setup your web pages and advertising properly to get the most for your money. Done improperly, you could be spending money with little to no return on your investment. 
• "Several of my friends think my business is a great idea!" - That's a great start to have the support of friends and family. Be honest when gathering the information. Is there a large customer base to support your business. Do you have the necessary skills to operate a business. Our friends and family will be an important part of your advertising and marketing, but will probably only provide your business with a few customers. 
• "Being my own boss will give me more time to do the things I want to do." - Expect to be the primary worker when you start your business. Chances are you will be the front office worker, sales agent, product designer, and even the factory worker if you offer a product. Successful business owners work long hours, weekends, and holidays. Creating your own business takes a lot of time and work. Over time, if your business becomes profitable, you may find opportunities for leisure activities, but it comes with a cost. While you are relaxing you will have to pay someone to keep your business operating. 
• "I'll use my credit cards to fund my business." - How you fund your startup business will determine your profit margin. Many business owners use their personal financial resources to start their businesses. Paying interest on credit cards can reduce your profit margins. Consider low interest loans, or continue working to build up your savings to start your business. Any startup business requires an investment of time and of course money. Starting your business with no loans is the best way, even if it means waiting a few years to start.  

Take the time to research your business idea. Write it down. If it doesn't look good on paper, chances are it will not work in the real world. Be prepared for a long, slow start for your business, and consider developing an exit strategy if you see your business is not going to be profitable.