Projections Help Determine the Feasibility of Your Business

It’s always advisable to assess if a business is feasible, but in this economy, it’s essential to do research and make the best decisions for your business or potential business. When REAP staff work with business owners, it’s often the financial projections that are the most difficult to predict with any accuracy.

Fortunately, resources are available to assist you in your business research. A good one to consult is Successful Business Research by Rhonda Abrams. Southeast Community College in Lincoln recommends it for their feasibility course. Others are available too. And a lot of useful information is available at http://www.Census.gov and http://www.Business.gov.

Your research will be most successful if you look for some specific types of data: Market Size, Demographics, Company Revenues, Industry Trends, Forecasts and Analysis. Below are some tips to help.

Conduct Primary Market Research. If your customer base is local, use surveys, focus groups, individual interviews, taste tests, sampling, etc. to learn more about them. Seek both quantitative (expressed in numbers) and qualitative (expressed in words and usually subjective) information. If you have an eCommerce business, work with your ISP to track visits to your site, times of day, locations, etc.

Develop a Customer Profile. The profile should identify your best customers. Aim your advertising efforts at them. Ask: How many people live in my trade area? How many are possible customers? How many have the money to be customers of mine? How many “need” my product/service? (Is it a “want” or a “need”?) How many already buy my product/service? Will they buy from me if they currently buy from a competitor? How far will customers travel? How much will they pay? Where do potential customers live, shop and play?

Determine your Competitive Advantage. Why will customers choose you over another vendor? You must be scrupulously honest with yourself!

Be Realistic about Costs. How much will it cost you to open the doors to your business? Most people overestimate sales and underestimate expenses. Do your research and ask other business owners for their input and experience.

Run the Numbers with an Example. Suppose you’re trying to identify a market share for a new restaurant. Assume that 4,000 people live in your trade area; 2,000 go out to dinner once a month, 500 twice a month, 500 three times a month, 500 four times a month, and 500 eat out 20 times a month. In all 31,500 meals are purchased and 25 percent of them fit into your price of $10.00 to $15.00 per meal. Considering an average of $12.50 per meal, the total market share is $98,400 per month. If you believe you can win 10 percent of the market, your projected cash sales would be $9,840.00 per month. (Source: www.BusinessProverbs.org Business Plan)

After deducting the “Cost of Goods” and “Labor Costs” (say 30 percent each in the food industry), can you be successful with 10 percent of the market share? Make adjustments for your pricing strategy.

Timing Is Critical. Now can definitely be a time for the entrepreneurial spirit to create jobs and increase employment opportunities, but make sure you are being realistic with your business idea! Gather as much information as you can to make the best business decision for your business venture. Maybe NOW is not the time, but it will be in the future. Maybe NOW is the time, but be prepared!

For more information, contact Monica Braun, REAP Women’s Business Center Director, at monicab@cfra.org or 402.643.2673.