This is an overview of key criteria and
considerations to evaluate whether your new
business will be successful.
There are certain basic facts that one should be
aware of if you are starting a new business. First, how
large is the market that you are preparing to enter?
The market must be big enough to support new
entrants like you. How much competition is there
relative to the market size? This is competition as
measured by number of competitors, their size, and
their level of entrenchment in the industry. How long
have they been in business? The longer they have, the
greater their advantage as far as industry knowledge,
marketing history, supplier and distribution
relationships, and moving up the learning curve, etc.
Of course, there are different ways of measuring how
big the market and tough the competition. How you go
about it may depend on the type of business you are
in and how big the business is you are proposing to
create. Opening a 7-Eleven franchise won’t take the
same analysis as opening up a department store.
These are both retail operations but the effort and
expenditure to judge their prospects is very different
because the level financial risk is so different. A
completely different type of business, such as a
manufacturing plant would require a different analysis
again, because as there are totally different set risk
factors to consider.
As an example, however, let’s say we are considering
opening up a 7-Eleven franchise.
With a retail operation of this type, there are several
key measures to look at to get an idea of viability.
There are also a few shortcuts that one can look at as
a proxy of those indicators. First, what is the total
population in the surrounding area and density of that
population? Second, how many other similar stores
are there in the local area, the area from which you
believe people would travel to this type of store? -
probably not more than a few miles in a typical
suburban area. Third, how successful are those stores
in that area, as judged by total revenue? Fourth, what
are the direct advantages and disadvantages to the
exact location where your store will be, versus the
other stores?
Every successful store of this type will likely have
certain key external characteristics such as
population, demographics, competition, etc. Since
this a franchise, we might assume that the internal
business characteristics necessary for success may
be more of a given, assuming one can simply
duplicate what other stores have done. In other words,
if the external characteristics above for the store are
good, we may not have to examine the internal
workings of the store to judge success. We’ll assume
a properly run store will succeed if these other
elements are in place. There could be other stores,
where you are trying to create a different experience,
where an internal analysis of your business attributes
is necessary and just as important.
Despite all of this, the price one pays for such a
franchise will be a large determinant of the ultimate
profitability of it. Assume your operating income is
$15K a month. Let’s say you purchased the franchise
for one million dollars and for simplicity assume you
borrowed all of the money to purchase it. If you paid
$800K for the business, you’d have to clear $7K a
month in loan payments to make a profit before taxes.
So in that case the business could be viable. But if
you had to pay $1.5M for the business, with a $13K
monthly payment to clear, that would not work.
These are some of the ideas that you need to
consider in evaluating a new business opportunity. Of
course, we can delve much deeper into some of these
factors as well as the analysis required for other types
of businesses.
Back to Top
_________________________________________
considerations to evaluate whether your new
business will be successful.
There are certain basic facts that one should be
aware of if you are starting a new business. First, how
large is the market that you are preparing to enter?
The market must be big enough to support new
entrants like you. How much competition is there
relative to the market size? This is competition as
measured by number of competitors, their size, and
their level of entrenchment in the industry. How long
have they been in business? The longer they have, the
greater their advantage as far as industry knowledge,
marketing history, supplier and distribution
relationships, and moving up the learning curve, etc.
Of course, there are different ways of measuring how
big the market and tough the competition. How you go
about it may depend on the type of business you are
in and how big the business is you are proposing to
create. Opening a 7-Eleven franchise won’t take the
same analysis as opening up a department store.
These are both retail operations but the effort and
expenditure to judge their prospects is very different
because the level financial risk is so different. A
completely different type of business, such as a
manufacturing plant would require a different analysis
again, because as there are totally different set risk
factors to consider.
As an example, however, let’s say we are considering
opening up a 7-Eleven franchise.
With a retail operation of this type, there are several
key measures to look at to get an idea of viability.
There are also a few shortcuts that one can look at as
a proxy of those indicators. First, what is the total
population in the surrounding area and density of that
population? Second, how many other similar stores
are there in the local area, the area from which you
believe people would travel to this type of store? -
probably not more than a few miles in a typical
suburban area. Third, how successful are those stores
in that area, as judged by total revenue? Fourth, what
are the direct advantages and disadvantages to the
exact location where your store will be, versus the
other stores?
Every successful store of this type will likely have
certain key external characteristics such as
population, demographics, competition, etc. Since
this a franchise, we might assume that the internal
business characteristics necessary for success may
be more of a given, assuming one can simply
duplicate what other stores have done. In other words,
if the external characteristics above for the store are
good, we may not have to examine the internal
workings of the store to judge success. We’ll assume
a properly run store will succeed if these other
elements are in place. There could be other stores,
where you are trying to create a different experience,
where an internal analysis of your business attributes
is necessary and just as important.
Despite all of this, the price one pays for such a
franchise will be a large determinant of the ultimate
profitability of it. Assume your operating income is
$15K a month. Let’s say you purchased the franchise
for one million dollars and for simplicity assume you
borrowed all of the money to purchase it. If you paid
$800K for the business, you’d have to clear $7K a
month in loan payments to make a profit before taxes.
So in that case the business could be viable. But if
you had to pay $1.5M for the business, with a $13K
monthly payment to clear, that would not work.
These are some of the ideas that you need to
consider in evaluating a new business opportunity. Of
course, we can delve much deeper into some of these
factors as well as the analysis required for other types
of businesses.
Back to Top
_________________________________________
| How to Start a Business – Overview and Key Considerations |
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Have Questions? Our consultants are available to help you
with any financial question. We can also provide in-depth
consultation concerning any financial issue facing you. We
can help. Please contact: Best-Financial-Advice.com
with any financial question. We can also provide in-depth
consultation concerning any financial issue facing you. We
can help. Please contact: Best-Financial-Advice.com
 |  |  |  |  |
Have Questions? Our consultants are available to help
facing you. We can help. Please contact:
Best-Financial-Advice.com
facing you. We can help. Please contact:
Best-Financial-Advice.com
Have Questions? Our consultants are available to help you with
any financial question. We can also provide in-depth consultation
concerning any financial issue facing you. We can help. Please
contact: Best-Financial-Advice.com
any financial question. We can also provide in-depth consultation
concerning any financial issue facing you. We can help. Please
contact: Best-Financial-Advice.com
1) We can answer any general financial questions. Our consultants are available to help you with any financialissue facing you. Contact Us. 2) Advice concerning the acquisition of financial products/ services: a) mortgage loans: purchase, refinance, 2nd mortgages b) credit consolidation c) other credit: credit cards, auto loans d) business loans 3) Financial Management Advisory: a) creating an investment plan b) analysis of investment and savings needs c) setting up budget/financial plan d) evaluating Investment funds/co’s / financial advisors / brokers 4) Business Advisory: a) Business Plan creation b) Financing acquisition c) Financial Analysis d) Operations analysis e) Savings and Investments plans f) Investments Ready to Get Help? Contact us to get the process started. Contact Us. Free consultation. |
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