When entrepreneurs like you start thinking about starting a small or family-owned business, there are some things to do, even before you begin writing a business plan. You should do a:
- Feasibility study, and
- Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis
Basically, these tools help you figure out if your business idea is "viable," that is, can actually make it? Is it worth your and your investors' time and money to try to open?
These studies are not the same a business plan. That plan details how your business will be run, by whom, and how it will make money, etc. There's no sense in writing a business plan for a business that can't succeed, right?
However, once completed, you can use a lot of the information from your feasibility study and SWOT when writing the business plan.
There are several parts to a feasibility study. For each part you need to be able to answer tough questions about the business. Because of this, entrepreneurs often hire consultants, attorneys or other professionals to help with it.
This may the easiest part of the study for you. Here, you need to give as much detail as possible about what your business will make or sell. You should also outline how the business will be organized and who will run it. You can fill-in the details later in the organization and management section.
Here you explain who you think will buy your products or services, that is, who's your "target" market? How big is the market, and do you think the market will get bigger or smaller in the future? Can you improve your product or service later, or come up with something new, so you can increase the size of your target market over time?
You also should explain how your customers will get your goods. For example, will they walk in and buy, or order over the phone or internet?
Will your business be competing with another company? If so, what makes your product unique or different enough for customers to choose your product over the competition? You'll also need to provide an estimate or "projection" of your sales for at least the first several months the business is open, and for the first year, if possible.
Unless you covered it all in the "Description" part of the analysis, you should describe any other technical details about your product or service. Try to use everyday language so investors and others can understand it. Also, include any tests you've done or plan to do help make sure the product or service works like it's supposed to.
The technology portion also has to explain things like:
- The size of the office, building or plant needed to house the business
- Any raw materials you need - like paper, steel, computer chips or hamburger buns - and who will provide those materials
- The types of transportation needed for you to get your product to the public and receive raw materials and whether they're available in the area where the business will be located
- The availability of power and utilities in the area - gas, electric, water and telephone service
Money is a big factor to many new small businesses. How much money do you need to get started and keep running? There are start-up costs, like the cost of this feasibility study and advertising the business's grand opening, just to name a few. You may need to buy or lease equipment, machinery, office furniture and maybe office space or a building.
Do you have cash to invest, or are you hoping to finance all of this? Your feasibility report needs to explain where you're going to get the money needed.
Organization and Management
In the organization and management section you need to give details about the how the business will be organized. For instance, are you thinking of forming a sole proprietorship and work alone, or are you thinking of a corporation?
Along with that, you need to explain all the positions or jobs in the business, what those jobs are responsible for, and who's going to fill those positions.
A SWOT analysis and a feasibility study involve many of the same things. Again, the idea is to determine the "viability" or chances of success of the business.
Here you identify what's special about your business or idea that will lead to its success. For example, strengths may be:
- A completely new product or service, or a product or service already available to your customers but with a new twist or improvement
- Experienced and business-wise management and staff, or people in leadership positions who are known to and respected by the public and other businesses
- Access to all of the resources and raw materials you need
- Solid financing or investments in place and ready to go forward
When identifying strengths, you need to focus on the things unique to your particular business, it's inner-workings.
These are, of course, the opposite of your strengths, and they also deal with your business's inner-workings. Inexperienced staff and management, little or no financing, and a lack of raw materials and resources needed for the business are good examples. Other weaknesses may be:
- High costs of production, which means high prices for your customers
- A product or service that's not new or innovative
If you identify your weaknesses early you may be able to avoid them, or even turn them into strengths.
These are the things outside your business that may help the business succeed, such as:
- Weak competition for your product or service in your target market and in the geographic area where you'll do business
- An increased or growing market for the product or service you're selling
- Advances in technology that may make it easier for you to make or sell your product or improve on it
These are the opposites of opportunities, such as:
- Stiff competition in your target market and geographic area
- The business is located in an area that's hard for customers to reach or in an area the public doesn't feel "safe" visiting
- Changes in the law that may make it more costly to do business, such as new environmental or zoning laws
- Changes in your target market. For example, what might happen to your office supply business if suddenly numerous companies in your area plan to shut down or move to another city or county where they won't be taxed as much?
Because of the overlap, you probably don't have to complete both a feasibility study and SWOT analysis, but it doesn't hurt, either. If you choose to do only one, make sure it covers everything, though. You should be able to use this information to draw the ultimate conclusion: Should you go forward with business? Is this business "viable?"
If you can answer, "Yes," congratulations! Now, it's time to get to work on your business plan.
Questions for Your Attorney
- If I show my feasibility study to a bank to secure some financing, can the bank share it with other business people or investors without my permission?
- I have a great idea for a new product. How can I make sure it really is something new and protect it from being copied by other businesses?
- I showed a friend my feasibility and SWOT studies and I just found out she's opening a new business in another state using my idea. Is there anyway I can stop her?