Market Analysis for Your New Business

For entrepreneurs starting a new family-owned or small business - whether it's a sole proprietorship or a corporation - explaining who exactly might buy your goods and who's your competition is one of the key elements of the business plan. This what the "market analysis" does.

Your market analysis should describe:

• The type of business or industry your company's involved in
• Your target market
• Your competition

Here is where you give potential investors a good idea of how successful your new business may be; it can make or break a deal for financial backing. The market analysis also gives you a path to follow to help make sure you're selling as much as possible. As you can see, it's an important part of the business plan.

Your Business

In this section of the analysis, you need to answer several questions, such as:

• What business or industry is your company involved in? It might be selling goods, like hamburgers or office supplies, or services, like printing or computer repairs
• The size of that particular business and industry in your immediate area as well as nationwide. In other words, you need to know how many other businesses are doing what your company does
• Whether the industry has grown or shrunk over the past few years, and whether it will grow or shrink in the future
• What are the major customer groups using the products or services in your industry? It could be, for example, government agencies, other businesses, or individuals

The idea here is to give a good idea of what your business does and why it is (or will be) successful.

Target Market

Probably the most important part of the market analysis is the target market for your business. Basically, it's who, exactly, you think is going to buy your goods or services. Again, there are dozens of questions you'll need answers for, such as:

• The age range of the customers in your target (teenagers, young professionals, etc.) and the gender of those main customers
• How many people are in the target market and where do they live and work? Ideally you want a big target market with a lot of potential customers living or working near your business
• Has the target purchased goods or services similar to yours in the past, and how much? Is it likely that sales will increase or decrease?
• Can you "steal" customers from businesses in the are already? How are you going to do it?
• How will you "reach" the target market? Newspaper, television, or radio ads? Maybe direct mailing?
• How is the target impacted by the local and national laws? For example, if the state or federal government raises income taxes, will your target customers still buy your goods?

You also need to include any market tests or research you used to identify your target market. For instance, you may demonstrate your goods or services at a job fair, walk door-to-door to introduce your business, or send direct-mail surveys to get feedback on the quality and price of your goods. If you used that feedback to help identify your target market, include it in the analysis.

Competition

You're out to make money, and that's much harder if someone else is trying to sell the same goods or services as you. There are several important things to look at when your figuring out who your competition is, such as:

• Who's competing with you directly ? If you're selling office supplies, where's the nearest Staples or "mom-and-pop" office supplies store?
• Who's your indirect competition? If you're selling pizza, where's the nearest hamburger or fried chicken restaurant?
• What are your competitor's strengths and weaknesses? What are yours? Strengths are things like good customer relations, being trusted by the public, and having good workers. Weaknesses are the opposite: poor customer support, poor reputation with customers, and high employee turn over
• How much of your target market does the competition control? How difficult will it be for you to cut into that market share? Look at things like increased start-up costs to help you become competitive quickly, difficulty in finding qualified workers, and your ability to get licenses for patents or trademarks you need for the business

By far this isn't a complete list of things you need to include in your market analysis. The Small Business Administration (SBA) has resources online to help you prepare a thorough market analysis. And you can get a helpful worksheet from Lawyers.com^sm. However, for many entrepreneurs, this analysis - in fact the business plan as a whole - is a long and complicated difficult process. Talk to an experienced business law attorney if you have any questions.

Questions for Your Attorney

• How much will you charge to help with my market analysis? Is that cost tax-deductible? What about my costs for other parts of my business plan?
• Are there certain types of documents that will make my analysis look better to lenders?
• Can you help me get patent and trademark licenses for my new company? Is that expensive? How long will it take?