Evaluating Your Business Idea

Thinking about starting your own business? Here are some questions you should ask yourself before you get started.

How do I evaluate and develop a business idea?

There are a few things you should think about first:

• Determine if it's the right type of business.
• Use a break-even analysis to determine if your idea can make money.
• Investigate business financing.
• Contemplate a basic marketing plan.
• Write a business plan, including a profit/loss forecast and a cash flow analysis.

What type of business should I start?
There are so many different kinds of businesses and so many different kinds of people that it's impossible to give specific advice on the particular type of business you should start. Only you will be able to answer that question, but to maximize your chances of success, you should:

• Choose something you enjoy doing. It's much more difficult (and a lot less fun) to make a success of a small business that doesn't interest you—for instance, running an autoparts store when your heart is really in graphic design.
• Choose a business you know intimately. Trying to learn a new industry or skill at the same time you're getting your business up and running will add a lot of unnecessary stress to your new venture and lower your chances of success. Sure, it might be fun to run a hair salon, but if you've spent the last ten years baking pastries and don't have any experience cutting hair, you might be better off starting a catering business or opening your own bakery. That's not to say that you can't learn a new business, but you should learn how to run a pizza parlor before you blow Aunt Sadie's retirement money on a wood-burning pizza oven.
• Choose a business that has a good chance of turning a profit. The best way to determine your business's potential profitability is to prepare a "break-even analysis," a financial projection that will estimate how easy or difficult it will be to turn a profit.

Are there any types of businesses I should avoid?
Businesses that use hazardous materials, make edible goods, care for children, sell alcohol, or build or repair structures, vehicles, or other items of value come with inherent risks. Unless you are prepared to start a corporation or limited liability company and can afford adequate liability insurance (which can be pricey), you may be better off working for one of these businesses rather than starting your own.

In addition, there are some types of businesses that are particularly vulnerable to competition, including restaurants, bookstores, video rental stores, movie theaters, grocery stores, and Internet and computer service providers. But these businesses sometimes do survive, especially if they can fill a niche market and develop a loyal following.

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