| Are you sitting on a hot business idea, but don't | | | | accessories each year. This would mean the total |
| know if it's a winner? This can be one of the most | | | | market potential is $2,000,000. Oooeee! I don't know |
| agonizing parts of the business start-up process. | | | | about you but I'm already rubbing my hands |
| Those of us with tight budgets or no budgets simply | | | | together. |
| do not have the option of tossing a few thousand | | | | 2. Market Share |
| dollars into the gaping bank account of a consultant | | | | Our research shows us that 1000 of the people in |
| to give us the magic answers. | | | | our market area will buy from our candle shop. This |
| Let's imagine that you have scrimped and tucked | | | | would bring is 1000 X 100.00 = $100,000.00 in sales. |
| away a small investment fund of $9,850 and you | | | | Yahoo! Stand back, we're goin' in and we're gonna be |
| have a growing passion to own and operate a small | | | | rich! |
| shop that sells candles. | | | | 3. Building, Fixtures & Equipment |
| This feasibility process might just be the tool you | | | | Imagine that our fixtures, shelving, renovations, |
| need to make the critical go/no-go decision. It doesn't | | | | counters, display cases add up to $30,500. ...Gulp! |
| have to cost anything more than your own time and | | | | 4. Cost of Merchandise |
| if you approach it in a thoughtful, inquisitive way you | | | | Suppose we determine that candles, matches, wax |
| should be able to produce believable results. | | | | and candle making kits for year one add up to a total |
| The feasibility study is a process that will enable you | | | | of $30,000. Eeek! |
| to answer these two important questions: | | | | 5. Cash Operating Expenses |
| 1. Is the business idea workable? | | | | Let's say we were able to dig up financial statements |
| 2. If the idea is workable, will it be profitable? | | | | for a similar business and that our utilities, rent, |
| Before launching, here are a few points about | | | | wages, insurance, advertising and all those other |
| feasibility studies: | | | | trinkets... cost us $35,400 for year one. Hmm... has |
| - A feasibility study precedes the business plan. | | | | someone jimmied the thermostat? |
| - You might do feasibility studies for several different | | | | 6. Budgeting for Other Expenses |
| businesses before arriving at your decision to move | | | | Still in the spirit of wild-eyed brainstorming, we toss in |
| on to the business planning stage. | | | | a slush fund of $1,600. |
| - The information you gather for your feasibility | | | | 7. Sales Less Expenses |
| study will be useful should you decide to proceed | | | | Breathless... we reach for the calculator and do this: |
| with a business plan. | | | | $100,000 - (30,500 + 30,000 + 35,400 + 1,600) = |
| - Some feasibility studies can be very quick and | | | | $2,500. At this point it is not uncommon to see your |
| inexpensive and some can take months, or even | | | | life, at least your worldly belongings, flashing before |
| years, and cost thousands of dollars. | | | | your eyes. You might be thinking "all that money |
| - It's ok to use round numbers and approximations - | | | | passing through my hands for this?". Sorry, there's |
| just be sure to err on the high side for your | | | | more... |
| expenses. | | | | 8. Return On Investment |
| - If you feel like you are guessing too much, you're | | | | The scenario above is not so bad. At least the print |
| probably right. Do more research until you trust your | | | | is black, not red. I have come to cherish black ink as |
| numbers. | | | | a VERY good thing - especially in year one. If |
| Here are the nine steps: | | | | everything goes the way you are planning above |
| 1. Determine the total market potential. | | | | your profit will be $2,500. In Canada where there is |
| This is the total number of people that buy a product | | | | profit, there awaits our trusty old friends at the |
| or service. | | | | Canada Customs and Revenue Agency, with a giant |
| 2. Determine your share of the market. | | | | tin tax-cup. That's in the summer, during our seven |
| Market share is the total number of people who will | | | | months of winter they use a large snow shovel for |
| buy YOUR product or service. | | | | collecting taxes! Let's say that the $2,500 is earnings |
| 3. Calculate the cost of your buildings, fixtures and | | | | before taxes of $625 and at the very end of your |
| equipment. | | | | long stressful year, you are left with blisters on your |
| This includes all costs related to your building or | | | | feet, bags under your eyes, and $1,875 profit. Yikes! |
| facility, such as fixtures, shelves, renovations, | | | | Is this a good deal or not? Is this a wise use of your |
| counters, display cases, etc. | | | | $9,850? Let's get back to the savings account |
| 4. Calculate the cost of your merchandise. | | | | concept for a moment. If you figure you could earn |
| This is the wholesale cost of the products or | | | | 5% ROI in a savings account, you will have $492.50 |
| services you sell to your customers. In financial | | | | at the end of the year for no effort and no risk. If |
| statements, it is referred to as Cost of Goods Sold | | | | you socked the same amount into mutual funds |
| (COGS). | | | | under a Registered Retirement Savings Plan with a |
| 5. Calculate your cash operating expenses. | | | | potential 10% ROI, you might net $985 but there is |
| This consists of all costs to operate the business, | | | | risk and you could make less or even lose part of |
| including utilities, rent, wages, insurance, advertising | | | | your investment. Perhaps the 19% ROI that you will |
| and more. | | | | earn with the $1,875 is a reasonable deal. That's your |
| 6. Determine your budget for other expenses. | | | | call and step nine. |
| Have you missed any miscellaneous costs that don't | | | | 9. Go/No-Go Decision |
| fit in the other categories? This might include items | | | | Remember, the decision is whether to get on to |
| like trade shows, refunds, donations, sponsorship, | | | | developing a proper business plan... or not. And if you |
| warranties, travel/meals. | | | | do go ahead, your business plan will reveal more of |
| 7. Subtract your total expenses from your total sales. | | | | the story, such as year two and three earnings. |
| First, add together your totals from steps 3, 4, 5 and | | | | There are numerous factors other than money that |
| 6. This will give you total expenses. Then subtract | | | | play on your decision. Is this a life-style choice for |
| your total expenses from your total sales. The | | | | you? Do you have other choices? Do you love the |
| formula looks like this: Step 2 minus (Steps 3 + 4 + 5 | | | | kind of work you will be doing? Does your health |
| + 6) = answer. | | | | factor into it? Will you be able to employ other family |
| 8. Calculate the return on your investment. | | | | members? Has it been a life long dream that will eat |
| Simply put, you can place your investment in a | | | | away at you if you don't do it? Will it enable you to |
| no-risk savings account, avoid all the risk and fuss of | | | | locate in an area you wish to live in? Are there more |
| going into business, and collect a very meager | | | | attractive opportunities that are safer? |
| interest. If you place $100 into a savings account and | | | | How risky is the candle business and how |
| it earns you $5 for year one, you got a 5% return | | | | comfortable are you with that level of risk? Can you |
| on your investment (ROI). | | | | afford to lose the $9850? Worse, can you afford to |
| 9. Make your go/no-go decision. | | | | lose more if things go really sideways? |
| The information above and everything you learn | | | | What other opportunities will you miss while focusing |
| about your business by going through the process, | | | | on the candle business? Perhaps you could run this |
| should prepare you to make this decision. | | | | feasibility on those ideas and compare? |
| Please keep in mind that we are using fictitious | | | | You have much to consider. Hopefully, the nine-step |
| numbers for this example: | | | | feasibility helps you learn about your business and |
| CANDLE SHOP FEASIBILITY | | | | provides you with enough information to get off the |
| 1. Total Market Potential | | | | fence. |
| Let's say our secondary market research shows | | | | I trust you will make wise decisions and I wish you |
| there are 20,000 people in the market area who | | | | great success in your pursuits! |
| spend an average of $100 each on candles and | | | | |