There are many issues to consider when evaluating your new small business idea, with the primary goal of determining whether it has wings, needs a few tweaks, or may not work out. Since the vast majority of startups fail within five years, success is never guaranteed and even seasoned entrepreneurs experience failures from time to time. Therefore, it is crucial to find a business niche that not only has the potential for success, but one that you will enjoy and feel good about. Also, you need to be honest with yourself about whether you have what it takes to start and run a business.
Thinking through these important issues before going all-in will help you decide whether or not your small business idea is worth pursuing in the first place. See FindLaw's Starting a Business section for more helpful articles and resources.
Developing a new small business idea
The first step in developing your new small business idea is to do a break-even analysis. This will help you determine whether or not your small business will even make money. It is also wise to research business financing to determine how you will fund your new small business. After you have done this and determined that pursuing your small business idea will be profitable, you can write a business plan that details how you plan to operate and lists the benefits, risks, marketing plan, and profitability potential of your new small business.
Deciding which type of business is right for you
There are numerous types of businesses. No one can give you advice on which one is best for you, as only you can make that decision; however, you can follow these tips to help you:
Types of business to 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.
Benefits and risks of starting a new small business
Starting a business can be scary. But great rewards await entrepreneurs lucky enough to create successful small businesses -- benefits you may miss out on if you remain a wage earner for the rest of your life. Although only you can decide if you're ready to quit your job and plunge into running your own business, here are some of the rewards of going out on your own:
Although you can reap many benefits by starting your own business, there are definitely some risks. The most common include:
Evaluating the profitability of a new small business idea
Even a good business idea might not be financially workable. To learn how your idea will fare, you should prepare what's called a "break-even analysis."
In a break-even analysis, you project income and expense estimates for a year to determine whether, in theory at least, your business will make enough sales revenue to pay its expenses.
A break-even forecast includes the following:
If you find your break-even revenue represents an amount of work your business can handle -- that is, if you can easily bring in more than the amount of sales revenue you'll need to meet your expenses -- then your business stands a good chance of making money.
Consider Meeting with a Small Business Attorney
Entrepreneurs typically wear many hats, but "lawyer" shouldn't be one of them. While it's usually a good idea to at least consult with an attorney before opening your business, you likely will need legal help at some point. Consider talking to a small business attorney in your area for professional advice and guidance.