Doing Your Homework

feasibility snapshot

Basic Resources

There are five things you’ll need if you are planning to go into a small business based at home: a good idea, time, money, suitable location, and customers.

You need to be realistic about how much time and money you are able to invest in researching an idea. Doing a reasonable amount of research at the beginning will save you time and money in the long run, as it establishes on paper whether or not the idea is feasible.

Intellectual property

Start your research by finding out if the idea has been tried by someone else in another location, and whether or not it was successful. If it was successful, and you want to do the same, you’ll need to find out about any regulations, licences, copyright or patent issues that could prevent you from going ahead. If your idea is an original one, contact IP Australia, www.ipaustralia.gov.au, to find out how to protect it. Registering a trademark ensures you have exclusive legal right to use, licence, or sell it within Australia. If it is an innovation, or something that is a variation of an ‘existing’ idea, check for registrations and patents to avoid any potential intellectual property infringements.

Legal structure and licences

You will need to decide whether you will operate the business under your own name, or register a business name, and the type of structure you will trade under. In some instances you may also need to register with a professional body, or have certain qualifications before you can legitimately operate the business. The Small Business Development Corporation’s (SBDC) Business Information and Licence Centre (BILC), is a one-stop-shop for information about business licences and permits, Tel: 131 BIZ (131 249), or online: www.licence.sbdc.com.au.

Feasibility workshop

The SBDC can assist you with your feasibility study. You can purchase Evaluating your business ideas: is it worth the effort? booklet, or receive it free when you attend the SBDC’s feasibility workshop. For further details contact the SBDC, Tel: 131 BIZ (131 249), or online: www.smallbusiness.wa.gov.au

Business costs

No matter how small an amount, a business needs capital to start-up, and money to operate on a day-to-day basis. Initially your savings and whatever cash flow you can generate is the total source of funds available for starting and operating a business in the early stages. For assistance with calculating your start-up costs, refer to the checklist of start-up costs.

Your personal financial requirements also need to be calculated and included in your budget. Knowing how much you require as drawings from the business will help with setting sales targets, so do a quick checklist of your personal finance budget.

The financial outlay for a service business operating from home will be relatively low compared with one that is manufacturing and selling goods. Refer to the ABC of business expenses for a list of costs related to business start-up and operating costs. Once you have completed the expenses list, identify them as fixed costs or variable costs. Fixed costs (eg insurance) do not vary with the level of activity (sales); while variable costs (e.g. delivery costs) vary according to business activity. Use the list as a guide to preparing your business budget.

Break-even point

It is essential to identify fixed costs (expenses) in order to calculate the break-even point of your service or product sales. The break-even point is where the gross profit of the business equals the cost of operating the business. If the business does not generate sufficient funds to reach break-even point, plus some profit, your business idea may not be feasible.

Borrowing money

Borrowing money involves financial commitments. Repayment of the amount borrowed, plus interest and costs must be made. Before approaching a bank for a loan you need to be very clear about:

how much you will need;
what you will do with it;
when you will repay it;
how you will repay it; and
what security you can offer (ie house or other asset).

The bank will require a completed business plan, inclusive of detailed financial documents. If you require assistance with preparing them, you will find it useful to attend the SBDC workshop: How to Get a Business Loan . You can book into the workshop online: www.smallbusiness.wa.gov.au, or Tel: 131 BIZ (131 249).

Customer profile

A customer profile emerges from the research you do about your target market. The market is a group of people who share something in common. It could be that they are a similar type of person, or have similar interests, needs and wants. They are the group of people you want to sell your service or products to.
Your research will tell you:

who they are
how many there are (size of the market);
where they are (location of the market);
when they buy, and how often they buy;
why they buy, and how much they are willing to pay;
their age
whther they are men or women; young adults or children at school; couples with no children, or mature people living alone.

Competitors

In almost all instances, there will be other businesses already servicing or supplying the target market you’ve identified as your potential customers. Those businesses are your competitors, and you need to determine on what basis you can compete with them: price, quality, or service. Your competitive advantage is what differentiates you from your competitors. It’s your point of difference.

A SWOT analysis is commonly used to identify Strengths, Weaknesses, Opportunities, and Threats in various situations. You can use it to analyse your competitors, your business idea, or a potential business partner.

Suppliers

If you need to purchase supplies, research various suppliers and explore what they are prepared to offer you. Having a written agreement, or exclusive supply agreement with a supplier is a benefit, and could be part of your competitive advantage.