SmallBizResource Blog -- Business Know-How

Dream Business Or Financial Nightmare?

Posted by Janet Attard, Courtesy of Business Know-How Thursday, Oct 30, 2008, 01:03 PM ET

Starting your own business is thrilling and scary at the same time. On one hand you anticipate the profits you'll make from the waves of paying customers that will flood through your doors. On the other hand, you worry about how you'll manage if those customers don't come flooding through your doors.

But, you're fed up with your job. Or, maybe you've just been laid off. Again. You dread the thought of applying for jobs and -- if you get an interview -- being asked by someone 10 years younger than you to tell them why you should be hired instead of other applicants, or how you'd handle some stressful situation.

You've got a little bit of money saved. And you've been dreaming about your own business for a long time. Maybe it's an old-fashioned ice cream parlor. Or a boutique. Or a computer store. Whatever it is, you can see it in your mind's eye.

You know you want to locate the business in an upscale community. You know you'll want a location with a lot of street traffic so the store will be seen. And the realtor you spoke to last week just called to say there's a place available on Main Street that is perfect for your needs. But you'll need to make up your mind soon or some other business owner will take it.

Should you take the plunge? Should you dig into your bank account and pull out the three months' worth of rent (first month, month in advance, and a month security) the broker said you'll need to close the deal?

The answer depends on how much real-world research you've done.

What is real-world research? Well, let's look at that ice cream parlor you want to start. The storefront the broker showed you is in a strip mall on a very busy street that runs through several towns. There's no other ice cream parlor nearby, and there are a lot of stores and homes in the area.

The first piece of real-world research you need to do is get real numbers for all of your costs. Find out what everything will cost, from the ice cream you'll sell to the paper goods you'll need. Rent, loan repayments, utilities, advertising, payroll -- add it all up and figure out how much money you'll need to bring in each month. Then figure how many scoops of ice cream you'll need to pay for it all. Don't forget to calculate what each scoop of ice cream will cost you when you're figuring out your break-even point. And don't forget you'll need to pay yourself, too.

For help estimating your costs and operating expenses, take a look at the market research and industry financial reports available from Bizminer.com and the industry data available from the U.S. Census Bureau.

Next, go sit in the parking lot of that strip mall. Look at the cars whizzing by. How easy or difficult is it for them to turn into the parking lot? How many DO turn into the parking lot? Sit there for an hour or two at different times of the day and actually count. "Never judge a location on a single visit," advises Tim Knox, an entrepreneur, author, speaker, and radio host. Are there parking spaces available when they do turn in? What's in the area to attract visitors? Will they stop in during the day? What about evenings and weekends? Is it safe at night?

There's more to think about, too. For instance, only a certain percentage of people who are potential customers will actually buy your ice cream. If they are in the mood for ice cream, they could buy it from the supermarket. How will you get them into your shop -- and keep them coming back?

For additional real-world research, talk to people who own similar businesses to the one you want to start. If you make enough calls to people outside the area you plan to serve, you will probably find business owners who will give you information about customers, costs, and operational details you should know.

Put that information together with the rest of your real-world research and review it all, carefully, before making your final decision. Doing so will help you create a more realistic picture of whether the business you'd like to start is likely to turn into your dream business or a financial nightmare.

Business Know-How