Checklist for starting or Operating a Small Business

Summary

Perhaps the most crucial problem you will face after expressing an interest in starting a new business or capitalizing on an apparent opportunity in your existing business will be determining the feasibility of your idea. Getting into the right business at the right time is simple advice, but advice that is extremely difficult to implement. The high failure rate of new businesses and products indicates that very few ideas result in successful business ventures, even when introduced by well established firms. Too many entrepreneurs strike out on a business venture so convinced of its merits that they fail to thoroughly evaluate its potential.

This checklist should be useful in evaluating your business idea. It is designed to help you screen out ideas that are likely to fail before you invest extensive time, money and effort in them. The questions concentrate on areas you must seriously consider to determine if your idea represents a real business opportunity and if you really know what you are getting into. You can use it to evaluate a completely new venture proposal or an apparent opportunity in your existing business.

Preliminary Analysis
A feasibility study involves gathering, analyzing and evaluating information with the purpose of answering the question: "Should I go into this business?" Answering this question involves a preliminary assessment of both personal and project considerations.

General Project Description
We start by reviewing how well you understand the business you want to start. On a separate piece of paper;

Briefly describe the business you want to enter.
List the products and/or services you want to sell.
Describe who will use your products/services.
What kind of location do you need in terms of type of neighbourhood, traffic count, nearby firms, etc.?
List your products/services suppliers.
List your major competitors - those who sell or provide like products/services.
List the labour and staff you require to provide your products/services.

Now ask yourself. Why would someone buy my product/service offerings? If you can not generate a solid business reason why your business can attract customers then you can stop now and start doing some more research. If you have a solid business reason then please continue.

Desired Income
The following questions should remind you that you must seek both a return on your investment in your own business as well as a reasonable salary for the time you spend in operating that business.

How much income do you desire?
Are you prepared to earn less income in the first 1- 3 years?
What minimum income do you require?
What financial investment will be required for your business?
How much could you earn by investing this money? (A)
How much could you earn by working for someone else? (B)

At this point you have decided that you want to be in business for yourself, that you have a good idea and the fact that you can afford the costs. We now need you to 

General Personal Considerations
The first seven questions ask you to do a little introspection. Are your personality characteristics such that you can both adapt to and enjoy small business ownership/management? Answer the following questions with a YES or NO. Where the answer is NO, you have some more work to do.

Do you like to make your own decision?	Yes	No
Do you enjoy competition?	Yes	No
Do you have will power and self-discipline?	Yes	No
Do you plan ahead?	Yes	No
Do you get things done on time?	Yes	No
Can you take advice from others?	Yes	No
Are you adaptable to changing conditions?	Yes	No

The next five questions stress the physical, emotional and financial strains of a new business.

Do you understand that owning your own business may entail working 12 to 16 hours a day, probably six days a week, and maybe on holidays?	Yes	No
Do you have the physical stamina to handle a business?	Yes	No
Do you have the emotional strength to withstand the strain?	Yes	No
Are you prepared to lower your standard of living for several months or years?	Yes	No
Are you prepared to lose your savings?	Yes	No

Specific Personal Considerations
Your specific skills, education and background are the subject of these six questions.

Do you know which skills and areas of expertise are critical to the success of your project?	Yes	No
Do you have these skills?	Yes	No
Does your idea effectively utilize your own skills and abilities?	Yes	No
Can you find personnel that have the expertise you lack?	Yes	No
Do you know why you are considering this project?	Yes	No
Will your project effectively meet your career aspirations?	Yes	No

The next three questions emphasize the point that very few people can claim expertise in all phases of a feasibility study. You should realize your personal limitations and seek appropriate assistance where necessary (i.e. marketing, legal, financial).

Do you have the ability to perform the feasibility study?	Yes	No
Do you have the time to perform the feasibility study?	Yes	No
Do you have the money needed to have the feasibility study done?	Yes	No

Requirements for Success
To determine whether your idea meets the basic requirements for a successful new project, you must be able to answer at least one of the following questions with a "yes."

Does the product/service/business serve a presently un-serviced need?	Yes	No
Does the product/service/business serve an existing market in which demand exceeds supply?	Yes	No
Can the product/service/business successfully compete with existing competition because of an "advantageous situation", such as better price, location, etc.?	Yes	No

Major Flaws
A "Yes" response to questions such as the following would indicate that the idea has little chance for success.

Are there any causes (i.e. restrictions, monopolies, shortages) that make any of the required factors of production unavailable (i.e. unreasonable cost, scarce skills, energy, material, equipment, processes, technology, or personnel)?	Yes	No
Are capital requirements for entry or continuing operations excessive?	Yes	No
Is adequate financing hard to obtain?	Yes	No
Are there potential detrimental environmental effects?	Yes	No
Are there factors that prevent effective marketing?	Yes	No

Supply
A "No" response to questions such as the following would indicate that you need to do more research.

Can you make a list of every item of inventory and operating supplies needed?	Yes	No
Do you know the quantity, quality, technical specifications, and price ranges desired?	Yes	No
Do you know the name and location of each potential source of supply?	Yes	No
Do you know the price ranges available for each product from each supplier?	Yes	No
Do you know about the delivery schedules for each supplier?	Yes	No
Do you know the sales terms of each supplier?	Yes	No
Do you know the credit terms of each supplier?	Yes	No
Do you know the financial condition of each supplier?	Yes	No
Is there a risk of shortage for any critical materials or merchandise?	Yes	No
Are you aware of which suppliers have an advantage relative to transportation costs?	Yes	No
Will the price available allow you to achieve an adequate markup?	Yes	No

Expenses
A "No" response to questions such as the following would indicate that you need to do more research,

Do you know what your expenses will be for: rent, wages, insurance, utilities, advertising, interest, etc.?	Yes	No
Do you need to know which expenses are Direct, Indirect, or Fixed?	Yes	No
Do you know how much your overhead will be?	Yes	No
Do you know how much your selling expenses will be?	Yes	No

Miscellaneous
A "No" response to questions such as the following would indicate that you need to do more research.

Are you aware of the major risks associated with your product? Service? Business?	Yes	No
Can you minimize any of these major risks?	Yes	No
Are there major risks beyond your control?	Yes	No
Can these risks bankrupt you? (fatal flaws)	Yes	No

Venture Feasibility
A "Yes" response to questions such as the following would indicate that you need to do more research.

Are there any major questions remaining about your proposed venture?	Yes	No
Do the above questions arise because of a lack of data?	Yes	No
Do the above questions arise because of a lack of management skills?	Yes	No
Do the above questions arise because of a "fatal flaw" in your idea?	Yes	No
Can you obtain the additional data needed?	Yes	No
Can you obtain the additional managerial skills needed?	Yes	No
Are you aware that there is less than a 50-50 chance that you will be in business two years from now?	Yes	No

Almost every one who completes this check lists finds areas where they need to do more research. Therefore, your dream of owing your own business is not doomed to failure. You now know your weaknesses. Take the time to turn those weaknesses into strengths.