Most of time experts will guide you for a whole checklist
–do this –do that-like
Get marketing skill
Get hiring skill
Get experience for it
Do SWOT analysis
Almost 100s of checklist n desirable tests that you can do it.
And so on and so forth.
I will suggest only ONE Thing which is what I DO.
The One and only thing you MUST do in detail and in as much as possible is to study –if proposed activity is profitable.
How to study it
Enlist all ways you can make money in a month.
Enlist all possible expense you have to do in a month.
Enlist roughly capital you need to run the business.
Cross check & correct all of above
It is quite common- you will see a big deficit.
Nothing to worry about... Most of business will need time to become profitable.
If they are ok, emulate same for next 3 quarters (namely 4th, 7th an 10th month) to see how your business will progress in terms of sales and profits.
If you are profitable seems good-recheck it n
Validate it By Discuss it with mentor.
If you have no mentors then discuss it with friend to validate your assumptions.
If you are still not profitable –nothing to worry-then expand the calculation for year 2 same way
Are you profitable- Yes?
If not profitable- try 3rd year. (Some project may take longer to establish)
If you can’t be profitable in 3rd year even then, think do you still want to put your time on your dream project?
Some Good CHECKS to perform when estimating revenue:
If you estimate product market price say 100
Deduct tax (GST/VAT) 7% in Singapore
17% in Europe
Credit card charges (3%) say 3
Dealer discounts (in range of 10-50%) say25
Realized Sales say 65
So Many times we assume this product is sold at 100 and we calculate that but the realized value may be much less say 50 or 70 only due to above.
I also did the same mistake
When I was taking the resort-I read tourism industry report and taken the figure from there to calculate Average room rate and occupancy but until 3 years in operations, I realized they are quite difficult to achieve in reality which made the whole viability upside down.
That is why key expertise of mentor is needed who know the business and ground realities better in general.
Deduct relevant expenses
Think of all possible expenses you may have like
Salary
Rent
Electricity, water
Cost of product you sell
Most of times people forget to estimate below
Cost of capital (better to assume higher than bank rate)
Depreciation of plant/ machinery (3 or 5 years)
Marketing costs (may vary from 3-10%,usually higher in beginning)
After sales cost (may vary 3-6%, usually higher in beginning)
Exchange gain/loss (depend on market volatility)
Possible Price drops/ variations (try to analyze trend especially in one complete cycle of sales/purchase)
Relevant taxes like excise, customs or others
And so on
Do a detailed financial emulation -Financial Analysis- if it is viable
How-try to enlist all possible income and expenses
Estimate capital needs
To set up infrastructure
To start buying product or services you intend to sell
If it turns out NOT Viable
-Then no need to spend time on other things
But if it is reasonably viable then do Demand Analysis
if enough market exists for your product or service to accept new supplier and rather few more players.
Sometime market at present may be good but may not be enough to accommodate more players because a little excess can affect profitability severely
.
If above is favorable then do the following:
a) Capability requirement – hire someone if you don’t have.
b) Capital requirements - arrange funds if you don’t have.
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