Selecting the right business
Since now that you have decided that starting a business suits your abilities and is what you really want to be, then you must consider what type of business you are going to run. In fact you must have thought about a business and then had doubts about whether this was the right business. We can help here with our own guidelines on how to assess the business.
Developing you basic business idea
- Describe your product or service as much as you can
- Be clear on what you are offering that is different from others
- Think of your intended market, try to define its limits both geographically and in terms of type of customers.
- Look at the options for selling your product or service- via a shop, distributors, by telephone and over the internet!
- If your business is based on selling a product, will you manufacture it, or find someone else to do so
- Think of what you will need to start in terms of premises, staff, equipment, finances and expertise.
- Be critical of your idea: try to spot and resolve potential flaws.
Starting from nothing
Copying an existing idea – this is probably the most common way a business is started. You might see a product service that is not available locally and decide that you could fill the gap by introducing it into your area.
Spin-off from the work that you have done – Many new businesses are started by ex-employees who set up to do on there own as consultants or outsourcers what they were doing as employees. Frequently their ex-employer is their first customer.
Building on personal experience – This is often a good way to stumble onto a business idea a personal experience may have revealed a market gap. For example a pregnant woman might find it difficult to find suitable maternity clothes and might decide to start a maternity clothing store.
Arts and crafts – Trying to start a profitable business based on artistic talents is difficult. Especially since you need to allocate enough time for selling your products and also establishing a distribution network. Further you will also need time to develop your creative work.
Inventions – There is a widely held belief that coming up with a original invention will lead to a successful business. The truth is that few businesses start this way although few have been hugely successful it is not an easy path to start out on.
Building on hobbies and sports – In this situation the entrepreneur should have a more than working knowledge of the activity. For example a model train design winner might decide to start a model train store. In particular many sportsmen and sportswomen make money outside their sport but related to it.
Starting in direct selling
Advantages – being involved with a direct selling company has many advantages over setting up a business on your own. Doing the market research, developing and testing new products, planning and pricing and working out the sales techniques are all done by the company. All you need to do is absorb their sales training and purchase a starter pack of goods to sell.
Disadvantages – There are a number of reasons why people fail to make a living from direct selling. Some of them are as follows:
- Not following the company’s instructions
- Not allowing enough time to get trained on direct selling – at least twelve months is required.
- Becoming disenchanted with the cycle of selling and absorbing the company hype
- Working for a company that does not have a code of ethics – this implies an unprofessional attitude shoddy goods and failure to deliver on time.
- Working for a company that has unsaleable goods – a common problem!
Choosing a company – Joining a direct selling company is quite easy. The relevant trade associations can give you the names of their member companies or you may already know the distributor. It is important that you like what the company has to sell and are using the product yourself.
Network marketing – Some – though not all direct selling companies operate a multi-level system of sales where a sales person can recruit other sales people and will then receive bonuses depending on how well their recruits perform. This method of marketing is called network marketing or MLM (multi-level-marketing)
Taking on a franchise
How does franchising work? – Setting up a business takes money – but setting up a franchise takes more since you are paying for the business experience and proven product of the franchiser. In return the franchiser will be setting up the whole business for you including taking care of all the legal work, training the employees and yourself and help in purchasing the stock/ tools. In some cases the franchiser hand-holding is very complete but you need to decide if the extra cost is worthwhile.
Assess a franchise – many franchisers are members of national associations, which you can contact for information, and their are a number of franchising magazines available. To meet franchisers there are a number of annual franchise exhibitions.
What to look for in a franchise
- A proven business format that is viable, with advertising support and an operations manual.
- The use of a business name or trade mark
- Training in both trade and business skills
- A contract that clearly defines the rights and obligations of both parties
- Long term market research to ensure that the business keeps up with marketplace changes.
- An exclusive territory large enough to generate sufficient income.
- Full support before, during and after start up.
Buying an existing business
This is a popular way to get into business and can be highly successful, as it short cuts through the start up process. Businesses are sold through word of mouth, through the local newspapers and specialist publications.
Do research – Obtain advice from an accountant, who should go through the last few years accounts of the business and who should explain to you all the salient features of the business. Be sure that you understand all tax and sales tax implications of the purchase.
Buying a business means that you have access to their real trading figures, so you can make better cash flow and profit predictions than if you were starting out.
Valuing a business – Every business has its strengths and weaknesses in general terms, however, the value of a business – what you have to pay is the sum of the following factors.
Stock – this is best valued independently – all businesses have dead stock.
Fixtures and fittings – Again these should be valued independently, taking into account their value after depreciation.
Machinery and equipment – This is to be valued as fixtures and fittings.
Goodwill – is one item that cannot be precisely valued and will have to be negotiated. It is a measure pf the momentum of profitability that the business has built up.