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Feasibility Analysis, Part Two
Now that you have given some clarity to your dreams of starting a
small business, it's time to take the facts that you have gathered
and put them to good use. There are still several steps in your
feasibility analysis that will help lay out a road map for your
businesses future. You need to figure out where to go next.
Fortunately, these decisions are purely theoretical, meaning that
you can change your choices based on what you discover for yourself.
To paraphrase Rommel, you can't become absorbed in your own
theories; you must adapt them to the conditions. The Desert Fox was
speaking of tank warfare, but the modern economy is a battlefield as
savage, if not as bloody, as any other.
Developing a sound structure is the next step in your analysis.
There is still a lot of flexibility here, as the type of business
that you are seeking to start will help define what kind of
structure you need to have. Take into account the type of people who
will be doing business with you and what type of people may be
working within your business. These are important considerations.
Artists require a very different structure than actuaries. At this
point in the study you should also begin to thing about location. Do
you need to be around other businesses that are like yours? Is there
a particular place where people go to engage in your type of
business? Being in the wrong place at the right time can be a recipe
for quick failure for a start up business.
Get out your calculators and your old math class notes, because the
fourth step, financing issues, will require every mathematical skill
you've got. For the feasibility analysis, you'll want to plan for
costs for the first full year of operation. Your first concern is
that year's expenses. Start-up costs, such as buying the space and
tools you need, are probably going to be the most daunting and
discouraging task of the analysis, but you still must continue to
expect the worst. Though you'll probably end up cutting costs
somewhere, don't skip buying vital items entirely, though finding
lower prices for these items will probably help you immensely.
You'll also have to tend to personnel costs for your first year;
find out what positions you'll need to hire people to fill and how
much you'll need to pay those people for those positions. Similarly,
you'll also want to provide money for your own survival. There will
also be operating costs, ranging from shipping costs to rent to
power and water bills.
There a few figures you'll want to total up at this stage of the
analysis. The first is your total fixed costs (TFC), which are
expenses that the cost of which won't change. The second is the
price of a single unit of what you're selling (P). The third is the
variable costs (VC), the cost to you, the business owner, of
producing a single unit of your product, whatever it may be. The
number of products you need to see for your business will to for
itself (the break even point, or BE), can be calculated by dividing
your total fixed costs by the number you get after subtracting the
price of each unit by the cost to produce each unit, or BE = TFC % P
- VC.
You'll want to reevaluate your figures if you're not sure you can
sell that many units within a year. Fortunately, you're still at the
point where you can change your plans, and you may even have to
rethink everything from scratch. There's no shame in changing your
original plan. From here, though, you leave solid planning to focus
on a less predictable matter; marketing.
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