Charles Dickens’ character Mr Micawber in David Copperfield clearly understood the essentials of viability: “Annual income twenty pounds, annual expenditure nineteen (pounds) nineteen (shillings) and six (pence), result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery”.
Establishing the viability of your business idea is straightforward.
Step 1 is to answer these questions:
- How big is the market – how many potential customers?
- How many of these will actually buy your product or service?
- How often?
- How much will they pay?
- How many will they buy at that price?
- What does it cost you to make your product or deliver your service?
- What other costs (including your own salary) must you cover?
If you estimate one year’s sales and costs, will this result in a profit (sales greater than costs = happiness) or a loss (costs greater than sales = misery)?
A loss-making business is not viable – unless the loss can be turned into profits somehow in later years.
Step 2 is to compare your profit (if any) from Step 1 against the initial investment required to get your business started. The faster you can pay back your initial investment, the more viable your business.
Advance orders help secure the viability of business by providing confidence about early sales – and about your ability to make sales.
Use the Business Viability Worksheet to check the viability of your business.
All is not lost if this exercise suggests that your business is not viable. Re-examine your assumptions – about the market, your customers, your competition, your product or service, your pricing, your costs (production and operating) and your initial investment – to see what changes can be made and what effect these have. Often a simple change can have a dramatic impact on viability.
- Business Viability Worksheet Download