From the Nolo Business & Human Resources Center
Evaluating Your Business Idea FAQ
Thinking about starting your own business? Here are
some questions you should ask yourself before you get started.
What's Below:
How do I evaluate and develop
a business idea?
What type of business should I
start?
Are there any types of
businesses I should avoid?
What are the benefits of
starting my own business?
What are the risks of starting
my own business?
How can I tell if my business
will make money?
How do I evaluate and
develop a business idea?
- Determine if it's the right type of business.
- Use a break-even analysis to determine if your idea can make
money.
- Investigate business financing.
- Contemplate a basic marketing plan.
- Write a business plan, including a profit/loss forecast and a cash
flow analysis.
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What type of business
should I start?
There are so many different kinds of businesses -- and so many different
kinds of people -- that it's impossible to give specific advice on the
particular type of business you should start. Only you will be able to answer
that question, but to maximize your chances of success, you should:
- Choose something you enjoy doing. It's much more difficult (and a lot
less fun) to make a success of a small business that doesn't interest you -- for
instance, running an autoparts store when your heart is really in graphic
design.
- Choose a business you know intimately. Trying to learn a new industry
or skill at the same time you're getting your business up and running will add a
lot of unnecessary stress to your new venture and lower your chances of success.
Sure, it might be fun to run a hair salon, but if you've spent the last ten
years baking pastries and don't have any experience cutting hair, you might be
better off starting a catering business or opening your own bakery. That's not
to say that you can't learn a new business -- but you should learn how to run a
pizza parlor before you blow Aunt Sadie's retirement money on a wood-burning
pizza oven.
- Choose a business that has a good chance of turning a profit. The
best way to determine your business's potential profitability is to prepare a
"break-even analysis," a financial projection that will estimate how easy or
difficult it will be to turn a profit.
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Are there any types of
businesses I should avoid?
Businesses that use hazardous materials, make edible goods, care for
children, sell alcohol, or build or repair structures, vehicles, or other items
of value come with inherent risks. Unless you are prepared to start a
corporation or limited liability company and can afford adequate
liability insurance (which can be pricey), you may be better off working for one
of these businesses rather than starting your own. For more information,
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