Identifying business opportunities
To identify business opportunities, you have to consider
many ideas and follow the development of trends in consumer needs and in the
business environment. This is because there is no single way to identify
business opportunities.
Use the scale of human needs, which are broken down into
five categories: psychological needs, safety needs, social needs, esteem needs
and the need for self-actualization. Associate each kind of need with a product
or service that you can imagine meeting. For example, to meet people's social
need, you may imagine starting up a tango club; to meet the safety needs of
children whose parents go out to work, you may create a daycare.
One of the most critical steps in determining a winning
business strategy is assessing the range of opportunities that are available to
your business and which of these opportunities you should pursue.
One of the tools that can be really effective is the
“business circle”. A business circle plots out the opportunities from the core
of a business to the no-go zones.
Step 1. Decide what is central to the business at
this point in time. Try and describe it in less than 20 words. Write it down
and draw a circle around it.
Step 2. Decide what other products or services you
could offer that are directly linked to the core of your business. Make sure they
leverage your current business skills and competencies. Keep them simple. The
implementation of these new products and services should be achieved within a
year of the plan. Write these around the inner circle. Draw another circle
around these ideas.
Step 3. Now think about the products and services
that would fit well with your current business but are significantly more
difficult to achieve. These products and services will require resources –
time, human or financial resource, and will require you and your business to
acquire new skills or knowledge. You may need to change the way you manage your
business to establish these new offerings. They are challenging, risky
opportunities – that need to be carefully assessed. These products and services
could take between two to four years to establish. Write these down outside
circle two. Draw another circle.
Step 4. Finally start to identify the areas of
business that should not be entertained. This is called the no-go zone. A no-go
product or service would undermine the core of the business and possible
destroy the business model.
Now that you have established the business circles, it’s
time to sit back and decide which of the ideas are worth evaluating and then
pursuing - and which ideas you can stop thinking about!
2.1 Market survey
Market and survey
researchers need at least a bachelor’s degree, but a master’s degree may be
required for employment; continuing education also is important.
Employment is
expected to grow faster than average.
Job opportunities
should be best for those with a master’s or Ph.D. degree in marketing or a
related field and strong quantitative skills.
Market, or marketing, research analysts are concerned with
the potential sales of a product or service. Gathering statistical data on
competitors and examining prices, sales, and methods of marketing and
distribution, they analyze data on past sales to predict future sales.
Market research analysts devise methods and procedures for
obtaining the data they need. Often, they design telephone, mail, or Internet
surveys to assess consumer preferences. They conduct some surveys as personal
interviews, going door-to-door, leading focus group discussions, or setting up
booths in public places such as shopping malls. Trained interviewers usually
conduct the surveys under the market research analyst’s direction.
After compiling and evaluating the data, market research
analysts make recommendations to their client or employer on the basis of their
findings. They provide a company’s management with information needed to make
decisions on the promotion, distribution, design, and pricing of products or
services. The information also may be used to determine the advisability of
adding new lines of merchandise, opening new branches, or otherwise
diversifying the company’s operations. Market research analysts also might
develop advertising brochures and commercials, sales plans, and product
promotions such as rebates and giveaways.
Survey researchers design and conduct surveys for a
variety of clients, such as corporations, government agencies, political
candidates, and providers of various services. The surveys collect information
that is used for performing research, making fiscal or policy decisions,
measuring the effectiveness of those decisions, or improving customer
satisfaction. Analysts may conduct opinion research to determine public
attitudes on various issues; the research results may help political or
business leaders and others assess public support for their electoral prospects
or social policies. Like market research analysts, survey researchers may use a
variety of mediums to conduct surveys, such as the Internet, personal or
telephone interviews, or questionnaires sent through the mail. They also may
supervise interviewers who conduct surveys in person or over the telephone.
Survey researchers design surveys in many different formats,
depending upon the scope of their research and the method of collection.
Interview surveys, for example, are common because they can increase participation
rates. Survey researchers may consult with economists, statisticians, market
research analysts, or other data users in order to design surveys. They also
may present survey results to clients.
Market and survey researchers generally have structured work
schedules. Some often work alone, writing reports, preparing statistical
charts, and using computers, but they also may be an integral part of a
research team. Market researchers who conduct personal interviews have frequent
contact with the public.
Most work under
pressure of deadlines and tight schedules, which may require overtime. Their
routine may be interrupted by special requests for data, as well as by the need
to attend meetings or conferences. Travel may be necessary.
Business Budget Preparation
What is a budget and why do I need one?
A budget is probably the most important tool a business can
have. It provides a game plan for not only long-term business operations, but
day to day operations as well. Properly used, a budget can help a business meet
its goals, help it become more profitable, and give it the edge in getting
through tough financial times.
When you plan to drive someplace you've never been before,
you generally consult a map before you start out. This helps you avoid wasting
time and gas, and keeps you from going in the wrong direction and possibly
never finding your destination. Without the map, you may still feel like you're
making progress because the car is moving, but you're probably just wasting
your time.
Trying to run a business without a budget can be a very
similar experience. You may be working hard and spending time and money, but
are you really getting where you want to be?
How do I create a budget?
There are three concepts you need to understand: variable costs, fixed costs and break-even point.
1: VARIABLE COSTS
Variable costs are those expenses in your business that
increase or decrease with the level of your sales. For instance, if you sell
hamburgers, your variable costs would include the cost of the meat, the buns,
condiments as well as packaging.
As a general rule, your variable costs can always be
expressed as a percentage of your sales. For instance, if the cost of buns,
meat, etc. for a hamburger that sells for $1 is $ .60 or 60%, then you can
assume that if you sell ten hamburgers or $10 in sales that your variable costs
will be 60% of that or $6. With this data you can figure your gross profit and
gross profit percentage.
Sales - Variable Costs = Gross Profit
$1 - $ . 60 = $. 40
Gross Profit ÷ Sales = Gross Profit Percentage
$ .40 ÷ $1 = .40 or 40%
This is a very important concept because it allows us to
determine the net effect of increases and decreases in sales. As you can see,
if hamburger sales increase by $10, we are not better off by $10, but only by
$4 which is the net of the sales less the variable costs of $6.
2: FIXED COSTS
Fixed costs are those which you will incur whether you have
any sales or not. These would include such items as rent, utilities, certain
labor, insurance, etc.
Unlike variable costs, fixed costs do not increase or
decrease with changes in sales. Therefore, the greater your sales, the less of
an effect your fixed costs will have on your net profits. Here's how to
determine net profit:
Gross Profit - Fixed Costs = Net Profit
Fixed costs are only valid within a certain range of sales
or activity. If sales exceed that range, fixed costs will jump to a new level.
For example, you may be able to produce 100 hamburgers per hour with one
employee, however, to produce more than that you would have to hire more help.
3: BREAK-EVEN POINT
The break-even point is, as the name implies, the level of
sales where you neither make money nor lose money. It is the level of sales
where the gross profit is the same as the fixed costs. Using our hamburger
example, we will assume fixed costs are $400, we have $1,000 in sales and our
gross profit percentage is still 40%. Here are two formulas for determining
your break-even point:
Fixed Costs ÷ Gross Profit % = Break-Even Point
$400 ÷ 40% = $ 1,000
Fixed Costs ÷ (Price - Variable Costs) = Break-Even Point
per unit in Units
$400 ÷ ( $1.00 - $ .60) = 1000 units
Since we sell hamburgers for a $1.00 each, we must sell 1000
hamburgers to break even.
The break-even point is important for two reasons: one, it
lets us know what volume we must sell to keep from losing money. And two, with
a little modification, it will also tell us how much we must sell to produce a
given amount of net profit.
Using the same information above, let's assume that instead
of breaking even, we want to make a profit of $40. We simply add it to our
fixed costs and then divide it by the gross profit percentage. When we do this
we find that sales of $1,100 (1100 hamburgers) will give us a profit of $40.
Creating Your Own Budget
While these figures are fictitious (I have no idea what it
costs to make a hamburger), the same formulas will work for you.
To create your own budget, you must first determine what
your variable and fixed costs will be or are. Next determine the level of
profit you wish to attain and plug the numbers into the formula to determine
the required level of sales.
After the sales level is calculated, you may find that it is not reasonable. If that is the case, take another look at your selling price, variable costs and fixed costs. Remember that changing your selling price and variable costs will create the greatest effect because they will change with volume. By "working" the numbers, you either come up with a winning game plan or realize that this game just cannot be won.
Using Your Budget
Once you've created your budget and proudly shared it with
your family and business associates, don't just stick it in a drawer. If you do
that, you've wasted your time. Remember this is a map which will need to be
consulted from time to time to insure you are still on the right road.
For example, you have calculated that you need to have sales
of $500 per day to reach your desired net profit. If at the end of your first
five-day week, you find that sales are only $2,100, you know that in the next
week you will need to make up the difference by selling $2,900. By breaking
your sales goals into bite-size pieces, you will have a much easier time
meeting your total budget goals.
Costs must be monitored in the same way- both variable and
fixed costs. Fixed costs do not tend to stray as easily as variable costs do
and are easier to control. For instance, if the landlord raises the rent, you
usually have time to react and adjust your strategy within your budget.
When variable costs get out of hand that can be devastating.
This is because they are smaller individually, and therefore harder to notice,
however they compound for every sale you make. By comparing your actual gross
profit percentage with that in your budget on a frequent and regular basis, you
can keep variable costs under control.
Conclusion
Remember, a budget is a dynamic tool and will have to be
adjusted from time to time to reflect changes in your goals and the economic environment.
Be creative with your use of the budget; there is not only one way to use it.
Whatever you do, create a budget based on your goals and use
it consistently and you will find that getting where you want to go is a lot
easier than ever before.
At Jeffrey L. Sailor, CPA we can assist you in setting up a
business budget and show you how to use it to reach your goals.
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