Small Business: Feasible or Not?
Back in October, I wrote a Blog where developing a Business Plan was the top lesson learned when we opened our club. This blog takes it a little deeper (and even a little earlier) than developing your business plan and that is the “Feasibility Analysis”. Before moving forward with our club, I researched this process and found that the University of Montana nailed this perfectly. I have summarized below what I learned from their study.
More than 50% of small businesses fail within the first 5 years and for gyms that percent is even higher. (A Franchise expert once told me that only restaurants fail more than gyms). If you believe the above to be true, than any time, effort and resources in the pre-planning stages is well spent.
First evaluate your management team; which is usually yourself. Your spouse, family members, friends or co-workers are often part of your concept but almost all business decisions will initially be resting on your shoulders. By far, you better have a number of entrepreneurial characteristics including; decision making, organization, self-confidence, ability to accept criticism and rejection, persistance, determination, and most importantly have past business experience or education. The last one is hard to swallow for many personal trainers who wish to open their own studio but I believe is one of the biggest reasons for business failure.
After a critical analysis of your own limitations and abilities, you need to do a market assessment. Questions that you must have answers for include: How many customers are there? Who are they and what are they like? How many people/places are already providing the service and how does each compete and win? What are your geographic limitations and thresholds? Any customer will always compare you to what they THINK they are going to get from your business to what they ALREADY are getting from their existing facility. This can work for you and against you.
The financial feasibility is the next analysis and is often done with the least amount of time, effort and experience. Did you know that it usually takes 3 to 5 years for a small business to break even and begin making a profit? How many people go into business with 3 months of reserve and optimistic forecasts only to find themselves borrowing additional money from their sources or refinancing their homes for working capital? You need to be very conservative or even underestimate your forecast. Remember, if what every your selling (memberships, personal training, classes, etc), you need to do it better, more convenient, be of a higher quality or cheaper (this is a slippery slope so be careful here). You need to not only be better, you need to be able to communicate it as well.
After doing the financial feasibility for the top end, you need to determine your costs and break- even points. Just like we tend to overestimate our revenues, we tend to underestimate our costs. Start-up costs are almost never what you think. Fixed costs, which should be relatively easy to determine often run 2 times estimates. Think Mercedes costing and not Toyota. Your vendors, which includes your landlord and financial institutions, all want to make money from you and dont really care if your getting the best “deal”. Your variable costs are often harder to determine, especially for a new venture, so looking and talking with businesses that are as close to your model will help immensly.
Finally, seek expert advice. Good accountants and business planners are worth their weight in gold at this point. If they say to go forth, you will have a much better chance for success. Once going, stick to your plan. You will need to be flexible, manage your growth, accept market changes, manage your cash flow and only a hundred others issues that face a new CEO every day.
