balderson 7e copyright © 2008 by mcgraw-hill ryerson. all rights reserved. part 1: the decision to...

Balderson 7e Copyright © 2008 byBalderson 7e Copyright © 2008 by McGraw-Hill Ryerson. All rights res McGraw-Hill Ryerson. All rights reserved.erved.

Part 1: The Decision Part 1: The Decision to Start a Businessto Start a Business

Chapter 3Chapter 3

Evaluation of a Business Evaluation of a Business OpportunityOpportunity


Non-Quantitative Assessment of Non-Quantitative Assessment of Business OpportunitiesBusiness Opportunities

Goals Goals Content of WorkContent of Work LifestyleLifestyle CapabilitiesCapabilities

– Good health, management Good health, management fundamentals, financial basefundamentals, financial base

ExperienceExperience


Breaking Into The MarketBreaking Into The Market

Three WaysThree Ways– offer a totally new productoffer a totally new product– offer an existing product to a different marketoffer an existing product to a different market– offer a product or service similar to those offer a product or service similar to those

existing in the same marketexisting in the same market Developing a Strategic Competitive Developing a Strategic Competitive

AdvantageAdvantage– the right industrythe right industry– the right businessthe right business– the right aspect of the businessthe right aspect of the business


Developing A Strategic Developing A Strategic Competitive AdvantageCompetitive Advantage

The Right IndustryThe Right Industry The Right BusinessThe Right Business The Right Aspect of the BusinessThe Right Aspect of the Business


Collection of InformationCollection of Information

Sources of InformationSources of Information Secondary dataSecondary data Primary dataPrimary data

– observationsobservations– surveyssurveys

mail surveys, telephone surveys, personal mail surveys, telephone surveys, personal interviews, focus groupsinterviews, focus groups

– test marketingtest marketing


Quantitative Assessment of Quantitative Assessment of Business OpportunitiesBusiness Opportunities

Preparing the Feasibility AnalysisPreparing the Feasibility Analysis– Step One - Calculate the Market Step One - Calculate the Market

PotentialPotential– Step Two - Calculate the Market ShareStep Two - Calculate the Market Share– Step Three - Calculate the Net Income Step Three - Calculate the Net Income

and Cash Flowand Cash Flow



Step One - Calculate the Market Step One - Calculate the Market PotentialPotential– Determine the market area and its Determine the market area and its

populationpopulation– Obtain revenue , (sales) statistics for the Obtain revenue , (sales) statistics for the

product or service in the areaproduct or service in the area– Adjust the market potential total as Adjust the market potential total as

necessarynecessary



Step Two - Calculate the Market Share Step Two - Calculate the Market Share Retail FirmRetail Firm

– 1. Estimate the total amount of selling 1. Estimate the total amount of selling space in the market devoted to the space in the market devoted to the merchandise the new business will sellmerchandise the new business will sell

– 2. Estimate the size of the proposed store 2. Estimate the size of the proposed store – 3. Calculate the market share based on 3. Calculate the market share based on

selling space selling space



Step Two - Calculate the Market Step Two - Calculate the Market Share Share

Retail Firm (cont)Retail Firm (cont)– 4. Make adjustments to reflect any 4. Make adjustments to reflect any

competitor strengths and weaknesses competitor strengths and weaknesses regarding the proposed storeregarding the proposed store

– 5. Multiply the revised market share 5. Multiply the revised market share percentage by the market potential percentage by the market potential estimate obtained in step 1.estimate obtained in step 1.



Step Two - Calculate the Market Share Step Two - Calculate the Market Share Manufacturing FirmManufacturing Firm

1. Estimate the total productive capacity in 1. Estimate the total productive capacity in the market for the product to be the market for the product to be manufactured.manufactured.

2. Estimate the total productive capacity of 2. Estimate the total productive capacity of the proposed manufacturing plant.the proposed manufacturing plant.

3. Calculate the market share based on 3. Calculate the market share based on productive capacity.productive capacity.




Manufacturing Firm (cont.)Manufacturing Firm (cont.)4. Make adjustments to reflect 4. Make adjustments to reflect

competitive strengths and weaknesses competitive strengths and weaknesses the competitive plant may possessthe competitive plant may possess

5. Multiply the estimated market share 5. Multiply the estimated market share percentage by the market share percentage by the market share potential estimate obtained in Step One.potential estimate obtained in Step One.




Service FirmService Firm1. Estimate the total capacity of the 1. Estimate the total capacity of the

service available in the market area.service available in the market area.

2. Estimate the service capacity of the 2. Estimate the service capacity of the proposed business.proposed business.

3. Calculate the market share based on 3. Calculate the market share based on the capacity base.the capacity base.




Service Firm (cont.)Service Firm (cont.)4. Make adjustments similar to those 4. Make adjustments similar to those

made for a retail store.made for a retail store.

5. Multiply the revised market share 5. Multiply the revised market share percentage by the market potential percentage by the market potential estimated in Step One.estimated in Step One.



Step Three - Calculate net income Step Three - Calculate net income and cash flowand cash flow1. Using the market share from Step Two, 1. Using the market share from Step Two,

calculate the expenses expectedcalculate the expenses expected cost of goods sold and gross profit cost of goods sold and gross profit

percentages; cash operating expenses; percentages; cash operating expenses; interest and depreciationinterest and depreciation

2. Subtract expenses from revenue to 2. Subtract expenses from revenue to determine projected net income in the determine projected net income in the first year and subsequent years.first year and subsequent years.


Self Assessment for a Small Self Assessment for a Small Business OpportunityBusiness Opportunity

PersonalityPersonality NatureNature AbilitiesAbilities ExperienceExperience Financial baseFinancial base FeasibilityFeasibility


Concept ChecksConcept Checks

1. What non-quantitative factors 1. What non-quantitative factors should be considered in the selection should be considered in the selection of a small business?of a small business?

2. What are three ways of entering 2. What are three ways of entering the market?the market?

3. What are two methods of collecting 3. What are two methods of collecting information? In what situations would information? In what situations would they be most useful?they be most useful?


Concept ChecksConcept Checks

4. What are the three methods of 4. What are the three methods of collecting primary data? Which is the collecting primary data? Which is the most relevant to a small business?most relevant to a small business?

5. What steps are involved in 5. What steps are involved in determining the financial feasibility determining the financial feasibility of a retail store? of a retail store?

balderson 7e copyright © 2008 by mcgraw-hill ryerson. all rights reserved. part 1: the decision to...

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