small business management chapter 3 evaluation of a business opportunity 11/3/20111mrs. shefa eh...
TRANSCRIPT
![Page 1: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/1.jpg)
SMALL BUSINESS MANAGEMENT
Chapter 3Evaluation of a Business Opportunity
11/3/2011 1Mrs. Shefa Eh Sagga SBM
![Page 2: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/2.jpg)
CHAPTER OBJECTIVES
1. To review the nonquantitative aspects of evaluating business opportunities.
2. To introduce the methods by which an entrepreneur can enter a market with a product or service.
3. To discuss the types of information available to assist in the quantitative analysis to select a small business and illustrate how that information can be used.
4. To discuss ways that the entrepreneur can develop a strategic competitive advantage.
5. To provide a systematic way to quantitatively assess an industry and evaluate the financial feasibility of a specific small business opportunity.
11/3/2011 2Mrs. Shefa Eh Sagga SBM
![Page 3: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/3.jpg)
Non-Quantitative Assessment of Business Opportunities
Goals Financial and occupational status.
Content of Work Lifestyle Capabilities
Good health, management fundamentals, financial base.
Experience
11/3/2011 3Mrs. Shefa Eh Sagga SBM
![Page 4: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/4.jpg)
Breaking Into The Market
Three Ways1. offer a totally new product.
2. offer an existing product to a different market.
3. offer a product or service similar to those existing in the same market. Oil change specialists.
11/3/2011 4Mrs. Shefa Eh Sagga SBM
![Page 5: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/5.jpg)
Developing a Strategic Competitive Advantage
The right industry Owners attention to daily operations. Contact with employees. Demand is small or local. Require flexibility. More labor less capital. Govt. encouragement.
The right business. Growth areas.
The right aspect of the business. Flexibility, innovation, location , price etc..
11/3/2011 5Mrs. Shefa Eh Sagga SBM
![Page 6: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/6.jpg)
Collection of Information
Sources of Information: Secondary data. Primary data.
1. Observations.2. Surveys.
mail surveys, telephone surveys, personal interviews, focus groups.
3. test marketing.
11/3/2011 6Mrs. Shefa Eh Sagga SBM
![Page 7: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/7.jpg)
Collection of Information
There are two general types of information available to aid a potential small business owner in selecting a small business.
The first and most inexpensive method is collecting secondary research on a potential market.
There are many government documents and other sources that can provide valuable secondary data.
Small business owner can collect primary data to help determine the feasibility of his business.
11/3/2011 7Mrs. Shefa Eh Sagga SBM
![Page 8: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/8.jpg)
Collection of Information
Primary data: is information that is collected through one's own research.
Although it is usually more costly, it can be more relevant and current to the analysis.
There are three general methods of doing primary research: 1. observation, 2. survey, 3. and experimentation.
Surveying seems to be the most commonly used method for small businesses.
11/3/2011 8Mrs. Shefa Eh Sagga SBM
![Page 9: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/9.jpg)
Quantitative Assessment of Business Opportunities
Preparing the Feasibility Analysis Step One- Calculate the Market
Potential. Step Two- Calculate the Market Share. Step Three- Calculate the Net Income
and Cash Flow.
11/3/2011 9Mrs. Shefa Eh Sagga SBM
![Page 10: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/10.jpg)
Quantitative Assessment of Business Opportunities
Step One- Calculate the Market Potential.1. Determine the market area and its
population.2. Obtain revenue, (sales) statistics for
the product or service in the area.3. Adjust the market potential total as
necessary.
11/3/2011 10Mrs. Shefa Eh Sagga SBM
![Page 11: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/11.jpg)
Quantitative Assessment of Business Opportunities
Step Two- Calculate the Market Share.
Retail Firm:1. Estimate the total amount of selling space
in the market devoted to the merchandise the new business will sell.
2. Estimate the size of the proposed store. 3. Calculate the market share based on
selling space.
11/3/2011 11Mrs. Shefa Eh Sagga SBM
![Page 12: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/12.jpg)
Quantitative Assessment of Business Opportunities
Step Two- Calculate the Market Share.
Retail Firm (cont)4. Make adjustments to reflect any
competitor strengths and weaknesses regarding the proposed store.
5. Multiply the revised market share percentage by the market potential estimate obtained in step 1.
11/3/2011 12Mrs. Shefa Eh Sagga SBM
![Page 13: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/13.jpg)
Quantitative Assessment of Business Opportunities
Step Two- Calculate the Market Share.
Manufacturing Firm:1. Estimate the total productive capacity
in the market for the product to be manufactured.
2. Estimate the total productive capacity of the proposed manufacturing plant.
3. Calculate the market share based on productive capacity.
11/3/2011 13Mrs. Shefa Eh Sagga SBM
![Page 14: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/14.jpg)
Quantitative Assessment of Business Opportunities
Step Two- Calculate the Market Share.
Manufacturing Firm (cont.)4. Make adjustments to reflect
competitive strengths and weaknesses the competitive plant may possess.
5. Multiply the estimated market share percentage by the market share potential estimate obtained in Step One.
11/3/2011 14Mrs. Shefa Eh Sagga SBM
![Page 15: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/15.jpg)
Quantitative Assessment of Business Opportunities
Step Two- Calculate the Market Share.
Service Firm:1. Estimate the total capacity of the
service available in the market area.2. Estimate the service capacity of the
proposed business.3. Calculate the market share based on
the capacity base.
11/3/2011 15Mrs. Shefa Eh Sagga SBM
![Page 16: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/16.jpg)
Quantitative Assessment of Business Opportunities
Step Two- Calculate the Market Share.
Service Firm (cont.)4. Make adjustments similar to those
made for a retail store.5. Multiply the revised market share
percentage by the market potential estimated in Step One.
11/3/2011 16Mrs. Shefa Eh Sagga SBM
![Page 17: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/17.jpg)
Quantitative Assessment of Business Opportunities
Step Three- Calculate net income and cash flow.
1. Using the market share from Step Two, calculate the expenses expected.
cost of goods sold and gross profit percentages; cash operating expenses; interest and depreciation.
2. Subtract expenses from revenue to determine projected net income in the first year and subsequent years.
11/3/2011 17Mrs. Shefa Eh Sagga SBM
![Page 18: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/18.jpg)
Self Assessment for a Small Business Opportunity
Personality. Nature. Abilities Experience. Financial base. Feasibility.
11/3/2011 18Mrs. Shefa Eh Sagga SBM
![Page 19: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/19.jpg)
Concept Checks
1. What non-quantitative factors should be considered in the selection of a small business?.
2. What are three ways of entering the market?.
3. What are two methods of collecting information? In what situations would they be most useful?.
11/3/2011 19Mrs. Shefa Eh Sagga SBM
![Page 20: SMALL BUSINESS MANAGEMENT Chapter 3 Evaluation of a Business Opportunity 11/3/20111Mrs. Shefa Eh Sagga SBM](https://reader036.vdocuments.net/reader036/viewer/2022082517/56649e7f5503460f94b83c4c/html5/thumbnails/20.jpg)
Concept Checks
4. What are the three methods of collecting primary data?. Which is the most relevant to a small business?.
5. What steps are involved in determining the financial feasibility of a retail store?.
11/3/2011 20Mrs. Shefa Eh Sagga SBM