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Entrepreneurship can be a very tempting prospect, but do you know what it entails to start your own small business? It’s a good idea to take a self-assessment and make sure you have the necessary skills and experience to successfully start and maintain your own operation. SCORE mentor Julie Brander guides us on the basics of what you need to know before beginning your entrepreneurial journey.

What’s the Business’s Purpose?

This is a simple enough question, but do you really know the answer? Ask yourself what problem your business will solve, what need it will fill, and how your business is different from others that offer a similar service. 

“Are you going to offer savings? Time? Convenience?” asks Julie. “Are you going to offer better quality or better service? Are you offering something that’s brand new and original? Are you taking something that exists but improving it?” Determine your business’ purpose and whether it is something that consumers actually want or need. If your answers don’t point to a yes, it may be a good idea to adjust your plans accordingly or consider a new business altogether.

Research and Test Your Idea

How do you know your business idea will be successful before you launch? You research it. Start by doing industry research at your local library and use the available databases. A good database to start is ibisworld.com. Use this database and others like it to research the past and current health of your industry. You may also use the information to create forecasts to gauge your industry’s future performance.

The next step is to test your idea on the public. “You always want to test your products and services with potential customers by sending samples,” says Julie. “Costco offers samples and that’s how they determine whether or not products will sell.”

Study Your Customers

Do you know who will potentially buy your product or service? You should know demographic information such as your potential customers’ age, sex, race, and income level, but how well do you know their buying habits? Find out how much your customer is willing to pay for what you offer. They may be willing to pay your asking price if they see the value in your product, but may go elsewhere if they feel they can get a better deal.

Next, find out how often your customer is willing to purchase your product? You may want to plan to adjust your inventory accordingly if you are selling seasonal items. It is also a good idea to learn the peak times when more of your customers make their purchases. “You want to build your business around your customers’ needs and values,” says Julie. If you make too many assumptions about your customers without actually getting to know them, it may affect your bottom line.

Study Your Competition

The best way to prepare to open a small business is to learn from someone who has already been in the industry. Find your competitor in the market and learn their business model. “Understanding the competition will give you an opportunity to find gaps in the market,” Julie explains. It may even be a good idea to get a job with your competitor to see first hand to see how the industry works. You’ll get valuable practical experience and be able to learn how you may improve areas that may not have occurred to you before.

Know Your Numbers

“Always consider how much income you need to cover your expenses, your breakeven,” advises Julie. You’ll need to know both your fixed and variable expenses in order to do this. It’s also important to have both a personal and business reserve to cover slow months and emergencies. “It used to be three months, but now they’re saying six months is needed to cover slow months if anything happens,” Julie says.

To learn more about what you need to start a business, check out our webinar “Skills You Need to Run a Business: Self-Assessment Workshop” presented by SCORE volunteer Julie Brander.