Yaneek Page | Kick-starting a business idea

QUESTION: I currently have a business idea that I am working on, but I came up with another idea. I do not know where to start or how to even make money from it. Please, can you help?

— Bizidea

BUSINESSWISE: It is unfortunate that you did not provide details on either of the ideas you’ve come up with even to share the category of products or services, or type of business, or the industry in which you plan to operate.

To put the issue in perspective, imagine a person visiting a doctor because he or she is not well, but that patient is unwilling to share any information about the nature of the symptoms, when and how they started, existing medical conditions, or current medications being taken. It would be unlikely, in those circumstances, that the patient would receive adequate medical care because the doctor would have been hampered by a lack of information to properly diagnose and propose a treatment plan. The same is true for a person seeking business advice.

In entrepreneurship, it is important to guard unrealised business ideas jealously given that the only way to protect an idea is to keep it secret. However, without expertise in new-product development, finance, business modelling, and starting a business, you will need to expand your circle of trust to seriously pursue any business idea in the future.

If safeguarding an idea is top priority, then one action you could take, if your budget allows and the experts are willing, is to have confidentiality agreements prepared by an attorney for their execution as a pre-condition for disclosing your general ideas and share only enough information as is necessary. I should warn you, however, that many investors, funders, bankers, accountants, and business consultants are reluctant to sign such agreements as a prerequisite to providing advice, guidance, or support.

Break-even analysis

Notwithstanding the lack of information, a general approach to determining the feasibility of an idea and how to make money from it is to first prepare a break-even analysis. A break-even analysis will allow you to determine how many units of products or the volume of services you must sell in order to cover the total costs, fixed and variable, of operating a new business.

There are several resources available online that may assist with this calculation, so feel free to research one that is simplest for you. The US government’s small business website has helpful information and tools that you can access at www.sba.gov/breakevenpointcalculator.

One piece of information I would like for you to keep top of mind is that Jamaica has an infamously high rate of start-up failures, with approximately 50 per cent of new businesses failing in the first two to three years of opening. Proper financial planning is one of the most important actions to reduce the likelihood of failure, and the break-even analysis is insufficient for proper financial planning.

If the break-even analysis is feasible, then the next stage in the financial planning process is to complete two other basic financial projections with the information available. These are the projected income statement or estimated profit and loss and the estimated cash flow. In simple terms, the projected profit and loss statement is a forecast of the likely sales, income, costs, and expenditures that the business may experience over a given period that determine a potential profit or loss.

Financial projections

One of the key ways that start-ups try to manage the risk of failure is doing an estimated cash flow before starting the business as this is usually the most vulnerable phase of the business life cycle. The estimated cash flow is a prediction of the inflows and outflows of cash of your new business over a given period, which is usually 12 months.

The purpose of doing a cash flow projection is to allow you to understand the entirety of the cash requirements of the business, identifying any shortfalls that may occur in the first year of operation, particularly for a new business, which usually does not start with a significant amount of cash on hand.

Once you are clear on the financial feasibility and funding needs of the business you can then move on to proactively mitigate another reason businesses fail, which is not having a viable business model. Take the time to detail the business model, focusing on your understanding and clearly describing your target customers and then the unique value propositions you must have to competitively attract and retain new customers.

The business model should also cover the operational requirements, technology, and labour required to get the business up and running. If you have a viable business model, you can then move on to completing a business plan with revised financial projections based on the most recent information available to you, which would have been ascertained during your business-modelling phase.

You can do further reading on starting a business by reviewing my article “The 7 Essential Steps to Business Start-Up” published in this newspaper some time ago.

Finally, and most important, the primary reason businesses fail is because of inadequacies in leadership and management. Entrepreneurs often launch ideas without clear opportunities or because they need to earn extra income, and usually, they lack the capacity to lead an enterprise. Be prepared to invest heavily in yourself and your team before you start the business to build your skills, competence, and resilience to operate business in Jamaica.

Good luck and one love!

- Yaneek Page is the programme lead for Market Entry USA, a certified trainer in entrepreneurship, and creator and executive producer of The Innovators and Let’s Make Peace TV series. yaneek.page@gmail.com