SMALL BUSINESS
MANAGEMENT
Chapter Three
Evaluation of a Business Opportunity
1
Non Quantitative Assessment of
Business Opportunities
 Goals
 Content
of Work
 Lifestyle
 Capabilities
–
Good health, management fundamentals,
financial base
 Experience
2
Breaking Into The Market
 Three
–
–
–
ways
offer a totally new product
offer an existing product to a different market
offer a product or service similar to those
existing in the same market
3
Collection of Information
 Sources
of Information
 Secondary data
 Primary data
–
–
–
observations
experiments
surveys
 Mail
surveys, Telephone surveys, Personal
interviews, Focus groups
4
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
5
Quantitative Assessment of Business
Opportunities
 Step
–
–
–
One - calculate the Market Potential
Determine the Market Area and its population
Obtain revenue , sales statistics for type of
product or service in the area
Adjust the market potential as necessary
6
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 new business will sell
2. Estimate the size of the proposed store
3. Calculate the market share based on selling
space
7
Quantitative Assessment of Business
Opportunities
 Step
Two - Calculate the Market Share
 Retail Firm
–
–
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 One.
8
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
9
Quantitative Assessment of Business
Opportunities
 Step
Two - Calculate the Market Share
 Manufacturing Firm
–
–
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.
10
Quantitative Assessment of Business
Opportunities
 Step
Two - Calculate the Market Share
 Service Firm Step Two - Calculate the Market Share
–
–
–
Retail Firm
1. Estimate the total capacity of the se4rvice
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
Quantitative Assessment of Business
Opportunities
 Step
Two - Calculate the Market Share
 Service Firm
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 1.
–
12
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.
13
Self Assessment for a Small
Business Opportunity
 Personality
 Nature
 Abilities
 Experience
 Financial
base
 Feasibility
14
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?
15
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?
16