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Mon 16 Feb 2015 12:41 PM

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Iman asks: What quantitative and/or qualitative indicators to look at before starting a business

Dear Badr, It’s great just reading everyone else’s questions and your answers! Now for my question: I started a B2B company some five years ago. We have some relative success (we’re on the red for the first three years but the last two has seen sales getting better, our name is getting known in the market and our operations more efficient). But I can see a gap in the market which I feel my current set-up can also fill, and I just need to add new space for storage and get new suppliers. I can still use the same overhead and even trading license. What quantitative and/or qualitative indicators should I look at to be fully convinced that yes, this IS the right time to do it? Feel free to cite some business models, operational indicators, or some formula/equation (financial or otherwise) because I want to convince myself logically that I’m not just being overly enthusiastic. Thank you!\nBest, Iman Suguitan Ahsant Premium Hotel Supplies & Specialized Gifts

Dear Iman,

 

Thanks for your pertinent question.

 

It sounds like you’re already thinking about your dilemma in the correct manner. The fact that you can use your existing overhead and trade license means you’re probably looking at the right sort of areas for expanding your business without exposing it to excessive risk.

 

All successful companies are constantly looking for ways to improve/innovate and expand their offering in the most effective way while of course utilising as much of the existing resources as possible; the idea being to try grow the business with the least possible amount of incremental investment and risk.

 

In the short-term, you need to make sure that any known risks in the new offering are mitigated, and that the negative cash-flow of the new investment doesn’t impact your existing business’ solvency.

 

In the long-term, you need to ensure that in the scenario where the entire new investment is lost, there would be minimal residual negative impact on your original offering, brand equity, and existing client relationships.

 

In order to test these sensitivities, some simple questions to ask yourself include:

 

• Will I need external money for this new investment?

 

• Can this investment be used to expand and improve the existing offering?

 

• Will the new offering strain existing resources?

 

• Will the new offering have a negative impact on existing clients?

 

• Will the new offering require learning a new industry or skill set?

 

Of course without knowing the details of your business and contemplated expansion I can’t be more specific, however, in broad strokes if the answer to all these questions above is no, then your decision will be easier to make.

 

If the answer to any of these questions is yes, then you’ll need to carefully assess whether the new benefits out-way the costs and associated risks.

 

Best,

Badr