How to know if a business idea is profitable
The ABC to determine if your business idea is profitable
Think SMARTER, not BIGGER
When thinking about businesses that might be profitable, we tend to try to think about multi-million dollar ideas because we think profit is a synonym for cash flow, and it isn’t. According to Tim Stobierski, of Harvard Business School, “The key difference between cash flow and profit is that while profit indicates the amount of money left over after all expenses have been paid, cash flow indicates the net flow of cash into and out of a business.” (Stobierski, 2020). This basically means that a business can be profitable without having a huge cash flow. Thinking of a multi-million dollar idea right off the bat is very complex, and it takes way more time and energy than thinking of small smart ideas that can later be combined to form a much bigger one.
A big part of finding profitable business ideas is thinking of small but intelligent ones. But how do you know your ideas are smart? That’s what leads us to the second point.
Think to yourself: What problem I’m I solving?
A profitable & smart business idea is always born from a necessity that has not been yet covered or fulfilled. Where there is a need, there is a niche where you can flourish and develop your business. In addition to this, knowing who you are helping with your business and how demanded is your business idea, is going to give you a picture of your future market share, and therefore is going to show you an overview of how much money you are going to get in return for offering your services.
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Think of something you enjoy doing
They say that if you find out what you love doing, you will not work a single day in your life. This is true to some extent, and that’s why taking time to think about what you enjoy doing is going to help you out when finding profitable business ideas. If you find business ideas that involve activities that you like doing, working towards the growth and prosperity of that business is going to be a lot easier. In addition to this, what we do gives our current and future clients reasons to believe, and to feel safe when choosing our services. If you believe in your ideas, it is much easier for other people to believe too.
Find a differentiator
To find profitable business ideas, it is key to know who the competition is, and what it is doing. In order to make your business more profitable, you need to find that one thing that you can offer that the competition doesn’t. This is what makes you stand out from other businesses in the market and what makes you special to your clients.
If you want to know more about this topic, read our latest post on what is a differentiator and why is it important for your business to stand out.
Make a financial forecast
This forecast must include your revenue goals and how you are going to distribute your capital in order to reach those goals. To know if a business is profitable is to know how much money you need to invest to launch it and sustain it until you can start gaining a return on investment from it. You need to take into account certain aspects like initial capital, how long it will take until the initial financial contribution is returned, etc.
You can find out more about what financial aspects you need to take into consideration when thinking of becoming an entrepreneur by reading our blog entry about Important financial aspects every entrepreneur should know
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