Assumptions Regarding Your Business

April 13, 2006

	Visited: 210
	Not rated
	Rate:

As you work your way through the planning process, you will be called on to take your best guess regarding the key operational issues facing any business. You'll have to make estimates regarding productivity, capacity, cash flow, costs, and a hundred other interrelated factors. For example, if you are considering a manufacturing business, how many units of product can you expect a particular piece of equipment to produce? What assumptions can you make about its reliability and potential down time?

From a practical standpoint, there are two potential sources for the information you need to make reasonable assumptions. If you have an existing business, you have your personal experience on which to rely. You know how much to expect from an employee or how reliable your production equipment is. Even if you're taking on a new product or trying to enter a new market, your experience in the industry in general will serve you well.

The same holds true if you have experience in your industry, but not as a business owner. Many new businesses are started by people who have experience as an employee, in the same or a related field. If that applies to you, what you learned will serve you well as you strike out on your own.

But what about the business owner who has relatively little experience in a particular field? The best bet is to tap into existing sources of information. One excellent source is industry groups or associations. These organizations exist to further the aims of business owners within a specific industry or field of endeavor. They can provide information regarding a wide variety of topics. Another good source of information are local chambers of commerce and other civic organizations. These groups can provide valuable demographic information regarding the specific geographic market in which you will compete.

Banks are an obvious source of information regarding financial matters. You're going to have to make numerous assumptions that relate to money, cash flow, interest rates, expenses, etc. Much of what you need to know to make reasonable assumptions can be obtained from lenders. It also provides you with an opportunity to screen potential lenders by seeing the quality of customer service they provide. Potential vendors and suppliers can also be consulted to get information regarding costs, product availability, timing requirements, etc.

While there is no substitute for personal experience, you can derive a large benefit by drawing on the experience of those around you. Unless you're starting a wholly new type of business, there will be someone around with experience at what you're planning to do. You'd be surprised how willing even potential competitors are to share information, if asked in the right way. This is particularly true if your business will serve a limited geographic market and won't directly compete with a similar business located some distance away.

Finally, don't forget about the management aspects of running your own business. In addition to whatever product or service you'll provide, you will also have to perform a broad range of managerial activities. The most important assumption you can make about these back office duties is that they'll take more time than you'd like. But the same sources who can provide the data you need to make reasonable financial and operational assumptions can help you out with respect to those tasks that fall on you as a business owner.