Business Opportunities Weblog

May 25, 2005 by Dane Carlson | 1 Comment

Microsoft:

You need to decide whether it’s worth your time to start the business in the first place. Mark Weaver, executive director of the Center for Innovation and Entrepreneurship at Rowan University, urges prospective business owners to analyze their financial expectations and risks by using this five-step process:

1. Set your marketplace worth — how much would somebody else pay you to work for them, both in terms of salary and benefits? Say $50,000.
2. Add the elements of risk and return. Estimate how much money you plan to put into the business and then how much you, as an “investor,” would expect as a return on your investment. For instance, says Weaver, if you put up $60,000 and want a 25% return — not an unreasonable sum — that’s another $15,000.
3. Got anybody on the outside putting up money? You need to add the expected return for that investment as well. In our case, since the risk is all yours, that comes to zero.
4. Add it all up. In our example, the numbers total $75,000. Which means: Over the course of the first five years of your business, you should expect to generate $375,000. That’s not necessarily $75,000 each and every year. As Weaver notes, startups being what they are, may earn you nothing the first year but make $150,000 in the second.

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Tags: Operations, Planning