Cash Flow Management Tip – Acid Test Your Business Idea

I recently got a call from a man in Fort Worth, Texas who wanted to know what I thought would be a good business idea for him. He’s a good salesman, and he wants to be an entrepreneur, but his last couple of business ideas went south in terms of positive cash flow.

I started describing what he should do to make a good decision on a business idea, one that will produce adequate cash flow, and I realized that what I was describing also applies to business owners who want to add new products or services to their existing business. I thought it would be a good idea to share my thoughts, so here goes…

Acid Test Your Business Idea

Test # 1 – Believe in what you are selling

The first test for a business idea overall is to do or sell something that you are passionate about, and that you can have fun with. Being in business for yourself demands an investment of time, money, the risks and rewards of responsibility, and 100% liability for the business.

Whatever you sell, you have to believe in it. That means really believing in the benefits that the product or service can deliver to your customers or patients. It isn’t enough to get excited about the prospect of making high profits. A cash flow forecast for high potential profit on zero sales is zero dollars in profit.

If you don’t believe there is lots of benefit for the consumer in whatever you are selling, you won’t be able to sell much and they won’t be willing to buy. Consumers are smart. They can tell if you are sincerely interested in them and what they want, or if you just see them as a wallet you want to get into.

Test # 2 – Check on whether the product or service is in demand

One of the easiest ways to check on the demand of a product or service is to do some keyword research on the internet to see how many people are searching on the topic. It’s an essential part of the cash flow formula these days. High search numbers on relevant keywords and keyword phrases means high interest by consumers. One of the premier search tools is Google’s Keyword Tool and there are many others on the internet to double check your idea.

As of 11/16/2011 there are 264,000 local people in the U.S. who search on the term anti-aging each month.

Ask lots of people; friends, family, neighbors, business associates, and people you are standing next to in line at the movies or the grocery store. You’re not asking for their permission to start a business, you’re asking them about their interest in and willingness to purchase specific products or services. For example, “anti-aging” is a hot keyword. So if you are thinking about selling or adding on a line of anti-aging products, that’s what you ask about: have they ever purchased them, have they considered purchasing them, where do they purchase them (in a store or online).

You need to know that it is a product people will buy.

Test # 3 – Run the cash flow numbers to see if there is enough profit in it

If you are adding the product to an existing business then the profit margin is easier to calculate in a cash flow plan because you already know what your overhead is costing you. If this is a new venture then it takes a lot more figuring to see, after expenses, if there is going to be adequate profit to pay yourself a decent wage. All this would be based on the number of the product you think you can sell.

Another good thing to do is to figure out how many of the product(s) you would have to sell to do better than break even. It’s no fun to make just enough to pay your suppliers and make them wealthy and not make enough yourself to reach your financial goals.

I highly recommend that any business owner give themselves a much better than average chance to really prosper financially in their business by purchasing the e-book The Business Checklist To Increase Profits.

Test # 4 – If you can’t answer this one you are in trouble

Okay, so you make a decision and start a business or add to your existing business. The next question you should answer for yourself is, “How am I going to market this?”

There are many ways to market and promote a product or service, word-of-mouth referrals, off-line through print, radio, TV, on-line through video ads, articles, blogs, mobile phone texts, websites, podcasts, and more. The big question is do you have the cash flow to promote like you should because if not then your potential customers will never know that can buy from you.

Yes, I teach business owners to manage their cash flow correctly so they can reach all their financial goals. But, I know that promotion plays a HUGE part in driving enough sales traffic to make it in business. So for my clients it is mandatory to budget money every week to spend on promotion. I never let them make the fatal mistake of failing to promote adequately, because they would lose momentum and their competitors will be promoting and getting the customers if they stop promoting.

For the first half of my career I had the privilege of working with some of the advertising gurus and one-for-one they lived by the motto, “When times are good, promote! When times are bad, promote even more!” Trust me when I tell you that you better live by this motto yourself if you hope to make it. However, the other key thing you have to know how to do is figure out what your ROI is (Return on Investment) on every form of promotion and promotional message.

Wasting your hard-earned dollars on promotional stuff that doesn’t work is NOT fun and it can send you into despair, and send your cash flow down the drain. So test what you are doing, keep doing what works, and whatever isn’t working – ditch it fast! Now the one exception is that internet marketing takes a while to gain traction, so give it a fair test. You’ll know in a matter of days or weeks if a postcard promotion is going to bring in lots of business. Internet marketing is slower. It often takes a few months to know if what you are doing is going to work, or if you need to add to it, change it, etc. The internet changes constantly so you have to change with it.

In Summary: So there you have it – acid test every idea. Have a passion for what you are doing and be able to have fun doing it. Believe in what you are selling. Check the demand to see if enough customers will want it before you dive in and make a big commitment. Run the cash flow numbers to see if there is enough profit in it. And answer the question on how you will be able to market it adequately to get the sales you need to have enough profit to pay yourself a LOT of money.

I wish you the best success in whatever business idea you decide to pursue. Leave me a comment and let me know about what you decided from reading this article.

Cash Flow Management Tip – Acid Test Your Business Idea