the viability of a business
DESCRIPTION
ACTIVITIES ACTIVITY 1: Understanding the concept Ask students to define the concept of ‘viability’ before discussing with them the kinds of businesses they would consider to be viable. Do they simply cover costs, for example, or make profit as well? Distribute the student handout and work through the example with the class before brainstorming with them possible costs and overheads a business owner could expect to face. ACTIVITY 2: Hotel viability Ask students to look through the Activity 2 viability example in the student worksheet and answer the question with the help of the attached Accommodation Revenue Calculator. Students can either work together in groups or individually. The correct answer is Option 2: Go up-market, which gives the highest rate of return on investment over 10 years ($215,000). Students should carry out the following equation to reach the answer after inputting the new costs and pricing figures into the calculator. New revenue potential – old revenue potential = profit increase Profit increase x 10 years - $100,000 investment = return on investment ACTIVITY 3: Putting theory into practise In this activity, students need to assess the viability of a high-end furniture manufacturing start-up in the Nelson region. By going online to www.stats.govt.nz, they should estimate a target market of about 7,000 high-income individuals and families shared between 18 competitors. Given the low overheads and profit benchmark of the business, plus its high gross margin per unit, they should assess the idea as very viable - with the furniture-maker only having to sell 30 units a year. Resources - www.business.govt.nz/tools-and-templates/online-training/finance/financial-forecasts - www.business.govt.nz/starting-up/before-you-decide/is-your-business-idea-viable - www.business.govt.nz/starting-up/before-you-decide/will-your-business-idea-work - www.business.govt.nz/tools-and-templates/educational-resources/assessing-viability/Assessing-Viability_Student-handout.doc - www.business.govt.nz/tools-and-templates/educational-resources/assessing-viability/Assessing-Viability_Student-worksheet.doc - www.business.govt.nz/tools-and-templates/educational-resources/assessing-viability/Accommodation%20Revenue%20Calculator.xlsTRANSCRIPT
Assessing Viability
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Viability is…
… the practical potential of astart-up business idea to surviveand grow in the marketplace
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- Profit- Cost- Price…
…and market share
Parameters of viability
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Gross margin per unit is:
Price-Direct manufacturing cost per unit
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Required sales volume is:
Gross margin Gross margin per unit
= Volume
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Market share…
…Is the slice of the market your business can potentially take from competitors
…Is derived from the target market population and the number and size of competitors in the market
Find Out More
Facebook.com/business.govt.nzTwitter.com/business_govtNZLinkedin.com/company/business-govt-nzSlideshare.net/MED-Business business.govt.nz