IT’S that time of the year when we look back and take stock of what we’ve accomplished. For entrepreneurs, the question often comes back to the business idea we’ve been trying to turn into reality – is it working, and what are the chances for the future?

It is not as easy as it seems to judge whether a business idea is working or not. For instance, it might not be making money, but is this because it is unworkable or because of insufficient capital? Perhaps the idea is fine, but the business model is not the right one.

Consider the idea of the “steakhouse”. We can hardly imagine South Africa without this culinary institution. But it almost did not get off the ground.

The man who first tried to start a steak-house thought that people would want to grill their own meat – so he provided the fires, the salads, the meat, the tables and the drinks.

Customers came in and the men would go and do the cooking of the meat, like at a family “braai”. But, for a single family party, this meant that the women and children were left on their own waiting for the food – not very satisfactory for a family night out.

The entrepreneur had to change the model and try again, and only then did the idea turn into money. How do you know whether your idea is working or not? Test your experience against each of the headings below, and then decide.

Partners

If you’ve got potential partners in your business, what have they said about your idea? Presumably you consider them as business colleagues because they know something about the business or the industry.

If they see value in the idea, then you can take that as some encouragement. Often people want to be encouraging, but don’t know anything about the business environment.

Take this encouragement as goodwill and support, and as a good reflection on how people view you as a person, however, don’t misinterpret it as expert judgement on the feasibility of your idea.

Financiers

What do your potential financiers say about your idea? If they have been prepared to lend you money to get a business going, then that is some solid encouragement that the idea looks good.

Again, however, be careful not to put too much importance on the views of those who know less than you do. A bank, for instance, will be impressed by a good business plan – especially if the figures are convincing and your argument looks well reasoned.

But at the end of the day, they will usually require your house or assets as security for the loan.

Customers

What do your customers think? This is where you get the really useful answers. If you have a good response from customers - even if it is just a handful to start with - then you know that you are on to a good idea.

For instance, they might like your product and they want to buy it, but:

•It is too expensive; or

•Your shop is too far away from their homes; or

•The product lacks a certain feature.

No business stays the same, and responding to what the market wants is part of your on-going responsibility as a business owner.

Market and pricing

While your idea might be a good one, you always need to ask: can it make money?

The business model must be sustainable, allowing you to sell your product for more than it costs you to produce it.

If you are finding that you are not making money, then take a closer look at your production costs:

•Do you know exactly what your production costs are?

•Is there any way of making this product cheaper?

•Can you get your supplies cheaper from other sources?

•Can you consider using different materials?

•Are your employees costing you too much, or can you make them more productive?

On the other side of the coin is your income and your prices. Perhaps you are simply not charging enough:

•What would happen to your profit margin if you put your price up by 10%?

•What are your competitors charging for a similar product?

•Can you make your product more different from theirs, so that you can charge more?

If your competitors are holding your price down, is there another niche you can try?

Cash flow

Most businesses find themselves short of cash most of the time. Often there isn’t enough money in the bank account to meet the invoices lying on your desk.

While this often makes you doubt the viability of your business idea, there might be another reason – not enough control of your cash flow.

Especially when selling on credit (where customers have 30 days to pay), businesses need to watch their customers’ payment habits very closely.

As a general rule, nobody pays until they absolutely have to, and your job as a manager is to manage your customers’ payments.

Work out what would happen if your late payers suddenly all paid within the 30 days - the results would surprise you.

Get advice on how to make this happen. It’s not rocket science – it is rather all about systems, procedures and organisation. And its all within your grasp.