6 questions to help you assess a new business opportunity
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It’s a classic small business dilemma. You’ve got the opportunity to secure a big new client or commercial contract, but there’s one problem: you’ll need resources you haven’t budgeted for to be able to take it on. So how do you know it’s worth pursuing? We’ve compiled six questions to help you determine when to say ‘yes’ to a new opportunity.
It’s easy to get excited about a new opportunity, but you need to ensure it’s aligned with your business strategy. This means looking at the bigger picture.
For example, if your goal is to grow a technology consultancy but as part of the contract the client wants you to write their website content, you may need to bring in people to fill your skill gaps. Would this still fit into your long-term vision for the business? Or would it change your core product?
It’s tempting to focus on the potential revenue but it’s worth being cautious if this opportunity means taking your business in a different direction.
Calculating your prospective return on investment (ROI) can be helpful when assessing the potential value of a new opportunity.
First, you need to understand how the opportunity can generate revenue. So, if you’re taking on a new client or contract, look at what you’ll need to invest versus what you’ll get back in terms of revenue.
If it fits into your overall business strategy and it clearly looks like it will deliver ROI, then you may view it as a risk worth taking.
Some business opportunities may come with associated costs, such as increased overheads or the need for additional employee training or expertise.
So if the costs of hiring new staff, new supplier costs or travel expenses might outweigh what you’ll earn from pursuing the opportunity, it may be wiser to reconsider.
If a new client requires a substantially different way of working, consider how this will affect your business overall. Will you need to purchase new software and arrange for additional staff training?
Sometimes servicing a bigger account can be the push you need to make your operational processes better. However, it’s important to make sure your staff and other clients can adjust to this change as seamlessly as possible.
A big new client could suddenly double your revenue, but that can come with increased legal or tax obligations.
You may need to check if your projected turnover exceeds the ATO threshold for small businesses, for example. If the opportunity is so big that you want to bring in a business partner, you should consider contacting a solicitor to draft a partnership agreement.
Also, be aware that if you purchase any depreciating assets, such as new laptops or other equipment, make sure to account for them accordingly at tax time.
It’s not uncommon for business opportunities to require an up-front investment. So until you’re drawing a profit from this growth phase, you may need to seek additional funding to cover any potential gaps in your cash flow.
Many businesses look towards unsecured loans in these situations, as you're not required to provide any assets as security. Lenders also tend to make unsecured loan decisions quickly, which means you can act quickly if you choose to take on that new opportunity.
Even if a new opportunity requires changes to your business, that new client could be the catalyst to significantly grow your business. However, do your due diligence and calculate what you’ll need to fund this period of growth. If this aligns with your business goals and you can see a potential to deliver a positive return on your investment, then you may be ready to take your business to the next level.
This information does not take into account your personal circumstances and is general. It is an overview only and should not be considered a comprehensive statement on any matter or relied upon. Consider obtaining personalised advice from a professional financial adviser and your accountant before making any financial decisions in relation to the matters discussed in this article, including when considering tax and finance options for your business.