What makes a good business idea?

We've written an expanded version of this popular article. Stay here for a quick read or visit our guide - How to Choose a Business Idea - for more in-depth information.

There's nothing better than dreaming about starting a business.

Apart from starting it, perhaps.

But not all great business ideas turn out to be viable business opportunities. So how do you assess whether a new business idea has what it takes to flourish?

Unfortunately, there's no official "ideas for small business" test. But asking whether your small business idea stands up to the following questions is a good start.

Don't forget, you are more likely to get your great business idea off the ground if it has a sound set of USPs - Unique Selling Points. This differentiates you from competitors and makes your product more desirable. Competitor research can help you understand the market better.

Things to remember:

• It is important to do thorough market research

• Understanding your market is key to success

• Competitor research helps you understand who you're up against

2. Does my business idea make life easier or solve a problem?

Every product or service serves a purpose. If you're not entirely sure whether it's a product-based business or a service-based business that you've come up with, that's OK - our training manager Tracey has explained the difference here:

Successful businesses are rarely built on novelty value. Your business could save people time, make a much-used process easier, or provide them with a new luxury. It's crucial to be clear about how your product helps people, solves a specific problem or fills a gap in the market. 

Again, market research will help. If your business has an outstanding purpose that helps people, you could look into forming a CIC - a community interest company.

Things to remember:

• Know what purpose your product serves

• Make sure this is in response to a market gap

• Market research

Unless you have lots of your own money to pour in, you need a business that can operate cheaply to begin with and doesn't require dozens of staff.

Or you'll need to think about business finance and options for funding a new business.  It is a good idea to write a business plan to help you think through the logistics of what you're considering.

Things to remember:

• Be realistic about what you can achieve with what you've got

• Low starting costs and fewer staff are more likely to work

• Business finance options can give you startup money, but you'll need a business plan

4. Can my business idea make money?

You'll need to work out how you'd spend to make your product (or deliver your service) and how much you'd sell your product and/or service for.

You need enough profit left over to sustain a business.  Factor in employees' salaries, expenses, administration costs, transport and material costs. The smaller your profit margin, the more demand you need to make up for it. 

Talk to manufacturers to find out who can provide you with the products or raw materials you need in the most cost-effective way, taking into account the minimum order required and the delivery charges.

If you're thinking about how to run your business in an environmentally responsible way, this resource from Smarta might be helpful for you:

Things to remember

• Work out all your costs

• Compare the cost per product/service with the estimated sale price

• A smaller profit margin means you need to sell more (there must be higher demand)

• Growing markets are going to appeal more to investors and provide better business opportunities

It's best if your plans for growth correspond with how the market you're working in looks set to develop over the next few years.  Operating in an expanding sector is a much better guarantee for growth potential.

Avoid markets based on trends - you don't want your idea to lose popularity after a year or two.

Things to remember:

• Make a note of expanding sectors, more products and potential locations

• Look at how your market will develop

• Growth markets preferable

• Avoid trends

So what do you think? Has your idea got potential?

If you're feeling in need of extra knowledge before embarking on the next steps in your startup adventure, sign up for a Business Fundamentals course from Smarta.