“How much can the business earn?” this is the first question that would come to your mind when you plan to try a new business. Let’s look at some ways that can help you determine the earning potential of a business. Study the market, its trends and type of clients you are likely to get to get an idea of the earning potential of the business. Let’s understand this with the help of some examples. If you plan to start a dive boat business, your income is likely to boom during vacations. If you plan to start a lawn care business, the volume of business is not likely to fluctuate with seasons. Also, if there is a slump in the economy, the dive boat business might take a hit as people try to curtail on luxury expenses. However, a lawn care business is far less likely to be affected by such events. Also, the client-base of a lawn care business is likely to be much wider than that of a dive boat business. Observe other people who own a similar business. Try to get a rough idea of the income they are making through the business. You can expect a similar earning out of your business. You will also have to study these people as competition. Fighting competition requires proper planning and resources. In some cases, it might also mean a dent in the profit to sustain customers. Make rough calculations to estimate the kind of income the business can generate. Another way to determine the earning potential is to make a rough business plan. This will give you an idea of the cost you’ll incur and the turnover that the business will give you. If you plan t take up a franchise or buy an existing business, you can check the past records to determine the earning potential of the business. There are methods like capitalization method and discounted earning method to determine the earning potential of an existing business. If you are taking up a franchise, you can get information about the earning potential of the business through the Uniform Franchise Offering Circular (UFOC). This document contains a clause on “Earning claims” of the business. You might require professional help to use these methods. Apart from these, you can talk to the previous owners and existing franchisees to get an estimate.