A smart entrepreneur is always on the lookout for opportunities. You’d always hear business mentors urging newbies to read up on industry publications, as these are treasure troves for the next big thing on the market. It’s good to be in the habit of exploring opportunities, but it’s a totally different story to know which ones are worth pursuing.

After all, you can’t dabble into anything and everything. The point is, it’s not enough to stay in the loop for what’s in store for you out there. You need to develop a good eye for spotting which of your options is the most rewarding.

Here’s how to know if a business opportunity is worth pursuing:

Know the market

The market has the final say if your business is a hit or a flop. It makes sense then to have them as your starting point when weighing an opportunity. For instance, if you’re planning to go into a dessert shop or a healthy food franchise business, be sure to ask the franchisor for consumer personas, focus group results, and market case studies.

You may also do your own survey; interview a small group of people in your community to know the pulse of the audience. It would also help to observe the perception of customers towards existing businesses or your competitors. All these can give you powerful insights that would help you discern if an opportunity can yield promising results.

Look at its financial history

You’re looking for a business opportunity that would generate better returns, so finances should also be your concern during evaluation. Spend time learning about the business’s finances in the last three to five years. Pay close attention to sales spikes and declines, and increases in the price of supplies or materials over that period, understanding the reasons behind the dramatic changes. This should give you a general idea of how profitable a business is.

Of course, you also need to know the total amount of investment. In franchising opportunities, startup costs would include the franchise fee, training, advertising and brochures, supplies and materials, furniture, and equipment. The bottom line here is you need to assess the earning power of the business while considering your investment.

Ask what makes the product unique

For sure, in exploring opportunities, you noticed that many businesses have plenty of things in common: the same products, services, and business model. That’s only at a glance. If you dig deeper, businesses have a unique selling proposition; a brand promise that distinguishes itself from the rest. You need to look for that, so you can promote your brand better later and determine if it’s credible enough to resonate to your target market.

If you’re going the franchising route, ask your franchisor what sets them apart from their competitors. They should be able to explain that to you in a sentence or two. If not, there’s a good chance that the brand hasn’t solidified its identity yet, and, therefore, should caution you into diving into it.

It’s not enough to know the opportunities waiting out there for you. It’s equally important to find the best businesses to really outsmart this game. Keep in mind these tips as you evaluate opportunities coming your way.