Starting your own business is daunting. So, it is not surprising that, in the USA, only 6% of the working-age population is self-employed.
One survey found that 70% of Americans would like to own their own company. But most are too scared to give doing so a try. The main reason is that they feel overwhelmed by all of the steps they need to go through to get a start-up off the ground. This is even sadder when you realise that starting a business is nowhere near as complicated as people think.
Provided you get the basics in place, there is a good chance that the business will become profitable, quickly. With this in mind, we have laid out the essentials. The things you absolutely must understand and get in place before launching a start-up.
Identify whether there is a market
The first thing is to make sure there is a market for your business idea. Looking at what others are doing, reading consumer reviews, and speaking to potential customers or business owners will all help. If you can launch on a small scale to test the market, doing so will give you the best understanding of whether enough demand exists.
Understand how much you can charge
While checking market demand, note how much other similar businesses are charging. This provides you with an understanding of what people are prepared to pay for what you are offering. Using this figure combined with the cost of your overheads (discussed below) you will be able to work out how much you will have to sell per year to become profitable.
Determine what your overheads will be
The biggest mistake entrepreneurs make is not understanding, in advance, how high their overheads will be. That failure usually results in the business going under within its first year or two. This is a crucial step that cannot be overlooked or rushed.
The cost of running your business premises
These are the key costs that you need to calculate:
- Rent – be sure to include the cost of the initial deposit in your calculations. Factor in the fact that your rent may rise within the first few years. In some cases, by quite a bit.
- Rates – again these will rise, so factor that in.
- Utility costs – try to work out how much electricity, gas, water, and anything else you may need to keep your premises ticking over you will use. Use the information in this article to help you to do this.
- Maintenance – include the cost of keeping the premises in good repair, redecorating periodically, and maintaining any equipment you need to run your business.
- Staffing costs – when calculating these costs be sure to factor in social security contributions, holiday, sickness, and maternity pay. Include something in your budget for training.
- Insurance and licences – this overhead often surprises new business owners. Identify what you need, how often they need to be renewed and the costs involved in doing that.
- Stock – understand how much money you will have tied up in stock. This has a big impact on cash flow, which is a particularly important consideration. According to research carried out by the U.S. Bank, 82% of small businesses fail because of poor cash flow. Be sure to budget for breakage, stealing and spoilage.
The cost of promoting your business and building your brand
Many people take the “build it and they will come” approach when starting a new business. This usually turns out to be a huge mistake. It does not matter how swanky your café is, how nice the coffee is or how competitive your prices are. If people do not know you exist, they will not come, and the business will fail. Marketing your business is an essential overhead that must be budgeted for.
Here are the main marketing costs you need to factor in
- In-store advertising materials – digital signage for businesses costs little to buy and run. But you will have to pay a member of staff or an outside agency to create and deploy the ads. If you use posters, shelf-edge labels and banners the cost of those will need to be calculated.
- Having an online presence – most businesses will benefit greatly from running a website, having a presence on social media platforms, and using other forms of online marketing. The cost of setting all of this up and running everything needs to be factored in.
- Branding – in today´s visual world branding is more important than ever. The cost of creating, building up and maintaining it needs to be understood.
- Running a loyalty program – loyalty programmes are highly effective. But the cost of setting them up and keeping them running can be high.
Carrying out the above financial due diligence will put any new business venture on a firm footing. Enabling any entrepreneur to get the essentials right, something which greatly improves their chances of success.
Laila Azzahra is a professional writer and blogger that loves to write about technology, business, entertainment, science, and health.