The most important aspect of planning a new business is, well, the planning! Unless you are thorough with your preparations and meticulous in your financial calculations, you are putting the future of the enterprise at risk. A company founded on poor planning and faulty figures is at a disadvantage right from the start, and sadly many entrepreneurs let themselves down by failing to plan well enough. If you’re thinking of setting up a new business, or you’re already getting the wheels in motion, it’s worth taking a look at the vital components that will get you off on the right foot.
Is your idea genuinely viable?
You might think your idea is the best thing since sliced bread, but if you’ve ever watched Dragon’s Den, you’ll know that many business models beloved of their creators get short shrift from expert entrepreneurs. Just because you think it’s sound, doesn’t mean it is. You need to have evidence to support your plan on three fronts:
- Is there a market? Sometimes even great products fail let alone poor-quality ones, simply because people don’t want to buy them. Your offer needs to fulfill a need that sufficient numbers of people have, to make it commercially viable. You can’t know for sure if this is the case unless you do some market research, and that means conducting surveys and interviews with actual consumers, not asking you mates down the pub what they think!
- Can you price it right? You may have found what you believe is the solution to a problem many people have, but is your solution going to be cost-effective enough to appeal to budget-conscious shoppers, or alternatively exclusive enough to attract those consumers who are willing to pay a premium price? You might find that the price you could charge for your products or services at the lower end of the scale would be so low you wouldn’t make a worthwhile profit. Or if you aim higher, what you are offering may not be seen as being of high enough quality to appeal to the wealthier end of the market.
- Have you considered the competition? A successful business needs to have a unique selling proposition that sets it apart from its rivals. However, even if you have a valid USP, you will still be in competition with someone else to a degree. The first kind of competition to weigh up is the businesses who are selling in your niche, and you need to gain an insight into how much of a market there still is for your new business in this sector or geographical location. The other factor which many new business owners fail to consider is the changing marketplace; what is happening with trends and fashions, and how is technology likely to have an impact on your sales? Advances in technology can change buying habits very quickly; just consider how many record and CD shops there used to be on the high street only a few years ago. Now people have switched to online purchasing and digital streaming services; an entire retail sector has virtually disappeared.
Getting your figures right
There is no point whatsoever in fudging the figures when preparing your budget because you will just be damaging your businesses prospects by not being realistic. Using accurate figures that have been based on sound financial calculations are the only way to create budgets that will work for you. Therefore, you need to get hard data on all the costs you will incur, and factor in future price increases. You need to compare costs and service levels between different suppliers, bearing in mind that cheapest won’t necessarily be best – low prices will not compensate for unreliable deliveries or poor-quality merchandise. You must also include a reasonable contingency fund to protect the business from unpredictable expenses, slow beginnings, or cash flow issues. If it’s well-prepared, your budget will go a long way towards ensuring the success of your venture.
Finding the funding
Start-up costs can vary enormously, depending on the nature of the business. If you’re thinking of setting up a service business with yourself as the sole employee, you will have far fewer expenses than someone who is planning to open a shop. No matter what your business plan is, you’ll need to have a clear idea of the minimum investment you will need, and then select the best funding methods available.
Sources of investment: Your own money
If you have savings or assets which you wish to sell and invest in your business, that will alleviate the burden of loan rates and repayment schedules, but you must be sure you are happy with using your own money to finance your enterprise. Alternatively, you could use the money you have to make some investments on the stock market, potentially increasing your capital providing your investments pay off. If you’re looking to invest, there is plenty of helpful advice online, or you can employ a financial adviser to guide you through the process. Check the credentials of financial advice websites to make sure they are legitimate, not only to ensure their staff are suitably qualified to offer advice but also are able to spot misinformation and malicious reviews. For example, Google will return results for a search on the Money Map investment advice service including write-ups and reviews relating to the Money Map Report scam. However, you should keep an open mind and not take such stories at face value.
Sources of investment: Borrowing
If your figures are telling you that you don’t have enough money, then you need to look at borrowing. Bank and small business loans are often the most straightforward method, but make sure you are getting a decent rate and are not liable to high-value penalties. Private investors are often the lifeblood of small businesses, but you’ll need to be able to make a persuasive pitch, and they’ll spot a less than stellar business plan right away. The other option is crowd-funding, where many individual investors promise a small payment in return for the product when it comes out.
These are the key steps you need to take when you’re looking at starting a business, so consider them carefully before risking what you have and committing yourself to the hard work of building a new business.