In the current climate of uncertainty, many people are seeking to take greater control of their future by setting up their own new business.
The most successful start-ups are those whose owner identify possible pitfalls and costs and can budget accordingly.
Whilst the concept of ‘following your dream’ is very appealing, it’s important not to forget the practicalities of running your own business. This is where a robust business plan will pay dividends.
So you have identified a saleable product for which there is likely to be demand, consider the following:
Write your business plan
In most cases, the early stage of a business will need financial investment. You could get support for your bank, or by persuading others to invest in exchange for share in your business or a financial return on their investment (over a prescribed period).
A good business plan demonstrates that you understand your business, and it will indicate to investors the likely return on their investment.
Your business plan will help you to:
- Identify expenses and keep costs under control.
- Establish what the impact of seasonal or other variations in demand might be on the business.
- Identify whether you need financial assistance for the whole period, or just to cover temporary ‘blips’.
- Establish the break-even point. This will help you in setting prices and the minimum volume of sales required.
- Differentiate between direct costs of production, and fixed overheads.
- Working from costs upwards
When creating your business plan, establish your costs first and then identify how many sales you need to cover those costs. Be prepared, your business will probably make a loss in the first few years. Remember to allow for one-off costs, for example investing in equipment, finding premises, legal fees, marketing, etc. You will also need to give yourself a length of time in which to build up your sales.
Your business plan should highlight the difference between each type of cost:
- Set up costs (as described above)
- Direct costs involved in making your product, i.e. materials, labour, delivery
- Fixed overheads such as rent, utility bills, telephone, wages, etc.
You can identify the point at which your business will break-even. This provides your investors with the confidence to support your business through its early stages.
Business plans going forwards
You should revisit your business plan annually. Make adjustments for the ‘known’ costs, as well as variations in sales forecasts, so that you can monitor your business. This will ensure you remain on track to achieve the success that you want.
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