Reality Check for Would-be Entrepreneurs
Count your Costs before You Launch
Have you ever thought that you might like to own your own business? Seems like a pretty good idea – you can be your own boss, choose your own hours, plan your own vacation and even give yourself a raise if you feel like it. Lots of people make that jump from employee to entrepreneur every year, and here on the Space Coast, lots of people are making that decision as the space program winds down. Some will succeed, even beyond their wildest dreams, and others will fall by the wayside.
According to the Small Business Administration, 10 percent more businesses failed last year than were actually started. In reality, the long-term survival picture is a little more encouraging. Seven-out-of-10 new employer firms survive at least two years, half at least 5 years, a third at least 10 years and a quarter stay in business 15 years or more.
Scouting the Terrain
So what makes the difference between success and failure? My experience in counseling small business owners has shown me that the biggest cause of failure is the inability of the entrepreneur to fully understand the marketplace, the need for solid capitalization and the budget process, as well as the reality of the effort needed to succeed. An effective business plan can be the key to long-term survival.
Many new business owners may be highly talented people with extensive experience in the field they now want to follow. Others may be trying to expand a hobby they have had for years, but no matter how great a widget maker you happen to be, if you can’t get the product or service to market you just won’t survive.
Some of the very basic considerations have to include knowing who the customer might be, who will have a need for the product and how many of those with the need can be reached and sold. Historically, people buy what they want from someone who knows what they need; so how will you show that need?
Included in that is a solid description of the demographic of your proposed customer base. Questions such as age and income level will help to point you toward an appropriate medium to market to them. You may also discover that your prospects do or do not watch TV, may or may not read newspapers or magazines. If your prospective customers are other businesses, which professional or businesses organizations do they belong to?
Show Me the Money
Another consideration has to be how much revenue can be expected from sales, and after you deduct the costs of raw materials, marketing, employees, insurance, taxes and a whole list of other expenditures, how much will be left to pay yourself. Selling 100 widgets per month, with a profit margin of twenty five cents each will hardly get you into a comfortable lifestyle. Some very basic computations can help you put a budget together to support operations until cash flow begins to roll in. It will also help you to gain financial support from investors or banks to establish a line of credit.
Finally, you have to have some specific goals and a method to track your progress toward those goals. Many people treat business goals like a New Year’s resolution. You make it in December, get going with a solid effort in January, but then are overcome by events as the year rolls along. Goals have to be dynamic and realistic.
It would be nice to open the doors of your business and immediately have the money start rolling in, but it’s also unrealistic. You need to plan for growth and have a method for tracking your progress. Each time you measure how you’re doing weekly or monthly, you adjust your plan to take advantage of successes or downturns in the business. At all times you must know where you are, know where you are going and fully understand how you plan to get there.
Some people love the challenge of growing a successful endeavor and others may find they are much more comfortable as an employee working for someone else. A solid reality check will help you choose the path that is right for you.