The key to starting a successful business
Double your expenses. Most potential entrepreneurs tend to be overly optimistic about their sales projections, and tend to underestimate the true cost of starting and managing their business.
While some expenses are obvious, they often forget related items that can quickly add up. If you make a product, for example, you also have to package it. If you're going to deliver it in your trunk, then you'll need to fiddle with your auto insurance.
Adjust your figures accordingly to provide a "worst-case" scenario to ensure you have enough funding to survive, Wheatland advises.
Don't undercapitalize your business. One reason so many new businesses fail is that they simply don't start with enough operating capital, Wheatland maintains.
Have enough personal savings or use term loans to fund your major capital expenses, and use a line of credit to cover inventory and day-to-day operating expenses. Save those high-interest credit cards for emergency expenses only.
A good formula for success is to have at least six months minimum reserves set aside to live on and assume it will take at least that long for the business to become steady.
Don't borrow more than you have to. Find and rely on your own sources of funds as much as possible. Build up your savings in advance, ask family and friends for assistance (either funds or "in-kind" help), find partners or investors, or sell personal assets.
Aiming to fund at least half of your business from your own pocket is a good target. This shows your potential supporters that you're personally assuming some risk, and that you're committed to your business' success, suggests Brent Finlay, a business financing specialist who's spent most of his working life in western Canada.
"A personal equity investment not only reduces the cost of borrowing but also provides some serious skin into the deal that indicates a strong commitment on behalf of the borrower," he says.
Get a handle on your cash flow. If you do have to borrow money upfront to get going, factor in the carrying cost of that debt without expecting that the business will initially cover it.
"What tends to be either missed entirely or poorly estimated is the realistic cash flow required to operate the business until such time as the business can sustain itself on a month-to-month basis," Finlay says.
Unfortunately, creating more realistic and potentially conservative projections may highlight that you don't have enough money to actually get started, he adds.
Be prepared to grow. Rapid expansion can cause major problems for small businesses. Moving too far too fast can lead to overwhelmed suppliers, shoddy products and strained client relationships.
Growing pains can range in severity, and they can happen in all stages of company development. But it's a nice problem to have.
At HapiFoods, for instance, the online sales boost after the TV show put a major strain on inventory and receivables. But, since most orders were paid instantly with PayPal, the company was able to work with suppliers to handle the unexpected load.
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