“Impossible only means that you haven’t found the solution yet.”
When deciding to go out on your own, whether or not you have found your product or service or whether you are still looking, is always a risky venture. Not just in terms of money, but (and far more valuable than that) also time. A financial plan or business costing will help you alleviate both of these risks by carefully checking whether or not the business is worth the money it will require to start, and also whether or not it is worth your time in terms of the profit you will be rewarded by. By following these simple steps you will know whether or not the business makes financial sense, and later on, also what how much capital you might need to raise in order to grow it to the size of your dreams.
Calculate the cost of acquiring/providing your product or service
Although the most obvious, this step will form the backbone of your financial plan. If you are creating the product or service yourself, it is important to look at exactly what is needed (not wanted) in order for you to take it to a client. This includes the raw materials (consumables), the time and labor and the cost thereof (even if it is only your time and labor), premises rental and even the small things such as the fuel required to get you to and from each job and the cost of your cellphone contract. Every aspect of your service and product must be broken and accounted for so as not to lose any money. Trust me, you will find out quickly when you have overlooked something.
Use your goals to Guide you from here
Once you have decided on your exact costs it is time to incorporate your personal success goals to determine what you need to spend. What we mean is this: If you decide that you want to reach X amount of sales in a certain number of months, how are you planning to reach/convert that number of clients? If you rely on marketing, it is imperative that you conduct research in order to determine what your expected customer conversion to cost ratio is for that chosen platform. From here, you can calculate by dividing your set goal number of sales by the cost of each conversion and develop a rough idea of what it will cost to make a sale. Now this does not always (in fact very rarely) translates accurately into reality, but will give you a guideline on which you can then base expenditure vs return.
Determine how long it will take you to see a profit
By now you should start to see the overall cost of your business starting to take place. Don’t be disappointed if the costs are extremely high, there are ways around this such investors, loans, bootstrapping etc. What we need to focus is on now is how long it will take you to see a profit. If you have calculated your costs correctly, they are not too high and you are able to price your product or service at a place that allows you to make your profit while covering costs, then you are on the right track to less risky, more profitable venture. If you have reached the conclusion that you need a certain amount of time in order to see your initial startup costs covered, then don’t become despondent! That is the game of being an entrepreneur! Just be sure to set a deadline before you begin as to when you will decide that you are on track to make your money back, or whether or not the venture is actually going to cost you more in the long run. Again, do not ever forget the value of your own time, is this venture worth it? If you can sleep on that question and wake up with the same passionate yes, then you are on the right track.
And we cannot wait to see your success.
As always, let us know what you think of the information above and what else we can write about. All the information and advice is gathered from extensive research and experience, and of course it is written with the aim to help other start out entrepreneurs succeed and unfortunately not necessarily guarantee returns or success as much as we wish we could. If you are currently working on a start-up, write to us via our contact page and we will be sure to publish all the info you would like to include about via our platform for nothing else other than the chance to help you reach more people!