Starting a business and what it entails
This is part two of the series of your journey to a successful entrepreneurial business.
Some expected, and often unexpected, planning that may impact entrepreneurial business ownership initiatives, drawn from a 30-year extensive professional financial planning practice for small business clients.
From start-up to growth to sustained profitability, these are the biggest challenges:
1, Traffic flow
2, Consumer fickleness, keeping ahead of trends, obsolescence, competition
4, Catastrophes, and contingencies
What kind of business is it, service or product?
You must know who you will sell to, what they want, how to service them and the product and what kind of traffic flow to anticipate.
Is this a unique new product or service in your current marketplace? Or are you cannibalising from other businesses? In a small customer marketplace you must know what the appeal to your client/customer base will be.
It is recommended that you estimate a body count, per day, per month, annually in percentages of expected traffic revenue to your physical doors. It will be a little more difficult to project current and future customers online, but it can be done using all internet tools available.
Projections of annual revenue are very important. Let's run some numbers. Your product — male apparel — will appeal to males in age range of 25-54 in a small consumer base of 60,000 population, 50 per cent male, 40 per cent of them in the right age group equals possibly 12,578 potential shoppers (CIA-Global World Book).
You conservatively project that 25 per cent will become loyal customers.
United States Statista detail records for men's apparel consumption, past and present shows 2020 purchases way down, spending on average almost 30 per cent less, compared to prior years, while projections through 2025 regroup: 2020 15.55 pieces of apparel were purchased for an average annual cost of $248.23.
Doing the math: 25 per cent of 12,578 males = say 3,000 +/-
3,000 X $248.23, annually = $745,000+/-
Now, you have your first estimate. It may not be realistic, but it is a start to organise the rest of your costs to actually realise a profit.
Where are the customers?
Physical location. Where are you? Convenient easy access, decent operating hours (no closing at lunch), convenient structure to reply to customer queries on an immediate basis.
Virtual location. Website and related structures appealing, informative, clean interface, easy-to-navigate (not everyone is completely internet savvy) and most important responsive. Keeping the same old website for years is a no-no, yet I have seen it time and time again.
• Cut prices too much, no profit
• Overhead increased unexpectedly
• Inventory turnover low, you are sitting on tied-up cash
• Say your product price markup is 100 per cent over landed cost; you must sell 50 per cent to even start to make a profit on the inventory alone, then must figure in the fixed cost coverage.
How are you reaching customers?
How many are recurring?
How can you provide that revisit interest?
How is your pricing received?
Just because there are few or no stores that carry the same product you do, does not mean that you can charge exclusively above the norm. You will have to be competitive on every offering. Customers are highly media-astute and will compare and contrast products and services to obtain what “they feel is the best choice”. Customers will pay more if they can justify their full shopping requirements.
— Excellent customer service
— Trend durability
— New fashions' immediate impact
— Long-term customer care and contact experience. What is the best method for you to stay in touch, eg, complementary service calls, social media update, and other contact-type facilities: webinars, interactive customer interviews, contests, points on courtesy cards although many people cannot be bothered with earning points, plus carrying around all those cards.
Do you know what your customers like, want, and price breaks? If you do, you are way ahead of the game of building your customer base. Even so, you can never afford to be complacent. Here are a few business operation stories, composites — not resembling any particular person or business from my archives.
• Small investors purchasing mutual funds, single securities and other broker transactions have complained for years about this type of non-service. “I put a lot of money into this investing firm. Once they got my commissions on the mutual funds and stock trades, I basically never heard from them again.” Or, “I tried to get some planning help, but the financial salesperson just wanted to sell me another product.”
• He was a superb athlete competing state and nationally as a long-distance runner. He realised his dream of owning a selective sports store: new kicks, clothing, wonderful name brand equipment that he personally used, etc. However, his ability to sell products was abysmal. He was uncomfortable talking to customers; yet, as he was famous he was the person who customers wanted to talk to about their mutual love of outdoor sports. Quite sadly, the business lasted maybe 18 months. He had everything necessary except the one criteria he could not learn — selling, in a business where it is all about the selling of you and your expertise.
• They purchased a highly successful informal eatery where locals gathered everyday. From day one they lived off the cash register take. Further, they gradually cut popular items from the menu. A few months in, one partner was already bored, not showing up to personally greet customers. The specialness became generic, slowed down to a crawl and in nine months, it was all done.
So, you've launched. Traffic flow is really good. Everything going well. In the initial euphoria you are feeling content, but this is not the time to rest on your laurels.
There are numerous other almost never-ending details to running your own business, here are some:
• labour and benefits: pensions, health insurance, taxes, diversity training
• business taxation
• service structures
• inventory management
• corporate, sole trader, partnership entity forms
• major fixed costs
• government operating regulations and licenses
• shareholder satisfaction
Carry the ownership dream with stars in your eyes. Know that business is all about realism and knowing your demographics — all of them.
• Statista: Men's Apparel US (Core country: data based on in-depth analysis). https://tinyurl.com/yyphn8r3
• Martha Harris Myron, CPA JSM, a native Bermudian, is creator of Pondstraddler Life™ Financial Perspectives, international financial consultant to the Olderhood Group Ltd Bermuda, and financial columnist to The Royal Gazette, Bermuda. All proceeds from these articles are donated by The Royal Gazette to the Salvation Army, Bermuda