There are a few things to know before starting, running and owning a small business.
The most crucial to know when starting a business is your numbers.
Now to get you started you first have to determine what kind of business you want to start, our articles like this one can help you with it and how you best execute it.
Once you have your initial concept, try as soon as you can to adjust the numbers accordingly to have you end up with your desired profit every month to make it worth your while.
Let’s say you want to start a small furniture shop in your town, after a long time of negotiating with the suppliers you have an exclusive line of living room sets and can buy it for a low enough entry price to end up with a high margin.
Let us also assume that your goal is to make 10.000$ a month in profit, and because the stor is really small you as the owner will be the only employee to simplify our numbers.
Especially for traditional brick and mortar businesses it is crucial to understand and obey the principles of the business skeleton and the many pitfalls of traditional small retail.
In case you have not read it, here it is again:
To start a business - no matter which business - there has to be a system in place that creates and delivers something of value to people.
Then you have to get in front of those people, who then pay for the product, and thus leaving the business with enough margin on the product to pay for all the expenses and taxes.
After all this, there has to be a profit left.
In our example of a furniture trade business, you will have to add to the calculation that you will have fewer individual customers, but each one with higher order value meaning you need a smaller number of customers to reach the desired number because your individual tickets sales will be higher.
Just compare someone buying a new bed for 1.000$ for his room with someone buying a shirt for 30$ in an apparel store.
The margin on the 1.000$ bed will be higher and thus you will need less individuals buying from you than someone with a smaller margin.
Be careful however, as high tickets sales are usually also harder to get sold than small ones. In our example, selling a shirt to a stranger will be easier than selling a bed.
Make sure you calculate your average order value if you have a broad selection of inventory. For our furniture store we look at the items that get sold every month like a bed, but also a kitchen chair or a rug.
And while the bed brings in a revenue of 1.000$, the rug might just be selling at 60$ and the chair for 40$.
That makes 1100$ together divided by the 3 items we have, making 366,66$ average order value for our 3 example products.
The average retail store has around 70% mark-up on the items and goods it sells, which we also assume here meaning from 1.000$ revenue you have to subtract 300$ as cost for purchasing the inventory.
All these are details you need to know before starting your small business.
Certainly this calculation is oversimplified and in reality you will have much more inventory to calculate with, but it is important just to understand the principle and then apply it to your individual business anyway as it can be used across all industries.
Another example:
As a consultant you will probably have a few big orders from large corporations worth a lot of money and smaller ones worth less money from small businesses.
In this case you also use the same, easy formula by adding the revenue of all orders together and then dividing it by the number of orders.
The same can be applied to all forms of businesses: just add all your offerings and divide it through the number of items you have, and you will find the average order value for each sale.
But let’s get back to our 366$ of average order value and your furniture store.
Let’s also assume that expenses for rent etc. and taxes will make up 8.000$ a month, again this is oversimplified but will help you to get the basics of what we are talking about.
So to get to your 10.000$ monthly profit you would need your shop to make 18.000$ in revenue per month then.
There should also always be some money available to re-invest into the business for growth and expansion, let’s put another 2.000$ per month aside making it 20.000$ per month to really make sure we are on the safe side.
20.000$ per month divides through the average order value of 366$ making 54 customers a month that you need in your store to buy something.
If you open your store 6 days a week, it results in 26 open days per month, making in total 2 (2,1 to be precise) customers per day that you need for your furniture store to generate 20.000$ revenue a month from which 10.000 will be your profit.
Now is it possible for you to generate 2 buying customers every day during your opening hours?
It sounds like a totally fair and achievable number to me.
And remember, we are talking about 10.000$ profit per month!
Let’s say you struggle to make it, for some reason you store does not have lots of people visiting it, what can you do then?
If it is only a traditional brick and mortar business, the first thing you should try is to open a webshop and sell your products also online.
“We are not on the internet” is a sentence you hear very often from businesses shortly before they file for bankruptcy.
Three are tons of online marketing strategies that you can use, and of course also the big trading platforms like Ebay or Amazon that could help your business catch momentum with even small efforts on your part.
Thus you should be checking your available options when starting a business.
If you do that already, what other ways are there to gain awareness and to bring in new customers?
Create compelling offers, try different marketing and advertising campaigns, try to find a weak spot in your competitors' offers and then position yourself against it.
The exact formula again depends on your individual industry, area and situation and you will have to figure it out on yourself. You can use other blog posts on this topic that can help you and look for good books or mentors to learn new skills.
Solving those problems is the essence of the juice of entrepreneurship in itself and will shape your destiny ultimately.
Clearly all this is a process of learning and growing also personally not only in your business, so give it the dedicated time as such results never show up overnight.
So what are you waiting for - look for your passions, your inner drive, your vision in life and create the business you have always dreamed about.
But always make sure to get your numbers right before starting with that business!
Note:
The numbers we used here are an example to demonstrate how it could work - of course, you will have to adjust it to your business and the good and services you are offering.
Lower order amounts are naturally easier to sell than high priced items, so for smaller order value you will need a bigger number of people buying.
And more customers usually mean more overhead effort and costs, so make sure you consider all aspects when making your own calculation.
The numbers here serve as a demonstration that even today it is still possible to start a business by yourself and make it big, despite all obstacles.
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