Starting up a new venture is not just about having put your goals and objectives on paper, or planning marketing strategies. It is recognising and understanding the expense of start-up costs, legal and accounting costs, operating costs, and (depending on your venture) equipment requirements and stock costs. You will need to determine your equipment and capital requirements, expenses and costs relevant to your venture.
Premises and Equipment
The type of premises and equipment required will obviously vary between businesses. Some entrepreneurs may begin working from home while others will start out in large premises. Either way, ensure that there is room for growth. You do not want to keep moving premises because they become too small for your business’ needs. There are many different ways that business premises can be acquired, for example:
Equipment varies tremendously on the type of business you wish to run. Some home-run businesses may need a computer, telephone and very little else. Hairdressers, for example, will need sinks, towels, hairdryers, the list is endless. Equipment can be leased, hired or bought outright. However, you must remember that it depreciates in value which you will need to identify in business plan and business accounts.
Stock and Suppliers
It is important to thoroughly research suppliers as prices for the stock you need may vary a great deal. Find out whether they offer discounts to regular customers, how long it takes from order to delivery, what payment terms they offer. It is also important to maintain research on prices, as you may find that the cheapest supplier in January may not remain the cheapest supplier in October. Also, try to haggle with the prices and discounts offered.
You may be able to fulfil these functions between yourself and your staff. If you lack the necessary skills, you will need to outsource (seek professionals to do it for you).
Financial – including sales and purchasing ledgers, general book-keeping, VAT, PAYE, balance sheets, profit and loss accounts, budgeting.
The day to day running expenses can be a lot more than you may have bargained for.
Ongoing Fixed Costs are those costs which do not vary with the level of output. The payment remains the same no matter what your business operations are. These include rent, wages & salaries, depreciation (on assets), interest on loans, advertising.
Ongoing Variable Costs are the opposite of fixed costs in that they do vary according to level of output. These can include gas & electricity, materials, labour (if overtime is needed), tools needed to produce products etc.
Working Capital is the finance available for the day to day running of the business. Managing working capital is about ensuring that there is sufficient cash available to pay bills and buy materials on time. It is imperative that your customers pay you on time in order to ensure that your working capital is not affected.
Quality Assurance systems are today used to set down operating procedures. This is a big part of risk management. Quality is hard to define. The World famous American quality guru W.E. Deming said “quality is defined by the customer”. The buying decision is often based on quality, and if your competitors offer a better quality or service, it is likely that they will gain most of the purchases in the market. Depending upon the industry in which you wish to operate, you must think of factors which will make your product/service seem better quality than that of your competitors. Quality is not necessarily associated with the finished product, but also incorporates after-sales service and customer satisfaction.
Fluctuations in Demand
The economy in general will go through various stages of a cycle: Recession – this generally starts with a fall in demand, unemployment rates rise which encourages people to save rather than spend, many businesses tend to make losses and some subsequently close down. Recovery – this comes after a recession. Investment and expenditure tend to begin increasing, therefore unemployment gradually decreases. Boom – this is when business is at its best. Investment levels are high, businesses can raise prices, output is high and often businesses need to get more labour.
Many businesses are affected by trends in demand. These vary greatly dependant upon the products/services you offer. For example in retail, Christmas, Easter, Back to school periods in the year are extremely busy. In order to cope with demand, shops tend to hire temporary seasonal staff. Builders may see an increase in demand during spring and summer as people do not want building works done in the freezing cold and pouring rain – how do they cope? They may decrease prices in winter season to encourage more customers to have work done. They may hire extra labourers during the summer period. Labour in holiday time is easy to find as there are many hard-working students searching for work. Think about your business. When do you think demand will be high? What can you do to overcome it?
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