Do you want to kickstart your new business?
You’re fighting your own thoughts; many ideas are crossing your mind!
You have a small capital and you’re looking for a small business to open.
From where to start your venture? What to do? How??
Take a deep breath and follow these strategies to success.
Kickstart with three main wh-questions: why, what and where
Why do you want to open your business?
Are you an employee that is desperate to work on his own?
Do you want to feel self-dependent or maybe you want to achieve your dream that you’ve always longed for?
Or maybe you’ve seen an idea somewhere and you like to implement it yourself.
It can also be a totally new idea that you’ve thoroughly thought about and you feel like it’s time to elaborate it and bring it to life.
Are you a retail supermarket or a shop that only sells organic food, for example?
Knowing why you want to open the business will help you define the rest of the issues.
Do you have a certain passion about something? Are you into Mexican food or into a burger joint?
Are you passionate about international cuisine and you like to bring new and exotic flavors to people?
Do you have any plan to open? Like target segments, pricing strategy, your range of products, your suppliers.
Any ideas about your brand? What is the perception of your business?
How are you going to handle competition?
Where do you want to open your business
Have you ever heard of the saying, “location is everything”? well, it is.
Although it’s directly related to the nature of business, but location will be the first indication of your traffic.
Make sure it is accessible with no specific restrictions as the article “the effect of business location to the business’ success” suggests.
Choose a location with parking facilities
Choose your location wisely to be somehow near or seen by your target customers after studying the location demographics.
For instance, if you’re a small restaurant that sells fast food or sandwiches, it’s wise to open beside a university or in an industrial area where people can easily order or visit during their lunch breaks.
If you’re a convenient store, opt to open in heavily trafficked areas like highways or main routes where people tend to make their small purchases on their way back home.
If you’re a fine dine restaurant, open in a unique structure location or in down town.
If you’re a specialty store or small around the corner restaurant, make sure you have an easily reachable address where you can be found easily.
If you're planning to open during Covid19 spread that comes in accordance with lockdown and curfew, you must consider delivery services.
The location is as important as your opening and availability times.
Are you planning to open a 24/7 store or restaurant?
Are you a fine dining restaurant that only serves lunch and dinner?
Or maybe a coffee shop that serves people from 7 am until 10 pm?
Or maybe you want to open a pub that opens from 4 pm till midnight.
Why is this important?
Simply because it gives you heads on your potential costs, utility bills, staff requirements and purchasing needs. In addition to taking into consideration your rental fees.
let’s say the rent cost is too high, opening a fine dining restaurant by a highway will barely return its investment.
Even if you open a 5-star location on a highway, opening your pub on short service period will not breakeven even if it makes a hit among customers.
But once you look into your financial reports, you’ll see that you’re losing and making your business prone to failure.
That’s why it’s very common for you to see successful businesses that are constantly busy during their opening times eventually shutting down their doors.
Remember, if you want to franchise your business, you need to make sure that everything you do, you should mirror it in your other branches, whether it is the location criteria, your customer service, or the quality of your product or service.
That’s why make sure to consider your location requirements and other locations in other countries.
Also make sure the location falls within the budget whether you’re planning to rent or buy and whether you have enough cash for it or you need to get a loan.
What to open?
What are the things that lack in the chosen area?
Is it a small gift shop, a pizzeria, a bakery or maybe an Italian restaurant?
Try to open something that is not abundant in the area and easily available.
Is your product or service something consumers in the area lack?
If not, it means that you will be dealing with high competition and I don’t think you need that especially when you’re first building your brand.
Is that it for the “what to open”? No!
Open something you’re really keen on, something you love and enjoy.
Something you’re knowledgeable of. You can’t open a business that you’re not passionate about because it will be a lot easier for you to give up when things go slow or difficult.
Don’t forget to write a business plan that includes details about your business:
- Purpose of your business
- Description of your business
- Product and/or service
- The market research and analysis about competitors, consumers’ demographics
- Your positioning strategy
- Your pricing strategy and
- Your SWOT analysis. Put down a paper and write your business strengths, weaknesses, opportunities and threats.
How do your strengths look like?
- A unique customer service
- Product innovation
- A knowledgeable and friendly staff
- High efficiency operations
- Data management
What about your weaknesses? What are the resources you lack?
- High prices
- High costs
- Product quality that can be easily imitated
- Lack of funding resources
- Outdated technology
- Lack of marketing budget
Your opportunities are related to external factors.
- A growing demand for your product or service
- Any governmental changes that lower taxes for example
- Low interest rates of loans intended to businesses
Threats can be:
- Price fluctuations of your suppliers
- A single supplier that controls your business
- Currency fluctuations
- Very competitive market that requires high marketing costs.
Think about what will make people come to you?
What is so special about your business? How are you going to differentiate?
What is the need you are trying to satisfy?
- It’s maybe your outstanding customer service
- Your friendly and trained staff
- It might be the decoration of it or the concept.
- You might choose an environment where customers feel at home or a very luxurious setup.
- A new product or service might be your differentiation tool.
- A new meal on the menu
- Fresh and organic ingredients
- Vegan varieties
- Light meals options
- A specialty item.
Free delivery or fast and self-checkout at POS also make a difference for consumers.
A very panoramic view from your location or even bring your pets policy drags more people especially to an outdoor restaurant.
Now with the fundamentals of any business, financials.
Perform a break-even analysis with a simple formula:
First of all, what’s a break even?
It’s the point at which total revenues (sales) are equal to your total costs (bills, salaries...)
So the formula is
- BreakEven Point = Fixed Costs / (gross profit %)
Gross profit % is the profit margin that you’re planning to set on your items.
How to calculate it?
GP%=average price without taxes – cost of goods without taxes.
So if you want to sell a sandwich for 10$ and the cost of making it is 3$ then your gross profit % (GP%) is (10-3)/10 = 70% (0.7).
Fixed costs are all costs that do not change in relation to production volume and that you have to pay whether you have sales or not.
Such costs are like rental, salaries, electricity, fuel, phone expenses, internet, water…
Some companies consider a part of their salaries variable if they have an advanced scheduling system that is commission based or based on work hours.
While variable costs change depending on your production volume such as resources costs, packaging supplies, salaries if commission based...
So, if your monthly fixed costs are $ 30,000 so your breakeven point is 30,000 / 70% = $ 42,857.
Do you think you're able to make that much?
Are you able to break-even at least for the first six months?
Now assume you have zero sales, are you able to afford all the expenses and costs for the six months of startup?
Expenses include utilities, employees’ salaries and benefits, products’ costs, rental…
And here again we go back to the pricing strategy where you decide the margin of your profits. Do you want to put a high profitability margin? Or a low one aiming for more sales? What products to generate more profitability?
You might place a high margin on your specialty item, imported goods or on your drinks.
If you’re a doughnut shop for example, you might price the doughnuts reasonably with fair profit margin but price the beverages with a higher profit margin.
Many factors to consider when opening a new business and they’re all connected the one to the other in a circle.
Opening a business might be tempting and might look like an easy thing to do.
But in reality, it’s much more challenging than it may seem.
So if you have the passion, the financials, the management skills, the team and above all the persistence, you’re good to go.
You fail one component, high chance you fail the others so make sure to have a clear vision of your business and good luck!!