As a small business developer, I have a lot of potential customers who will actually say things, “If I could get a million dollars, I think I could make my business successful.” Unfortunately, this is as far from reality as a new business owner can start from.
Yes, capital is needed to start a business and lack of capital is the number one reason new businesses fail. On the other hand, there are many well-known businesses that started with a shoelace. You don’t need a million dollars to start a successful business.
One of the biggest expenses that new business owners put in their budget is their salary. It seems like everyone wants to start their own business so they can earn a six figure income. Again, this is backwards thinking. The salary amount is the direct result of a business’s sales success and not the result of an item on a budget spreadsheet.
Another common cost problem is that the new business owner wants to buy a building for his business. Buying a building for a very new company is a high-risk strategy. Even signing a lease can be financially stressful for many new businesses. A commercial lease is typically for three years, regardless of the amount of income the business generates.
A third common problem is that many new business owners want to buy all new equipment and furniture. Most communities will have a center that sells used business furniture and equipment, including computers, printers, and desks. Plus, there are all those other almost new businesses that spent way beyond their means. Now they are going out of business and have some furniture and office equipment to get rid of at a reduced price.
The final topic to be discussed in this article is inventory. Having a large amount of inventory in a warehouse or storage room can drain a new business of valuable capital that could be used for other business expenses. Unless inventory is flowing apace, you’re holding company assets hostage.
Entrepreneurs must consider the total cost of running their business. The expenses go far beyond the cost of purchasing the product, supplies, and the labor to deliver them. The cost of goods and services must pay for all of these other operating costs. The more these common operating costs can be managed and reduced, the more potential there is for the employer to earn a higher salary.