Daily Archives: April 27, 2013

8 THINGS TO CONSIDER BEFORE OPENING A LOCAL BUSINESS

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SATURATION OF MARKET WITH EXISTING BUSINESSES

Count the number of businesses similar to yours which already exist in your neighborhood, town, or city. The more similar businesses there are the harder it will be for you to compete for new customers because you will have more competitors. If the competitors are franchises and yours is not then the probability that you will succeed is close to zero.

POTENTIAL CUSTOMER BASE OR SIZE

It is important to know how many customers you can hope to get if you are successful. Find the nearest business similar to the one you want to open and spend a week counting the customers which enter and leave the business. This will give you a rough idea on how many potentially will patronize your business.  Since you will be competing assume that at best that what you will earn or get is about half of the customers of an existing business. If there is more than one similar business close to where you want to open yours then find out how many customers a week also patronize those businesses and use the average number to calculate approximately how many customers you can hope for if the business is a success.

LOCATION OR CUSTOMER DENSITY

Find the location which you hope to be at and find out how much traffic goes past the business every day. If the location of your future business is a mall then count how many cars park there in a day to get a rough idea on how many people will be passing your business establishment. For a restaurant or food business this is especially important because customers want convenience and they will usually not travel out of the way to a distant location just to eat and drink. The busier your location is the greater is the probability that some of the passersby will become your customers.

CAPITALIZATION OR HOW MUCH MONEY YOU WILL NEED

Your inventory, the rent on the business, employee wages, utility costs, and operating at a loss for about 5 years should give you a rough idea on how much money you will need to get the business started. Don’t make the huge mistake of buying all the inventory, remodeling the store, and not having enough money to pay the utility bill and your employees for the first year when you will definitely be operating at a loss and will be depleting your savings account money if you have any. Many people wrongly assume that they will have an immediate profit the first year of business and wind up heavily mortgaging their home and desperately searching for more loan money to pay their employees, the rent, and the utility bills which they have to pay to stay open because the hoped for profit money is just not rolling in as expected.

FREQUENCY OF NEED FOR SERVICE

Determine how frequently your customers are going to need the service which you are providing. There is a big difference in a fast food business or a convenience store which is providing a service that people could potentially be needing every day and a hearing aid business which depends on one time customers which go to the store only several times in a lifetime. A tax service is something people usually need only once a year and hair salons are also services which are only needed by customers about once every three or four months so people will only be coming to your business about 6 times a year on average. The more frequently people need what you have to offer, the more frequently customers will go to your business establishment and give you their money.

Infrequently patronized businesses need to spend much more on advertising and have to charge customers more money per service to pay for the rent and employees which must be paid for on a weekly or monthly basis. Low frequency businesses with high fixed expenses such as rent have a harder time surviving in the long duration and are usually very bad business choices.

NUMBER OF CUSTOMERS NEEDED TO GENERATE PROFITS

You should have knowledge about how many customers you will have a month and about how much they will spend on average and what percentage profit you will be making on the transaction. Knowing these approximate amounts you will be able to relatively accurately calculate a ball park figure which you can use to tell whether you will be able to afford paying all the fixed expenses on a monthly basis. If you don’t have the math skills to do this find someone with knowledge about how to calculate percentages to help you.

LOW OR HIGH SKILLED WORKERS

If your business is going to pay minimum wage and you will have workers from the general public working for you then be prepared for a high turnover and personnel problems.  You will get many people with bad social skills and many with punctuality problems who will not be able to handle customers responsibly in a knowledgeable pleasant way. Many new employees will not be knowledgeable about your business most of the time and your customer relations will suffer greatly.

If your business uses highly skilled workers or depends on just a few highly skilled ones you will have minor crises when one or more leave for better paying jobs. You will very frequently have to spend much personal time and money educating the new recruits and giving them the complete knowledge and skills necessary to work for you.

AVERAGE PRICE PER SERVICE AND AVERAGE PROFIT ON A TRANSACTION

You can estimate the number of people who will be coming to your business as already shown and should have a good knowledge about what the average amount of money will be per customer. You should also know what the average profit on a customer will be so you can calculate the approximate monthly income starting out and then about 5 years down the line when you will hopefully be making an actual real profit. If you are not good with numbers get an accountant to do the math or someone who can calculate percentages.

If you think that you can run a successful new business by the seat of the pants not understanding the money math involved then you will fail without question.

Nothing is more valuable than experience and if you have worked in a similar business yourself and learned all the facts needed to know then you will have a great advantage over someone who knows nothing about running a business. Many new businessmen and women without experience in the business are just pursuing a business dream which will fail close to 100% of the time.

The small businesses are being squeezed financially by big businesses and large franchises. In the near future I predict that most small businesses will become extinct and unfortunately the average man and woman will be working for someone at a fixed wage or be on welfare assistance. If you still think that you want to start your own local business and do it on your own- good luck, because you need more than just good luck to survive in the business world these days and into the foreseeable future.

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Enjoy!!!!!!