This is not anything to do with the question - does my bum look big in this?’ It is all about Working out how much profit you can make and therefore what your income might be.It can feel a bit like a guessing game doing this exercise but it is really important that you work out somefigures before you invest any money in your business to see if your idea is really viable in its present format.One of the first things to think about is how much do you need to earn? This might be to either pay the bills or make a contribution to the household expenditure. You need to look at it as what is the minimum you could survive on and how long you can manage on very little or even nothing. This is important because no business starts generating money instantly. What your income is, that is what you will be earning will be less the cost of producing the goods, buying them, or delivering a service and less tax. Your tax liability will only start when you have earned enough to put you in the tax bracket. However you should do all your calculations taking into consideration the tax that you will have to pay. This makes the sums in terms of profit much more realistic.
Get a pen and paper and make a list of your outgoings that you need to cover over the next 6 months. Breakthese down to a monthly or Weekly figure. Now put these on one side and think about the amount of money you will have to put into your business to start it and then what you might earn from it in the first 6 months.First of all think about your fixed costs; if you are starting up at home and using your kitchen table these will be considerably lower than if you have decided to rent a physical premises. If you are thinking about renting, for example, a shop, then you will need to list the possible rent and business rates, heating and lighting, telephone rental and insurance cover. These will be an on-going fixed cost. There will be startup costs involved in getting the lease signed over to you. These costs need to be researched before you can complete this exercise.If you are using your home then you will incur extra costs above your normal household bills, for example, electricity if you are going to be baking cakes, or using a sewing machine. Think about what these costs might be and Write them down.Other costs will be the purchasing of any equipment that you will need in order to start your business. These are one-off capital costs that will usually need to be replaced at some point in the future. The initial purchases can be seen as part of your start-up costs.
The next costs to look at are the variable costs. These are the materials or stock that you have to buy in order to provide the business and will be ongoing. When you have sold out of something then you will have to buy more. These costs will also include things like petrol if you are delivering a service at a distance from your home.If you have a pot of money with which to start up your business, list all the start-up costs and see if you have enough money to be viable. This can include not only the equipment (capital costs) you will need but also some stock in order to start and maybe funds to pay some bills whilst you are developing the business.If you have not got a sum of money, work out how long it will take you to save the amount you need or think about where you can borrow it from and how you will repay it. You can still be working on your business idea whilst you are getting money together to enable you to start.When you add up your fixed costs and variable costs you can see how much it is going to cost you to run the business on a weekly or monthly basic. If you are working from home it may look something like this. For example someone setting up in business to bake cakes and sell them at a Saturday Farmers Market and also bake cakes to order for celebrations and events.
Start-up costs: a selection of baking tins, business cards, flyers to give out at school to friends and family, enough flour, sugar, butter etc. to make 20 medium cakes for first market stall. You will need to purchase your website when you have trialled your product, so factor this into your start-up costs.Fixed costs: cost of renting a stall on the Farmers Market to sell cakes, little others if working from home Variable costs: extra electricity for baking cakes estimated at 20% of current bill; petrol to get to market stall/deliver cakes, on-going purchasing of ingredients to make cakes,To see if the business if viable and to get an idea of how much profit you would make, add together the fixed costs and the variable costs for a Week. Make an estimate of how many cakes you think you could sell each week at one farmer's market and how many you would sell as a direct order from an individual for a birthday, wedding or other celebrations. If you think you would sell an average of 20 cakes on the stall per day and 2 from orders then you can add up how much money you will take each Week.Then take the income you think you will achieve away from the expenditure you have to make in order to produce and sell the cakes and you have a rough idea of how much you will be making per Week (your profit). Take 20% away from this for your tax bill and around £3 per Week to pay your National Insurance bill (if you are in the UK). You have of course not allowed anything in there for your time. Costing in time is something that a new business would find difficult to do. This can test your dedication, especially if you are accustomed to earning a salary and being paid for your time.
This can appear to be a difficult exercise because it does rely on a certain amount of guessWork for the sales figures. Do not be too optimistic with them. Better to underestimate and then be pleased when you achieve better sales than put the figure too high and be disappointed or Worse still struggling to pay the bills.You also need to take into account any seasonal differences that might affect your business. In any business there are times that are busier than others. Everybody knows that trading in January is always poor in the UK. The summer is a great time if you are selling ice cream but not so good during the winter and crafts sell better in the summer and on the run up to Christmas. Think about what you are selling or what service you are providing and decide which will be your busy and less busy times and allow forthis in your sales predictions.So now you are a little bit more certain about whether your idea has legs as they say; that is whether there is a chance of it Working. I have Worked with people who believe in their business idea so much that they have found a way to raise the cash to start up. One person I know sold her car and bought an old one in order to have the capital she needed to start her business of making clothes for toddlers. That worked fine, but had she been setting up as a mobile hairdressers it may not have been a wise move.
However if you have the tenacity and courage to make a sacrifice in order to start your business it can bode Well and demonstrate your belief in your idea and your commitment to it. I have often heard people say they would like to start this or that business and would do if they had the funds. But they made no effort whatsoever to try and raise the sum required.All this of course depends on your personal circumstances and the level of risk you are willing to take. Sometimes if you have not got the funds then you have to be a bit creative about raising them. Maybe you could form a partnership with someone who has some money and you have the skills; maybe you could sell a cut of the business for an investment or maybe you could even get a loan to start up. For any of these options you will require a sound, well thought through business plan and real self-belief in What you are going to do.
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