So there I sat, listening to yet another person wanting to start their own business, when I could not take it any longer. Why do they seem to want to skip the one simple not so secret thing to do that will increase their chances for success. The statistics are over whelming in the failure rate column. Yet jumping off the cliff still persists.
I have read and leased space in my real estate projects to innumerable businesses. I have read 100’s of 1,000’s of business plans. I have only met a few such plans that made any kind of sense for any chance of success. I have talked some out of doing the worst deal of their lives, talked some into doing a better deal than they had, dusted the sand from my shoes to those that did not want to hear what I had to say. Some proved me wrong, some proved me right, and some is a relative term…
Why is it that the majority of new small businesses fail? The answer is probably multifaceted, ranging from the owner themselves being completely incapable to the real hard facts of looking at the numbers. If more would-be entrepreneurs looked at the numbers objectively, that is objectively and not subjectively, then there is a good chance that fewer businesses would fail. That is just my beliefs. Interestingly though, most do not. The reasons for skipping this vital, yet simple step which I am sharing here can range from ignorance to laziness. Ignorance is probably better, but nonetheless, both yield the same failure result. Laziness is much easier and requires less time, effort, and energy than opening a store that is positioned to fail. So how can you increase your chances of survival and later success? To coin an old adage, the pen is mightier than the hammer. Ok, I modified it a little.
Before even looking for a location for your business, put some numbers on the paper. For the first and very preliminary analysis look at the following:
Cost of the business; if you are purchasing an existing business you know that number. If you are starting your own business look at startup costs like cost of goods. Then stop right here. First you will need to convert all numbers to the same measure. So you can compare apples to apples.
Now that you have completed that, answer the following question, and for the answer you will need to know your competition. What can the products or services be sold for. If that number is equal to or less than your purchasing number, you guessed it, scrap the business idea now and get on to the next one. If passed, then move on to the next analysis.
Add occupancy costs to your cost of goods. Compare numbers again and then scrap or move on. Most businesses will be scrapped at this point, believe it or not.
Add all other costs of doing business, utilities, labor, advertising (do not skimp here), just to name a few. How will you accept payment? Think of anything that will be an expense of operations, stop and think. Really stop and think. If your project has made it to this point now you can spend some significant time to dig into the numbers in more detail and create a tear two pro forma analysis.
The changes of survival and success have just increased. The information and knowledge you just gained in this very simple analysis is huge. Most would-be entrepreneurs do not even take this step. If more did then success rates would increase geometrically.