As a small business developer, I have many potential clients who will say the truth: “If I could raise a million dollars, I think I could make my business succeed.” Unfortunately, this is as far from the truth as a new business owner can start.
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 companies 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 into 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 backward thinking. The salary amount is the direct result of a company’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 purchase a building for their business. Buying a building for a very new business is a high risk strategy. Even signing a lease can be financially stressful for many startups. A commercial lease is often for three years, regardless of how much 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 furniture and business equipment, including computers, printers, and desks. Plus, there are all those other near-new businesses that spent way beyond their means. Now they are going bankrupt and have some furniture and office equipment to get rid of at a reduced price.
The last topic to discuss 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, the company’s assets will be held hostage.
Entrepreneurs must consider the total cost of operating their business. The expenses go far beyond the cost of purchasing the product, supplies, and labor to deliver them. The cost of goods and services must cover all of these other operating costs. The more these common operating costs can be managed and reduced, the greater the chance that the employer will earn a higher salary.