Is Your Business Viable?
By Stacy Karacostas – Thu, 07/01/2010 – 10:14am.
My next door neighbor is always talking about leaving her job. She’s very artsy craftsy, and had been making all kinds of different knit, sewn and stitched items—from hats to little beaded bags, to funky zipper pulls.
Each time she starts work on a new type of creation, she says “This is gonna be the one that lets me quit my job.”
Here’s the thing though…
I asked her how long it took to make one, 4” x 4” beaded bag. She said probably 20 hours. When I asked what she thought she could charge, she said maybe $25, and that there was a company selling something similar out of Asia for $9.
When I pointed out that the hours to dollars ratio didn’t look so good, she said “Oh, well I don’t care how much time it takes me.” I, of course, suggested that if she really wanted to leave her job, she might want to think more carefully about the value of her time (I suspect she needs to make more than $1/hour to survive).
On top of that, she is constantly making all this different stuff without ever finding out if anyone would even buy it. Because flea market tables are too expensive and she hasn’t been able to take good pictures of her wares to post on the Web.
I mentioned that she could attend a local networking breakfast or two with no-cost marketing tables—that way she could put out her stuff and see if anyone is interested. But she hasn’t done it and I suspect she never will.
So she continues to set her hopes on one of these accessories being her path to self-employment. Yet she has no idea whether any of her products are viable or how she might sell them. Let alone whether or not she can use them to create a business that pays her bills.
This is not a recipe for success.
Is your business viable?
If you don’t know the answer to the question, don’t feel bad. Most entrepreneurs I run into are like my neighbor—they have absolutely no idea.
How do I know this? Because most entrepreneurs I’ve met haven’t taken even the basic steps towards figuring out what their business costs might be or how much of their products or services they need to sell to make a good living.
If you haven’t answered the following questions, you may run into severe cash flow problems. In other words, your business—as it is today—may not be viable. It may just be an expensive and time consuming hobby.
So take a few minutes to go through these and see how you’re doing…
1) What are the overhead and miscellaneous costs of running your business (this is rent, utilities, employees, office supplies, bookkeeping, etc.)?
2) What is your salary (If you don’t take a salary yet, figure out what you need to make to cover your personal expenses and use that number)?
3) What are the manufacturing costs (or time costs if you deliver a service) associated with the business?
4) How much do you anticipate each client or customer will spend with you per purchase and per year?
5) Based on number four, how many customers do you need to cover all of your expenses?
Once you know the answers to these questions, if your business still looks viable you’re in good shape. If not, don’t despair. You may just need to rethink what you are doing, how you’re doing it, what you’re offering and what you’re charging. Then retool your business until it’s making the kind of money you want, need and deserve.
Entrepreneur, Small Business, self-employment