Steps to Starting a Business:

Knowing What is Needed

Step 4, Part 2:

Financial Needs

By Joe Selzler

Some people would say that business is all about taking risks, but I don't think that it is about that at all. If we wanted to talk about card games then we would be talking about taking risks, because it is always just the luck of the draw. You win in a card game by taking the right advantage of the luck of the draw. Business, however, is much more of a science. No doubt, there are some risks to business, but good, clear, intelligent thinking can reduce those risks.

Nowhere in business is this more evident than in the area of finances. Starting a business is more than buying a family car, in which case you are spending money on something to use solely as a utility. In business, you are spending money to make more money, so everything you buy will have to play its part in bringing you a Return On Investment, or ROI.

At this stage we need to assess what our financial needs are. These are determined by: 1) property, including buildings; 2) equipment and 3) staff. In the last article we discussed some of these three physical needs. In this article we will cover the financial side of these three.

Cost of Location

One of the major costs of any new business is of course the cost of location, which includes the buildings required to run the business and the property they sit on. There are two possibilities we need to consider. Do we want a prime location or secondary location? With our mini pasta factory this could be affected by the makeup of our clientele. If we wanted to retail our pasta directly to the consuming public, we might want to be in a prime location with the maximum of passing trade and good accessibility. However, if we wanted to service the trade sector we could get a location in an industrial area with its generally lower rents. Some pasta manufacturers who have several retail shops produce everything in one central location and then distribute to their network of shops.

For a new business, however, it would probably be best to manufacture and retail from the same premises to reduce start-up expenses. Prime retail space is very expensive so consider starting with a secondary location and then move to a primary one when your business is established. This is how a lot of small manufactures start out. They begin with a secondary location and then open a second retail outlet at a primary location, servicing both shops from the factory at the secondary location. As their business grows, they eventually move the factory from the secondary retail location to an industrial estate, where the rents per square foot are cheaper. They might even drop the secondary retail location all together and concentrate on primary locations for retail only. So for this item have a cost for a primary and a secondary location worked out. Estate agents are a good source of information about this. It might prove helpful to look at some of their business listings.

Cost of Buildings

The next item to consider is the cost of buildings. Normally when we are looking for a location, a building of some sort will be included with it. Occasionally a new construction will have to be considered, especially if we are choosing a location merely for position and not for the buildings located on it. Sometimes older buildings are just not suitable and new ones will have to be built. However, we need to keep in mind that when starting a new business the name of the game is to keep costs low. For new businesses it is probably advisable to find something that is already built and can be adapted. Of course, we also need to consider the cost of adapting buildings to our needs. Local regulations must be taken into account, especially when it comes to businesses in the catering industry, like pasta manufacturing. There will be certain requirements that a building will have to meet in order to be used for this type of business. Local government offices are a good source of information concerning this.

Equipment Cost

The next item to consider is equipment cost. We learned from our mini pasta factory what equipment we would need to produce a good run of product. Now we need to determine the cost of this equipment. The best approach is to get the prices of new equipment from various suppliers and also the prices of used equipment from people who specialise in that field. In practice, there can be quite a considerable difference in prices. For new equipment, quality and features can cause variance in pricing, while age and condition will affect the prices of older equipment. It is often better to start out with good, used equipment at considerably reduced prices than to buy new. This is because new equipment will lose a quarter of its value as soon as you take it off the showroom floor.

Staff Cost

Finally, there is the cost of staff. This not only includes wages, but also annuities, insurance, health, training and possibly uniforms. If we only employ ourselves this will not be too great. If we need a large staff, however, these costs can be quite considerable.

No Gamble Here!

Going back to what I said in the beginning, "Business is about intelligent thinking and not about risk!", I want to add however, that business includes another factor, "faith." There's nothing at all mysterious about this. It's natural to have faith when it comes to business. Let's say for example that you want to start an ice cream shop in London, England, or perhaps Minneapolis, Minnesota, USA. You know that there will be a hot season and that there will be a cold season. You know that you will sell lots of ice cream during the hot season and not so much during the cold season. Therefore, you can plan your business and know that you will need to have a good amount of money on hand to purchase a large stock during the hot season and that you won't need quite as much during the cold season.

You also know when you will need more staff and when your employee costs will be highest, so you can plan appropriately. Now, this is the point where faith comes in. Why are you able to plan like this? Because you know that there has always been a summer and a winter in the past and you have faith that there will be in the future as well. The truth is, it isn't hard to take the next step and believe that there is Someone who put those seasons there in the first place and keeps them coming back year after year. And if He can keep the seasons coming round, can't He also insure that we have what we need? Can't He look after our business to insure that it contributes to our needs? Sure He can! So if you're ready to go forward onto the next step of starting a new business, perhaps you can give this idea of "faith" a little consideration.

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