The Bottom Line – surviving the business start up

I read an article on Linked In this week – The Bottom Line – the key to success in business. In it, its writer James Caan said that he expected a business to be seeing profit in 2 years otherwise it needed to seriously rethink the service it was providing.

Two years? The cut off used to be one year. What happened? And how many new businesses can realistically afford to hang in there up to 2 years?

I’ve been in business 6 months now and have already berated myself for not making a profit for two of them. Can I survive like this for another 18 months?

The article is to the point. To quote: ‘There are too many people out there who run businesses that don’t make a profit. What they tend to do is make enough money to keep themselves financially afloat…..If that is the case for you, then you are not running a business…..what you are doing is indulging a hobby.’ At the end of the day, Caan says, it all comes down to profit. And he’s right. If you’re running a business you have to be in the business of making money.

A study by Leeds University suggests that many new businesses are failing because they aren’t getting loans from banks to get them up and running. Ironically the banks aren’t lending because of the failure rate.  And whilst I keep hearing that this is the best time to start a business because with so many companies going under there are gaps in the market, on the ground and all around me, I see evidence that this is a terrible time to be starting a new venture. The recession is not over, nor are we coming out of it.

Thus two year profit turn around actually sounds like a good estimate.  But how do you get through that two years?  Here are some basic tips that I’d like to share with you as a 6 month start up.

There is no surefire way to survive the recession. But the least you can do is keep your overheads down. If you can operate from home, do it. It may not seem like the best way to work – it’s lonely and very hard to stay motivated. But it means you aren’t paying rent or rates for expensive office space.

Get another job (if you can). If your business is running at a loss and customers aren’t coming your way, find other work to fill the gap if it’s available to you. Working in a bar may not be the future you had planned for yourself but if it pays the rent short term, it can’t be all bad. It’s all about survival and being able to adjust and adapt.

Stream line your life. Do you live beyond your means? Are you a brand buyer? If you’re going to start a business and expect to live off the profits straight away you have to learn to streamline your life and rough it at least just a little bit. You have to look at the saving power of everything and learn to cut back wherever you can. This means you will probably have to sacrifice holidays, weekends away, and even nights out with friends. That’s just the way it is.

If you’re still in the planning stage or ‘thinking about it in the future’ phase save your money first. If you have savings find the highest interest account you can to maximise its potential before you start using it as your back up funding. Once you’re in business and if that’s your only source of income at least part of the time it’s frightening how fast that money will dwindle. You cannot rely on banks to help you and without emergency back up funds or other work you may fail before you’ve even started.

Be brutally honest about your income and outgoings. Always plan for the worst possible financial scenario not the best one. That way you know what the worst situation has to offer and things can only get better.

Do you market research. Make sure you are offering consumers something they really need. If it’s a limited market or you know it’s going to be a while before you are making a profit look at the other options above and make sure you plan your forecasts a year in advance. Again, think about worst case scenario.

This is is not an endless list. In fact it’s a very short list. But these are some of the things you should think seriously about. I covered all these (except the second job bit – that’s my Plan B) well in advance of setting up my business and all of them are helping me to push forward and hang in there. No one ever said it was going to be easy.

Don’t think you’ll become a millionaire overnight, unless you already are one.

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