Research shows that 75 percent of all small businesses fail within the first year of business. There are the obvious reasons; no sales, poor product, poor service, no demand, to name a few. The most common mistake made by start-up small businesses is not getting a true picture of costs and not understanding the factors that will determine demand for the product before the business opens its doors. Let’s use a real life example.
A few weeks ago I was getting ready to go on FOX 23 MORNING SHOW and the camera man, Andrew, asked me what I thought about a new business venture he was interested in. Andrew was offered the opportunity to sell novelties at local fairs. He was being offered the product at a very low cost and the profit margins seemed enormous. The next week I did a segment on the Fox Morning Show, Money Monday's, about starting your own business using Andrew’s example. Here is the breakdown.
ANDREW’S ADDITIONAL COSTS
1. RENT - the fair organizers will charge rent
2. SIGNAGE - Andrew will need to invest in signage
3. LABOR - it’s a long day so Andrew will need some help
4. PAYROLL TAXES - when you figure the cost of labor add on 20%
5. GAS PRICES - Andrew will have to drive to the fairs
6. INSURANCE - if you are dealing with the public you will need insurance
7. FED/STATE TAXES - government wants their piece too
ANDREW’S PRODUCT SELLING PRICE & DEMAND
1. COMPARISONS - what is the competition selling these items for & what is the average pricing of all items at the fair?
2. DEMAND FACTORS -
- Do the novelties attract buyers?
- Andrew has to be concerned about weather…..a weekend washout can be a disaster
- Fair location & demographics
- Andrew has to make sure he gets good placement at the fair
- The economy will play a part. Andrew probably will do better in a down economy as folks stay close to home rather than take big vacations
- Gas prices…..although higher gas prices would be bad for Andrew on the cost side, higher gas prices would be better for the sales side as folks stay home and go to local fairs
For more information on managing your finances or other financial advice, contact the financial advisors at DLG Wealth Management today. You can also see Andy Guzzetti every Monday morning on WXXA Fox – Albany.