FINANCE AT YOUR FINGERTIPS by Moses Ayiku, Jr. MBA OP/ED
Years ago, I met with a classmate of mine. At the time I was consulting on a full-time basis. My friend and former classmate shared with me that after nine years of working with the same employer, he was at a crossroads in his professional career.
I was working on a consulting assignment at the time and was excited that my pal could work with me on it. We made a good team and for the most part, we had fun working for my client. During our usual rounds, we discussed my friend’s dilemma. He was thinking of several options. During the discussion, I shared with my friend that an option available to him would be to use the knowledge that he had gained from his previous employer and start a new business. My friend had been a manager in a restaurant.
When I enquired further, my friend indicated that he had learnt quite a bit about the hospitality business as well as other aspects such as inventory management, human resource management and cooking, amongst other skill areas! We both were excited about the idea of him starting his own restaurant. Eventually, we agreed that I should write a business plan for the proposed restaurant.
It was eight years later before I met my pal again, as I traveled out of the country. I was excited and pleased to visit his new establishment! It was set up after I had left the country. Imagine, how pleasantly surprised I was to see a thriving and active bar and restaurant with customers buying food, drinks and enjoying quality music!
When I was ready to leave my friend’s place, he surprised me by giving me several dish samples fresh from his kitchen. He told me that he wanted me to taste various dishes made by the restaurant that I had written a business plan for years ago. When I got home, I eagerly opened the containers to enjoy the food my friend had given me. The food was amazing!
While my palate may not be the most sophisticated in town, I could still recognize that the food was of a high quality. The packaging of the food was not bad either. It has been 20 years now since my friend set up his food establishment. It has had its ups and downs but, for 20 years, that restaurant provided my friend with an income that he used to cater for himself and his family. To this day, I hold this friend in high esteem for having the courage to start his business. Suffice it to say that my friend will not be looking for a job anytime soon!
When we look at the start of a business, it invariably starts from ideas that people develop with time through their own interaction with society. Last week, we talked about one strategy for starting a business: selling one’s skills such as computing, social media, consulting, coaching, web development, artwork and writing amongst others.
In setting up a business, one main reason why people do this is to obtain an increased level of financial success. Simply put, they want a higher level of income than what most employers would give them by way of a salary and benefits etc. The other reasons people start new businesses include being forced by circumstances, an interest in achieving a higher level of professional development, to have maximum control over their time and how it is managed. My friend that I wrote about earlier started his business for all the reasons that I have listed.
When you come up with a solid idea that you think would be an excellent business opportunity, the next step should be to do some research to confirm details about the proposed business. For example, it would be very helpful to find out if the business exists already on the market. If it does, then that gives one the opportunity to investigate and find out how much the business makes as a profit on average, the cost of setting up the business, the staff level and other such core factors about the business. Obtaining this type of information creates a basis for analysis. One can then determine whether the business is profitable one or not. This is a core factor in setting up any new business.
Then one needs to look at the cost of setting up the business. This is an important issue because the ability for anyone to finance a new business is based on that person’s financial position and network. For example, if a person has saved up $300,000 and the business set up cost is $150,000, then this business is one that is within reach. It can become a reality. This is a complicated area, and everyone has a different angle that they are coming from in terms of their finances.
When it comes to the setup cost of a business, the first place to look for funding would be the amount of savings that one has. Clearly, the higher the amount of savings one has, the greater the chances of being able to self-finance a new business. When the project cost is much higher than the savings one has, then one must look at attracting outside money. Research has shown that most new businesses obtain startup financing from their savings, friends, and family. Startup capital is one of the toughest parts about setting up a business. In effect, the ability to raise funds to start the business is a major key for actually having the ability to set one up. For many people that would have been the preferred way to finance a new business.
In the next part we will continue with information about starting a new business.
Please feel free to share with me your questions and experiences on starting a new business. I will do my best to respond, and, in some cases, I will write on some of these questions.
Your questions and comments can be sent to localtalknews@gmail.com.
