How do you know if your business can succeed?

For a business to succeed, the amount of money coming in must exceed the amount of money going out - in other words the 'cash flow' is crucial.  Businesses with full order books and extensive capital assets have failed because there has not been sufficient cash in the business to pay the immediate costs.

The clearing banks produce packs of information for potential business people, sometimes with prepared disks allowing you to prepare an estimated cash flow for running your business over one year.

Produce a cash flow chart

This will take into account items of expenditure, showing the amount due and the month the bill must be paid.  Don't forget to include everything - if you are baking scones, there may only be a teaspoon of salt in each batch of 12 scones, but the salt is still a cost and over time will accumulate to a considerable amount.

The cash flow chart will also include items such as rent for premises, insurance, heating, lighting, water, electricity etc, publicity costs - printing of business cards, letter heads, publicity leaflets and advertising, stationery, postage, raw materials, packaging, transport costs, equipment and projected income.

Minimise your costs

  • Can you work from home?
  • How little equipment do you need? Can you buy it second-hand or lease it?
  • If you need people to help in your business, can you just buy in their help as necessary?
  • Can you use standard packaging?
  • Can you buy the minimum amount of raw materials?

Develop a business plan

The more preparation that you put into thinking about the business, the more impressive you will be to potential customers and investors. Before approaching a bank or other organisation for funding, make sure that you have prepared a convincing and detailed business plan, including:

  • Detailed description of your planned business
  • Cash flow forecast
  • Financial projections for several years including draft profit and loss account
  • Analysis of your market research and comparison with other similar businesses
  • Marketing plan
  • Costing and pricing policy
  • Information about people to be involved in the business
  • Draft designs for logo and house style
  • Sample menu (for restaurant) or other relevant materials

Remember that you must take professional advice before setting up your own business.