One of the primary worries of small business owners around the globe is how to make sure their enterprise makes money. You need your business to not only make money but you need it to make a profit after you have paid your overhead expenses. The financial definition of profit is the balance of total revenue less than your total expenses.
Demand Makes Money for Your Business
Far too many times people sink their time and money into small businesses that are losers. Why do they do it? Because they wanted to do a particular thing and forgot the basic law of business profitably; there has to be market demand. It doesn't matter if you're a supremely talented butcher if you set up your meat shop in a strictly vegetarian town!
As an example, say you want to start a small, home-based repair business. The first question you need to ask yourself, whether you're considering buying an existing business or starting a small business from scratch is, "How is this business going to make money?" The second question is, "How much money will it make?" You need to know these answers if this is how you expect to make your living.
Do Market Research
The market comes first; your ideas and/or wishes have to come second (or even third). You simply can't start a successful business if there are not enough people willing and able to buy your products or services in your service area.
Start with Find and Sell to Your Target Market and then work through The Industry, the Market Analysis and the Competitive Analysis sections of my Writing a Business Plan series.
Write a Business Plan
Market research, is, as you saw in the previous point, the core of a business plan and a business plan is your best protection against business heartbreak.
Of the many reasons to work through a business plan, the main one is this; when you're done, you'll know whether or not your proposed business idea can be turned into a profitable small business.
Profitable franchises are profitable because someone else has worked through the plan, smoothed out all the kinks and come up with something that makes money. If you have the money to buy into a profitable franchise and are the kind of person that would make a good franchisee, this can be the ideal solution for you.
Funding New Businesses
Starting a small business isn't for everyone, but it can be a good option in slow employment markets when you have been laid off. It may also be the perfect thing to do if you are recently retired.
However, if you are expecting—or hoping—that your new small business will immediately replace your employment income, you may need to think again. With the possible exception of some profitable franchises, it normally takes anywhere from six months to several years for a new business to become profitable. So, one of the main problems for people starting small businesses is paying their bills until their new business starts to make money.
Have a Supportive Spouse
For many people starting a small business, this is the best solution. The working spouse can cover the living expenses and contribute to the cost of starting a new business while you focus your time on handling all of the new business activities.
Face it; you can't live on air for months on end while you're building your new business up to the point that it makes money. Don't dismiss bank loans as a source of funds.
The U.S. Small Business Administration (SBA) offers SBA-guaranteed loans and can help you find more information about programs available to you. Such programs include those for minorities and veterans. The Canada Small Business Financing Program and Canadian Community Loan Funds and business loans specifically for women.
You may also want to investigate angel investors to secure private seed money for the company. Most angel investors are your friends and family members, but others may be interested in helping fund your enterprise. There are also crowdfunding opportunities through groups like Kickstarter and Indiegogo.
Get a Different or Second Job
You might want or need to take a job that you haven’t considered before, either because it's not what you usually do or pays less than you are used to getting. Or, you may need to get a second job to help cover your expenses. Many people have worked as wait people or delivery people to make money while they worked towards their goals. A professional might take up work in the same profession that they would not have considered before, such as a teacher doing substitute work.
Use Your Savings
Using savings should be your last resort. The last thing you need when you are building a business is to go into personal debt. Many people find they need to use some portion of their savings to keep themselves and their families afloat when they're starting a small business. A person's own pockets are the most common source of start-up money, whether from savings, re-mortgaging a home, or selling the property.
The Canadian Employment Insurance Advantage
If you are currently receiving Employment Insurance now or have received Employment Insurance benefits within the last three years (five years if your Benefits period included a maternity or parental claim), you may be eligible for the Self-Employment Program.
The program's mandate is to "provide financial assistance to eligible individuals to help them create jobs for themselves by starting a business" and it will provide either regular Employment Insurance benefits until the end of your benefit period or financial assistance for living expenses, while teaching you business skills and how to create a business plan. In my opinion, it's the best small business grant in Canada. If you're interested in starting a small business and qualify, you should apply.
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