Step 12: Funding

When it comes to funding, we’re going to assume you already know how much cash you’re likely to need to set-up and run your business for at least 3 months.

If not, we’re assuming a) you’re loaded and don’t need to worry about that right now, b) so busy setting up your business that you just haven’t got to that bit yet or c) you’re a bit dense. Forgive the straight talking but unless you’re person ‘a’, you’re potentially going to run out of cash, which could mean the end of business.

You’ll probably see a few mentions of this in our ongoing series of ‘how to’ steps, but we’re big fans of setting up new businesses that cost very little or start small – ideally created as part of a ‘side-hustle’ approach which happens alongside the day job.

Starting small means there are fewer costs involved but if your business idea requires a good wedge of upfront costs to set-up and get started, you’re going to need to tap into savings that you use now and pay back to yourself over time (assuming the business works) or get that funding from somewhere else.

Family and friends

Unless you’re really new to this, you will have heard stories about people borrowing from their parents or siblings to get their business off the ground. If this is an option for you, always plan for every outcomes, including planning for the worst. It sounds harsh, but make sure everyone is fully aware of the risks and downsides to investing in a new business. Put everything down on paper, what will be repaid, what interest (if any) you’ll pay and how long you’ll take to pay the amount back (assuming you have to). You should also talk about what happens if things don’t take off as planned.

Banks

By this we’re including credit cards and loans. You might be able to borrow some money using these facilities – but unless you have a really strong business plan and can offer some personal guarantee or assets to back up business loans etc, there’s no guarantee you’ll get funding from your bank. But it can’t hurt to ask – they might be able to help in some way. They’re nice like that.

Crowdfunding

Websites like Kickstarter help businesses (new and existing) raise cash to help them develop and launch exciting new products or services. Unlike other investment routes, you’ve got to convince thousands of people to part ways with cash. Granted that cash amount is a lot less (eg £100 each) so it’s a little easier because investors are less risk averse – but because there are more people involved, there will be a lot more communication needed to potentially thousands of people.

Competition on crowdfunding websites is fierce so you’ll need to do a lot of work when it comes to getting people interested. Take a look for yourself at the existing projects on there now and you’ll see lots of text about backstory, great prototype images, swish videos and even giveaway freebies. Do you have the funds to create that backstory to help sell the dream? Also, be ready for all outcomes – if you spend a lot of time and effort on selling the concept, what happens if you don’t reach your target and you get little or no funding? Don’t gamble with your limited funds and assume you’ll get it all back.

Take a look at the range of websites on offer and do your homework. Be realistic about the number of people that will invest in your project and how much they’ll invest. Again, plan how much you’ll need in terms of funding and map out what to do if you get 0%, 25%, 50% or 75% of that funding.

Finally, if you do go down this route, make sure you deliver when you said you would. There’s nothing more annoying (or damaging) than a start-up that never gets round to actually shipping the new product. I’ve even seen really negative posts on Facebook by friends who have invested in a product then complained because they’ve received something late, something poorly constructed and poorly packaged. Yes, people do complained about packaging (but more on shipping and packaging later).

Third party investors

Getting funding by external investors can be useful but also scary. While they often provide access to lots more cash than otherwise available from other sources like family or friends, that normally comes at the price of harsher terms – as in having to give up larger shares of the business. Depending on how much they invest, they may also ask for a hand in the running of the business, which may not be to everyone’s taste. We’ve all seen the BBC’s Dragons Den and countless examples of investors wanting to be closely involved in decisions and actions. If you go down this route, you’ll need to be very clear on expectations, who controls what and who gets what if things go wrong / belly up.

If you want to find out more about setting up a blog, improving your social media campaigns or how to drive more sales online, get in touch.

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Step 11: Making a profit

So now you know WHAT you want to make, repair or sell. And you know how much you can SELL it for. But have you worked out how much profit you’ll actually make yet?

Working out your gross margin (how much profit you’ll make before tax etc) is pretty much vital in deciding whether to kick of the business. Unless you’ve decided to do something for the greater good and are happy providing a service for little or not profit, it makes sense to work out the overall costs. You’d be amazed at how few people actually do this properly.

For example, you could have taken all of the obvious / material costs into account, but have you worked out how much your time costs? After all is said and done, what does the hourly rate work out as? If you’re spending 10 hours making one item and then sell it for £20, you’re effectively working for £2 an hour – and that’s not including materials.

Digital only products

These usually rock because while there’s usually something to pay for in terms of supplier costs (tihngs like desktop publishing or software development tools often need a license), they’re often a one-off cost at the start. You don’t have a regaulr fee to pay to suppliers for each and every product you make / release.

That said if you’re developing software or apps or websites, bear in mind the time it’ll take to create that. This is where thoughts about your hourly rate really do count. While your supplier and day to day costs may not amount to anything huge, if you’re taking 3 months to create digital assets, how do you feel about not being paid for that work for those 3 months? Assuming you’re fine with that, you had better check there’s enough interest in your product that you’ll eventually pay yourself back – and more.

Selling physical products

Say you’ve decided to repair broken smartphones and tablets and sell them on for profit. First you need to source broken tablets (via eBay or car-boot sales, both of which have their own risks). Then you need to figure out the extent of the damage and fix it. Broken screen? You’ll need to source a replacement. Once you’ve spent 2-3 hours removing the old screen and fitting the new one (without breaking any of the 101 delicate electronic components inside most tablets) you then decide to sell your refurbished tablet for a profit.

Here’s a breakdown:

  • Broken tablet: £55 (including £4 postage costs)
  • New screen: £15 (from eBay)
  • Sold for: £76 (after taking off the 10% sellers fee eBay charges)

That leaves you with just £6 profit. And assuming you’ve worked for three hours on it, that means you paid yourself £2 an hour. Go buy that yacht!

Bearing all of the above in mind, you can see why selling art might be an attractive option. After all the material costs are taken into account, something like a canvas painting is not going to be hugely different from a similarly sized painting. The material ‘cost’ is low, but the ‘perceived’ value is flexible because the beauty is in the eye of the beholder (kind of).

If you want to find out more about setting up a blog, improving your social media campaigns or how to drive more sales online, get in touch.

Step 10: Check out competitors using analysis tools

One important part of checking if there’s a market for your business is to look at competitors and brands that are already ‘in your space’.

One easy way to check out your competition is to look at how many people are searching for what you’re selling. If there are millions of searches for ‘coffee subscription service’ then you may want to think again unless you’re keen to slog on and make your new / small voice heard in a very noisy market (unless, of course, you believe you’re offering something truly unique and different to everyone else).

If there are too few searches for ‘fluorescent knitting needles’ then your bright idea (geddit?) may need some further questioning – eg are people not searching for this product because they’re unlikely to buy it? Or are they just not aware of such a unique product because no brand currently offers this edgy product and could actually be temped to buy if they were exposed to it?

Also, have a play with Google Trends (https://trends.google.co.uk/trends/) to see when these searches rise and fall, so you can get an idea of when sales may rise and fall throughout the year (you can also filter results by country and other factors).

If you’re up for some deeper research you could also use some of the tools in Google Adwords (its advertising platform) to deep dive into very specific insights about what keywords people use to find certain products. Google’s free tool ‘Keyword Planner’ lets you search for keyword ideas, get historical statistics, see how a list of keywords might perform, and even create a new keyword list by mashing up several lists of keywords together. Keyword research is useful to consider when it comes to writing some of the titles and headings on your product website or deciding which products to focus your efforts on – which is all part of Search Engine Optimisation or SEO – but more on that later.

Don’t fret about using these tools – they’re easy once you get stuck in. As Google says itself – ‘Whether you’re new to online advertising or an experienced pro, you can use Keyword Planner to lay the groundwork for a successful campaign.’