This is for the junior class, those who are starting a small and new business. I received a question from a member on this platform, and I felt that this question might apply to more of start ups therefore the answer might help more people.
The follower asked;
“I recently started a cosmetic business, I have been injecting capital for about 3 months of about $40 a month but sales are so slow that when eventually I get a sale I am forced to use that money for my upkeep coz I don’t have a cash cow or any other job,So monthend I have to raise money to buy stock.I usually take from my savings account which I kept from last year when I was working.
Now I have stock and zvikwereti zviri kuvanhu but mari yacho haisi kusangana for me to continue buying more stock with it
Should I continue taking money from my savings account”
The common mistake that people make when starting a business is to give your stock on credit. Selling your stock on credit is a big mistake because people have a tendency to not pay debts. If they are to pay ,it takes longer than the promised date.
It is wise to market your product and sell on a cash basis. Big shops are the ones that can afford to sell on credit because if the customer default in payment, they can take legal action to recover the debt. For a small business, it’s a big NO. Do sell on credit.
Small Business, especially when starting, product knowledge and business knowledge is very limited. I advise people to do a thorough research on the type of business that they want to venture. It’s important to know the market of your product.
Know the purchase and selling price , know your competition, don’t just order stock because you see your inspiring person stock the same order, some people have specific individual customers which they stock for and if you do the same you may fail to sell the same product.
Using your savings to start a business, this is a smart way to start a business rather than using a borrowed money. However the challenge becomes when your savings are not yield profit. Its a painful process to see your hardly earned money disappearing in the process of trying to build a business.
You will start to think that, you could have bought a property with that money it would be better. My advice is, it is wise to use your savings on profitable business. Buy something that will sell, you can only if you did proper research.
Using money earned from business for self upkeeping. Most of startups don’t have any other source of income besides the business, so the money that is earned from sales is often used for personal upkeeping like buying bread, relish and other basics that a person can’t survive without.
This is a difficult position but a solution is a sacrifice, in order to build something, one should be prepared for a tough time. I call this a dry period, where you would be required to live with the minimum as possible.
Eating one meal a day, walking instead of using a taxi, eating vegetables instead of meat, cooking at home, and carrying food to work rather than buying takeaways.
When starting a business, you should live a life of a poor person giving your business a chance to grow.
When I started my first business, I was buying fresh ground nuts from our local irrigation, bake them and take to the market. I would sell the entire bucket without eating a single ground nut from my stock.
I would buy a half bread and a freezit after selling and eat on my way home. Half bread and a freezit was the cheapest meal that could cost less than 50c back then.
I would walk a 12 km journey to and fro the market. Along the tared road, I would not bother to board a bus because the money was not enough.
I did this until I had enough budget to upgrade. So that the better solution to reduce your spending. Follow a principle of not spending more than 10% of your daily earnings.
The follower said on monthend it becomes difficult to restock, if you are in a business of buying and selling, don’t wait for stock to finish so that you can restock,unless if you are selling perishable goods. You should restock along the time as you trade.
You should target to restock the fast moving products. If you go into a supermarket, they don’t wait for the shelves to be empty for them to restock. As customers pick up goods from shelves, there are employees who fill up every gape every minute. That’s why shelves in a supermarket are always full regardless of people picking items into their trolleys.
Use the same concept, restock as you go so that you are always stocked.
The last part of the question, should I use my last part of savings, this is where it is scary. Your last bet must be used wisely.
As long as the items will sell and give profit, the last money of your savings is safe to be used.
There are people who sell their houses or cars to boost the business. If your analysis is telling you that you make a good profit there is nothing wrong with selling your precious asset to build your business because once profit starts to come in, you can always replace it in future.
I have a problem with a person who is using an expensive phone but crying for capital.
You have a phone that worth $800 but you are busy asking for $500 from people to start a business , why can’t you sell your phone, buy a cheaper one and the different use it to start your business.
If you have a car, sell that car and start a business, you can replace it in the future when the business starts to give profit.
You can not start a business from a comfort zone and succeed. Most successful people have sacrificed some precious assets to get capital. Some people sacrifice their comfort zone and do it the hard way but soon enough after the business start to give profit they will live more comfortably.
My advice to startups, please be willing to live like a slave in order to live like a king in future. You can’t cheat the process.
The Herdboy C.E.O, Dr
Also Read: Starting Point.