In my previous blog posts I discussed the first 2 reasons why small businesses fail, according to an interesting article on ‘BusinessKnowHow.com’. I reflected on each of these reasons in the context of my own home business, highlighting some of the benefits of Network Marketing instead of a traditional business ventures.
In this post we will be looking at one of the fundamental barriers which prevents many people from running, or even starting a small business in the first place. We will delve into reason number 3: ‘Insufficient capital’.
Business owners need capital to get off of the ground, but it is important not to overlook ongoing running costs. How long could your small business last if you didn’t make as many sales as originally expected? How long would you continue bankrolling your businesses before you eventually had to cut your losses and quit?
Why Small Businesses Fail – High Start-up Costs
There are many business opportunities available to entrepreneurs but most, if not all, require an initial outlay to get up and running. Whether it be a traditional business, a franchise or an online business, there are generally costs associated with starting up. This costs can vary massively depending on the type of business, but it is inevitable that at some stage a financial investment will be required.
It is often the potential for earning more money that drives individuals to start a small business (which may not be the best reason as discussed in my first post on this topic!), so the idea of paying out money to get started can present a huge barrier!
Home businesses have become hugely popular in recent years, particularly in the Network Marketing industry, because ventures of this type can often be started with as little as £200 ($300 US). However, there may be additional costs if you intend to promote the products online (see later).
In the company that I represent, there are more than 200 Million Dollar Club members globally who have all earned commissions in excess of $1,000,000 US! To use investing terminology, the business opportunity could be described as having ‘asymmetric risk / reward’ because the money at risk is very low when compared to the upside earning potential:
Why Small Businesses Fail – Ongoing Running Costs
The second cost to consider when setting up any small business is the ongoing monthly running costs. Depending on the types of business, this could include rent, staff salaries, utilities, marketing, etc.
For online businesses the costs may be significantly less, but there will still be hosting and marketing costs. Marketing online is competitive and can be expensive, but if you adopt proven strategies then this can be money well spent, but it is a cost nonetheless.
Another cost that is often overlooked in both cases is the cost of living! If you quit your job to start a business then you are probably going to be reliant on the income from your business to cover your living expenses (mortgage, bills, food, etc.). The last thing any entrepreneur wants is to run out of money before the business has had an opportunity to produce meaningful results. Unfortunately, this is the reality for approximately 8 out of every 10 start-ups.
Network Marketing on the other hand, offers the opportunity to build a home business on a part-time basis, alongside a job or career. There is no need to give up the security of a monthly wage. There will still be running costs, but these can be very low in comparison with those incurred by a traditional business.
The only condition for keeping a Network Marketing business active is that you need to purchase products each month (which you can sell if you do not wish to keep them for personal use). I also encourage my business partners to set aside money for marketing, especially if they plan to build their businesses online. In total I suggest a marketing budget of approximately $250 US each month, but this is just a guide. To find out more, please click the link below and register your details to receive a comprehensive business proposal:
Why Small Businesses Fail – Cashflow Forecasts
I believe that the problems discussed in this post can be overcome with proper planning. Some traditional small businesses do go on to great things, but without proper cash-flow forecasting there is a huge risk that you might be setting yourself up for failure.
It is important to fully understand the size of the potential market, as well as having a plan how you will capture your share of the market. It is also important to ensure that you can ride the highs and low in demand for your products. It may be necessary to have enough capital to stay afloat for a considerable amount of time if things don’t go your way at the start.
If you are considering an online business, then it is important to recognise that there will be marketing costs. There is also a very steep learning curve when it comes to developing the skills and strategies to market online. One strategy that has stood the test of time is Search Engine Optimisation. Find out more using the link below:
Finally, if you are considering starting a Network Marketing business then it is important to remember that there will be start-up and running costs. If you can’t cover the monthly running costs, then there is no sense in starting the businesses in the first place. If you can afford the running costs then the income earning potential is uncapped, but it will still take patience, persistence and perseverance to achieve results.
To find out more about the company that I personally represent, please use the link below: