Many businesses in Africa die before the business is even started, because there was limited or NO research done by the business owner on how to find a sustainable plan to survive the business and other critical factors every business need to pay attention to before starting.
To avoid the need of collapsing or wasting the little capital you have, you need to pay much attention to these factors, and it will help you to seed a good business plan into an environment which will assist it grow into a big business.
Knowledge and expertise about the product or service are keys to a successful business. • In case of limited knowledge the owner may not be able to sustain the business and can be fooled by the vendors, suppliers and competitors. • When you ask yourself a question “What business shall I start?” you need to get a convincing reply about what you intend to do and how you are going to go about it.
Once a decision is taken on the business you intend to start, the next step is to explore the demand / market for the product / service. Certain products will only have a domestic market for them whereas others can be successful on an international level. • The key question is “Who are the customers?” A market survey can be conducted to identify the market for the business to be started. • If the product / service is expected to be sold locally, the demand for it needs to be assessed. In case an international market is expected then rules and regulations for dealing internationally need to be found out.
3. Total Project Cost
It is important to correctly assess the total project cost required to set up and run the business successfully. • In a capital-intensive business such as starting a manufacturing plant, the start up costs can be very high. You need to identify the total amount, which will be spent on the land & building, plant & machinery, furniture, and office equipment, vehicles etc.• If a business is in the nature of retail you will need to identify the cost of the store and furniture. Amount required for the decoration of the store needs to be assessed. Similarly in case of an office the major cost will be for the furniture and office equipment.
An office or firm can be started at a relatively lower cost initially with only the basic requirements. • One also needs to take care of the working capital requirement. This will mainly consist of the inventory, which needs to maintain, and the credit, which is extended to the customers. From this the supplier’s credit is deducted to arrive at the Working Capital Requirement. The Working Capital Requirement can be quite high for certain industries for example inventory will need to be maintained in a garment store. Similarly in case of a grocery shop there is need for huge inventory for which the suppliers may not give credit initially.
After identifying the initial costs required for starting the business, the financing pattern will need to be decided. The financing pattern will be mainly by way of capital introduction by the owner and borrowed funds. Depending on how much capital the owner can introduce the balance amount will need to be borrowed. Funds borrowed will be either short-term loans or long-term loans. The terms and conditions for borrowing funds will need to be studied such as the cost of borrowing, security required, rate of interest and the repayment terms.
The owner will need to approach a number of banks to get information about their terms of lending and draw a comparative analysis to identify which funding is the most beneficial for him. As a thumb rule short-term funds should not be utilized for the purchase of fixed assets. Short-term funds are mainly used to meet the working capital requirement. The logic is that if short-term funds are used to purchase fixed assets how are you going to repay the short-term loan if the business has not progressed. Once the financing pattern is identified the owner will need to decide how the money is going to be utilized.
Before entering new business, information about market competition needs to be found out. In case a product is a monopoly then the competition will not matter. Otherwise the success of the business will depend upon the demand and supply gap. Thus if there is a huge demand then you can enter the business in spite of the market competition. Otherwise you will need to be stronger than the competitors to gain an entry.
Normally existing firms will always have an advantage due to the experience they have and because they may be well equipped. The question which needs to be answered is “What is unique about the product / service which will be offered to survive the market competition”? Information such as who are the competitors, what is their market strategy and what factors are required to compete with them are important.
All the above factors are important to start a successful business. Compromising any of these factors could hamper the growth. Starting a business these days is very challenging and an all round knowledge of various factors is required to run a successful one. It is important to make a Project Report on the basis of the above factors before starting a new business.
We shall continue with the second part of this article….. comment