Bigger isnt always better

When it comes to starting a new business, bigger isnt always better.  With a smaller business it becomes easier to test the water with your idea due mainly to lower costs.  Lower startup costs mean less overall risk which takes a bit of pressure off in the early days of raising finance and allows you to focus more on other aspects.  There is a lot to be said for having a small business which is a specialist in one or two particular areas as opposed to a large, cover all type affair.  Being the jack of all trades may suit some business models but others thrive from being the master of their particular niche.

Lets take a new restaurant as an example of this.  On initial planning you may believe it is preferable to have a large location with plenty of kitchen space, lots of covers and a diverse menu in order to maximise profit.  This makes sense as the more people you can provide food for the more money you will make.  The downside to this approach (although i’m sure there are many) is your business model, your idea, is not tested until the day you open your massive doors.  What happens then when you don’t fill up this large space regularly?  You end up with a massive debt (from startup and running costs) and eventually have to close, leaving a financial mess which could take years to fix and potentially put you off entering the business world again.  Sure, you can do market research (always recommended) but you’ll never truly know until you open the doors whether or not it will be a success.

The alternative approach is to rent a very small location, only a handful of covers and a small, specialised menu with which every dish is your speciality.  This way you are testing out your idea with a lot less risk and avoiding potential financial disasters.  If the business is not a success in this case, you can usually walk away with only a small debt and your time lost.  If you are successful using this approach then you can look for larger premises knowing that you will be able to fill the space.  You will also have a good idea of how to outfit and open such a place having already done it once before.

Of course, some business ideas would not suit this approach but I think it is worth considering starting out small versus big whenever a new idea springs to mind.

 

Startup planning - Bracketing

There are many things to consider when starting up a new business venture but one of the most important is what it will cost.  Cost is not just simply the price of stock, rent and fixtures but also things like rates per day, personal cost and time cost.

When writing costs for a new business plan I believe it is best to always provide three estimates: Below Average, Average and Above Average.  For example, a restaurant may want to buy fancy plates but you could just as well get by with standard ones.  These two options would be covered in below and above average costs.

If compiling three different cost plans seems like too much work (though many people would say all business is hard work) perhaps an easier way is to make your ‘main’ costing plan and make that your Average costs then take 25% off (or 10% or 15%) and make that Below Average and the same amount added makes your Above Average costs. 

If you do similar bracketing for your turnover projections you can get a good idea of how the business will cope in various situations.  It can also serve as an early warning if it seems that the only way you can turn a profit is with Below Average costs and Above Average turnover!

This type of bracketing is also useful when predicting growth too.