What Comes First...the Chicken Or The Egg?

Business By Lizmybit Updated 26 Oct 2011 , 3:05pm by Lizmybit

Lizmybit Posted 17 Oct 2011 , 3:08pm
post #1 of 15

Hi guys,

I have another question regarding start up. I posted yesterday looking for advice about a business plan. Today I am wondering does your location come first or your business plan? I live in the far Northwest Chicago subarbs and I'm having a difficult time even narrowing down a city for my business. I know that I'm going to have to have market analysis, income ranges etc. before I even decide what city I should open in. Does that come first?

So many decisions. I am determined to not be one of the 85% of startup business that fails.

Thanks in advance.

14 replies
indydebi Posted 17 Oct 2011 , 5:36pm
post #2 of 15

I want to open a shop in Small Town, USA. I do a business plan of the demographics, economy, etc., and find it won't be profitable.

So I decide to move to Suburbia, USA. Different demographics, different rents, different plan.

For sh*its-n-giggles, I look at Downtown Business Center, USA. Fabulous foot traffic, but the rents and cost of overhead is overwhelming, according to the biz plan I did for this area.

So while you don't have to have a specific store location picked out (general rents and utitlity costs), you do have to have a general area picked out.

Indianapolis IND, population 1.5 million, was a WAY different biz plan than the one I did for Richmond IND, population 34,000, even tho' they are only 1 hour apart.

Lizmybit Posted 17 Oct 2011 , 6:37pm
post #3 of 15

Thanks Debi, that's what I figured. I'm really just in the begining stages of looking at doing something and it's a bit overwhelming. I have a culinary degree and a business degree and I still feel lost. I have gotten in touch with a mentor from SCORE who I'm sure will be a big help! I'm wondering though, how do you even begin to decide what your gross annual income will be, so that you can start planning your 25% food cost, 8% rent etc? I mean I can pull a 200k profit out of of the air if I want, but how do I begin investigating if I can actually achieve that?

indydebi Posted 17 Oct 2011 , 6:50pm
post #4 of 15

I started the other way. I added up my rent, utilities, etal overhead, then figured "I have to have this much in gross sales to cover these costs". I didn't figure my gross sales and then "here's how much rent I can afford."

Seriously, the income part of a plan is as much technical and analytical math as it is a shot in the dark. Don't think in yearly numbers. Start with how many birthday cakes, wedding cakes, will you do in a day? x 5 or x 7 to get yoru weekly number; times 50 or 52 to get your annual sales. How many dozen cookies per day? Cookie bouquets per day? x 5? x 4 = monthly? x 12 = annual?

You start with "one" and move forward from there. thumbs_up.gif

Lizmybit Posted 17 Oct 2011 , 7:09pm
post #5 of 15

Thanks, it's all a bit scary isn't it? icon_smile.gif Not to mention I absolutely have to pay myself a salary. I have to figure that into the mix. No way I can go 2 years with out a salary. I'm a single woman so no second income in my life. How long ago did you open Debi? How long was it before you made money?

scp1127 Posted 18 Oct 2011 , 5:12am
post #6 of 15

I sure hope you can start debt free in this economy. That added expense right there can destroy your income long after the business fails (but hopefully it won't). I'm the black cloud with these posts, but if you really need this, I suggest that you get an alternate job and save for this project. You can also start small and build your clientele rather than jumping in.

You have the right education. But you didn't mention business experience. My next sugestion is to get that alternate job with a position of some responsibility with accounting and the bottom line.

If you have free money from family (we are setting up all of our children in business and overseeing them until they are solvent), or you have savings, you still need that experience. I double majored in accounting and economics, but the books alone will not help you. Practical experience and responsibility for the bottom line are the most vital next step.

Read CC some more and look at some alternatives if you are underfunded, and it does sound like this may be the case. This, and lack of experience are the cause of that first year 85% failure rate.

But don't get discouraged. A plan for a dream that will work is much better than the nightmare of the failure.

There are plenty of CC members who can share experiences and offer advice if a long term plan would be a better course.

Good luck to you. You are so smart to have gone in this direction. With the obvious successful planning of your education, I am sure that you will make good, sound decisions concerning your dream.

jason_kraft Posted 18 Oct 2011 , 1:35pm
post #7 of 15
Quote:
Originally Posted by Lizmybit

No way I can go 2 years with out a salary.



If you're not prepared to go 2 years without a salary now is probably not the best time to start a business.

Lizmybit Posted 18 Oct 2011 , 4:16pm
post #8 of 15

Thanks SCP. I have been doing it on a part time basis. Illinois just passed a Cottage Food Law which will allow me to cook from home and sell at Farmers Markets next summer. I hope to do that for 2 years in order to bank enough start up money. The problem seems to be at this point finding a farmers market. They are all either not taking new vendors, or they are not adapting to the new law and allowing home bakers. Unfortunately I can't afford to pay $25 an hour for a commercial kitchen and still make a profit. It's all a catch 22.

Jason, I have to believe that there is a way of being able to open my own business and still be able to afford to live. Otherwise no one would ever do it. I'm not saying I need to make a large living, but enough to pay my mortgage and bills.

jason_kraft Posted 18 Oct 2011 , 4:33pm
post #9 of 15
Quote:
Originally Posted by Lizmybit

Jason, I have to believe that there is a way of being able to open my own business and still be able to afford to live. Otherwise no one would ever do it. I'm not saying I need to make a large living, but enough to pay my mortgage and bills.



The reality is that most businesses end up losing money for at least the first year, so in order to prepare for that scenario a prudent entrepreneur will either have enough in savings to pay the bills until the business becomes profitable, or have another source of income (rental properties, a second job, loans or investments from family, etc.) to stay afloat.

The only reason my wife and I were able to start our bakery business was because I kept my full-time job. If I had quit my job we would have probably used most of our savings to pay the bills, especially during the first year.

scp1127 Posted 18 Oct 2011 , 8:51pm
post #10 of 15

Here's the biggest problem with being underfunded... the only place to get the money when you run short is to "borrow" from the IRS. This snowballs and ultimately will only prolong a troubled company. Unfortunately, the liability stays with you for years.

People who open businesses have many sources. Since I used to work closely with small businesses, I know that the funding usually comes from savings, inheritance, and equity loans. The majority of others were family loans and gifts. Others have family who own the retail space, as we do for our children. Unfortunately, if this money was sufficient for startup only, in the lean months, if there was no backup plan, the business fails.

Jason is right. The ones who make it are sufficiently funded. We just don't usually know the source, which makes startup look easy. There is no shortcut to this. No money for rent, payroll, or electric will shut you down.

I'm glad to see that you are startindg small and plan to build. The reality is that it may take you a little longer to make it happen.

ncsmorris Posted 20 Oct 2011 , 1:21pm
post #11 of 15

Agreed with Jason and scp...there are many entrepreneurs in my family, myself now included. We are all in agreement that the first year or two is tough. You either get a loan or try to do it without - of course doing it without a loan is preferred but that means drastic cuts to the household budget and income from other sources because breaking even is the goal at first. Right now I'm working my full-time job and doing cakes at night. Often this means staying up until 2am to finish cake, do bookkeeping, etc. and still getting up at 5:30 the next day for work. But this is what I have chosen to do so that I can grow my business. I hope to reach the point that I can quit my day job, but right now I am nowhere close to that.

QTCakes1 Posted 20 Oct 2011 , 1:38pm
post #12 of 15

Okay, so when we figured on opening store front, with the business classes I took, the reason people go out of business is cause of what you said. They couldn't go with out a salary for 2 years and they did not figure out their salary into the cost equation. The first year, your goal is to break even, not profit. But in the break even goal in making your expenses, your salary should be a cost factor in the expenses, that way you are not going without a salary. That is not realistic. So when you ask for a business loan and all that good stuff, you ahve to figure you in as a cost as well. Good luck!

Vista Posted 20 Oct 2011 , 2:06pm
post #13 of 15
Quote:
Originally Posted by QTCakes1

Okay, so when we figured on opening store front, with the business classes I took, the reason people go out of business is cause of what you said. They couldn't go with out a salary for 2 years and they did not figure out their salary into the cost equation. The first year, your goal is to break even, not profit. But in the break even goal in making your expenses, your salary should be a cost factor in the expenses, that way you are not going without a salary. That is not realistic. So when you ask for a business loan and all that good stuff, you ahve to figure you in as a cost as well. Good luck!




Exactly what I was going to say! Your salary should not be considered profit. It is a business expense. My mother opened a very profitable (non-cake related) business several years ago. It was extremely profitable from the very first year (I did her books, so I know). However she did not figure herself a salary. She just took what she needed/wanted when she needed/wanted it. 5 years later she closed shop because the economy went down and business wasn't as steady as it had been. It still had enough to float the business, but she had put NOTHING away for lean times. (I and several other people tried to warn her that this would happen, but she has to learn from the school of hard knocks.)

Never shortchange yourself. A salary is very important, in the beginning it should be meager, and just cover your personal needs. As the business expands give yourself a raise. But Always remember that you have to separate your business money from your personal money.

QTCakes1 Posted 20 Oct 2011 , 5:50pm
post #14 of 15

[quote="Vista"]

Quote:
Originally Posted by QTCakes1

Never shortchange yourself. A salary is very important, in the beginning it should be meager, and just cover your personal needs. As the business expands give yourself a raise. But Always remember that you have to separate your business money from your personal money.




Absolutely!I figured out my actual personal cost and what I would need to make to cover everything, but not extras like family vacations and such. The extras come with the raises and the rasies come when you start to turn a consistent profit! thumbs_up.gif

Lizmybit Posted 26 Oct 2011 , 3:05pm
post #15 of 15

Thank you for all the advice! I was planning on figuring my salary in as a cost of doing business. I guess I mis-read the other posts and I thoght people were saying you couldn't bring home any money which of course is impossible! icon_smile.gif I am still hoping to do something in the next year or two. But so many factors to consider before jumping in with both feet!

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