Thinking of starting your own business?

Before you invest your life’s savings in a business, make sure you are prepared.  Here is some good advice from other entrepreneurs and business owners:

1. Put a business plan together – analyse all the potential risks and have a plan for how you will take your business forward over the next 5 years.  Make sure the business is profitable: if you don’t have a good gross profit margin and good cost control, it’s going to be hard to turn a profit, ever.
2. Make sure that you have enough capital from the start.  Scrutinise the working capital requirements (debtors plus inventory minus creditors) of your business.
3. Avoid relying on credit – most business creditors need to be paid every 60 to 90 days.
4. Ideally you should be holding at least 3 months worth of cash flow to see you through difficult times.
5. Before you plan on extending credit to customers, remember that this will impact your cash flow.
6. Remember that there is a difference between sending out an invoice and actually getting the money in your account – you will need sufficient capital to ensure that bad debts remain manageable.
7. Do some research about stock turnover – you cannot afford to have stock sitting on your shelf.  Look at joining a buyers group, which often negotiate better prices and repayment terms.
8. Keep investing in your working capital – avoid taking profits out of the business until you are sure that the business is self-sustaining.
9. Expect that it could take you much longer to reach the cash flow and profitability that you calculated in your business plan.
10. Set up your business correctly from the start and separate your business entity from your personal finances.   Don’t see your business as an extension of your personal finances.