Entrepreneurs are a passionate, creative group of people who are determined to overcome any obstacles in their path. But, sometimes, the practical elements of running a business can be overlooked. Passion and energy must be supported by a plan to create a viable business with positive cash flow.
Here is a recent example: A 30-something entrepreneur decided to quit his day job and follow a childhood dream to open a comic book store. He had a spot in his city's downtown core and filled his store with action figures, graphic novels and comic books. And then he waited. And waited. And waited. The challenge for this small business owner was that he was not able to generate a consistent revenue stream that could cover his monthly costs and produce a predictable income.
Unfortunately, after a few months he had no choice but to close his store.
It's a story that happens to many small businesses across the country. Figures released by the small business branch of Innovation, Science and Economic Development Canada in June, 2016, show that, of the thousands of businesses that enter and exit the marketplace every year, more small businesses close than open in the retail sector.
Why? Like the comic book store owner, entrepreneurs have the hustle, the ambition, the creativity, and the passion to succeed. But these traits must be paired with a practical plan to ensure viability and scalability for the long term.
While there are many factors to consider, being able to answer the following three questions will help build a plan to ensure long-term success.
Do you really know your numbers?
Many entrepreneurs embarking on their first small business venture often underestimate how much they need to sell and how many people need to purchase their products or services to be successful.
Take the comic book store example. Opening in an up-and-coming area carries the risk of not having foot traffic right out of the gate. Customers needed to seek the store out, find parking on the street or walk to the store, and change their shopping habits in order to create a regular customer base.
This is why the numbers are so crucial. Small business owners need to do the math: how many customers must walk through the door (real or virtual) and buy a certain amount of merchandise every single day? Many small business owners, including the comic book store owner, underestimate what they need to sell and overestimate how many people will be willing to buy what they're selling.
What you'll want to determine is the number of customers that need to know about your business, the number that will visit, the number that will actually buy, and how much you need to sell to them.
My advice: have a daily, weekly, and monthly plan and be conservative in your estimates of how many visitors will actually make a purchase. Try different variables and talk to local store owners about their experience. You'll also want to have a built-in cushion if it takes longer for the business to meet targets than originally planned or if there are seasonal slumps.
Do you know your customers and, more importantly, do they know you?
You've got an idea of your numbers. The next step is to determine how much of your target market you need to reach to generate sufficient foot traffic, what percentage will actually make a purchase and how many repeat visitors are needed for a sustainable business model.
To help with this, research the neighbourhood where you're opening your business. What's your competition like? Are you opening a coffee shop on a street with three others? What's the need for the product you're selling? Will your business see seasonal spikes, such as a florist might, or are you relying on steady, consistent traffic?
Incorporate marketing into your initial budget to get the word out about your business. Whether it's targeted ads on social networks, an online listing or neighbourhood signage, or a loyalty rewards program, make sure you generate awareness about your business beyond your storefront. You might even consider an e-commerce solution so that you are not relying solely on foot traffic. And, most importantly, capture every customer sold and have a strategy to bring them back.
Are you focusing on what really matters?
Your numbers are your most important metric. Outsourcing certain tasks to improve overall business efficiency can give you more time to focus on generating new revenue – ultimately, increasing the bottom line.
Technology is one way to help you get this time back. Arm yourself with the right technology to forecast and track your sales and cash flow. This will help you understand when you might need to course correct. Take advantage of cloud-based tools and apps that let you use technology as a service to avoid unnecessary capital expenditures.
Remember, right out of the gate, everything you spend should be driving sales from both new and existing customers. Once the business is established, you can look at technology solutions that will improve overall business productivity.
Another important strategy is to find – and regularly meet with – a mentor who will provide realistic advice and insight to help keep you in the black. It's important to have someone who will not only cheer you on but help you with risk assessment as you move forward.
Craig Bentley is senior vice-president, small business enterprise, at Rogers Communications Inc., Canada's largest provider of wireless voice and data communications services and one of Canada's leading providers of cable television, high-speed Internet and telephony services to consumers and businesses.