How much is enough

Over the next several weeks we will be publishing extracts from:

Take The Plunge – 101 things you need to know before starting your own business

by Michael Carter

 This week: How much is enough

Earlier, in ‘Cash is king’, we briefly considered the issue that if you are in a business where you charge for your time, there are a goodly number of reasons for not simply taking the amount of money you want to earn and dividing it by the number of days available to you.

So too, it is very important when you want to sell something that you charge enough for it. But even before you charge enough for it, you really need to discover if the market will pay enough. A great example is hand-knitted baby clothes. Often they are created with leftover wool from another project and so innocently the raw material is regarded as ‘free’. Then the labour of knitting is similarly regarded not as a piece of work, nor a job but more as a joy – or at least a pleasurable pastime.

The problem comes when you turn this into a business. You can no longer rely on leftovers as raw material – you’re going to need regular, and in knitwear terms, large supplies. Then on the labour front, not only are you going to bore the (baby) socks off your knitters by requiring substantial quantities of the same products – a sort of knitwear treadmill – you are also going to want them when it suits you. That’s not necessarily when your knitter has had sufficient free time. So you end up paying for both wool and labour and rapidly find you can’t compete with far-east sourced machine knit prices.

At the other end of the spectrum, comes the barrage of attacks on your selling price. If you are selling to end consumers in any volume, you’ll probably have to charge VAT, which since by convention it is already in the consumer price, reduces your take. Worse, far worse, is that unless you do all your own selling directly, the people who sell for you e.g. shops, will want large slices themselves. If your products are cigarettes, lottery tickets or fuel then these slices might be 5%, but if they are foodstuffs it might be 25%, handcrafts at least 40% up to fashion which might be 80%. Yes, really. A fashion shop probably pays £20 for something you’re going to pay £100 for. Otherwise, how else can they do a ‘two for one’ or even hold a ‘70% off everything sale’ and still be in business?

And that assumes you don’t sell first to a wholesaler!

Top tip: Most trades are like small communities. Wander into the community before starting and ask questions. Provided you don’t hit them at a peak period most people enjoy exhibiting industry knowledge.

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