by Elie Y. Katz, founder, president & CEO of National Retail Solutions (NRS)
Starting and running a new business, especially for entrepreneurial and independently minded owners, is a tremendous challenge at any time. Getting your business off the ground during a worldwide pandemic can be especially daunting and magnify potential pitfalls to success. Yet most of the budgeting practices essential for a fruitful business apply no matter the circumstances.
Ensuring success starts with effective budgeting. An entrepreneur may have a game-changing technology innovation, whether it is a physical item to sell to the general public, or an online or otherwise digital business-to-business model, such as a new way to improve search engines and SEOs.
But a dreamer who sees no limits must also be a prudent numbers person. That may be difficult for someone who feels focusing solely on their idea is paramount. But too many businesses with great ideas fail because they run out of money. The statistics are unnerving. According to the U.S. Bureau of Labor, approximately 20% of new businesses fail during the first two years of operation and 45% during the first five years.
Entrepreneurs and small business owners must invest their money wisely and consider all manners of budgeting scenarios: How much is needed to move out of the basement laboratory and into an office? What about advertising? How much revenue must be generated to afford the rent and other expenses? These are just a few budgeting questions that need to be considered and answered before getting a business off the ground.
For small business owners as well as recent graduates and entrepreneurs green to the business game, a key aspect of effective budgeting is inventory management. Ordering supplies and products for a small or mid-sized establishment, say a grocery or convenience store, cannot be a stab in the dark. The last thing you need is overstock gathering dust in your store or home office or becoming holiday gift giveaways.
Choosing the right point of sale (POS) system is vital. POS systems track where and how patrons purchase your product (credit card, cash, apps). We have found from experience with our system, that POS programs that integrate sales and inventory functions in real-time are crucial to effective budgeting. Simply put, you can’t sell what you don’t have, and you can’t sell a surplus supply of items that your customers don’t want.
Some POS services, like those offered by National Retail Solutions, set up alerts when inventory is low, allowing store owners to accurately track sales and order hot-selling products at any time during the day, from anywhere in in the world. This information can also inform when to put things on sale at what times, or what to place on clearance, and how to leverage the demographics in your neighborhood. Independent business owners, entrepreneurs, and intrapreneurs would be very wise to carefully review POS options and choose one that meets their needs.
So now you have a way to track inventory. That’s just the start of competent budgeting. Say you want a physical presence for your idea. You’ll need to calculate more than how much to stock. Rent and utilities must be considered, plus employee salaries. Don’t forget ever-increasing insurance rates and don’t budget all of your revenue down to the dollar. Businesses need rainy day funds for unexpected scenarios and circumstances.
Consider location carefully. Opening a coffee and food shop using your family recipes, for instance, across the street from a Starbucks, is probably not the best move. You want to be the only game in town, if possible, or one of just the few. Competing against a major chain could drain your budget quickly. Budgeting counts even down to how you prepare that food. You may think offering sandwiches ready-to-order will attract people. But people these days are in a hurry and want convenience and instant service. Perhaps consider making your items fresh before the store opens, and then warming them up once ordered. This can save time and money, and mean the difference between attracting potential loyal customers or having them pass you by.
You’ll also need advertising, a lot of advertising, to get your business off the ground, so consider how much of your monthly revenue will be invested in promotion. And don’t assume that because you’re budgeting $10,000 for advertising in February that you’ll use the same figure in April or May. Budgeting is not static. Changing seasons, depending on your business, can require more or less advertising. For example, if you own a bicycle shop, people will likely be looking to buy bikes in the spring more than the winter, so your advertising budget will increase as the year moves on.
Opening a new business is challenging, but it’s also exciting and exhilarating. Harness that energy and budget early on. With proper budgeting and planning, you’ll have tremendous success.
Elie Y. Katz is founder, president & CEO of National Retail Solutions (NRS), subsidiary of IDT (NYSE: IDT). Six years ago, he brought his many years of experience as an executive at various companies, in diverse industries, plus strong leadership, interpersonal and organizational skills, to create National Retail Solutions (NRS).