The section three of your smart business plan comprises of an outline of financial costing for your resource requirements.
Once you get your resource requirements plan right, your start-up business will run smoothly through its incubation period to break even and become profitable.
Lifespan of your start-up business
The infancy phase in the lifecycle of your start-up could span the first twelve to thirty-six months as laid out in your business plan depending on the operating environments.
During this phase, you will require funds to incur one-time and on-going costs in order to launch and manage your business before you begin to make money.
Without gainsaying, this is a tough phase in the life of any entrepreneur. It requires discipline, sacrifice and deferment of legitimate pleasure to nurture the start-up and push it upward to the next phase of growth and stability.
Ironically, this is where most new businesses fail. A study found that new businesses have short lives, about six years on the average. It also estimated that one out of every four new start-ups does not move past its infancy phase, and dies in its first year of operations.
The overall performance of the economy, structural characteristics of the market, competition, specific characteristic of the start-up, size of the business, location, funding, resources and indiscipline of the business owner are identified as factors that affect the likelihood of survival of new businesses.
Consequently, entrepreneurs should not underestimate any of these factors, particularly the need to adequately resource their start-ups to avoid infant mortality of their businesses.
What you need to start-up your business
The entrepreneur does not have a deep pocket and may not have the needed funds to acquire all the resources for start-up. Identification, planning and acquisition of requisite resources to enable the business take off are essential to smooth commencement.
Every new business requires resources to function effectively. These resources are fiscal, physical or virtual entities of limited availability. They could be supply of money, materials, staff, stock or other assets. Broadly speaking, resources could be classified into six type’s namely financial, physical, human resources, technological, reputation and organisational.
Financial resources are money, shares and other assets. Physical resources are tangible property such as office space and equipment. Human resources are the knowledge, training, experience as well as the time of both the business owner and employees.
Technological resources are embodied in a process, system and physical transformation such as software products and custom-made information system architecture.
Reputational resources include the perceptions of people about the business brand and the credibility of the owner. Organisational resources are the business structure, systems, processes, culture and routines.
Leverage for opportunities
Aside enabling the business to function effectively, resources are required to exploit market opportunities that the entrepreneur has identified. The deployment of these resources will help the start-up business to operate and deliver products and services to the customers.
The challenge of resources acquisition
Resources are limited by nature. An entrepreneur cannot have all of the resources required prior to business start-up, hence the need for planning. The resources required will vary and depend on the nature, type and size of your business start-up.
It is the responsibility of the entrepreneur to identify all the resources that the business will require for seamless take off, classify them into one-time and on-going costs, and determine if the funds on hand would be sufficient to make these resources available.
Otherwise, the entrepreneur will prioritise and acquire resources in this order: capital, knowledge, work space and any supplies or equipment that is critical for start-up. You are not negatively impacted with limitations in resources availability when you are able to prioritise.
You are able to start ‘small’ and grow your brand and execute a feasible and bankable business plan. Typically, investors are wary of exaggerated funding for resource requirements: they prefer lean and realistic propositions.
Smart entrepreneurs who start ‘small’ usually create alternatives for resources. They have a better chance of surviving ‘infant mortality’ that new businesses suffer. A business owner who is into catering, confectionery or consulting services can start from home, instead of renting an office space and save the funds for other resources.
One-time and on-going costs
Jewel John, our young entrepreneur is starting “lean and mean”. She has rented a space. She has paid her licenses and rates. She brought furniture and other equipment from home. She is using her personal car for distribution to her secondary target market. Her employees are working on a part-time basis.
One-time costs are paid once prior to or at start-up. As may be required, you expend money on legal, accounting, and professional services. You also pay for licenses and permits. You pay for office space. You acquire furniture and fittings. The property you got may require improvements. You need to acquire equipment for production, transportation and logistics. If you chose to lease any of the equipment, it will be classified under on-going costs.
On-going costs cover resources that you will need throughout your start-up business infancy. These include advertising, promotions, fuel, transport, travels, postages, mailing, technology and general business maintenance. You need working capital for salaries and day-to-day operations of the business.
You should bear in mind that you can also either outsource or find alternatives to these resources acquisition, and properly reflect that in your books.
You need emotional resources too
It gets challenging and you feel like giving up on your dreams when you get to the phase. You do not have a deep pocket. You have to operate a shoe-string budgetary programme to get your dream off the ground. You need self-belief, courage and tenacity. Once there is a will, there will be a way.
You also have to stay motivated. You will need the support of your family and like-minded friends. You should get yourself a mentor to draw inspiration and support.
Author: Babatunde Fajimi
First published on The Punch Newspaper on Friday, April 10, 2015