Top tip Five: Don’t be a busy fool!
It’s all too easy to think the difference between the price the customer pays and the cost is the profit. Of course, it is true that if the sales price is greater than the cost price, you are making a gross profit on each sale. But what about the cost of being in business? All the overheads, operating costs, wages, fees, interest on loans and something for you to live off! How many items to you need to sell to produce enough gross profit to cover these? (The turnover less cost of sales = gross profit). And what is left after this is the net profit. What is the point of working really hard on your business only to make little or no net profit? Or in other words being a busy fool!
So, it’s really important to charge the right price. But how do you determine this and quickly? You could look at competitors or ask customers. There is a thought that you should test the market at an early stage and learn quickly from this.
I remember meeting a serial entrepreneur whose first business was selling large foam hands at football matches. He and two friends stood outside different gates selling at different prices. They called each other to see at what price point the hands stopped selling than all sold just below this price. That was his first of many businesses.
Once you have got your price right and the cash is coming in, you will need to start collecting information and thinking about scaling your business operation. This is all sounding rather complicated! Don’t worry help is at hand. Week two the Starting a Business free online course is all about designing a scaleable business, understanding accounts and getting the money you need.
So, the five ways to build a successful business?
- How does information flow around your business?
- What are your key financial indicators for your business?
- Turnover is vanity, profit is sanity!
- Who you know that good help you?
- Cash is king or queen!
And Finally: Good luck!
I hope you enjoy the Starting a Business free online course and meeting our team of enterprise educators, student entrepreneurs and experienced business advisors. Through the enterprise opportunities at the University of Leeds you could become a business leader of the future. Our dedicated courses and discovery modules, competitions and scholarships will help you to turn your business ideas into a reality. Find our more on Enterprise at Leeds website.
Professor Nigel Lockett
Professor of Enterprise at Leeds University Business School
Starting 30th June Starting a Business free online course