Unfortunately you usually need money to make money. Some of us are lucky and know someone whom we can borrow money from (which you’ll then pay back later), while some of us aren’t quite as lucky.
What is profit?
Profit is what you make when you sell your product for more than it cost you to make, or deliver your service for more than it cost you to deliver it.
What is loss?
Loss is when you sell your product for less than what it cost you to make, or when you deliver a service for less than it cost you to deliver it.
The first question you must ask yourself then is:
How much money do I need to start my business?
However, this is not such an easy question to answer. If you want to answer this question properly, you must first look at your production costs. (Don’t worry, it might sound like a difficult word, but actually it’s quite simple!)
What are production costs?
Production costs are what it will cost to make your product or deliver your service.
To determine your production costs, you need to know how much it’ll cost to make your product or to deliver your service.
For example: Say you’re going to sell hotdogs. Find out much the rolls, the viennas, the butter, serviettes, tomato sauce, mustard and other sauces will cost you. Work out the cost per hotdog. Say it costs you R10 for a packet of vienna sausages and there are 10 vienna sausages in the packet, then it costs you R1 per sausage. A roll works out to about 50c and the butter and sauces works out to approximately R1altogether. Because you are still just planning, you might sometimes need to guess. You don’t know, for example, how many bread rolls you can spread with the butter or exactly how long the sauces will last. It’s only an estimate. If you struggle with this, ask your mother, father or teacher to help you. Once you’ve started your business, you’ll have a much better idea of what it will cost.
Don’t forget about things such as the tomato sauce and the butter. Because it lasts longer and you don’t know exactly how much you’ll use per bread roll, you might forget to add it to your production costs. Another example is if you made scrapbooks for people. You know exactly how much it will cost to buy a book, but you also need glue, and you don’t always use the same amount of glue. So, remember about the glue!
Remember – rather overestimate in this case – thus rather think that it will cost more than less! Say, for example, that a bottle of glue will last for two scrapbooks, while you actually know it might last longer than that – but one never knows!
Now you’ve estimated that your product will cost you R2.50 per roll to make. So, if you want to start with 10 rolls, you will need at least R25 to start your business. (After that you can use your profit to buy the next rolls.)
Now you know how much it will cost to make your product. But how much money do you really need to start your business?
- First you must decide how many products you want to make. Say you have decided to make Christmas decorations: Decide how many of each item you’re going to make in the beginning. It doesn’t help to make too many in the beginning – you first want to see whether people really like them. Here it might be a good idea to decide to make three items of each. You should keep an example of each so that people can see what they look like and and two more of these in case somebody wants one immediately.
- Now you can see whether people are interested in your product. They then place their orders, and then only you can make more.
Ensure that you have everything you need for the number of items you need to make.
Remember! Think about things such as work space. Do you have a table to work on? Or if you are going to make hotdogs, do you have a big pot in which to heat the vienna sausages? Remember things such as serviettes to serve the hotdogs in, as well as a tablecloth.
Make a list of everything that you’ll need to start your business with and how much it will cost.
If you already own something, for example a saucepan for the vienna sausages, then you don’t need to add it to the costs. Add up the costs. This is how much money you need for your business.
Now that you know how much money you need, you can look how much money you already have. This will show if you need more money for your business, or not.