How much fuel do you have?

It’s incredibly easy to start a business these days even in not so business friendly places. All you need is a good business idea and some capital to invest. Most of the entrepreneurs being positively emotional want to get in the action as fast as possible. That means making as few decisions as possible without even looking at the fact that their business will survive for long. I probably have been contradicting myself when I say planning is a must and while I also say decisions need to be taken even with insufficient data. There is indeed an element of contradiction because the inherent nature of entrepreneurship. It is often difficult to nail down what will work and what will not. The uncertainty makes it interesting and challenging. However at one place all uncertainties vanish is how much money you can spend on your venture. Money is finite; so business lasts as long as you have money in the bank. The day your money is over, your business will simply collapse. A lot of them do because they are not able to manage the financial demands. Entrepreneurs being highly charged individuals often look at the revenue side, while ignoring the cost side of the equation. While revenues are subjective and uncertain, costs are here to stay. So when you want to start your venture think of how long your business can last without ZERO or insignificant revenues where profits do not cover the costs for a long period. So if you have X as your monthly expenses and B is the amount of money in your account, your business will last B/X months or even lesser than this ( on a conservative basis) without any significant revenue. How do you calculate your costs? Add up everything that you can think of. Your office rent, employee cost, advertising costs, production costs (recurring), shop maintenance costs, electricity, water, taxation, legal and any other expenses. Put a factor of safety like an additional percentage for contingency (may be insurance costs). Remember contingency is part of the risk management and needs to be factored too. Now you have total cost calculated. What is your budget? Everything you have accounted for minus the expenses of your daily living without regular income. So if M is the amount of money you have in total in banks and all other liquid instruments and E is your personal expense and if you plan to plan to start making some profit in two years, your total budget for business is B = (M-12*2*E). Divide your budget by costs to see how long your business can last without making a single penny. (These are only rough calculations). If it comes out to be just two or three months, you need to seriously rethink your business plan. Image: nokhoog_buchachon /