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BUSINESS GUARDIAN guardian.co.tt MAY 25 • 2017
Taking the plunge
Carol is a 32-year-old advertis-
ing manager and her husband
Jeff is a civil engineer. They
both earn roughly the same
salaries and, after deductions,
their combined paycheck is
Jeff's monthly car payments is $2,500 and
Carol drives a company vehicle. They have a
mortgage of $10,000 monthly and Carol just
swiped $35,000 on her credit card to purchase
items to sell. The couple seldom exchange the
details of their personal finances but always
support each other when the tides get rough.
Apart from the goods, Carol's assets are
quite modest. From time to time Carol buys
and quickly sells off everything to friends and
relatives. She knows that things could grow if
she had more time on her hands. She greatly
desires to improve her situation and has se-
riously considered ditching her corporate job
to take the entrepreneurial plunge.
A few weeks ago Carol got wind that the per-
fect space in the mall was available and the
owner is willing to give her the spot, which
now rents for $7,500. The previous business
was similar to Carol's and is already set up
with all the fixtures she needs. The landlord
is including the fixtures as part of the package
which he seized in lieu of outstanding rents.
Carol's operation is simple: on average she buys
an item for $100 and sells it for $200.
Jeff is willing to borrow $15,000 to help his
wife get started and wants to see her succeed
but worries if they make a wrong move it could
put pressure on the family's finances.
The path of entrepreneurship is often very
rewarding in terms of job satisfaction, finances
and freedom. Many entrepreneurs attest to the
fact that if they had not gotten into business
they would not live in the houses they own,
drive the cars they do and possess financial
assets they have accumulated.
The beauty of running one's own business,
if done right over time, could yield great suc-
cess especially from humble beginnings such as
starting from the trunk of a car to establishing
a chain of retail stores.
The other side of the coin is: if one approach-
es business in a cavalier and ad hoc way purely
by whim and intuition, the chances of failure
in the first is a definite reality.
Taking the decision to impulsively leave
the security a well-paying job with a range of
benefits such as medical plans, paid vacations
and company cars in pursuit of the romantic
dream of business could have far a reaching
effects on not only this family's finances but
also their relationship. It is understandable that
Carol's enthusiasm is subtly tempered by Jeff's
caution to think things through methodically
Carol has Jeff's moral and financial support,
however, if she is unable to generate sufficient
profits to maintain her contribution to the
household's expenses, the family could face
a financial crisis. Table 1 shows a worst-case
scenario if things go awry.
To compensate for such a loss in revenue the
family may have to dramatically slash expenses
or allow their loans to fall behind to buy food.
Does this mean that Carol should not consider
getting into business?
Of course not but it does call for fleshing out
the revenue potential, exposing the business
risks and devising strategies to deal with both.
Market strategy & break even
The lifeblood of any business depends heav-
ily on understanding and exploiting one's mar-
ket. Whilst Carol has some experience buying
and selling these products it was never for her
survival and it was confined to friends and fam-
ily. Knowing the size and buying frequency of
her market is critical if she has to make rea-
Carol has to determine to what extent her
current clientele could support her monthly
income needs. If the frequency and number
of sales from her natural market (the people
who know, like and trust her) are sufficient
to cover her living expenses then there is no
need to dive into a heavy rental commitment.
She can simply up the ante by stocking up on
more goods and making them more readily
available, which assumes she has sufficient
and consistent demand.
If her current client base were not adequate
then she would need to aggressively promote
to a wider public who may have already have
relationships with similar businesses at prob-
ably more competitive prices. Her options to
tap into this effective demand could simply
be leveraging social or other traditional mar-
Expanding a business organically (naturally
over time) is a sure way to mitigate the risk
of failure. This is why some businesses only
expand when space becomes a necessity then
a bigger overhead could be justified. The po-
tential increase in sales and profit as a result
of the higher traffic that comes with a mall
outlet must be able evaluated against the cost
of the new location ($7,500).
Increases in sales could take time for a new
business to establish and many seasoned entre-
preneurs would know "time is money!" If the
cash register doesn't ring up often enough then
there could be an initial negative cash flow. To
counter this risk it is advisable for startups to
have sufficient working capital reserves to buy
the extra time; capital is what Carol doesn't
have right now save and except the $15,000
Jeff was willing to borrow.
Table 2 gives an idea of how many items
Carol must sell to break even. The challenge
with a retail outlet is that you must be able to
deplete just enough stock to cover overheads
with having the store look bare as this could
negatively impact consumer confidence.
If Carol continued to sell informally for a
while then the objective is different which is
to end up with absolutely no stock until she
Stock in trade
Finally the $35,000 in stock Carol bought
will be marked up by 100 per cent which means
that the gross margin will also be $35,000. The
tough question would then be: how long would
it take to turn over? If it takes two months
then her monthly average gross profit would
be $17,500 ($35,000 / 2). The longer she takes
to sell off the items, the lower her monthly
cash flow would be.
In light of her monthly income needs of
$15,000 without the store and $24,500 with
the store, Carol needs to think carefully before
she taking the plunge.
Nicholas Dean (CertFa) is a certified
independent financial adviser and is the
managing director of The Financial Coaching
Centre Ltd. If you have any questions or
need advice on today's subject please email:
firstname.lastname@example.org or visit website: www.
Making the transition from employment to entrepreneurship
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