13
Oct

Success based on LUCK?

When we read about a successful business, we are often amazed and even envious of their achievements.

Some might comment that his/her success is due to luck, knowing the right people or just being at the right place at the right time … but how often do we think about what happened BEHIND THE SCENE?

Have you wondered … How many times have they encounter challenges? How many sleepless nights?  How many rejections? … BEFORE they can even “smell” the tiny successes that slowly grow and grow into the SUCCESSFUL business that we witness today. Often, it is the sheer determination and commitment that makes the difference between quitting and putting in more YET hard work to push through to success.

Thomas Edison who invented the light bulb, tried more than 10,000 attempts to perfect his invention. However rather than accepting failure times he is quoted as answering questions on his failures as ‘I have not failed. I have just found 9,999 ways that do not work’.

I love Edison’s mindset. This “never a failure” mindset already determines our success in business and personal lives.  Remember this … the only way that any entrepreneur can fail is when he/she did not learn anything from the experience,  continue to make the same mistake over and over again or worse still, close shop and never try again..

(1)     Failure to plan, plan to fail

We have heard this many times before …

“My hobby is doing craft. I want to turn my hobby into a business.
I want to set up a handicraft shop.”  

Great idea but it is really a BUSINESS? Think again

… How are you planning to EARN enough to sustain your business? Good that a few families and friends are buying from you now, but do you have a bigger market? How can you continuously attract new customers and get your old customers to repeat buying from you?

… WHY people want to buy from you when there are many other suppliers? What is so unique about your product/service?

… People will buy because my product/service is the BEST? Who told you that you are the best? Ask your existing or prospective customers…  If our customers hesitate to give you a good answer, then it is time to rethink about our own “assumption”.

(2)     Know your figures, Figures don’t lie 

figures

 

Costing: Do you have the exact cost of your product/service? Have you included your own time charge and overheads, such as electricity, delivery charges, taxes and other miscellaneous charges, as part of your costing?

Breakeven: How many product/service do you need to sell each month, in order that you can cover your expenses?

 

 

Capacity: Do consider how many items can you sell via how many can you produce.

 

Scenario A:

If you can only sell one product a day at $100, despite being able to product 100 units a day, then the 99 unsold units are not going to generate any income for you, until they are sold.

DAILY Income Statement

DAILY Income

You can only sell 1 item a day – say, $100 per item

$100

Cost of the 1 item sold above

$70

Daily Gross profit

$30

Scenario B

If your daily expenses are going to be $100, then this is definitely a losing business from the very start.

DAILY Income Statement

DAILY Profit/(Loss)

You can only sell 1 item a day – say, $100 per item

$100

Cost of the 1 item sold above

$70

Daily Gross profit

$30

Less Daily Expenses – salary, food, transportation, rental of stall, etc

($100)

Daily net LOSS

($70)

 

Scenario C:

As your daily expenses is expected to remain the same – regardless whether you are able to sell 2 -10 items a day, then consider how are you able to sell 10 items a day.

DAILY Income Statement

DAILY Profit

You can sell 10 item a day – say, $100 per item

$1000

Cost of the 10 items sold above

$700

Daily Gross profit

$300

Less Daily Expenses – salary, food, transportation, rental of stall, etc

($100)

Daily Net PROFIT

$200

 

Scenario D:

Think about how you can make additional income.

What about conducting handicraft making classes with sales of handicraft materials, tools, books and other decorative items?

 

(3)     Difference between profit and cashflow

A major resource in business is cash funding.

Many start-ups fail NOT because they are not profitable but because there is insufficient funds.

Working with the same example as above, you make a profit of $200 a day, or $4000 over a 20 days/month.

However, if you need to pay advance rental of $500 and cash purchase to goods and material of $3000.  Then, these expenses need to be catered for in your cash reserves.

Moreover, if it takes 5 days before the 1st customer buys from you .. this means additional reserve is required to sustain the business for the first 5 days, where you will have to go home without any income for the day.

Hence, it is very important to know the difference between [accounting] profits ($200) and cash reserves of RM4000; i.e. $500 rental + $3000 raw material + ($100 daily expenses of staff salary, transportation, marketing + promotion … etc for 5 days that you do not generate income.)

Without enough cash reserves, you will not be able to even start earning.

Just to further illustration, let’s say – on the 10th day of business, you manage to secure a sale of 10,000 items at $120 per unit.  Bravo!

This is great profit for your business.  However, if your customer is only going to pay for the 10,000 units after 60 days from full delivery of the 10,000 units … it is time to re-negotiate again.

An acceptance of this sales contract without consideration for cash reserves is just suicidal for your business.

Remember … Profit is KING, but Cash is KING KONG.

 

Conclusion

So what do you think about L U C K now?

Is success based on ”luck” or “Leverage Under Controlled Knowledge.

Have a nice day.

 

 

Dear Friends.  Thanks for reading. Please drop me a comment if you have enjoyed my post.