Thursday, August 19, 2010

Accepting Risk in Your Small Business

Continuing in the Thursday series of posts
about starting and running a small business.
You can find the first three posts
on the side bar.....

This subject is fresh on my brain
at the moment 
because I am accumulating inventory.
A lot of it!!!

I have decided to go ahead and make 
a dozen of each fragrance and jar to be
offered in the fundraisers.

So far I have completed:
4 dozen French Vanilla
4 dozen Mulberry Spice
4 dozen Country Apple

Still to complete:
1 dozen each of four different jars ~  
Cranberry Balsam, Orange Clove, 
Cappuccino, Candy Cane, 
Cinnamon Buns, 
and Pumpkin Pie Spice

I'll make more as the time to sell
gets closer, but I needed to 
make some candles for the sake of 
photos for fliers, etc.
So, I am trying to be efficient.

I have a nice chunk of change invested
already with no return expected until at 
least late September.

Tonight Warren and I found 38 amazing 
wooden apple boxes that hold a votive glass.
I will fill the votive with apple cinnamon soy 
wax and sell them. 
At least I think/hope they 
will sell.

You see, that is the thing.

I put out $65 on something that I have no idea
how it will be received.  We took all that were 
available at the wholesale store.  Warren was right
on board and so supportive with the whole thing.
But, you just have to accept the risk that something
may not just may not sell.

No sales?
I will be out the $1.70 for the container, at least.
My total cost for the completed candle will 
be around $3.70.

I am planning to charge $10 for each completed
candle with $5 going to the fundraiser group
and $5 coming to me.
If it all works out I will clear $2.30 on each candle.
This would bring me a total profit of
$87.40 if  all 38 sell.
My groups, however, will make
$190 if they sell all of them.
You see, they do not share my risk.
 But, I share their joy!

How does one manage risk?

Start Small and....

Never put out money that you can't 
afford to lose

In a business such as we are talking about you may have
to put some things on credit for a couple of months.
It would be delightful if this were not the case, but 
you and I both know that unless you have people 
willing to join you in the risk taking and become
investors or partners
sometimes the card comes out.

However, you must resist the urge to overspend on credit.
  If you cannot afford to pay it back on schedule,
even if you sell nothing, do not charge it!!!  
You cannot afford to be in business
if you risk your personal finances
to do it.

Maybe you need to find a partner
who has the resources to
self finance.

The next thing to remember is that
the first money into your account 
needs to go to pay back any amount
you have borrowed.
Do not carry the debt a moment 
longer than you have to!!!

That will just eat up your 
We certainly don't want to 
do that!

Another way to manage risk is
to diversify.
Whenever possible have a variety
of product choices.
This will bring more sales and 
perhaps something that has a larger
profit margin will help carry a smaller profit item
or those things that just don't sell.

Does this make any sense? 
It is unavoidable...
but manageable.

1 comment:

Chicken Wrangler said...

Very wise advice! Enjoying your posts on this. You've learned a lot and glad you are sharing!