This article are provided for information purposes only, and are not intended as legal advice.


Starting up a business, do you have enough capital, are your expectations realistic?

May 12th, 2010

Many people have great ideas about starting a business but their expectations are unrealistic.  Some people believe that they have done homework but they have not done the proper marketing research.  I received a call regarding starting up a retail store.  What research did they do for location?  Basically they said, there were other clothing stores in a strip mall if if people go to them, they will buy lingerie from my store.  Is that sufficient research?

 

There was no research to see if a person buying a sweater would be the same one buying ladies lingerie.  They did not know the demographics of the customers in the plaza, they did not know the income level of the potential customers.  Retail is dependent on location.   Many years ago, I was aware of a person setting up a spa.  They picked a location which they thought was excellent.  It ended up in a small strip mall with no parking, hard to access and one building over from a very successful spa.  Needless to say, the location was a failure.  Setting up a walk in clinic in a medical building is not always a good location, some succeed but many do not.  Location, location, location is very important in selecting a retail location.

 

The individual who wanted to start a lingerie store had almost no money but believed that she could get loans and grants equal to 95% of the working capital that she needed.  In fact she did not know how much she needed included the amount of inventory she needed to buy.  Even though she had been researching the business for 6 months, the important financial information was lacking and the expectations were unrealistic.

 

The current market for bank financing is difficult, the bankers are requiring a lot more information and they are protecting themselves from businesses not succeeding.  Many people believe that there is no risk in investing money with them.  The fact that they do not have much money at risk is not relevant in their mind.  Investors have to understand that banks are in the business of making money and not risking their capital. They want to make sure that they will get their money out therefore they are very cautious about who they lend to. 

 

If you have thought out well your new business concept, have sufficient capital and have done your homework, your chances of finding the necessary financing will exceed those who are not prepared and are looking such as the investor of the lingerie shop mentioned above.


Filed under: Starting a business — Gary Landa @ 2:14 pm


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