FINANCE

FINANCE

Managing Your Finances

There are two elements to a business's finances: the start-up fund (i.e. capital) and purpose (profit).

If you are starting up a shop on the street, you will need to have enough start-up capital to cover both the deposit for the commercial lease and to be able to pay staff.
On the other hand, if you are starting a web shop you will only need enough to buy the ready-made platform for the shop. Even though you could technically start a business with just a small amount of funds, many businesses encounter problems early on and eventually fail due to running out of money. It is a good idea to get together more start-up capital than you think you will initially need, rather than starting your business prematurely on a tight budget.

Making A Profit

The purpose of most businesses is to make profit. Even if you are a social entrepreneur and your ultimate goal isn't to make money, it is still important to make sure your social project is sustainable so you don't have to dip into your own pockets to keep it going.

How can you make profit? This is simply a matter of crunching numbers. For example, a customer in Japan pays the equivalent of $100 for a pair of vintage jeans, but then you spend $70 on shipping them and $20 for customs and duties. You would have made $10 profit out of this, but you have not factored in charges for the time it took you to sell the jeans or the cost of handling importing/exporting the product.

Measuring Success

Some people say that one of the ways to measure success as an entrepreneur is if you are able to earn the average salary of the country you live in.

Of course, there is the risk that your business might fail and you need to constantly think about your business, but at least your business can support where you live. It is a trade-off between being your own boss and living a challenging life. So, how can you generate enough profit to cover your desired salary? Just work backwards—if you want to earn an income of $40,000 from 40% of your business's profit, you will need to accrue $100,000 worth of sales.

Finding Your Market

Making $100,000 sounds achievable, but to put it into perspective you would have to sell 1,000 pairs of $100 jeans by yourself—per year—to make this amount. Where will you store 1,000 pairs of jeans? Where will you sell 1,000 jeans? Where will you get the money to buy 1,000 jeans' worth of stock? After factoring in all of these extra costs, your rose-tinted glasses will have probably faded somewhat.

So how can you add value to your jeans business? Well, an obvious way is to go up-market. Why not become an agent for a custom-made jeans tailor or fashion house? Or dealing with jeans worn by celebrities? A quick Google search for "most expensive jeans" will show that some jeans are valued at over $200,000 and classic Levis 501 will fetch $1,500 a pair.

But if you don't know anyone who would be willing to pay that kind of money for a pair of jeans, how exactly do you enter the market? Well, doing your online research is a great place to start, as you are not likely to find leads into the designer jeans market by going around charity shops, recycle centres and flea markets. If you can find your niche in the market you can charge whatever margin suits you.

On a side note, it also helps if you have a good eye for fashion—if you are personally interested in your market to begin with then it will be easier to make well-informed product choices as well as network with the right people.

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