You have an idea.
Maybe you want to sell clothes.
Maybe you want to sell food.
Maybe you want to start a small provision shop, sell phone accessories, repair phones, sell building materials, or start a business from your home.
You may be thinking:
“People are buying this thing, so if I start selling it, I will make money.”
But wait.
People buying something does not automatically mean that you will make money selling it.
Before you put your money into a business, you need to ask some important questions.
1. Are People Actually Buying It?
The first question is simple:
Who will buy this from me?
Don’t just say:
“Everybody needs it.”
Everybody may need something, but that does not mean everybody will buy from you.
Look around you.
If you want to sell food, observe how many people already buy that food in your area.
If you want to sell clothes, look at the people around you. What type of clothes do they buy? How much can they afford?
If you want to sell building materials, ask yourself:
“Are people building houses in this area?”
The more you understand the people who will buy from you, the better your chances of succeeding.
2. How Much Will It Cost You to Start?
Write down everything you need.
For example, imagine you want to start selling fried rice.
You may need:
- Rice
- Chicken
- Vegetables
- Cooking oil
- Gas or firewood
- Takeaway packs
- Spoon
- Water
- Transportation
- A place to sell
Don’t only think about the rice and chicken.
The small expenses also take money.
If you don’t calculate all your costs, you may think you are making profit when you are actually losing money.
3. How Much Will Customers Pay?
This is very important.
Imagine you discover that people are willing to pay $10 for your product.
But after calculating everything, you discover that it costs you $9.50 to produce and deliver that product.
You may think:
“I am making $0.50 profit.”
But what happens if transportation costs increase?
What happens if you lose one product?
What happens if a customer refuses to pay?
What happens if the price of your materials increases?
Your $0.50 may disappear very quickly.
Before starting, find out both what customers are willing to pay and what it will really cost you to provide the product or service.
4. Who Else Is Selling It?
Look at your competitors.
If five people around you are selling the same product, don’t immediately conclude that the business is bad.
It may actually mean that there is strong demand.
But you need to ask:
“Why should someone buy from me instead of them?”
Maybe your product is better.
Maybe your location is better.
Maybe you are more reliable.
Maybe you deliver faster.
Maybe you treat customers better.
Maybe you sell at a better price.
You need to know what makes your business different.
5. Can You Make Enough Profit?
This is where many people make mistakes.
Imagine you buy a product for $50 and sell it for $60.
You may think:
“I have made $10.”
But did you?
What about transportation?
What about packaging?
What about rent?
What about electricity?
What about paying the person who helps you?
What about damaged goods?
What about the products that customers take on credit and don’t pay for?
Your real profit is what remains after you remove all the costs of running the business.
6. Test Before You Invest Too Much
You don’t always have to start big.
If you have an idea, try it on a small scale first.
Instead of buying 100 products, maybe start with 10.
Instead of renting an expensive shop immediately, see if you can test the business from home or online.
Instead of spending all your savings, start with an amount you can afford to lose if the idea does not work.
Then observe:
- Are people buying?
- Are they buying repeatedly?
- Are you making profit?
- What problems are you facing?
- What do customers complain about?
- Can the business grow?
If the small test works, you can gradually increase your investment.
A Simple Example
Imagine you want to sell bottled drinks.
You buy 100 bottles at $1 each.
That means you spend $100.
You sell each bottle for $1.50.
If you sell everything, you receive $150.
You might say:
“I made $50!”
But let’s look again.
Suppose you spent:
$10 on transportation.
$5 on packaging.
$10 on other expenses.
Now your real profit is not $50.
It is:
$150 – $100 – $10 – $5 – $10 = $25
That is why you must understand your numbers before you call a business profitable.
The Simple Test
Before starting any business, ask yourself these five questions:
1. Who will buy from me?
2. How much will it cost me to provide what I am selling?
3. How much are people willing to pay?
4. How much money will remain after all my costs?
5. Can I test the idea on a small scale first?
If you cannot answer these questions, don’t rush to put all your money into the business.
Find out more first.
What This Knowledge Could Save You
This simple exercise could save you from losing your savings.
Many people don’t lose money because they are lazy. They lose money because they enter a business without first understanding how the business makes money.
A good business idea is not simply something people like.
A good business idea is something people are willing to pay for at a price that allows you to cover your costs and still make a reasonable profit.
Before you invest your money, understand where the money will come from, where it will go, and what will be left for you.
You don’t need a university degree to understand business.
You just need to ask the right questions, observe carefully, start wisely, and learn from your numbers.
Catch up: https://www.theprojectherald.com/cash-flow-explained/