My business idea seemed great on paper but I’m struggling to turn a profit – where am I going wrong?
First, note down your business costs: cost of utilities, computer supplies, materials, advertising, VAT. Examine the time you work on the business and factor in a cost per hour. Add up your costs and divide this by the number of products you create/sell to find the product cost to you. If you offer your products via retailers allow for a mark up. Look at the profit you make per item. How many items do you need to sell each week to make the income you need? Are you charging too little? If your problem is lack of sales, plan an ongoing promotional campaign so that you are doing something every day to reach potential customers.
If you’re doing all this and the sums still don’t add up, look at your business model. Are you running a business that can bring in the profit you need in the time you have available? Many businesses take three years to become profitable. Take action now: keep a close eye on costs and ensure you charge enough. Promote your business daily. Find a business mentor to go through your business with you and help you spot where you need to focus your efforts and make change to see profits.
Cara: Don’t undervalue your business or be scared of charging what you should to make a profit. Most importantly, get out there and tell people about your business. You can have the best product or service in the world but, if no-one knows about it, you’ll struggle to reach your full potential.
I want to expand my business further either by franchising or licensing. What are the differences?
Franchising and licensing are similar concepts in that you are allowing a third party to use your name, brand and systems in return for a fee. The main difference is the level of control exercised. In a franchise arrangement, the level of control is high with a very detailed Operations Manual covering every aspect of the operation of the business. A licensing arrangement is a much simpler arrangement which essentially permits the licensee to use your brand and trademarks subject to restrictions to ensure that the brand is not damaged in any way, but otherwise lets the licensee get on with running the business as it best sees fit. One benefit of a franchise is that the level of control ensures consistency across operations thereby increasing the value of the brand (think McDonalds). The downside is the management time necessary to support and monitor the franchisee.
Following on from this, the other main difference is that typically with a franchise, a significant upfront fee is payable (to reflect the level of support and assistance provided) whereas in a licensing arrangement, it is unusual for there to be a significant upfront fee, with the fee typically only being a percentage of revenue.
Cara: I don’t know as much about this type of business but, as with any new venture, make sure you do your research. Contact businesses in your industry to see if they can offer advice and it’s worth visiting industry shows to learn more –http://www.thefranchiseshow.co.uk/ and http://www.brandlicensing.eu/
What can I claim back tax on when some things are used as part of the business and some for the home, such as, car, internet, phone and so on?"
If you are self-employed and use part of your home to run your business, you can claim the business portion of costs such as electricity, gas (for heating), council tax, mortgage interest or rent. The way to work out the amount to claim for business is on a space and time basis.
For example, if the room that you use for business activities is 5 sqm and your whole house is 45 sqm, then the % of space used for business is 11%. If this is not a dedicated work space, then you may estimate that you use it 75% of the time for business. If the total monthly cost for mortgage interest, electricity, gas and council tax is £500, you apply the space % first, giving you £55. Then apply the time apportionment of 75% to the £55. This gives you a monthly business cost of £41.25.
For telephone calls, you can claim all business calls. Telephone line rental and broadband is based on a % split between business and personal use.
If you run your own business through a company, then you cannot claim any part of fixed costs such as mortgage interest, rent and council tax.
Research is the key to unlock business success
I am often asked what is the one thing that has made my business successful. My answer is it’s due to two things. (1) hard work and (2) research. Before starting out, it’s vital to find out what will help and what will hinder your business. If you have a potential business name, google it to see if anyone else uses it or owns the domain. Is there a similar business out there? If not, who could be considered a competitor – and understand your market. Even if you’re idea is unique, possible customers like to understand your USP (unique selling point) – so they can compare it to something that already exists. Be ready for challenging questions by doing your research.