What is a reasonable expectation for starting a new business?

[PandaDad93]

Hi folks,

We have been thinking about starting a side business selling tropical plants, as well as household plants and terrariums. I wondered what things I should expect within the first year of going live?

My wife and I are going to start selling on other websites such as Ebay, Etsy etc before making our own site, and it would be great if we could make £300 a month by the end of the year. I am not sure if this is reasonable or realistic though. I've read that many business do not make a profit at all for their first year, but this has always been confusing to me since if they are not making a profit, then how is the business not going under? Does profit mean that it hasn't recouped initial investment yet? Or you are literally paying for something that isn't making a return every month?

Really new to the world of buisiness, so go easy please lol. I'm going to go to my local library to read business books, and if you have any suggestions for any topics to read about, then that would be great too.

Thanks

They haven't gone under as they were started with enough capital to get over the initial buildup.

If you're serious about starting a business you need to start with the basics of running a business, which is 90% spreadsheets.

You need to know your fixed monthly costs, your variable costs, your margins and your predicted income to allow you to work out your monthly cashflow.

You need to weigh up the pros and cons of keeping inventory to hand; identify how much a sale actually costs; keep track of what customer service is costing you; correctly identify underperforming products; identify your market segment and target that; and so on.

You need to dedicate a lot of time to teaching yourself how to do marketing. If you can't be found you have no business. It's not just a case of uploading your items to marketplaces and you make sales. You need to understand how the SEO works. You need to build social media following. It's a lot of work. I coach small businesses and how good they are at their craft sadly isn't a measure of success. It's how savvy they are often.

Don't know where you live but if you can get to the British Library at Euston they are running various events for budding entrepreneurs. Some are free and I've been to a few before the pandemic. They also have lots of resources. They also are networked with some more local libraries and do some of their courses via webinar. www.bl.uk

You need a business plan to start with which includes your USP (Unique Selling Point). Is there actually a niche in the market for your product?

You need to understand; Potential size of the market, Fixed Costs, Variable Costs, what competition there is, Breakeven analysis, Cash Flow Forecast and calculate what size loan you would need to tide you over

Most (not all) new businesses usually aim for 1 full day of trading for every year of operation.

It would be helpful to join the FSB (Federation of Small Businesses) for advice and insurance.

Engage an Accountant - they know the Tax Laws, you don't. They'll keep the Inland Revenue off your back.

Good Luck !

Do you have access to any small business advisers, who could help you create a business plan?

To take your scenario, if you buy a plant for £20 today from a wholesaler and sell it tomorrow for £30, that looks like you've made £10 profit. You sell 30 plants on the same basis, so that must be your £300 profit?

But what did it cost you to sell the plant at £30? Because that all has to come out of the £10 we thought was "profit". Facilities / cost of running an office / delivery fees / petrol to your supplier (indeed the cost of running a vehicle) / packaging / insurance / cost of a laptop & wifi to run your eBay account from / develop & maintain a website / endless list ....

All of that will likely add up to more than £10 per plant .... therefore you've not made a profit. Especially if you only sell 20 plants in the month, so only "make" £200 to cover all those costs. You might need to sell 40 plants in a month to break-even, and 50 to turn a genuine profit. So you make loss in the intervening times, which is funded by whatever cash you (personally) used to set up the business .... such that the "loss" on every plant under 40 is eating away at your savings / overdraft etc.

Eventually you have consistent 50+ per month as your volume of sales, but you will probably have debt in some form to pay back from the days when you only sold 2 or 20 per month, so that's still a cost to the business until the day you clear the debt (in some way). Then your 50+ volume starts to bring you profit ..... but is that pure profit, or are you going to reinvest it in your business so you can grow / make more stuff in-house rather than buy-in, or buy a new tool or piece of machinery to become more efficient. Then you need maybe 75 plants sold per month ..... And we've not even talked yet about paying yourself and your wife a decent earning (or whether £30 was even the right price to start with).

Or you do what a lot of folk do, and don't really run it like a proper business .... it becomes the proverbial "side hustle" where no-one really considers the cost of sales / cost of running the business, and we're happy that the original £10 is great!

Good luck!

I made a loss of £1000 in my first six months. It wasn't until year four I was earning a full time income at minimum wage, and I was working 60-70 hours a week. I grew organically and invested my profits back into the business. It largely depends how much you have to invest to begin with and how savvy you are with what will sell. I would hazard a guess you don't know that bit yet as you are suggesting selling on Etsy and this is not a place you can sell plants and there are over 480,000 listings on eBay for plants.

Some businesses make a genuine profit on their first day, some take 2-3 years, some still havn't made a profit after 5 years. Every business is different.

First thing is to understand what "profit" means - it's not cash flow, it's the different between the cost of the goods/service you're selling and the selling price, less a fair proportion of the overheads to run the business, i.e. travel, insurance, bank charges, professional fees, premises rental, telephone, advertising etc.

It's possible to make a profit but have negative cash flow, or to make a loss but have positive cash flow.

You need a business plan which includes both a profit and loss account forecast (preferably monthly for 3 years) alongside a cash flow forecast (again monthly for 3 years), which are linked to eachother by formulae, so that buying more stock affects the cash flow, but not the profit (until you sell it), etc. Spending a few hours on a spreadsheet like that is probably the best way of understanding how your business will work and how the finances will work.

I'm going to be blunt. What are you doing that Patch Plants aren't doing? They have a huge business that encorporates economies of scale that you can only dream of.

I'm in the flower/ plant business so I know what the margins are.

You've got to have room to store and care for the plants you buy. You've got to be able to have packaging that allows your plants to arrive without damage ( this bit is costly).

You've, most importantly, got to have enough room to expand. So (when) your business becomes profitable, you've got to be able to have factored in renting a warehouse whilst still keeping your products at the same price.

You've got to factor in marketing, advertising, paying yourself a wage, VAT etc.

If you're not thinking about all this you honestly would be better off just having a plant table at a boot fair. And I'm not knocking it - I made quite a bit - in excess of £500 a month doing that for a while. No overheads, just treat it as straightforward in and out on your self assessment form.