The cost of that business refers to financial and human resources that is utilized in the successful start up and management of business. A common mistake made by entrepreneurs is getting carried away the sweet prospects of returns that comes from starting big.
Moving past one city recently, my attention was caught by the number of people who have embarked on huge housing projects, that they were struggling to finish. You are left wondering why they did not go for something smaller, that they could finish.Sadly, I often meet people who are in the same situation with their business projects. My heart always pains when I see this, because I imagine what they are going through. When people start out in business, they are sometimes so excited about what they are going to achieve, that they forget “to sit down and CALCULATE the cost”. Sustainable success in business or even in a social enterprise is as much about managing, your cost as it is about generating sales or revenue.
“I will sell my 10000 kgs of cocumber for #100/kg, and make #1,000,000. Its a lot of money.”But what about the “cost side”? “sit down calculatethe cost”, “Once I buy the bus, I will make 5000 per day”But what about the “cost side”? “sit down”, “calculate the cost”, “I will borrow money and buy an aero plane. I will fly people everyday, and make $100,000”
Really, now? “sit down”, “Calculate the cost”. The one who “calculates” does a deeper exercise than the one who simply “counts”. Another way, of saying “calculate”, is to say “manage the cost”. When you do not “calculate” the cost properly, you might even manage to buy the bus, or the aero plane, or the telecoms equipment, and you will then operate it, until it is old and battered and obsolete, unable to renew or replace it. Always, “calculate”, the cost FIRST. Now, you might say, what if something happens, that I did not anticipate. Maybe, it was beyond my control? By calculating cost, you are more prepared for unexpected circumstances. You absorb the shock better and move on more eaasily.
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Here is an example of how we calculate the cost using a taxi cab business:
==> we need to cost the price of the taxi;
==> we need to cost how we are going to buy it. If we borrow money, what interest will we pay? Can we afford it?
==> when do we have to repay the whole loan?
==> what is the cost per month of the driver, and his conductor?
==> cost of fuel, and maintenance and repairs.
==> cost of parking it.
==> how long can our taxi last on these rough roads. What is the expected life.
==> as it gets older and more battered, repairs and maintenance increase.
==> what will it cost to replace?
==> what will it cost to buy more taxis?
==> what about insurance, including accident, public safety.
Now we can look, at how these costs, will align with how much we expect to make:
==> what is the amount we expect realistically every day, from taxi passengers:
==> let’s go and count passengers at all times of the day for the next 30 days.
==> let’s ride on the routes, we expect our taxi to follow.
==> let’s talk to experienced hands, about what they have observed. What are the pitfalls.
Finally, let me say this, the cost, goes beyond what it initially costs, to set up the business; to run it profitably; ensure renewal and growth, and sustainability but you must also look at the cost on things like the environment, public safety, and the health of others. Calculating cost, is all about managing a dynamic cost environment.
Yes that business idea may be superb but have you assessed your purse and other capacities? Do you have what it takes to start and finish that project or business until it can start generating enough to sustain itself? Slowly systematically, methodically, we build our business case, using numbers, checking, analyzing and we never stop, each day, we do it, over and over, and over! Don’t cut your coat according to your size but according to your cloth.