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Monday, November 26, 2018

Why it is More Profitable to start your Next Business Small

This article is written in response to an obvious trend I have noticed about many startup businesses in Nigeria. There seems to be this absurd belief among many newbie business owners that starting big or well will make a huge difference in attracting and retaining customers. In the case of a fashion house that started in 2014 with so much noise, 2 years later they are on the brink of closure. They had everything going at first – heavy marketing and advertisement, bought branded cars to showcase their business, rented a well-positioned store in an expensive part of Abuja, but they are now struggling with paying salaries, have not been able to maintain the hype they started with and in a few months’ time things will definitely get bad when their loan repayment will be due. This should be contrasted with the business environment in Nigeria which is very costly for businesses to operate in.

Why am I being so harsh in my criticism you may ask, it’s because these business owners don’t realize business is not a popularity contest nor is it a show of force – as the military will often do to intimidate criminals and terrorists. When you are in business, you have only one mission, to make profit whether that means starting with very little expenses and growing organically or starting with massive sales and working to reduce costs overtime, you still have a duty to make your running expenses less than your total business revenue.

To buttress this point, I am recommending starting your next business small with as little capital as possible and I will explain why doing this and growing your business patiently and profitably overtime is the best approach for making long term growth possible.

5 Reasons to start your Next Business in Nigeria as small as possible instead of big
As you make that entry into your next business venture, keep this at the back of your mind, while it makes sense to start with very little capital sometimes it may not be reasonable, but these are exceptions. If I have 1 million naira to open a restaurant but I discover I can still achieve this with less than 400,000 naira, then why would I want to start with 1 million naira when I am not so sure I will breakeven in time? So that brings us to reasons below;

Quicker Breakeven
The number one reason to start a business as small as possible is to achieve breakeven as quickly as possible. Breakeven is the point at which your business starts making profit and the smaller the startup capital, the quicker the breakeven meaning the less capital outlay you have the faster your business can actually start making profit.

Increase your Payback period
Payback period is how long it takes for your business to recoup the total invested capital. Assuming you invested N10 million into a car wash whereas your competitor invested N300,000 into his car wash, it is possible for your competitor to recoup his investment in less than 3 months while it will take you 4 years or even more to recoup your investment which is risky and less sustainable for an SME service based business.

New SME Businesses usually have Low Incomes for first Year
Almost all new businesses experience low income levels for the first 6 to 18 months as they struggle to make their presence felt in the market place and build a steady customer base. This means that the less money you had when you started, the less costs you would have to contend with. For instance, if I start a business with 300,000 naira my rent cost could be 60,000 naira per annum which is not too hard to achieve even when income is low whereas if my rent is 900,000 naira per annum and I experience low sales, that means I either have to borrow to pay my rent or I will have to deep my hands into company reserves to pay the rent which is a bad financial strategy because rent is an expense except where it can guarantee sales but certainly not for a new business that is unable to pay its first year’s rent.

New Businesses usually experience many mistakes
Most new businesses are faced with challenges they have never had nor are prepared to deal with. Some of these challenges when unresolved could cause the business to lose customers or spend more when they could have spent less. This means the more capital you spend while learning from your mistakes, the less likely you are to recover from it and vice versa – invest less and pay less for costly mistakes.

Race to build your brand
The world of starting and growing a new business is actually a race to build your brand. Businesses need to build a reputation within the market place and only a consistent effort will make this happen. Consistency comes from a business that can sustain itself and remain afloat which is more common with a business that has enough income to sustain its expenses – the less funded businesses at startup stage have a slight advantage in branding because of cost effectiveness however from an aggressive marketing standpoint, the larger your budget, the more capable you are.

The excuse of not having enough to start your next business can be traced to your unwillingness to start with what you have meaning sometimes the little you have is actually enough or even more than enough to start but you only just need to start to realize this. The proof of this is with the world’s richest man – Jeff Bezos. He started Amazon from his basement instead of a fancy office space and minimized operating cost even while not making profit in the early years of Amazon. Today his company has weathered the storm and is one of the most profitable companies in the world.

Looking to start a new business with limited capital but lack sufficient information or experience to do it? You need a professionally written business plan to do that for you and you can have one prepared for you when you reach me on: 0803 206 4106 or email me at: paulonwueme@gmail.com

Thursday, November 8, 2018

Sports Betting Business in Nigeria: Where is the real Goldmine?

I am interested in this particular topic because of a video I stumbled upon some months back in which the podcaster was claiming to be making a living full time by simply betting on football odds. According to him, he can fund his lifestyle which includes; traveling on vacation to any part of the world, buying himself a new car, relocating to a better neighbourhood and buying anything he so fancies. His podcast is quite interesting because it creates an impression that you can actually earn a decent income doing nothing more than playing games.

Well I tried out his so called technique to see how effective it would work out, at first it seemed to be working but then came the reality – you are better off running your own business or working in paid employment than in eking out a living from sports betting. This is based on several analyses I did on the practicality of sports betting as a source of income. 

First, there is a 95% chance of failure regardless of which odds or ‘market’ you settle for. You are more likely to lose than to win. Your winnings may be high initially, but the more you play, the more you tend to lose. Secondly, it is very easy to become addicted to it, take it from me, you need a lot of self -control and experience to know when to stop, when to take your winnings and run and when to return for another game. The addiction in sports betting can cause you to misplace your priorities, thus becoming less productive and focused on meaningful things in life. Thirdly, there is no such thing as luck in long term success. What I mean is if you wish to be successful on the long run, don’t look to luck for it.

The Lucrative Sports Betting Business at a Glance
But the business end of sports betting is very lucrative. The bookies and sports betting companies are making serious money and this is what I discovered. In one particular betting shop I observed for 3 months, daily sales could reach 600,000 naira and total winnings could vary from 40,000 to over 100,000. Now that at least 500,000 naira lost by people believing they can make money from merely betting for or against odds. The betting shops earn commissions from 1% to over 10% so let’s say the average percentage commission per day is 4%, the betting shops will be making 20,000 naira daily and this is for a 2 cashier based shop. 

The main cost is rent and fueling which comes to less than 4,000 naira per day and the salaries at 25,000 naira for each cashier per month coming to 1,600 naira daily. Overall we should be looking at gross daily profit of over 14,000 naira before other serious operating expenses such as maintenance, DSTV subscription, internet expenses, print adverts, stationery costs etc set in. A well run sports betting shop should be making at least 300,000 naira net profit monthly whereas the total cost of setting up a bet shop is just under 800,000 naira. In 3 months you would have recouped your investment and in 1 full year we should be looking at over 300% return on investment.

To Sum up
While one needs luck to succeed in sports betting, you only need strategy to succeed in running a sports bet shop and the latter actually pays better on the long run. 
Paul Onwueme is a professional Business Plan writer since February 2014, has achieved respectable results with his business plan writing service with several of his clients securing funding and leaving positive feedback about his writing service. You can connect with him via phone: 0803 206 4106 or email: paulonwueme@gmail.com