MD is a 21-year-old male who wants to go into the beauty products supply business. He has no funds, no training, only a dream, and the belief that beauty supplies as a retail opportunity is a good one. But, what are some of the pitfalls this young man should be sure to avoid?

Answers and analysis are provided by Maxia Fairweather, business-development manager for Region 1 of the National Commercial Bank Small and Medium-sized Entities (SME) Unit.

Many persons wishing to own their own business fall into the trap of overprojecting profit and under-projecting expenses. Consequently, the business makes a loss. It is, therefore, recommended that persons going into business venture into an area in which they are comfortable and have specialised expertise, knowledge and skill.

Below are some steps to help MD avoid failure:

1. You must make sure to ask and get answers to the following questions: What are the relevant licences required to operate this type of business? What experience do you have in beauty supplies? Do you have a relationship with manufacturers of beauty supplies? How knowledgeable are you about beauty products, skin types, shelf life and proper storage of beauty products? Will you buy, lease or rent storage space, or do you already have access to adequate and appropriate space for storage? Do you plan to manufacture your own line of beauty supplies?

Research your needs

2. Thoroughly research the needs for the type of business you are considering: Establish your target market and research the market to identify the existing beauty-supply businesses in terms of the market share they currently command, as well as areas in which they are lacking. This will enable you to identify opportunities to gain and maintain a competitive advantage. Specify the clientele segment you are aiming for and undertake research to establish how to ensure awareness of your product/service by this segment.

3. Establish the costs (research, advertising and marketing, inventory, equipment, human resources, distribution) associated with starting the business. On what kind of scale (low, medium or high end) will you launch the business? You need to be clear about your short-medium- and long-term goals for the business. You will then need to maximise equity injection into the business rather than depend mainly on credit. Equity injection refers to your cash or kind or that of any partner or investor in the business.

4. Prepare a business plan, which will be the road map in terms of how you want your business to be defined. The business plan should include:

a) The results of the surveys referred to above.

b) The expertise of the management team. Since you have had no training, you will need to employ someone who does. It should be noted that there is evidence to show a high percentage of start-ups fail within the first three years. Consequently, loans for start-up businesses are high risk and the expertise and experience of the management team are critical in pre-dicting the success of the venture.

Financial projections

c) Financial projections, include total start-up costs and the basis or assumptions on which the projections are generated. The start-up costs should be detailed to show your own, family, partner/investor's resources versus the amount you wish to borrow. It should be noted that banks generally do not provide 100 per cent financing and instead, require borrowers to have an equity input of at least 20 per cent.

5. How can one go about determining how much the start-up will cost?

Informally, you can visit various prospective clients - beauty salons you would like to supply and/or beauty supply trade shows - to observe what they need and/or have them complete a questionnaire specifying areas where their current suppliers are lacking.

Formally, you can consult with an industry adviser. The Jamaica Business Development Corporation can assist with this information.

6. What areas of training should you get immediately?

a) Basic accounting (inclusive of

projecting cash flows)

b) Pricing

c) Inventory management

d) Supply-chain management

e) Advertising/marketing techniques.

Business plan

7. What can you do to ensure that the business plan you produce is one which will impress and convince some institution to lend you the money needed to get started?

The business plan should be rea-listic and attainable. It should include, as mentioned in (4) above:

a) The results of the surveys mentioned before

b) The expertise of the management team (experience and academic qualifications in the field)

c) The financial projections and the basis or assumptions on which the projections are generated.

The acid-test results, that is, the scenario if the projections do not materialise.

New entrepreneurs

8. Why is it important for new entrepreneurs to be involved in business themselves rather than employ others to 'run things' for them?

While there is no research to support the statement, entrepreneurs, by virtue of the investment in their business ventures, would be prone to making decisions for the long-term benefit of the business and may be more sensitive to cost control than someone who is not an entrepreneur and has not made any investment of cash or kind in the establishing and sustaining of a business.

Do you have a small business problem. Email business@gleanerjm.com or call 932-6217.