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Operating costs for your dream business
By Nilooka Dissanayake
I concluded last week's article by asking you to imagine that your dream business is a reality and try to list out all the costs incurred on a typical business day. We asked Athwelage Sarath, our imaginary entrepreneur to do the same. Sarath encountered many problem areas. So would you - if you really put in an honest effort at listing your costs.

Sarath realised that before he could calculate his operating costs he needed a better idea about the volumes of business he needs to generate every day or every week.
How did one calculate possible sales volumes for a vegetable shop? Sarath decided to do a bit of research.

All this was quite difficult because it was mostly guesswork. Sarath came up with more questions than answers. It was one thing to decide to sell 100 kilos of green vegetables, and another one to really achieve the task. How much vegetable in how many varieties? What were the costs and the profit margins in each category? That was one side of the story.

Sarath spent quite a lot of his time talking to his mother, intended mother-in-law and his fiancée about the food habits and preferences. He also quizzed his friends and their wives about their buying behaviour.

Did they purchase all the vegetables they needed for a week at once? Did they buy on a daily basis? When did they go shopping? What were the reasons for those preferences? What did they look for in a vendor? What annoyed them about vendors? What caused them to become regular customers?
He also needed to get estimates from outsiders about the costs of refurbishment and of the equipment needed.

Then, there were costs like insurance, transport and accommodation. This area was quite familiar to Sarath and posed the least trouble to him. But, still, was he going to hire a lorry or buy one himself? Could he lease one instead? All this sent him on another round of questioning, talking to people and looking at classified advertisements. It suddenly occurred to Sarath whether he needed a lorry. Could he manage with a van?

Again, back to square one; how much of volumes were we talking about? When he simply sat down and decided to dream about a typical day, he was not sure what it would be like. When he was away from the shop sourcing vegetables who would look after the shop? Would he be hiring someone?

If so, was someone trustworthy like his father needed to supervise his operations while he was away? Was it fair to ask? Finally it became clear that he would need to pay for a helper and perhaps allocate some money to pay for the supervision. All these were additional costs of operation. He was not sure of how much to budget for each one and decided to consult his father.

Sarath did not stop at simply listing down costs. He wanted to find out how many people lived in the surrounding area and also how many people who went past the shop in vehicles or by foot were likely to be his potential customers. Sarath's initial idea was to go into vegetable retailing in a fashionable way.

So he decided to visit supermarkets in the area to see who was visiting them and to understand what they were buying. He would have dearly loved to stay the whole day near the counter to see the average basket size and value. But, since it was not practical, he compromised by volunteering to do his family's shopping.

His research was not confined to supermarkets. He had read somewhere that large retailers like supermarkets sold less than five percent of the total goods retailed in Sri Lanka. So although his heart was set on serving a more affluent type of customer, he visited many different places which sell vegetables.

He bought vegetables from regular grocery shops; he visited weekly markets and stalls by the wayside. He also gave custom to wholesale shops that sold a limited amount on retail. He observed who bought what and where. He wondered and came up with ideas and theories as to why people go where they do. He also compared the way different levels of vegetable vendors treated their customers and displayed the products.

He saw some stalls with fresh vegetables and others with puny with ered looking stuff which he did not wish to buy. Some vendors looked after the vegetables by sprinkling water to keep it fresh and by adopting methods to keep it under cool, moist conditions. He saw how some kept the vegetables away from direct sunlight.
These places had the freshest looking food. Sarath's initial efforts at listing his operating costs made him realise how much more he needed to know before going forward with his financial plan.

Books may tell you to first do your financial plan, then your operational plan and follow up with your marketing plan. In reality you cannot work on one without thinking of the other. It is all connected and if you get stuck in one, you get stuck in all.

Then again, it should not be all that complicated. We each have a decently functioning brain (at least, hopefully) and all that processing takes place faster than the fastest computer on earth. So just because we need to think of three or four types of plans simultaneously, we need not get confused.

If we did, we would be like the centipede that could walk very well until someone asked how he managed to coordinate all those limbs; then he stood petrified, unable to move. In management we call it the paralysis by analysis.

Please do not develop this disease. Good luck with your planning.
Please send your questions and comments to btimes@wijeya.lk or call us on 074-304100.

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