The new business survival rates, as reported by the Small Business Administration, are actually more promising than what people have been telling us. Seven out of ten new businesses survive for at least two years and a little over fifty percent survive for up to five years.
If you can avoid the obvious pitfalls, the top two reasons why businesses fail, then your odds at success increase substantially. The first reason is poor management. You can’t be expected to know everything. Evaluate your strengths and weaknesses and ask for help in the areas where you fall short.
It’s easy to just go out and hire whomever you need to give you the best fighting chance, but in reality that is just not practical. You have got to watch your costs. Perhaps you have friends with management experience who would be willing to give you advice or even do some temporary consulting.
The second reason why businesses fail is lack of capital. How long should you save before you
start your business? Is it five years, ten years or longer? That’s not very practical either. You have to be willing to borrow money if that’s what you need to do. Borrowing money from friends or family is not a good idea, unless there is no other option available to you.
If you do go this route, be sure to treat them as if they were a professional lending institution. Do not take advantage of the personal relationships you have with your benefactors. No late payments, no skipping payments, no whining in general.
Not only do you need enough initial capital to either buy an existing auction house or start your own, you must have enough operating expenses to keep your business going. The auction business can be especially difficult on your wallet, at least in the beginning.
Remember that most of your sales will come from consignments. You are not selling products that carry a substantial mark-up. You are operating your business on a percentage of the total sales plus a buyer’s premium. On average, you are looking at collecting roughly 30 to 40 percent of the items you sell for other people.
This percentage is not a constant. Some of your auctions will do much better than others. The total revenue take for an auction depends on whether you have a good crowd and whether you have good merchandise or mediocre merchandise. Thirty percent of a thousand dollar item is three hundred dollars. Not a bad return on a single item. However, thirty percent of a ten-dollar item is only three dollars. You won’t be paying too many bills with three dollars.
You also must consider that, in the auction business, the only time you make money is during the three or four hours when the auction is actually taking place. The rest of the time, you are doing prep work. If you have to cancel an auction due to a hurricane, for example, then you have made no money and will make no money until you have that auction. You must have enough funds set aside to pay your bills. Unfortunately, the bills keep coming whether you have an auction or not.
If you find yourself falling behind, consider changing how frequently you have auctions. Running once a week or every two weeks brings in a lot more money than just running once a month. Obviously you and your staff would have to work much harder if you increase the number of auctions but it is better than the alternative.
Every new business is a risk but one must take risks in order to reach a certain level of success. There are thousands of auction houses all across the country that have been in business for a very long time. So, be positive, start with as much money as you can and, above all else, manage wisely.
04/03/2012 by Anne Benedetto