When you’re starting a business, especially if you will be holding stock, it’s really important to determine your business model in advance. Will you buy ’em cheap and stack ’em deep, as the saying goes, or will you aim for a lower volume of higher value goods? A danger with the first model is that you leave yourself less wiggle room on your sale price – if the marketplace shifts and people are no longer willing to pay your asking price for your goods, you’ll be forced to sell stock at a loss – or worse, not sell it at all. On the other hand, with higher value goods, you can’t hold as much stock, and restocking is expensive while you’re still growing. That doesn’t mean either business model is unworkable; it means you need to plan ahead and look at what suits your circumstances and your market.
Here’s what John Davies has to say:
Transcript: Make sure you know what your business model is going to be. A high volume, low margin business will take far more cash to run than a high value, low volume business. Make sure you get that right on day one.
Talk to your suppliers about terms of business. Do they offer sale or return? How about dropshipping or payments on account? With a bit of forward planning and a clear understanding of your business model, your company can thrive.
What’s your business model? How do you manage cash flow? If you need help, talk to us – our Revolving Cash Fund provides an alternative to an overdraft for well run, growing businesses.