Never too small to succeed

When is a business too small? Recently, Honolulu-based Business Development Specialist C L Cheshire was asked by a client on one of the smaller islands in Chuuk Lagoon (FSM) to prepare a feasibility study for a very small business.

Because of its location and the size of the market, the net income (income after all operating expenses) was projected to be less than ten dollars a day.

Fortunately, start-up costs were also projected to be very low, less than $750, and financing for this amount was available at no interest for two years.

At first glance, it would appear that this business is too small to justify the effort to start it. But the business meets two important criteria for a business start-up.

First, it shows a positive income. The business generates approximately $270/month and $3,200/year in net income.

One of the advantages of being very small is that this business has low expenses compared to its income. Consequently, it can survive in a relatively small market.

Second, the total debt and the monthly loan payment of thirty dollars are very small compared to the income produced by the business.

Small businesses that are 80-100 per cent financed with a loan usually have monthly loan payments that are very high compared to the businesses’ incomes.

High loan payments are hard to make, whenever there is a drop in sales or an increase in operating expenses. High monthly payments should be avoided even if loan financing is available.

Although the above criteria are important, the most important consideration in a business start-up is whether or not the business meets the needs and expectations of the entrepreneur who wants to start the business.

In this case it did. The client wanted to generate a small income from the business and did not want to take on a lot of debt.

The $3,200 annual net income is

comparable to a full-time, year-round job

at $1.60/hour. On Yap, the hourly wage for an entry level job is about $1.50. If the client needed to, he could pay off his entire loan with the net income from only the first three months of operation.

Was this business too small to start? No business is too small that generates a profit, and achieves all the entrepreneur’s goals. (Pacific Business Center News) ■