Capacity - the hidden curse of the small trader

This is something that is increasingly cropping up in conversations from those looking to set up a shop or small business, and in the past, I have run this capacity question as a workshop for startups as it's a hidden issue that we don't always think about until it's too late.  I regularly have chats with folk bouncing away telling me their grand ideas but on digging a little deeper they have often not fully understood how much time they need and may not have the time to achieve their fabulous idea so we need to tweak it a little.

To give you an example of the capacity issue - let's make up Lucy the cake maker who wants to set up a cake shop.  She can bake amazingly well, absolutely no issue with her products.  But, capacity especially when making something yourself does need to be considered. 

For any small business start-up you must know your numbers, here's a basic breakdown of the initial key things:

How many hours can you realistically work at your business - you need to sleep, take small people to school, visit your Mum and see your friends from time to time. If it helps keep a little calendar check of your schedule for a week and then work out the hours you do have or could make available.

How long does it take you to make each item - if you batch make something then work out a time for 10 or 20 perhaps but as long as you know for example 20 cakes = 2 hours from start to completion.

Now you need to work out how much profit you have after selling your work - ignore the time for the minute, just deduct materials cost from selling price.  Remember to include packaging!

• You now have your four basic figures to work out if you can survive:
• Use the time per item and see how many you can make in your available time, eg if 20 cakes take you 2 hours and you have 6 hours in a day then you can produce 120 cakes
• Now multiply that number by your profit per item - again, if your cakes have a profit of £1 per cake you have £120 profit per baking day
• Does that £120 per day multiplied over your working week or month cover what you need to survive?
• If yes, fantastic; if no, then what can we change?

How much do you need to bring into your household each month to survive (notice I said survive, you are a startup so work on worst-case scenarios as anything else is a bonus in year one).  I have often been accused of being too commercial in my approach in the past towards the small craft business but the reason is that you do not start with the intention of making a loss! And without knowing your cost base and time (capacity) you may well accidentally end up there.  Many crafters have no intention of turning it into a business and it's used to top up a wage, or pay for holidays which is fine.  BUT if you want it as a real business paying your mortgage and bills you do need to keep an eye on the costs and your time. 
If you end up with a situation where you realise you cannot produce enough to cover your required income then look to diversify.  What costs can you cut, can you create passive income from recipes online that people can pay and download off your website? Can a friend help do the deliveries to free you up to bake? Can you supply local cafes or do office lunch provision to build a customer base rather than the massive outlay of a store until you know exactly what's working for you?

Capacity is the hidden curse of the small trader - we are required to be all things at the beginning phase and everything needs doing at the same time.  We have to be the maker, the accountant, the advertiser, the brand, attend events - the list is endless and can seem daunting so be sensible.  Which activities use your time and generate returns? Admittedly in the beginning there won't be masses coming back as you build your portfolio, your brand, your customers, etc etc but join networking groups as it can also be incredibly lonely especially when you have to present to the world as happy and bouncy while going eekkkk not sure I can pay the mortgage this month.

Having said all that, there is also an element of risk attached to any start-up and you have to decide where your personal risk limit is.  Some are happy to take on a shop lease and work it out as they go along whereas others want full spreadsheets and two years figures first.  Both are ok, it's personal but just be clear what your risk level is and stick with it.  Whichever route you choose just make sure you stay on the right side of the balance sheet and have fun discovering your potential! And don't forget there is a lot of help out there, loads been there, done that and got the t-shirt, some now even print said t-shirts!