Starting a new business is not easy on the bank account, and your first few years will be critical. According to Statistic Brain an average of 25 percent of startups will fail in their first year, and depending on the industry failure rates by year four can be anywhere from 37 percent to 56 percent. The good news is that small business failure rates are declining, credited by Entrepreneur Magazine as attributable to a new breed of savvy entrepreneurs who are more accurately evaluating risks and marketplaces while making more viable business plans.
There are five critical things that every prospective business owner needs to consider before opening the doors.
- Creating a business plan. A business plan serves as your roadmap and mission statement for the early years of your business, projecting three to five years ahead and setting milestones for each year. It’s easy to get distracted from your central goals when you are the captain, the cook, and the bottle washer. Making a business plan tells you where you are in relation to where you should be in six months to year.
- There are going to be failures. The problem is not in failing, it is in what aspect of the culture or procedures that caused the failures. Analyzing the circumstances of failure can help you to avoid the same hazards further down the road. We have become allergic to failure, and lost the understanding that very often in order to become very good at doing something you must have failures. Organizations need to break away from the traditional definition of failure, and embrace a different culture that gets rid of the blame game and finger-pointing.
- Do your homework. What is the best corporate structure for your business? Do you need licenses or permits to operate your business? Will you be renting space or will you be operating a home-based business? What technology do you need to operate your business? What kind of expenses will you face from month-to-month, or year-to-year? These are all in need of answers before you turn the key and open the door.
- What kind of insurance do you need for your business? That really depends on what kind of business you’re opening. Construction business will need different insurance from an accounting firm, and manufacturer will need different insurance from a retail store operation. Consulting with an independent insurance agent should be a key item on the list of things to do so that you start business with coverage securely in place. The SBA recommends a general liability insurance policy, property insurance policies, and professional or product liability insurance, too. Other policies of interest include key person policies, social media insurance, and cyber attack insurance.
- Face financial reality. Starting a business is an expensive proposition, you will need cash and credit in plenty. If you’re purchasing an existing business you may be required to make a large lump sum down payment. And undercapitalized business is much more prone to fail, and unfortunately people who believe they can make more money starting their own business face serious disillusionment when their undercapitalized business buries them in a mountain of debt.
So, you can see that being the boss is not all it’s cracked up to be. There’s a lot of duties and responsibilities that can’t be handled by anyone but you.