According to the Small Business Administration, one-third of small businesses fail during the first two years. Over half fail in the first five years. If you are starting a small business, it is important to take an honest look at yourself, your business idea, and the marketplace. Be aware of the common mistakes typically made by new businesses so you can avoid becoming a statistic.
- Improper Business Planning: To build a business, you need a foundation, clear goals, and an implementation strategy. Where do you want to be a year from now? Or three years from now? Developing a sound business plan involves doing solid research. It means understanding the marketplace, knowing what sets your product apart, and getting a grip on the costs to implement your plan. An idea is not a business plan. You need to flesh out the idea and get down to specifics.
- Poor Cash Needs Assessment: Before you enter the marketplace, it is a good idea to accumulate a cash reserve that is several times your estimated need. Small businesses often face down times, when sales slow and revenues drop. This is especially true for new businesses. Unforeseen expenses for insurance, staff, buildings, advertising, taxes (the list goes on and on) can cripple your business and shut it down before it even gets going. Extra cash can make the difference between a survivor and a statistic. A reserve fund provides an extra cushion to keep the business operating while you work toward the next sales goal.
- Rigidity: Be willing to adapt your business plan to changing conditions. More than a few businesses have started with a great business model, and then failed to modify that model when market conditions evolved. If your customers or or competitors change (and they will over time), you may need to change with them.
If you are considering starting a small business, your accounting advisor can steer you in the right direction and help you make the choices that are right for you and your new business.