For many, owning your own business is the American Dream. However, you need to enter this next stage with your eyes wide open. First some cold water. According to recently published data from the Bureau of Labor Statistics, for businesses started in 2014:
- 80% made it to 2015
- 70% made it to 2016
- 62% made it to 2017
- 56% made it to 2018
Why do some businesses fail? Why do some owners throw in the towel? Investopedia.com lists four major reasons:
- Inadequate Capital: They may have enough money to get started, but not enough to keep it running until it becomes profitable.
- Inadequate Management: Some people are great at sales but lousy managers – or vice versa. People often underestimate the amount of time, effort and manpower it takes to run a successful business.
- Inadequate Business Plan: They haven’t thought thru the “what if” contingencies.
- Inadequate Marketing Budget: They seriously underestimate what it costs to get on the radar of the target audience.
When I meet with clients who are interested in starting off on their own venture one of the first questions I ask is “Why do you want to do this?” Answers often fall into one of a few categories: they want to be their own boss/do things their way, build something from the ground up or simply to make more money.
I also ask about funding. How much money do you think you need to get started? Are you self-financing or working with a bank or investor? What is your exit plan? Do you want to get bought-out in 5 years or work the business until you retire?
This background helps me offer advice to the inevitable series of questions that almost every new client has. What accounting software should I use? (QuickBooks online) What business entity selection should I make? (It depends) What should I do about payroll? (I like a few local payroll companies more than ADP or Paychex).
In my opinion, it takes two things to be successful in any new venture – Motivation and Money. Obviously, I am speaking in generalities, but in my experience watching clients grow their businesses over the years, it seems like it takes about double the time/effort and twice the amount of investment to get the business to the point where owners expected it to be in their original business plan.