Monthly Archives: October 2016

Some Reasons New Businesses Fail

It’s often said that more than half of new businesses fail during the first year. According to the Small Business Association (SBA), this isn’t necessarily true. The SBA states that only 30% of new businesses fail during the first two years of being open, 50% during the first five years and 66% during the first 10. The SBA goes on to state that only 25% make it to 15 years or more. Though the odds are better than the commonly held belief, there are still many businesses that are closing down every year in the United States.

The SBA estimates that over half a million businesses opened in 2009, while 660,000 closed. Out of those 552,600 businesses that started in 2009, we can expect about 165,000 will fail by 2011, and possibly more, given that the economy hasn’t been booming in the past few years.

However, not all of these businesses need to fail. With the right planning, funding and flexibility, businesses have a better chance of succeeding. We’ll go through some of the biggest mistakes that start-ups can make and figure out how to improve your chances of success.

Not Investigating the Market
So you’ve always wanted to open a real estate agency, and you finally have the means to do so, but your desire to open the agency blinds you to the fact that we’re in a down housing market and the area where you want to work is already saturated with agencies, making it very difficult to break in. This is a mistake that will cause you to fail from the beginning. You have to find an opening or unmet need within a market and then fill it rather than try and force your product or service in. It’s a lot easier to satisfy a need rather than create one and convince people that they want to spend money on it.
Business Plan Problems
A solid and realistic business plan is the basis of a successful business. In the plan, you will outline realistic goals for your business, how your business can meet those goals and possible problems and solutions. The plan will figure out if there’s a need for the business through research and surveys; it will figure out the costs and inputs needed for the business; and it will outline strategies and time lines that should be implemented and met.
Once you have the plan, you must follow it. If you start doubling your spending or changing your strategies, you are asking for failure. Unless you have found that your BP is overwhelmingly inaccurate, stick with it. If it is inaccurate, it’s best to find out what’s wrong with it, fix it and follow a new plan rather than change how you do business based on quick observations. The more mistakes you make, the more expensive your business will become and the greater the chance of failure.

Too Little Financing
If you have started a company and things aren’t working out, you’ve got little capital and a struggling business; you’re really not in a good position to ask for another loan. Be realistic at the beginning, and start with enough money that will last you to the point where you’re business is up and running, and cash is actually flowing in. Trying to stretch your finances at the beginning may mean that your business never gets off the ground, and you’ll still have a lot of cash to repay. (To learn more, check out How To Attract Investors For Your Small Business.)
Bad Location, Internet Presence and Marketing
A bad location is self-explanatory if your business relies on location for foot traffic. Just as dangerous, however, is internet presence. These days, your location on the internet and your social media presence can be just as important as your company’s physical presence in a shopping district. Online presence will let people know that they can give you their business, so if the need is already there, the availability and visibility of your business is the next important step.
This is similar to marketing. Not only must you make sure that marketing reaches people, it must reach the right people. So make sure the type of marketing lines up with the audience you want to reach. Big billboards may not be the way to go for an internet company, just as online ads may not be the way to go for a heavy-construction business. If the need is already established, make sure you’re reaching the audience who needs your product or service.
Rigidity

Once you’ve done the planning, established your business and gained a customer base, don’t get complacent. The need that you’re fulfilling may not always be there, monitor the market and know when you may need to alter your business plan. Being on top of key trends will allow you lots of time to adjust your strategy so that you can remain successful. One must only look at the music industry or Blockbuster video to know that successful industries can undergo huge changes.

Expanding Too Fast
Now that your business is established and successful, it’s time to expand, but you must treat the expansion like you’re starting all over again. If you’re expanding the reach of your business, make sure that you understand the areas and markets into which you’ll now be reaching. If you’re expanding the scope and focus of your business, make sure you understand your new products, service and intended consumer as much as you do with your current successful business. When a business expands too fast and doesn’t take the same care with research, strategy and planning, the financial drain of the failing business(es) can sink the whole enterprise.

Know More About Model Viable

You have a great business idea, and even got started on a business plan. But now you wonder: is my upstart business model really viable? Here is an eight-point test to tell you if you should forge ahead with your business idea.
Uniqueness
Before you worry about upstart financing, marketing or business location, you should begin with an idea – not just any idea, but one that’s unique. What makes your business stand out from the rest? (Although they probably have better hair, the business world doesn’t go easy on celebrities. Check out Celebrity Business Busts.)
Uniqueness doesn’t necessarily mean you have to invent something (though that’s never bad – just look at Snuggie’s success), it just means that you have to set yourself apart from the competition. If you’re starting a catering company, say, what will make your catering service different from the rest? These are tough questions, but important ones. The most successful businesses have a strong, unique concept, and a clear identity. Take the time to define yours.
Upstart Funds
What will your start-up cost be? Every business has some expenses at the start, whether you’re paying for equipment, rent or just basic marketing materials. Make a realistic estimation; you’ll need these figures to obtain a loan or simply to budget if you’re paying these expenses out of pocket.

Customer
Who’s your customer? Knowing who will be buying your product or service is vital to your business success – how else will you find your customers if you don’t know who they are? Are you catering to busy professionals, stay-at-home moms, college students, retirees? Define your customer, even if you have to be broad at first. If you’ll be renting a space, make sure the local demographic fits this profile; the real estate agent will be able to provide you with that data. (Don’t let these myths stop you from reaching your entrepreneurial dreams. Check out Top 7 Myths About Starting A Business.)

Competition
Unless you’re lucky enough to find a hole in the market, your business will have competitors. Check them out, because your future customers surely will. Competitors can be a great resource to you as an upstart; you can see how much they charge, what marketing strategy they use and the location they chose.
Ask yourself: how can I do better than the competition? Use your uniqueness identified in step one to find ways to outdo your competitors.
Economic Mood
Your business’ success can greatly depend on economic mood: imagine starting a luxury real estate business at the start of the housing crisis. Gauge the state of the economy, and think of how it relates to your upstart: where are consumers’ mind right now? Are they cutting back, spending more time at home, concerned about the environment?
Even an economic downturn can be an opportunity if you can meet the mood of the consumer. If your business idea doesn’t fit the current trends in spending, think of ways you can tweak it to tap into today’s needs.
Timing
Timing is crucial, especially for an upstart. Opening an ice-cream shop in January is a bad idea; opening Memorial Day can make it the place to be that summer. Do you expect your business to be seasonal? If so, time your opening to the strongest consumer demand. You’ll come out of the gates with a flood of new customers, customers who will come back for more.

Marketing
Remember step three, where you identified your customer? Now you have to develop a marketing strategy to make sure these potential buyers know about your great new business. With today’s internet capacity, marketing can be relatively low-cost, using online coupons and mailing lists. Brainstorm ideas with friends and family, and look at what your competitors do to get new business.
Your local SCORE chapter, which consists of business counselors for startups, is a great free resource with counseling, classes and networking opportunities. (If you’re going into business, you must have a plan. Find out how to put this important document together in 4 Steps To Creating A Stellar Business Plan.)
Continuing Cash Flow
Imagine this: business is booming, you’re on a roll and getting in more orders than you ever imagined. But you have to front the money for supplies and other costs, and you’re out of cash – just like that, your business stumbles because you can’t meet demand. This is a classic cash flow problem many new businesses face, and one that can be prevented with proper financial planning.
Before you open up shop, prepare a detailed financial plan; there are many guides available in places like the Small Business Administration. Now is the time to plan for your business’ first year, to make sure you can face any obstacle thrown your way – especially financial ones. (Don’t overlook the details when starting up a business. It’s the small expenses that have the potential to make or break a great idea. Don’t miss Business Startup Costs: It’s In The Details.)

Tips For Start Your Own Small Business

Wouldn’t it be great to be able to quit your job, be your own boss and earn a paycheck from the comfort of your own home? The good news is that with a little planning and some startup money, it is possible.

Let’s delve a little deeper into how to start a small business from home and help you decide how much planning and money you’ll need to be your own boss.

Creating the Concept
Before quitting your job, you must first think of a concept, product or service to generate a steady income. And while that may sound easy, it’s not. You need to conceive of a plan that puts your knowledge, experience and expertise to use in a way that allows you to make the most money.

As you’re brainstorming ideas, start with industries or kinds of businesses you already have a strong interest in. Consider what equipment and materials you already have access to or can get access to inexpensively. This will help you cut down on startup costs and also let you hit the ground running when you do hang out your shingle. Next, take into consideration what businesses already populate your neighborhood. Are there businesses that are similar to yours? How can you distinguish yours? Is there a business area that is lacking? Does that absence represent an opportunity for you?

Next, you need to get an idea of the prospects for the potential business. What is the market for it? Can you make money at it? Is it a business that needs a physical location or can it function entirely online? All of this requires research as well as how other similar businesses have fared.

Doing Your Research
Some books on forming a small business suggest that after hatching an idea, an entrepreneur should just “go for it.” A smarter approach is to ask family and friends what they think about your idea. Ask specific questions such as:

Would you purchase this particular product and/or service?
What do you think its worth?
What is the best way to market the idea?
Is this something that you think is a fad, or do you feel it could be a viable business for the long term?
Is there anything you can think of to improve this idea?
What other businesses in this field have you heard of or do you currently use for this product/service?
If you’re married and/or have kids, you should also be asking your family how they feel about you quitting your job and working from home. This will affect them on a psychological and financial level and those concerns need to be addressed.

After obtaining all of this feedback, go back to the drawing board and see if the idea can be improved upon so that your product or service can be differentiated from the competition. Remember, you want to hit the ground running and turn as many heads as possible when first starting off!

Developing a Work Space
Your home’s primary function is to serve as a dwelling for you and your family – not as a warehouse or meeting place for your business and its clients. Make certain that if you are considering entering the manufacturing business (for example) that your garage or shed is large enough to handle your work – without forcing your family and your vehicles into stormy weather.
Similarly, if your work will be computer-based, make sure that you have the technology necessary to give your idea a fighting chance. Also, designate a dedicated area or room in your home for your office. This is important for privacy and for tax purposes.

Outsourcing Partners/Employees
While it would be great to be the sole owner of your company and have complete control of every aspect, sometimes a lack of funds or experience makes it necessary to have a partner. In this case, consider someone that has expertise in the business you are developing and will represent the company well.

Define the tasks that you and your partner(s) will be responsible for before opening up shop so as to minimize conflicts later. Make sure that all partners are legally cared for by the company and that the proper forms are filed with the regulatory authorities; this may mean filing twice and paying for title changes if you need to find a new partner, but it will protect both of you in the long run.

Next, decide if you’ll need employees and how soon you’ll need them. Put some thought into how you will hire them and what you will pay them. Explore ways of doing payroll,. Also consider where you want them to work, whether it’s in your home or elsewhere. Consider what having them work elsewhere would cost.

Finding Funding
Once you have an idea and the approval of your family, you need to decide how you are going to finance the business. Most businesses will need at least a little startup income. The hope is to break even after a year, but keep in mind that even successful businesses can remain in deficit for the first few years. Because of this, you will want to tap into a few different sources of funding, including:

A small-business loan
Savings
Money generated from other investments
Family/friends who will act as investors
Personal loan from the bank
Home equity loan
Credit cards (as a last resort)
Source capital that won’t hamper your longer-term security. In other words, try to avoid racking up credit card debt that could cost 20% or more in yearly interest fees. Also, try to avoid borrowing against your 401(k) or other similar plans as this may adversely affect your retirement.

Finally, one of the best things you can do before you take the entrepreneurial leap is to build an emergency fund to fall back on in the early months. Three months of living expenses is a minimum goal for a new business owner, but even more will help take the stress off of you and let you spend your energy on your company.

Covering Your Bases
All business owners should think about what would happen to the company if health or other issues were to prevent them from running the business. In other words, if the entrepreneur were to become disabled, who would take over? Could the business survive?

Consider these issues beforehand and determine whether disability income insurance makes sense, or if a partner could fill the void caused by your absence.

Foreseeing the Future
It’s great to own a business, but ultimately the entrepreneur will probably want to retire or move on to other challenges. With that in mind, you should create a business plan that discusses how you will transfer, sell or close your company. If your business depends on your unique knowledge and contacts, it may not be able to be assumed by another party.