Every year, hundreds of new businesses are forced to close their doors for good. According to the U.S. Small Business Administration, only half of these small businesses will survive the first five years. The statistics seem daunting, but remember half of all new businesses succeed. What separates the failures from the successes?
Cash in the Bank
Every new business goes through lean times. Maybe your business is trying to build its customer base, or maybe you miscalculated operating expenses. Whatever the reason, your business will need an injection of cash sometime during the first few years. Be sure you have funds to pull your business through the rough spots.
In your wildest dreams, your business would make a million dollars in its first year. To run a successful business, you need to have more realistic expectations. Sit down with a calculator and crunch some numbers. Figure out what operating costs will be—how much will it cost to run your business? Will operating costs increase in the next few years? Will rent increase? Will a supplier go out of business, forcing you to purchase inventory at an inflated price from a supplier’s competitor? Work out different scenarios that will increase or decrease operating expenses. Do the same for expected revenue. What will happen if you have more customers than anticipated? And what will happen if customers fail to show up? This type of planning will prepare you for the volatile first years of business. It will also help you develop a business plan.
You wouldn’t drive across the country without a road map; consider your business plan a road map to the future. Creating a business plan is essential if you plan on financing your new venture with a loan. A well-written business plan also attracts hard-working employees. Both lenders and employees are more willing to trust a start-up venture if they see the potential for profit. Your business plan will help you anticipate roadblocks; if you can plan for a shift in the market or a change in your sales forecast, you’ll ensure your business makes it past the first five years.
Competitive Products or Services
Customers are creatures of habit; once they buy a product a few times in a row, they will continue to buy that product in the future out of loyalty, routine, or preference. However, customers will break their habits if they find a new and unique product or a lower-priced item. To maneuver into the marketplace, you need to offer customers a unique or affordable product or service. Research the market to see what other companies are producing. If your product is one-of-a-kind, you can charge a premium price for it. If it’s one-of-many, be prepared to price below competitors’ prices if you want to draw their customers away.
You can’t sell law books to 5-year-olds, and you can hardly push the lactose-intolerant to buy ice cream. So before you start a marketing campaign, create a customer profile. Who will be paying for your product or service? Where do they live? What magazines do they read? What are their likes and dislikes? If you don’t know the answers to these questions, survey potential customers, offer them discounts on their first purchase as incentive to buy. When you know your customers, you can better target your marketing campaign. Customer profiles also help you predict customers’ wants and needs; by catering to these wants and needs, you guarantee your business a successful future.
You may have the determination and drive to run your business, but do you have the marketing skills? Do you understand the filing process for licenses and permits? Can you handle hiring and firing employees? When you’re starting a business, you’ll need to be an accountant, a manager, an advertising executive, a public relations officer, and a salesperson. If you don’t know how to do one of these jobs, ask for help. Find a mentor in your field and go to them for assistance. After all, when you’re starting a business, you don’t want to succeed by trial-and-error; you want to do the job right the first time.
Money is the lifeblood of your company; you simply can’t run a business without it. As such, you’ll need to track every penny that comes in and goes out of your company. Consider taking a course on business accounting. If you’re not good with numbers, hire someone who is. Your business will never succeed if you misplace a couple hundred dollars every week.
Starting a business is a risky venture. But so is running a marathon, and people cross finish lines every day. The key is preparation—a marathon runner wouldn’t attempt a race without comfortable running shoes, and you shouldn’t attempt to start a business without a business plan or cash in the bank. Identify your target customer, plan for potential roadblocks, and get help when you need it. With strategic planning and a lot of hard work, your business will be a success.