Some tips to consider when you’re just starting out

Talking about small business success rates is a tricky business, but whether you believe that 50 per cent of businesses last for five years, or that 9 out of 10 businesses fail, it’s clear that the odds are not always in your favour when you start a new business. That doesn’t mean, however, that you can’t push the odds in your favour. Let’s talk about some of the most common reasons that businesses fail, and what you can do to make your company more likely to succeed.

Bad match between partners

When you start your first company, there are some fairly obvious choices for your first partner. A spouse or significant other, a best friend from college or high school, and a family member are often tempting choices for a business associate. And while these businesses can work phenomenally well, there are also real risks involved in choosing to tie your business interests to someone with whom you’ve primarily had a friendly or filial relationship.

Too often, we choose our friends and significant others because we are very similar. While this makes for great family dynamics and nights on the town, it can be problematic in the business arena. For example, if both you and your potential partner have a strong grasp on marketing, but struggle to manage product development, you may have trouble getting your business up and running successfully.

Avoid this concern by making sure that you’re choosing your partners based on skillset, not friendship or interpersonal relationship.

Wrong insurance levels

Most people know that their cars and homes need to be insured, but they may forget that small business insurance exists. From worker’s compensation to property and asset insurance, many companies choose to insure their companies against future problems. Doing this so protects their investments, both time and financial.

Small businesses often have somewhat unique insurance needs. They may not be able to choose every ideal policy all at once, but there are certain policies that no business should go without.

To make sure you have the right insurance coverage you should do things: Work with a business insurance agent who is familiar with your area, and preferably, your industry. You should also talk with local business owners who you trust to find out who handles their insurance, and find out more about what coverages they have found most helpful, versus which ones they wish they had not chosen.

Insufficient liquid assets

Let’s face it: starting a business can be very expensive. If you’re leaving a current job, you need to factor in not just your new business costs, but the cost of any health insurance and living expenses while your new business gets off the ground. Simply put, many businesses do not have adequate cash reserves to manage the early months or years of their business.

Getting a business loan can be difficult, and companies without cash reserves may need to use lines of credit or credit cards to keep their business afloat until profits begin to increase.

While this is certainly an option, it can leave the business owner struggling to make ends meet. If their company folds, but they’ve used their personal credit to finance the business, they could potentially still need to pay off that debt. This can put a lot of stress on a nascent business.

To avoid crushing your company with debt save as much as you can beforehand. Bootstrap absolutely everything possible, and limit your personal exposure when possible. Contact your local Chamber of Commerce or Small Business Administration for help with local grants or funding opportunities.

Wrong product-market or niche fit

One real struggle for many new companies is connecting with their customers. Marketing is in a period of rapid flux, and companies may not be sure how to leverage social media and content marketing, in effective ways that push their business to the forefront of their ideal customer’s mind.

Be careful, however, with blaming any failure that arises on this lack of connection. Connecting with your customers is a key portion of your business plan and a fundamental piece of your company. Whether you’re selling to dog owners, CEOs, or doctors, knowing how you’re going to meet them where they are and demonstrate your value is necessary to running a successful business. Dismissing your strategies as “just not working” is insufficient.

Plan ahead to decide how your business will connect with its customers and ideal audience. Know where they are, what they’re concerned about, and how your target message will help them solve their problem. Get specific! Model your marketing on other successful companies so that you can reach out well.

What reasons do you see that so many small businesses close?

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