If our economy in America is ever to regain its former strength, most experts will invariably point to new business formation, as the catalyst required, to jumpstart the hiring engine in our country. We have never had a shortage of entrepreneurs with innovative ideas to bring to the market, but economic conditions have never been worse when it comes to getting the support one needs to get a new endeavor off the ground.
Whether starting a catering business or an auto repair shop, the budding entrepreneur must immediately concern himself with a high degree of preparation in two key areas, these being the operational and financial aspects of his intended enterprise. He must be the expert that understands every requirement for his business to function efficiently and be able to articulate a marketing story for any interested business partners he needs to support his effort. He must also develop a comparable financial “story” that mirrors his marketing pitch in order to secure funding or a small business loan before and after he opens his doors for business.
These two requirements sound simple enough, but most new businesses fail due to lack of preparation and adequate funding. Actual statistics compiled by the Small Business Administration (“SBA”) state that only 70% of startups make it past their first two years, while half are able to survive through year five. These more recent success rates run counter to long held beliefs that 50% of new establishments never make it past their first year, and only one in twenty is still standing after five years of struggle.
Regardless of better survival rates, new businesses are risky ventures. Your banker and business partners may be more inclined to believe the latter set of statistics than the former, so it is incumbent upon the new proprietor to do all he can to avoid the many pitfalls that he will encounter along the way. Preparation and planning are the best ways to develop a roadmap to achieve this objective.
Preparation and planning start with reviewing your basic intentions and business model.
- Are you really cut out for running your own show?
- Do you have abundant skills in purchasing, selling, production, and hiring and managing employees, along with basic accounting knowledge?
- Effort and stamina are prerequisites, and, although you will be your own boss, you will still be beholden to your customers, suppliers, and staff.
- Profits may be lean early on, so you must moderate expectations.
- Be sure that you are providing a solution for someone else’s problem in a market that is not crowded with numerous competitors.
- Location will determine retail appeal.
- Drafting a detailed business plan will highlight each of these areas and what must be achieved in each.
The second critical area of preparation relates to funding your business with adequate capital. This task is a full-time occupation that never goes away. Most entrepreneurs underestimate the time required to prepare investment-ready materials, talk to bankers and business partners, and secure dedicated investors. There are regional development agencies in every state that can assist you in this effort, but your partners will be investing in you and how well you have prepared yourself on all fronts. To apply for a business loan is only a small part of the effort required.
Before you apply for a business loan, be sure to develop the materials that will persuade a financial professional that your company is worthy of a small business loan in the first place. Failing to plan is a plan for failure!
