So why do businesspersons keep starting new businesses when they are so risky and pan out so rarely? The truth is that opening a business is not as risky as these numbers make it sound. The savvy businessperson knows that to avoid becoming a statistic he has to know he is going to be successful beforehand, or at least do the due diligence required to give him the best shot at that.
How? A simple way for any businessperson opening or thinking of opening his own business to start off on the right foot is to ask the following four questions:
1. Will people actually buy your product or services?
Don’t assume people will want to buy the product you want to market. Yes you may think it’s a good idea, but you need to get some solid feedback from unbiased people – both consumers and businessperson. There are many ways to go about this with numerous online and real world companies offering survey and panel services. You need to identify your target market and what their actual budget and wants are before investing anything into developing the company itself.
2. What will your business structure be?
Many first time Businessperson don’t know how to protect themselves properly in the event of a legal or personal liability. Beyond this, they often don’t understand the tax structures and benefits of different business formations. You need to sit down with a business lawyer to discuss your exposures and needs in order to make an informed decision about the right way to structure your business. Failure to do so could leave you at risk in a way that could spell the end of your business’s profitability.
3. How will you separate yourself from the competition?
Competition has never been fiercer. Today, not only do business have to compete with the business across the street, but they also have to compete with the big out-of-town corporation who has installed a convenient app to sell the same product onto the smart phone of everyone in their local target demographic. Today, it’s not enough to do local promotions in many industries. More must be done in terms of internet marketing, social media fan sites, and mobile applications to leverage the quickly emerging mobile market. Your business needs a niche, a plan, and a skilled execution of marketing campaigns in order to be sustainably profitable.
4. What do the numbers say?
Perhaps the single biggest reason for business’s closing in the first two years is poor financial planning. It’s not that the business or idea was bad, or that the execution was awful, though it often isn’t ideal which compounds the problem. The main issue is that there wasn’t enough due diligence performed on the financial side of things. Too often, profits are assumed to be too high, costs and expenses are overlooked, or the financing ensured is just not enough to see the fragile startup through the tough times into the era of profitability. In all these cases, more diligence on the numbers side of things beforehand could have helped or prevented things from getting so far owners had to close their business. There is no amount of time or money that is too much to spend on making sure your financial projections are solid prior to beginning the actual work on the business. Seek out professional financial advice to protect your investment.
Still have questions?
Please call us for a free appointment with Miami business attorney Yoel Molina in our Miami office at 305-548-5020.