Many of us dream of starting a successful business. In fact, among younger generations, the desire to channel our entrepreneurial energy is higher than it is in older people. That doesn’t mean we all want to build huge multinational conglomerates, some people are just content with creating something to be proud of, even if we run it alongside a “proper” job.
But no matter the size of business you’re looking to start, the fact is, the odds are against you.
The stats vary depending on who you ask, but they’re all pretty stark. According to Shopify, more than 20% of businesses fail within their first year, while almost a third collapse within their second year of operation. The number continues to climb, year after year, reaching 50% after five years.
During periods of tough economic conditions, the life expectancy of a business can go down even further as liquidity dries up and consumers cut back on their spending.
Yet, faced with these crippling statistics, millions of us take the plunge every year and set up our own businesses. If you’re one of these brave souls looking to prevail against the precarious probabilities, then here are some tips that may help tip the balance.
Know Your Numbers Inside Out
Of course, you need to do your accounts to submit tax returns to the government, but being in control of your finances is important for other reasons.
There’s no getting away from the fact that business is a numbers game. You may not like counting your costs or tracking your sales, but without it, you won’t be in business very long. You will also need to have a firm grip of your finances if you want to apply for a loan or attract investment as questions about your revenue, gross and net margins, and cash flow are going to come up.
Thankfully, it’s much easier today than it was in years gone by. Online accounting software like Xero, Quickbooks, and Freshbooks can all help to make this a doddle and can even connect to your bank accounts and payment services to help collect payments and reconcile your statements in just a few clicks.
Try to Have Another Income Stream at First
The fact is, running a business is expensive and it’s very easy to lose money. That’s why the vast majority of the world’s billionaires started from a position of wealth in the first place. For example, Jeff Bezos, who had a net worth of $177 billion at the end of 2021, was actually a hedge fund manager before he started Amazon.
The successful billionaire founders almost always had either wealth from relatives, savings or investments to fall back on, or another income when they started their businesses.
While you may not have a multi-million dollar trust fund to fall back on, it will help to have some financial resources behind you if you want your business to succeed.
In the early days, you’re unlikely to be raking in huge revenues, so you won’t be in a position to pay yourself very well. A second income or savings can help plug this gap until your business is in a position to cover all of your day-to-day expenses.
Without this, you could be forced to fold the business before it got off the ground to simply because you personally couldn’t afford to keep it running.
Don’t Underestimate the Marketing Effort Required
You might have some kind mates who are willing to put a few sales your way in the early days, but it’s not going to last very long. You need to find customers and the only sustainable way to do this is through marketing.
How you do it will depend on your product/service, who you sell it to, the price you sell it for, and where you are based, though digital marketing is very frequently the best option.
Regardless of the medium, you will almost always need to spend more on marketing than you originally expect if you want to bring in enough business to sustain yourself.