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Starting a business is not a simple, easy process. There are issues and questions that need to be addressed. A question that many entrepreneurs ask is, “How successful will my business be?” There is no one right answer since internal and external factors influence each business differently. According to the U.S. Department of Commerce, Bureau of the Census, and Business Dynamic Statistics, seven out of ten new employer firms last at least two years, and about half survive five years. More specially, 69% of new employer establishments born to new firms in 2000 survived at least two years, and 51% survived five or more years. This data illustrates similar trends of survival rate to those firms born in 1990.
Another key issue that employers consider is whether to develop a business plan. Numerous research articles supported the significance of a having a business plan. The advantages of having a business plan consisted of helps the owner(s) set-up a sound framework, model, and system, address any potential problems and threats, helps in obtaining loans (if necessary), and achieve business goals. For example, it usually takes a business two and a half years to determine if it is going to be successful. By the fifth year, if the employer(s) have not met the milestones set in their business plan, the business is more likely to fail (Small Business Administration). Therefore, a business plan actually creates the future the employer(s) want it to be, it gives a solid process model in place to deal with unpredictability.
The finance aspect of starting a business can be tricky and even discouraging. Entrepreneurs should pay close attention to the financial aspect of start-up costs. Why? The answer is simple, sales – loss = net income (profit). An important question to consider is “How are small businesses financed?” The two most widely used sources for business financing are owner investment and bank credit. According to an article published by Small Business Administration, 6% of young firms use outside equity such as angel investment and venture capital. More specifically, young firms heavily make use of external debt market, receiving about three-quarters of their funds from banks via loans and credit cards. Thus, a well thought out business plan can assist in obtaining funds from banks.
Another finance related question that one should consider is “How are setups financed?” A survey conducted by Kauffman Firm found that start-up capital for small business is estimated at $80,000 a year per firm. However, start-ups depend about equally on the owners’ cash injections into the business and funds from the bank. Furthermore, about one-third of new non-employer firms and 12% of employer firms used no start-up capital according to the U.S. Census Bureau.
Lastly, a question that many individuals should not focus heavily on is “Why do businesses fail?” Since this is concern for employers, it is significant to address the trends in businesses failure. According to ABC Business Consulting, business failure is a result of lack of capital, lack of business knowledge, inexperience, poor management, and inadequate planning. For example, the consultants at ABC Business Consulting recommend that minimum 10% of the total funding amount should come from Owner’s Equity, with 20% being optimum. They also stated that nine times out of 10, poor management will be the result of business failure regardless of how great a product or market may be.
In sum, there is a lot of important information to consider when thinking about starting a business. Entrepreneurs can be successful business owners, regardless of the discouraging statistics published on the internet today. A few trends that make small businesses successful include but not limited to – a good business plan, an adequate and well defined market, obtaining and using information accurately, a good capital acquisition strategy, and expertise. These trends have assisted employers address the issues of new business set-ups. More importantly, trends are good indicators of business success or failures; thus, should not be ignored.
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