I am sad to stay that I have been a contributor to a very sobering statistic: 80% of small businesses fail within the first year-and-a-half!
Sometimes the small business entrepreneur does not even realize failure until it’s too late! How long do you stick with it, hoping things will begin to look up?
How much debt should you borrow (if at all) to support a money-losing business? How long should you continue to carry your employees?
There are so many variables / levers and so many different definitions of success and failure that oftentimes it is difficult for anyone to identify specific reasons for success or failure.
But in my humble experience here are a few lesson that I have learned:
buy curacne online
- No previous experience – this is one is straight forward; sure, it always sounds like a good idea to start a restaurant but without previous experience, be prepared to make a lot of mistakes until you get up the learning curve (assume you have enough dry powder to survive the learning curve period) and be prepared to waste a lot of money while “figuring things out”. If the learning curve period out-lives your expense budget, then insolvency is likely.
- Quick to hire, slow to fire – the better formula for success is the exact opposite – slow to hire and quick to fire. While this advice might sound heartless, you are in business to make a profit; there are other avenues to where you can donate your charity. Firing an employee can be costly and time-consuming as well as emotionally-draining. My advice is to take your time and hold off any hiring decisions until it hurts.
- Spending out in front of business volume – I’ve been in many situations where “I wanted to make sure I had the necessary resources and tools to handle the volume” – many times the expenses were permanent while the business volume was not; many times the business volume never came as anticipated. Hold off on incremental expenses until it hurts.
- Not separating business from personal accounts – commingled accounts for the small business owner! The bane of our existences. This is a no-no. Why would you even incorporate an LLC or S-Corp if you are going to commingle everything and tie in your personal assets in the first place? You need to keep ’em separated from a book-keeping perspective as well as planning perspective.
- Playing the victim / failure to be proactive and flexible – “we are the victim of the economy right now;” “business should get back on track once the economy changes.” If you hear yourself saying these words, then I have a newsflash for you: the economy has been on fire for the past five years! If you are not cutting it in this bull market, you really need to re-think your business model before a bear market hits with a recession.