So You Still Want to Start a New Business?
No doubt, these are challenging economic times, but if you’ve got some good ideas, a business plan, and that positive entrepreneurial spirit, you can still give it a go. According to Jennifer Kilgus, Regional Administrator at the US Small Business Administration, research by the SBA shows that almost three quarters of all new businesses survive two years, and about 40 percent survive 6 years or more. In an Eastside Business Journal article, Kilgus talks about starting a new business today, and avoiding pitfalls that can lead to failure.
According to Kilgus, start-ups often fail due to insufficient capital, lack of management experience, poor location, poor management of inventory, and lack of initial planning. She recommends a new business begin with at least $50,000, with a minimum of six months cash available, and a good understanding of cash flow, marketing, and potential customer base. She also emphasizes the importance of choosing a location that is easy to find and access, and suggests considering a virtual office online or a home office to reduce start-up costs.
Kilgus warns that start-ups often fail due to poor planning and preparation for managing inventory, staffing, marketing, and developments such as unexpected sales growth or poor initial sales in the first months, and she emphasizes the importance of having a good business plan and an education before starting out. According to the SBA administrator, studies prove that entrepreneurs with at least one year of planning and preparation have a better chance of succeeding. She recommends contacting a local SBA Small Business Development Center or a SCORE office for workshops and counseling sessions.
Acknowledging that this is a particularly difficult time to start a new business, Kilgus also suggests taking advantage of the misfortune of other business owners who may be forced to sell their businesses for various reasons. She recommends looking for undervalued existing businesses to buy today, and points to the advantages you gain from doing this. An existing business is much cheaper today than a year ago, and is “ready to go” with a customer base, assets, equipment, and staff already in place, and she says lenders are more likely to provide financing for an established business.
If you have trouble finding the capital to purchase an existing business, Kilgus says, don’t give up. You can look into alternative financing, for example, from friends or family in exchange for a share of the company you buy, or you might be able to go to work for a business and exchange your salary or benefits for stock in the business. So if you still want to start a new business, you might start by looking for an older one.
