According to the Bureau of Labor Statistics, 80% of new businesses make it through their first year, but only half survive the first 5 years.
That chart looks even more terrifying — a lot more terrifying — when you include only small businesses.
You might even say that when you’re entering the SMB space, you’re a lonely gladiator trying to fight off hungry lions. And instead of the cheering of an excited audience, you have only your own motivation and determination to make that business work. In order to reach your goals and avoid failure, you will need to take some preparatory actions that will make your business ready for the challenges ahead.
Setting a budget for the initial period
Leaving the 9 to 5 job and going your own way is saying bye-bye to a guaranteed salary.
People who work for companies over a longer course of time definitely have some weak spots in their knowledge of SMB-finances. Plan ahead, and study these challenges to figure out how to save up cushion funds before quitting your job.
Experts say that at the very least you should have enough to provide for the first six months. These funds will keep your business afloat even if you don’t make a single cent of profit in this initial period.
Defining the business plan
The business plan lays out your business goals and exact strategies on how to achieve them, as well as financing details.
This document can contain dozens of pages, or only one. The target audience will determine its format and length.
If you’re writing your business plan for your own needs, it doesn’t have to be too scrupulous — but you should still plan well ahead.
Any potential investors or partners in your plans? They deserve — and will expect — a detailed business plan covering the entire A to Z of the operation.
Calculating the expenses
You will have to calculate the business expenses regardless of whether you’re going to rent office space or you run it from your own home. You will have to take into account all overhead expenses incurred by your business: utilities, rent, insurance, marketing, infrastructure, and so on.
If you’re planning to hire people, consider using architectural rendering services to create a detailed plan of the work space.
Are your employees going to want benefits? What kind of benefits are you obliged by law to provide? What other workplace laws are you and your office going to be affected by and how much is it going to cost to implement them?
Choosing the right business structure
The business structure you choose will affect the taxes you pay and the level of liability you have for your business.
Most small business owners opt either for a sole proprietorship or a limited liability company (LLC). In a sole proprietorship, the owner’s personal and business assets aren’t separated. That’s a good thing if you’re doing well but a terrible choice if your business ends up in debt.
With an LLC you aren’t personally responsible for the assets of your business, but managing it is a bit more complex from the legal point of view. You can read more about these differences in this guide from Business News Daily.
To cut a long story short, you will need to have some backup assets for the first six months and an accurate estimate of your initial expenses. Your business plan has to be detailed if there are any additional investors. You have to plan the office space so that you use it in an efficient way. Finally, choose the best business structure for your initial professional needs. If you prepare all these things in advance, your business will be more likely to survive the arena of SMB gladiators.