The myth that nine out of ten small businesses
close in their first year may or may not be completely true. According
to more recent Dun and Bradstreet data, 76 percent of new companies
were still in business after two years. But since these statistics are
based solely on the number of business license applications forfeited,
they may not be entirely accurate. Many business owners don’t
immediately contact their licensing office; some never do.
Studies show businesses that do survive longer had more cash up front
to invest. Other survival factors include the owner‘s age, higher
education, and previous experience in their field. The number one cause
of small business failure is “lack of planning,” and the most common
mistake in planning falls with making poor financial choices right from
the start.
Most people believe that to have a successful business you need to
start with a large sum of money and acquire those start-up funds by
taking risky business loans or mortgaging your home. That’s simply not
true. In fact, 25 percent of business owners needed no dollar amount to
start up.
Reports show that only 27 percent of business owners have borrowed the
money they needed to start their business and 36 percent of owners used
their savings for their business start-up. It is always better to save
the money you need up front if you are able. A total of 69 percent of
new businesses were started or acquired without any need to borrow
money.
So if it’s that easy, why do so many businesses fail? It may be that
new business owners spend more time planning a vacation than they do
their new business venture. Many don’t calculate into the equation how
their personal financial responsibilities will be met while their new
business is growing legs. They will still have rent or mortgage,
electric bills, phone bills, and other household expenses. A new
business just can’t support home life for an estimated need of 1-2
years. This is where we fail to plan.
Starting a small business should be looked at as just that, a “small”
business. The founder of Dell Computers was a college dropout. Starting
small out of his garage, he managed to excel above all of the world’s
top computer manufacturers. One in three computers sold today is a
Dell.
Just over 32 percent of new business owners needed less than $5,000 to
start or acquire their business. Businesses opening without a huge
financial debt show a much greater chance for success. If you have a
business idea, you need to keep it in proportion to the amount of money
you have to pursue it. Instead of building a $400,000 franchise store,
you might need to look at buying a $15,000 coffee cart that you can
drive around to local events. There’s always a way to work out your
idea without exceeding your means.
Successful businesses are started with proper planning. Spend the time
needed to plan your business idea and do the research needed to ensure
you have all your ducks in a row before you open up the pond for
customers.
Article Source:
http://www.articlesbase.com/business-articles/how-to-budget-your-business
-startup-to-avoid-painful-failure-392686.html
About the Author
Carol Denbow is a business start-up expert and the
author of several on-line publications and books including “Are You
Ready to Be Your Own Boss?” a 144 page, easy-to-read and comprehend
business start-up book. See more about Carol and starting a business at
http://www.booksbydenbow.weebly.com
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