By Van Adams | Engagement Insider
Research says that most businesses will not survive the first 3 years. Here are four common areas that often lead to troubled waters in business, and points to consider in order to avoid them:
Is it really a business or a hobby?
Uncle Sam has guidelines on what activities qualify as a business. Generally speaking, a business must show a profit within 3-5 years or else it may be classified as a hobby. Being designated as a hobby brings its own set of implications from both accounting and business survivability standpoints. Is there a large enough need for the product or service you intend to provide? The bottom line: Will this venture generate revenue?
Who is your customer?
Understanding your market is critical. Who are your customers and how will you reach them? People buy products and utilize services that they need. Researching the market and doing your due diligence will help you understand your customer. It will then be your job (or whomever you hire) to get to know everything about your audience so you can reach them.
How are your finances?
How will you finance the business – commercial loan or personal savings? Will lenders find you creditworthy? What is your credit score? Are you able to survive financially until the business turns a profit?
Conversations around money can be difficult ones to have, but if you are starting a business it’s one of the first conversations you should have with yourself and family members who will be directly impacted by your revenue generation, or loss thereof.
Some businesses are more difficult to break than others. Fashion and the food and beverage industries for example, require considerable amounts of money to launch –and sustain.
A word of caution, avoid setting a budget i.e. “I will spend $100K to get this business off the ground and not a penny more”. This practice tends to cause tension and undue stress when you’ve spent 98% of your allotted budget but need just a few more dollars to realize the goal. You want to avoid being in a situation where you have to go back and secure additional funding whether its your from your personal savings, friends/family, or a commercial lender. Rule of thumb, ask for more than you may need, then operate with prudence. Set realistic goals and a timeline. It’s imperative that you have the ability to forecast and the instincts to make adjustments early on as needed to stay on track – long before you come to the end of your budget.
Who’s on your team?
Is this your business or the family’s business? Will you expect family to work in your business, help you build it, provide resources?
The demands of building a business are stressful and time consuming.
Having a strong support system in place will be a huge benefit to you.
Friends and family will undoubtedly want to help you succeed in any way they can. However, it’s important to have industry leaders, influencers, and skilled professionals in your network that are not related to you and have no vested interest in your success. They will be able to offer advice based on their professional experiences in a way that friends/family may not be comfortable doing for fear of causing tension in the relationship. Honest feedback and assessments are not always pleasant- but in order to elevate and grow your business – it’s exactly what you need to hear so you can make improvements and better decisions. Those reality checks are often best served from someone who you don't have to see at the next family gathering or nightly dinner table.