At BeaconCFO Plus, we often get the question….”I’m thinking of starting my own business—do you have any advice?” The Small Business Administration and the Department of Labor describes what the startup market looks like in this country. Each year, approximately 500,000 businesses are started in America. Interestingly enough, this number declined by only 10% or so in the difficult economic times of 2008-2010.
Is it a jungle out there?
For every startup business opening in a year, there is almost an equal number of businesses that close every year. The number of businesses closing (approximately 500,000) did experience an uptick in the 2008-2010 period. For that period, over 600,000 businesses shut their doors on an annual basis.
And what do companies that are operating today look like?
We are clearly an economy dominated by small to middle market companies—which is one of the reasons that BeaconCFO Plus focuses on outsourced CFO services for that segment. There are roughly 26 million companies in the domestic marketplace. However, 99.7% of the companies have less than 500 employees. And of that segment, 20% indicate that they have no employees.
Are there patterns of success or failure?
Entrepreneur Weekly and the Small Business Development Center report that the highest rates of failure for startups are in the Transportation, Retail and Construction industries—in that order. In terms of successes, the highest rates of success are in the Insurance/Finance, Education/Health and Agricultural areas.
How to improve your chances for success
One consistent contributor to startup failures is a lack of understanding of the relationship between appropriate product pricing and margins. Although this can also have a significant impact on established companies, those companies generally have a bit of a financial cushion developed over the years. The owner of a startup, frequently undercapitalized, can panic if sales are not occurring as quickly as he/she would like. The result is to lower your price just to move product and get cash in the door. This is a huge mistake and can actually hasten the demise of your business. Always know your cost structure in detail and make pricing decisions in a consistent manner armed with this information.
The second thing that you can do to improve your business’s chances for success is to be aware of what you know—and what you don’t. It is likely that you have in-depth knowledge of your product or service, but you may not have much knowledge or experience in the areas of negotiating with suppliers, establishing terms with your customers or forecasting cash flow. Reach out to professionals, such as an outsourced CFO, who can help you in these areas. This will free up your most valuable asset—time— so that you can spend more of it in the areas of your expertise.