Deciding whether or not to start a new business can be one of the most difficult decisions a person faces in life. Every month over 540,000 new businesses are started in the U.S. according to the 2017 Kauffman Index. Georgia is consistently one of the highest-ranking entrepreneurial states and remains among the top for new business starts. There are numerous reasons why so many Americans are willing to accept the risk and step out as an entrepreneur. Ultimately, the root of many of those reasons come down to the perceived freedom, flexibility and income associated with being your own boss. According to the Small Business Administration (SBA), about two-thirds of businesses with employees survive at least 2 years and about half survive at least 5 years. Understanding that 50 percent of new businesses fail within 5 years, it is critical to get off to a strong start. Before taking the leap, there are some serious considerations to address in order to minimize risk and maximize odds for success. The top five listed below have made the most significant impact for my clients.
Am I prepared to be a business owner? Many new entrepreneurs will approach going into business for themselves with a skill or passion but no clear understanding of their own capacity to lead and grow a business. The personal characteristics, conditions, skills and experience of a successful business owner must be considered. The SBA, among other organizations, provide tools such as entrepreneur self-assessment surveys precisely for that reason.
This is the first step in evaluating whether a business idea makes sense to pursue and where the entrepreneur asks themselves the question “do people spend money for the product or service I want to offer”? If there is no market demand, there is no reason to evaluate the technical or financial feasibility of a business concept. If there is a market, further questions such as who’s buying, where do I find them and why they buy are the next ones to be solved.
This area assesses items such as start-up capital needed, sources of capital, returns on investment and other financial considerations. After having constructed a thorough estimate of start-up capital needed, the entrepreneur will need to identify where those funds will come from. Potential investors, bank loans and personal financial resources generally fall into this category. The business owner’s understanding of their personal income needs at inception and at what point the business breaks even and provides an adequate income are all important financial considerations.
Legal and Risk Management Issues
Licenses, permits, insurance, certifications and entity structure represent a few of the legal and risk management considerations for a new business. Having all of the T’s crossed and I’s dotted from the beginning can avoid unnecessary problems and setbacks. Knowing exactly what is required to legally operate the business and implementing those components are the foundation to growing the business.
This is a critically important and ongoing activity for business operations. The actual planning process serves as an exercise for the business owner to develop a clear understanding of their business concept and all the small components necessary to achieve success. While developing the plan, the entrepreneur should be able to identify potential problems with their plan and make needed corrections. Upon completion, the plan becomes an important management tool serving as a roadmap to achieve desired profits.
Starting a successful business can be a very rewarding endeavor. Starting an unsuccessful business can be full of misery and turmoil. For assistance, visit your local UGA SBDC office. We can provide tools and resources for your small business.
(Source: John Payton, Consultant, UGA SBDC in Morrow)