Start-ups – Survival Tips

1) Facts:

85% of small businesses entering the marketplace survive one full year;

70% survive for two years; and

51% survive for five years.

Some specific industries have a higher failure rate, such as restaurants with about only 41% of surviving rate in the first 3 years. Also, the odds of failure correlate to revenue: companies with revenues under $30,000 per year had a failure rate of almost 64% after five years. (Source: Industry Canada)

2) The primary reasons of start-ups’ failure are:

– Poor market research leading to an inaccurate understanding of the target customers wants and needs: the number 1 reason why businesses fail is because the business owner, impatient, did not take the time to conduct a feasibility analysis, market and business plan;

– Insufficient funds and inability to manage the financial aspect of the business: the number 2 reason of businesses failure is inadequate funding, lack of financial literacy, weak financial planning and cash flow management: a clear and consistent finding of researches is that businesses face the highest failure risk when they are young and small, with a mismatch between resources and capabilities. In analyzing the root causes of small business failure, a survey conducted in Canada on 2,598 business failures indicated that 96% of them were due to poor management, twice as much as external factors (Market, competition, products) and turned out to be the management inefficiency of owner-managers;

– Trying to go it alone and failure to recognize own strengths and weaknesses: the number 3 reason is trying to do everything alone and not seeking external help. Whether this external help be as simple as a web and social media guru or professional services such as a lawyer, accountant, banker or business coach/networking.

3) How to avoid being a casualty?

Follow these tips to avoid or reduce the odds of being a statistics casualty:

– Develop a good marketing and business plan that consider customer needs, competition, pricing and promotional strategies: While this is a short sentence, this is the cornerstone of your success; it will take a substantial amount of your time but you will not regret it. When developing a strong business plan, you will cover all areas. Determine realistic strengths and weakness, your product/services, is it unique or competitive? Get answer to the killer question “Why should I buy from you and not your competitor?”, the pricing policy, your target market, your marketing plan, your advertising means, your personal financial situation assessment; make sure you have enough cash reserves and/or a line of credit (over 80% of start-ups used personal financing to finance their new businesses and this through personal savings, personal line of credit and credit card) to help you get through the launching period and until sales start to pick up, the money you have really available, your cash-flow projections (worst case scenario, breakdown scenario, positive scenario), your legal structure. And believe it, this is not a waste of time, but time well invested. Plan every part of your business from start to finish, don’t under-estimate your expenses and over-estimate your revenue, leave no stone unturned. Once your business plan is complete with your findings, determine realistically, if you want to proceed or not and the reasons? Short in financing or financing cost too high? Products/services not attractive, not competitive enough? Anything you could do to change your findings? Adjust your initial belief? Review your copy and initial plan if necessary.

Even if you strongly believe in your idea and the commercial success of your products or services, do not underestimate the below points:

– Get advice from the beginning with a lawyer, or an accountant, proper networking and acquaintances expertise you could rely on. Down the road, they could save you money, time and detrimental mistakes;

– Set up your business finances to reach your goals; make sure you are registered where you need to be (Sole proprietor or corporation, GST, PST, WCB, Payroll, business licence, trade certification if required, professional insurance);

– Get your books organized from the start, and get help to understand your business finances, the handling of cash-flow, credit, inventory management, accounts receivable and payable policy, personal and business taxes remit and all CRA deadlines and other fiscal obligations;

– Compare your actuals to your business plan (Variances). If it has been conducted correctly, this is one of your management tools. However, market, technologies, economy change. So, even though your business plan findings, 6 months ago, indicated different output, it’s not carved in stone. Be flexible and stay adapted, that’s where the full power of management takes over.

More to come on business tips. Stay tuned!

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