Hundreds of new small businesses launch daily, with some going on to become big names such as Apple, Google, and Microsoft. However, most small businesses remain just that — an enterprise with a few employees. Only about half of all businesses with at least two employees survive after five years according to the Small Business Administration (SBA). Certain risk factors contribute to business failure; we’ll look at four and what you can do to avoid becoming an unfortunate statistic.

  1. Starting a Wrong Business

You’ve been wanting to work for yourself and the opportunity is here. Perhaps a job layoff was a contributing factor or maybe your health requires a change. No matter, you’re ready to leave the corporate scene and launch an enterprise.

But is your business idea the right one for you? Some entrepreneurs decide to turn a hobby into an enterprise, thinking that their love for a particular interest is enough to make money. On the other hand, you may have an idea that you know is a moneymaker, but you aren’t especially passionate about it.

Your small business has a greater chance of success if both your passion and a promise of profitability align. Never start a business where both traits are not present.

  1. Lack of a Business Plan

Every business must have a blueprint in place for regular reference and overall guidance. That blueprint is a business plan, what articulates a path for organizing, launching, and maintaining the new enterprise.

A business plan is a formal statement of business goals and serves as a road map for the first three to five years,  according to the SBA. Chief components include an executive summary, organization and management structure, company description, and the service or product line. You should also include a market analysis along with a marketing and sales strategy. Finally, if you plan to seek financing, then include a funding request.

  1. Not Enough Cash on Hand

Your business may not make money for weeks or months. In some cases, it could take a few years to turn a profit. In the meantime, how will you sustain your business model? This is where a cash reserve is important and can help keep your business afloat.

The last point we looked at when creating a business plan mentioned developing a “funding request.” This portion of the business plan is optional, but consider it mandatory if you plan to ask the banks or other creditors to lend you money. A business line of credit is funds you can tap when your cash reserves are low. Many business operators use these funds as “insurance” when income is low.

  1. Family Matters

If you’re like many other business operators, your enterprise includes several other key people, perhaps family members. Individuals such as your spouse and children know you best and may work very well with you.

On the other hand, if the family is not involved in your business, you may see them much less than when you worked for a company. As an entrepreneur, expect to put in long hours, working six or seven days per week — at least at the outset. However, your absence from family life can take a toll, especially if your spouse objects. It isn’t always possible to avoid strain on your family relationship. If problems persist, it could do in your business or your marriage. Perhaps both might be affected.

Starting a new business means taking measured risks. This means making the commitment to run your own enterprise and understanding the challenges you’re likely to face.

 

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