9 Key Ways To Keep Your Small Business From Failing
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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Small businesses are built on big ideas, sweat and capital. Yet despite some of the best intentions, almost 20% of all businesses will fail in their first year, and 65% in the first decade, according to Craig Calafati, executive vice president of Arkansas Capital Corporation (ACC).
However, it doesn’t have to be that way, with some careful planning and strategizing.
Calafati suggested the following nine ways to keep your small business from failing.
Retain as Much Liquid Cash as Possible
Liquidity of cash is essential to a successful small business, Calafati said. “In other words, when you open your doors, you want to have as much cash available as possible to cover any unforeseen events.”
Sometimes businesses may start off more slowly than you anticipate, he explained. So if you need $100,000 to start your business and the bank requires you to put a $20,000 downpayment on any loan they give you, you may want to see if you can reduce that amount or find a lender that requires a smaller down payment.
Be Creative With Your Financing and Funding
Another way to maintain as much capital as possible is to look into negotiating with your lender for creatively structured loans. “Is it possible to get an interest-only period in the beginning?” Calafati asked.
For example, if you’re opening a restaurant that requires some build-out before you lease the premises, maybe you can pay interest only during the period when you’re not yet operating, or similar such concepts.
Be Wary of Predatory Lenders
It’s important to do your research to avoid predatory lenders. “Some people are promised money in 24, 48 or 72 hours, but you’re going to pay fees and upwards of 40% to 50% interest. Don’t look for the easiest money. Look for the best money.”
The “best” money means a source with experience in financing your kind of business, a lender that knows what to expect, he explained. “You’re going into business with whomever lends you the money and you should be very sure of the character of the person (or organization) you’re going into business with.”
Plan For Worst Case Scenarios
“Planning for the unknown is the hardest part of starting a business,” Calafati said, and pointed out that it’s precisely when you have the least money coming in that you may experience the most hardship. “The one sure thing every business owner can bank on is that nothing’s going to go to plan, and that’s what they have to plan on,” he said.
Bake in worst case scenarios into your business plan upfront, and then heavily research so that you know exactly what your initial capitalization needs will be and why, and then “add on top of that,” Calafati said.
Network With Other Business Owners
Another great way to be prepared for success in small business is to “talk to other business owners that have done it ahead of you,” Calafati said.
While you may not want to go to your competitor, he urged networking through organizations such as a local Chamber of Commerce or Rotary Club. “A lot of these people are so happy to help and happy to help you avoid their pitfalls. Business owners love to talk about everything that goes wrong, so they could be a great course.”
Talk To Your Lender
Additionally, remember that your lender is a wealth of information and they want you to succeed. “There is no lender on the face of the earth that’s loaning money out that’s hoping people fail,” Calafati said. “We will help you. We will guide you. Look to your banker and ask if you’re missing anything in your business plan.”
Take Advantage of Free Business Development Centers
Furthermore, Calafati said, people often forget to take advantage of free outlets, such as Small Business Development Centers (SBDCs). “Small business development centers are at most every major university in the country and even community colleges. They’re funded by taxpayer dollars. They’re free.”
He said they’ll do everything from offer free advice on your business plan to helping you make financial projections. Some even have mentors they can match you up with.
Research Your Market
Researching your market is very important to any successful business. “Is this in your hometown or is it a town close by that you heard would be great for this or you thought might be great? Do your research on your market,” Calafati said.
If you’re looking at franchises, research that for yourself, as well, and don’t believe everything you read online. “Do not believe what the franchise material tells you. Go to the franchise disclosure documents, which are required by law under penalty to print the truth about their franchise.”
Hire Professionals To Fill In Your Gaps
While you can save money by doing as much yourself as possible, Calafati urged, “Hire professionals to do those things you’re not good at.”
For most people, that includes an accountant or bookkeeper because that’s such an essential part of running a business.
“A lot of people go in and they think, well, I’ve got to save money and I can’t pay for this and I can’t pay for. That’s penny wise and pound foolish. You really do need those people.”
Ultimately, small businesses benefit from as much planning in advance as possible.
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