The United States is home to millions of small businesses. While many thrive, there are certain risks and challenges that often accompany operating an independent company. If you’re thinking about starting a small business, keep these considerations in mind.
· Create a business plan. When you’re fired up about an idea, it’s easy to overlook the details. A business plan forces you to define your business goals and how you plan to achieve them. It also helps you examine your competition and identify where your products or offering fit in the mix. Lastly, a thorough plan includes the strategies and tactics you will employ to move from ground zero to profitability and the costs and timeframe for getting there.
· Beware of going “all in.” You may have read about people who maxed out their credit cards or mortgaged their homes to fund a business that brought them quickly into wealth. Unfortunately, this is not the norm and the odds are stacked against this financial house of cards. Think twice before putting everything on the line for your business. Invest as much time and energy as you can afford, but avoid overextending yourself financially as you pursue your business plan.
· Test the waters. To minimize your financial risk, consider launching your new business on a small scale before quitting your day job. Many small businesses have been started on the side while entrepreneurs maintain a fulltime job. The idea here is to keep income flowing until your business is viable and you can pull a salary without compromising your income.
· Save for a rainy day. Even the savviest entrepreneurs can get caught in a market down cycle. And no one can predict all the things that might affect your bottom line. Individuals who are in business for themselves are doubly in need of a financial buffer should things take a turn for the worse. If sales falter, you’re still on the hook for your business expenses, and you need to pay yourself too. Build savings into your business plan and keep your credit in good standing so you have access to cash if and when you need it.
· Invest wisely. When you do need to put money into your business, be smart about spending so that your dollars multiply down the road. Hire competent people who are as passionate about the business as you are.
· Protect yourself. Every business is vulnerable to potential risks, and it’s important to think about the worst case scenarios and how you’d handle them. What if a fire destroyed your office? Would your company collapse if you or a key employee were injured? If a customer, vendor or employee sued your business, could you afford your day in court? There are insurance products made to address all of these risks. Factor in adequate protection as part of your cost of doing business.
· Create an exit strategy. When you’re just starting out, it’s hard to envision the day you’ll turn the reigns over to someone else. Succession plans are an essential part of a sustainable business, especially if you hope to sell and use the proceeds to fund part of your retirement.
· Seek financial advice. If you’re serious about starting your own business, get on the right track with financial guidance. Find a qualified financial advisor to look over your shoulder as you develop your business plan and launch your new career. Their financial acumen and fresh perspective can help you steer clear of financial trouble.