Small business is often declared the backbone of the United States Economy Everyone who lives in America has heard this phrase millions of times whether from political or business analysts. According to Bureau of Labor Statistics, nearly two-thirds of businesses with employees stay afloat for two years, while half stay in business at least five years. The survival rate begins to flatten out after the five-year mark with only marginal downward trend between year six and 15.
So what are the steps an aspiring small business owner can take in order to ensure that they are setting themselves and their business up for success? There are of course practical problems that can plague inexperienced business owners, such as lack of capital, poor management, structural disorganization, and unexpected circumstances.
One of the major components that can lead to the failure of a small business is a lack of capital combined with the naive belief that the business will be immediately profitable. An unexpected example is popular online retailer Amazon, which has barely turned a profit in the company’s entire existence. Regardless of your industry or offering, if you’re expecting to be solvent early on in your operation, you may as well not start.
One of the big things that new business owners can do to counteract the expenses is to not over or under-insure their business. For example, if you are starting a company that solely handles data on the computer, you would probably only need a cyber insurance policy, but if you were opening a restaurant you would need at least general liability insurance as well as a workers’ compensation policy. There are many online platforms such as CoverHound that generate insurance quotes from different providers so that the business owner can understand what they need, what they don’t, and what they will have to pay for it.
Poor management is routinely cited as the cause of a failed small business. This often happens once the business is out of its early stages and the founder begins to place individuals in management positions. CNBC asked AmeriMerchant’s David Gouldin what causes businesses to fail “The owner may not be hands-on anymore and has been replaced by someone who may not be as good as that person is, it could be the owners are getting tired as they get older, losing their drive, are sick of the business or have been there too long. Priorities change. It could be a family event, such as the birth of a child.”
Other times the problem is that the individuals who are asked to take over responsibilities that the business owner was previously taking care of will not have the same passion or determination to do that responsibility correctly. This conflict occurs in a huge amount of small businesses, and it speaks to the necessity of hiring employees who share the business owner’s passion as well as a strong work ethic. One of the ways to ensure that management remains equally successful and efficient is to make sure managers are able to effectively mediate between the owner of the business and the employees, which connects into the next point about structural organization.
A lack of structural organization can bode poorly for a developing small business. Small business owners are passionate about their craft or service they provide, but owning a small business leads owners to realize that the job takes more than passion. It’s vital for the business owner to delegate responsibilities to employees whom can be trusted to complete the needed task. For example, if you are opening a pizzeria and are expecting at least 50 percent of your business to be delivery orders, it would be advantageous to assign a manager to ensuring the efficiency and quality of the pizzas being delivered. That way, if your business’s online ordering tool fails, someone will immediately know and be able to address the problem. The development of a business structure implies that you are tasking employees with a specific responsibility, and holding them accountable for that specific task. When employees know exactly what they are supposed to do at work, their productivity and work quality will only improve.
As with life, one of the major things that can cause a small business to shut down are personal circumstances. Whether it is an illness or injury, the inability for the business owner to go to work or do their job properly can only be fixed by the previous implementation of strong managers and structural organization. The success of a small business is entirely dependent on the business owner’s ability to delegate wisely, pick proper coverage for their business’ needs, and above all else, determination to succeed through inevitable, adverse situations.