We all know intuitively that there is risk to business enterprise. We have watched restaurants come and go. We have heard the statistics: 50% of all businesses fail in the first year, and 95% do not survive the five year mark. Fortunately, those statistics are just urban legend (or a little exaggeration to make a point). There is risk to doing business, but that risk can be minimized and managed.
So how does a budding entrepreneur minimize the risk and become successful?
A successful business needs a solid foundation, and that sold foundation requires planning and capital. Not taking the time and money to build a solid foundation is a recipe for failure. Most businesses do not make money at the start, but cutting corners on establishing the foundation is not good business planning.
The foundation of a successful business is built with professional help. A good CPA, insurance agent and attorney are essential to managing and minimizing the risk. Involve them early, and include the cost for these services in your business startup plan. It will cost more than you expect, and it will cost more than you want to pay. If your business survives five years, however, those costs will long be forgotten, and the benefits will endure. Most startup businesses are still around five years later so plan for survival!
Part of a business survival kit includes legal planning. Insulate yourself from personal liability by incorporating or organizing as a limited liability company (LLC). Take the time to understand what it means to operate a business as a corporation or LLC. A good attorney should not just do the paperwork; a good attorney should educate you on the reasons for incorporating or organizing your business and how to maintain the business as a corporation or LLC to protect you from avoidable exposure to business liabilities.
Business survival includes ongoing maintenance of the corporate or LLC form of business. The legal work is not finished when the corporation or LLC is formed; it has just begun. A corporation needs bylaws, and an LLC needs an operating agreement that makes sense and works for you. The formalities of the corporate or LLC form of ownership must be maintained in everything that is done and requires ongoing attention. Maintaining those formalities is not difficult, but they are often ignored – sometimes to the peril of the business, or worse (personal liability).
No one goes into business planning for the business to end. At some point, however, potential business ending events must be considered. Business survival depends on it! Any time that two or more people are involved in the ownership of a business, some thought needs to be given to things like: what happens if one owner wants out; what happens if one becomes disabled and is unable to perform; what happens if one dies. If you have not planned for these things, and if you have not provided mechanisms for addressing them, such events are often a death knell, even for a successful business. Talk to your lawyer. Plan how these events will be handled. Plan for survival!
Here is a bonus tip:
Anyone who wants to get rich quick should play the lottery. Going into business is not for the get-rich-quick crowd. Making money is a motivating factor, for sure, but successful businesses are more often started with different primary motivations. Love of the product or service, desire to serve other people, belief that a better product or service can be provided, and wanting to make a difference in the world are the stuff that successful business people are made of.