Understanding the Cost of Starting and Operating a Small Business
Why many small businesses fail
You’ve been working for someone else for years and have decided to strike out on your own and start your own small business. This is a dream for many Americans, but sadly 50% of small business start-ups fail within the first year and 95% fail within five years. Most of the small businesses that fail do so because of poor or little financial planning. To ensure the greatest success of a new business venture, thorough planning of the cost of starting and operating a new business and the best way to secure a business loan should be examined and understood.
Planning the small business start-up
Proper planning is crucial for the success of any endeavor. The financial road of a small business is a complex one. It is ever-changing with trends, new technology and the overall economy. Understanding your start-up cost is the first step to sound financial business planning. Start-up costs include everything from equipment, inventory and location to promotional cost and marketing. Many small businesses can be started for under $3,000 with sound financial planning and operation, they can be successful. It doesn’t have to take $50,000 or more to start a successful small business. Start-up costs can be reduced by purchasing used equipment, negotiating lower rents or operating out of your own home. Promotion and marketing are other areas of operating a small business where cost is often overlooked. A certain dollar amount must be committed to advertising the business and bringing in new sales in order for the business to grow. Marketing and promotion can include television and radio ads, websites, flyers, and business cards as well as all other promotional materials. Once a good understanding of the start-up and operational costs have been ascertained, then the next step would be to secure funding for the business start-up. Since start-up companies do not own assets that can be used as collateral in a loan, the owner can consider unsecured loans.
What you should know about small business loans
There are various types of small business loans available. Whether or not you qualify for a business loan will depend on a number of criteria such as your credit rating, personal assets, the type of business you’re starting, and your business plan. A thoroughly researched and well-written business plan will go a long way with banks and with the Small Business Administration when applying for a business loan. The SBA offers some the best rates for small business loans. The only downside is that SBA loans require extensive paperwork and are time-consuming, but their rates are very low and they tend to be more favorable to companies with little credit history.
If you are planning to start a small business, the SBA offers assistance with developing and creating a business plan. The success of your business will begin at the planning stage. If you have a strong understanding of your start-up and operating expenses, as well as a plan for emergencies and growth, then you’re well on your way to business success.