Starting a New Business - Confident too Soon?
They say that 80% of businesses fail in the first three years. Pretty scary huh…and certainly sad. From what we see most businesses fail due to inexperience, mis-management and poor decision making. That is why it is so important that all new start-ups need to partner with a good accountant and business adviser to help them make the right decisions and to share their experience in business. What I have seen over my career is start-ups feeling confident too soon and spending too much money in areas that won’t help them increase their income. They get excited and end up spending money on toys, far too soon. This is probably why accountants tend to be a bit prudent when it comes to spending. One example is spending in total through financing, $70k on a company vehicle. This particular company vehicle was not needed for the job and certainly was not going to help them grow their business.
If it was a well-established business with a stable client base, where no other assets were required first, with good management systems in place and several profitable years under their belt, then I would say ‘go for it’. You might justify the purchase by saying ‘but doesn’t he/she deserve it…they work so hard’. However, only being in the first year, would it not be more important to spend the money on something that will help grow the business. Yes, we all like to reward ourselves for the work we do, it is just human nature but the business world is a tough place to be and does not have much sympathy for irrational decisions. We need to be tough on ourselves and often push our desires aside when we enter the business world.
Becoming confident too soon with luxury spending may cost us more than we ever thought at the start. Always fight the irrational with rational – it is just one of the basic fundamentals of surviving in business. Your time will come and when the time is right, then you can lighten up a little.
I’ve put together five tips on how to survive the first three years:
Really understand your market
Have a clear vision for your business
Know and understand your risks, then minimise them
Place marketing as your #1 priority
Learn to be efficient
In my next blog we will explore these a bit more.