Starting a new business is both exciting and challenging, especially in the first year. If it works reasonably well and generates some profit, then business ownership can be rewarding, but if it doesn’t go as planned, you may have some regrets. Thirty percent of new businesses fail in the first two years and only fifty percent make it to five years, according to the latest report by Industry Canada. Fortunately, the pool of potential entrepreneurial firms has been growing steady and the business birth rate has been higher than the business death rate. Firms in the service sector in Canada have the highest net growth and three quarters of these were new start-ups instead of being acquired from a family member or someone else.
With strategic planning, you can avoid some of the problems that lead to business failure. Some of the strategies that are recommended to help you avoid debt overload are to: secure start-up funds, keep focused, monitor revenues and set targets, minimize capital investments and expenses, don’t co-mingle your assets, use low cost marketing and manage your risks. These strategies are outlined further below.
Secure Start-Up Funds
In order to start a business, you will need start-up funds; your business will incur expenses before it even gets up and running. If you are unable to obtain a business loan, then you will need to provide a capital investment yourself. A general guideline is to ensure that you have cash reserves or access to credit that can cover three to six months of expenses.
Keep Your Business Focused
Focus on implementing only a few ideas to start. Many entrepreneurs fail because they try to take on more than they can handle. It’s better to offer a short list of things and to polish those before expanding.
Monitor Revenues and Set Targets
It is important to keep track of your revenues and set revenue targets. Without the minimum amount of revenue or capital needed to stay afloat, efforts to recharge the business can prove futile.
Minimize Capital Investments and Expenses
Keep your capital investments and expenses to a minimum, using low cost or free alternatives where possible, until your business is steady for a period and is regularly profitable. For example, use existing computer or other electronics equipment you already have if you can. Buy only what you need and see if you can get it second hand. Also, try free accounting software instead of investing money into expensive accounting programs. This strategy will allow you to free up cash to prolong your operations even if sales come in at a slower pace.
Don’t Co-Mingle Your Assets
Experts recommend that you maintain a separate bank account and credit card for your business from your personal accounts. Otherwise, it can be very confusing to manage your record keeping. You could end up personally spending business revenues or personally funding business costs without realizing how much for months on end.
Low-Cost Marketing Plan
When you have little or no revenue, a low cost method of reaching consumers can be critical to success. Your marketing plan will need to distinguish your business from others. As Roy Osing from the Globe and Mail suggests, always be prepared to answer “Why should I buy from you and not your competitor?” Perhaps your answer will be “We are the only ones who…” Identifying what sets you apart and promoting that in specific marketing pieces and your overall marketing strategy can help keep your marketing costs down.
Manage Your Risks When Starting a Business
Identifying the potential risks to your business can help you to develop realistic, cost-effective strategies for dealing with them. It is important to think broadly when considering your risks, beyond the obvious concerns of fire, theft, and market competition. The organizational structure of a new business, or lack thereof, can become a problem. Failing to recognize business debt stress indicators is another risk. Further, hiring staff who are inept or lack necessary experience risks hurting important business functions, like sales efficiency, quality control, customer service and your profit margins. Some other risks include technological risks such as power outages, computer systems failure etc. Determine if you need a business insurance policy to protect your business in the event of a financial loss.
Contact us at A.C. Waring & Associates Inc. in Edmonton
At A.C .Waring & Associates Inc., we provide debt relief in Edmonton and the surrounding Alberta region and can work with you on how to get out of debt. We are licensed insolvency trustees who can help you, including if your business has led you into personal credit card debt. We can discuss options with you, including credit counselling, consolidating debt and debt restructuring in Edmonton. We can help you to get your business back on track financially. Contact us at 780-424-9944 or 1-800-463-3328.