How to Ensure Your Business Survives - When Others Don't

When you start your own business, there's no guarantee that your business will survive. Nearly 50% of all small businesses fail within the first 2 years. The 2 main reasons for businesses failing is the lack of a proper Business Plan and the lack of capital.

Before you go overboard getting into debt to finance your business you need to have a strong Business Plan detailing your strategies on how you are going to survive and thrive in those first few years.

Here are some ideas to consider from businesses that have thrived for 5 years or more and what they have in common.

YOUR IDEA:

1. All successful businesses start with an idea. Does your idea stand out from the rest? How do you know if you have a good idea?

Does your idea provide a solution to a particular problem?

Does your idea satisfy a need or want? (what people want or need are two different things)

Does your idea create an opportunity?

Most successful businesses have found a solution to fixing problems (real or perceived) or have products or services that bring enjoyment to their customers. Successful ideas should create a repeat need for a product or service in your target market.

YOUR MARKET:

2. If you can answer yes to the following questions then your chances of survival are better than most.

Is there a ready market for your product or service? (It's easier to fill a need than it is to try to create a new market)

Are your products or services affordable for your target market? (it doesn't matter how good your products or services are if your potential clients can't afford them, they won't sell)

Are your products or services valuable to your potential clients? (If they want it but don't believe the value is there they won't buy it)

YOUR KNOWLEDGE AND ABILITY:

Do you have the knowledge and competency to provide the products and services you want to sell? If not, do you have partners or employees that can fill the gap on the things you are not able to do or don't like to do? Do you have sufficient manpower?

Do you have a consistent supply source for your product? or do you have the ability to provide the service you are offering on an ongoing long term basis to your target market?

Do you have a USP (Unique selling proposition) that will help you maintain a competitive edge?

Do you have a Brand that properly represents you and your product and is consistent throughout your Business so it is memorable and separates you from your competition?

You need to develop a strong Business Plan. The idea is that your business plan should be your ongoing road map to use on your business to be changed and tweaked as you go along so you always know were you are and were you going. A Business Plan is not just "my idea is good so I deserve to get funding" - that just doesn't float with banks or investors.

Make sure you use your Business Plan, don't waste time creating it to file it away in a file cabinet. Your business plan will help keep you on course to growth and success and keep you on track with your goals.

Next you need to ensure you get sufficient funding. Having enough capital to keep your business afloat is vital to the survival of your business. Many small business entrepreneurs tend to underestimate how much capital they will need and forget altogether to allow for cash flow. The first few months of your business are likely to be cash strapped as you develop and grow your market and you need to ensure you have enough funds to survive during that time. Be realistic with your figures and allow a cushion for unexpected expenses.

In addition to the usual sources of funding - banks, investors, family etc. here are some resources you might be able to tap into for grants or loans.

Your local Small Business Associations

Small Business Development Centers

Economic Development Centers

These resources can usually point you in the right direction even if they cannot assist you directly.

How to Get a Business Credit Card With No Credit History

Having a credit card purposely for your business is very useful but getting a business credit card with no credit history can at times be of a little challenge. Almost every successful small business owner would attest to the importance of keeping family and personal finances separate from the business' finances.

It is important not to mix purchases made for the business with those of the family or for yourself. This is the reason why it is important to get a business credit card that will be used solely for making purchases meant for the business' daily operations.

So why is that most small business or family business owners find it a lot more difficult to obtain credit card financing? The reason is quite simple indeed. When a bank for instance loans you or your business money in the form of a credit card, they must be sure that you can pay back the money, with any interests that accrue.

And the only way they can make this decision correctly is from your credit score or rating. Now most small business owners do not have a credit history for their business. So it becomes difficult for lenders to approve a credit card in the name of your business. However, it does not mean you cannot get a business credit for your business - it is just a little more difficult. So follow these 4 steps to get a card for your business approved quickly and start building an excellent credit rating for your business.

1. Start from the local bank or credit union

Go to the local bank or credit union where your business has an account at. Most small banks are willing to offer a business credit card to new businesses that have accounts with them, albeit without a credit history. If they approve the card for you, it is an excellent opportunity you can build on and get a good credit rating for your business. After that it will be a lot easier to get any card you want for your business.

2. What if the first option fails?

If it does not work out with the banks or credit union, you can turn to large online or e-commerce retailers such as PayPal or Amazon. If for instance you have a PayPal merchant account, you can apply for a card from them that will help you manage your business' finances well. So if this applies to you, consider making an application with them and see if it will be approved.

3. What about a secured credit card?

A secured credit card, registered in your business' name may your next and best option about getting a card for your business. Most banks will give you this card if you have a savings or checking account with them. You simply deposit money into the account. The bank will then give you a card secured on the account.

Every purchase you make will come straight from the checking account. But the card has every feature and capability you would otherwise expect to have on a regular unsecured card. This way, like we stated in earlier, the bank is able to monitor your credit behavior or how you run the business' finances. If over a period of 9 months, the bank feels your credit behavior is satisfactory, they may upgrade it to a normal credit card.

This is one of the best ways many business owners have been able to get a credit card for their businesses and have built excellent credit ratings for their businesses, and you can do same.

4. This is important and closely related to step 3 above. Ensure that any card you secure for your business is reported to the credit reference bureaus under your business name. Some credit card firms do not report secured business credit cards. And if it is not reported, you cannot build the good credit rating you need. This way you can begin to build a credit history for your business.

A Good Credit Score Is Critical to Business Success

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A good credit score is critical to business success and this seems simple enough. However it plays out in many different ways. When a new business starts out, it makes sense to keep costs low and save time by simply operating the business as a Sole Proprietorship. As the business becomes successful, the business owner wrestles with many aspects and one of these includes if and when to move from a Sole Proprietor to a separate legal entity such as a corporation or LLC. This is an important decision as legally separating the business assets from the owners personal assets may provide some protection if the business loses a lawsuit. It also helps when the business grows and needs access to finance or capital to grow or wants to apply for credit from suppliers. Moving into a new legal entity can be a good business decision.

One of the reasons to consider when making this move is that it allows the owner to separate their personal and business assets. Personal assets are fairly obvious as they include the family home, car, family bank accounts and personal effects. The business assets are also fairly obvious and include items such as the fixtures, furniture and equipment, the inventory, goodwill items such as the name of the business, and any intellectual property you as the owner create.

Hopefully from day one of opening the business, there is also a separate checking account and bank deposit book for the business that is kept separate from the business. This separation may mean if the owner is sued, if the legal action has any negative outcome may only touch the business assets and not the personal assets. Plus there is always insurance to help mitigate the owner's risk.

As the business grows, however, the business may have the need to borrow. To manage that risk, it is time to separate the personal assets from the business assets. One of the main reasons to do this is so that it protects the personal credit and credit score of the owner.

With the business assets sitting in a different legal entity, there is a need for the business owner to manage the credit and credit score not only for themselves personally, but also for the business. This is not to say that a business owner can be loose with their business credit and walk away from money they owe to others. However, the system we work in puts a high value on our credit score for so many aspects of our personal and business life.

This applies especially when borrowing money, buying a car, applying for a job etc, it is critical to manage each credit report and score in its own right. If something untoward therefore happens that means the business has to close down, the personal credit score and report of the owner is not damaged and life can go on.

This applies equally to a buyer that wishes to buy a business. With the many personal bankruptcies from the housing crash and the difficulty trying to get a job, many are turning to buy a business. However, the banks are not willing lenders even for SBA loans if the borrower has a personal bankruptcy even if it goes back many years.

The financial system provides a lot of incentive to manage money correctly. Interest paid is able to be deducted to lower tax payments, credit is available from suppliers for a period of time of say 30 days so sales can be made in advance of payment, and many other benefits. Managing and protecting a credit score is a critical requirement to enjoy all the upside.

Andrew is a 5-time business owner that helps entrepreneurs exit or enter business ownership. His services include helping owners sell and/or buyers purchase an existing business or consult on purchasing a franchise. He also provides certified machinery and equipment appraisals and business valuations.