According to the Small Business Administration, more than half of all new small businesses fail in the first five years. Inexperience, not enough startup capital, and a bad location choice are the top three reasons behind most failures. In reality, unless it’s a home business and the services offered are Internet based, all three reasons are interrelated.
So how can a startup avoid the frequent mistakes that lead to failure?
Capital vs Costs
Every new business requires enough startup capital to cover day-to-day expenses as well as hidden costs if they’re to have any chance at success. Property leases, payroll expenses, equipment rentals and telecommunication costs are some of the known expenses that can be factored into an operations budget, but some expenses aren’t as straightforward and can cripple a business immediately.
One example of hidden costs can be found in the expenses associated with the initial location setup. Fitting your business space with the necessary office furniture, performing any renovations that may be required to meet building codes and obtaining relevant permits and licenses for your business can get expensive really quickly. To lower these expenses, consider a virtual office at a prime piece of real estate in order to limit the decoration expenses. As a business is just starting off, a virtual office can be nice as it offers all of the amenities at a fraction of the cost of leasing your own office space.
Don’t Underestimate the Importance of Location
How big it is and how much the lease costs are just two of the many things to consider when choosing a location for your business. Other location-related factors that can directly impact your business’ performance are:
How many competing businesses are located within 1 mile? If competition is high, your chances of failing are greater against your more established competitors.
As mentioned already, business taxes can be crippling to a bottom line. Choose a location with a favorable tax climate and incentives for start-ups so that more of your profits can go toward reinvestment.
Depending on the services offered, are you located in an area with high customer traffic or not? Customer proximity is the best way to promote growth so don’t choose a location that’s hard to find or far away from your intended market or your suppliers.
If you’re catering to a high-end demographic, choose a high-end location that reflects the image you wish to project for your business. Perhaps access to a conference room will benefit your business when hosting potential clients, or a nice waiting room for your new customers.
Expanding Too Soon
Growth is exciting, but expanding too soon can lead to failure. By starting off in a virtual office you’ll get to know other small businesses. This often gives you the opportunity to hire them as an independent contractor when you need help rather than hiring someone when you may not always have work for them. By contracting work out to other people in your office you don’t have to worry about having office space for them either.