Does the high small business failure rate give you sleepless nights?
If it’s any consolation, you’re not alone. Pretty much every small business owner knows the odds are stacked against them, seeing that about 8 in 10 businesses collapse within a decade.
The high risk of failure hasn’t done enough to deter entrepreneurs, though. Over 3 million new businesses open up every year in the U.S. If you want to take the bold step and set up your own enterprise, there are measures you can implement to minimize the risk of business failure.
Read on to learn more.
- Validate Your Idea
One of the primary reasons small businesses die is the lack of a market, or too small of a market, for their product/service. If only a handful of people are buying what you’re selling, your business won’t generate enough revenues to sustain itself.
Yet, this is a highly preventable situation. If all entrepreneurs took enough time to assess the commercial viability of their ideas before opening their businesses, at least they wouldn’t be collapsing because of poor market demand.
There are many ways to validate an idea. For example, you can create a landing page on your website for a new product, and ask visitors to make pre-orders. If the numbers are underwhelming, that’s a sign the market isn’t interested in the product.
Whichever testing method you use, don’t rush to establish a business unless your market research shows there’s adequate demand. It’s better to shelf the idea and preserve your capital than launch a business that’s dead on arrival.
- Buy an Existing Business
Starting a business from scratch greatly increases your risk of failure. Even when you have validated your business idea, there are several uncertainties and challenges on your path.
Buying an existing business with a proven market and sales record is an effective way to drastically reduce most of those uncertainties. Just think about it for a second; if you had enough money to buy Apple Inc, and the company was put on sale, would you hesitate?
There are lots of profitable, small businesses on sale at any given time (view these listings, for example). However, it’s your responsibility to do proper due diligence and ensure you’re buying a good business.
Another alternative is to buy a franchise. Although you will still set up a new shop, franchising gives you a head start because you will use the franchisor’s business model, trademarks, and other proprietary assets.
- Insure Your Business Adequately
Your business faces financial, operational, compliance, and strategic risks. Purchasing commercial insurance can help shield your business from many of these risks.
The COVID-19 pandemic is a prime example of an unforeseen event that interrupted the operations of millions of businesses. Business interruption insurance exists for such reasons.
Although most small businesses have general liability insurance, it’s barely enough to adequately protect your business. Depending on the nature of the business, you might need other types of insurance, such as property insurance and professional liability insurance.
You Can Avoid Business Failure
While business failure is so common in the U.S., you should not be discouraged from starting and running a small business. Many of the reasons businesses fail are totally preventable. You just need to know them and how to do things differently.
All the best and keep reading our blog for more tips and insights.