As Small Business Week comes to an end, we reflect on the many stages of owning a small business. While there are many business successes, there are unfortunately many more business failures.
Various factors, including the type of industry or the age of a business, can contribute to its chances of failure, according to the Statistic Brain Research Institute. The research found that the older a business is, the more likely it will fail. While a 5-year-old business has a 55 percent likelihood of failure, a 10-year-old business has a 71 percent chance. Similarly, only 37 percent of information-based businesses failed after four years, compared to 58 percent of finance, insurance and real estate businesses during the same timeframe. In order to prevent the majority of failures, there are some ways that businesses can be proactive and reduce their chances of going under.
Not Being Social Enough
Not using social media at all; failing to use the right kind of social media; or not knowing how to use it effectively are some reasons startups fail. Whether it’s a lack of time or simply not keeping up with the most popular brands, lack of a presence of social media is one reason startups fail. Examples of positive social media use include using LinkedIn to search for new hires and using the company’s profile to advertise for employment. Twitter can be used to engage and have conversations with potential customers and future employees by showing recent work products and seeking community engagement. Showing your prospective customers photos, videos and links to authoritative websites will often provide your company with invaluable PR.
Not Being Insured Well Enough
Another thing attributed to startup failures, especially for those that have even a few employees, is lack of insurance. Even when an entrepreneur is working out of his or her home, insurance may be necessary if clients come and visit the home office. Similarly, business auto insurance may also be necessary if client meetings are necessary at a client’s place of work. Malpractice or errors and omission insurance may not be required, but even if a lawsuit is baseless, the money and time it takes to defend and dismiss a lawsuit can take away from an owner’s time, potentially reducing cash flow.
Poor Business Name Search
Picking a business name is a critical part of branding one’s company, but not performing a trademark search can result in lost money and even a complete business failure. Since a business name goes into the LLC or corporation filing paperwork, signage, a website, business cards and what potential customers see, it’s imperative that a thorough check is done on the name’s availability. If the name is already in use and trademarked, legal costs could become pricey.
Not Using Enough Varied Marketing Techniques
A non-diverse marketing approach can make or break a startup; examples include the inability to scale product sales or attract investments from venture capitalists. Startups that leverage their advertising through social sales, word-of-mouth advertising and partnering with businesses in non-competing, complementary industries can increase the likelihood of sales.
Startup entrepreneurs who fail to be cognizant of their communication skills and styles can spell doom for their ventures. This is especially true if the startup is looking for Venture or Angel Capital funding. Meandering or looking down at the conference table instead of making eye contact does not convey confidence or display positive body language to potential investors.
For entrepreneurs who reduce or avoid these mistakes, the chances of their startup surviving and thriving are certainly increased. However, even the best startup can’t predict how its customer base or government regulations will ultimately impact its success.
For more information on structuring your startup, contact us today.
Dee Ann Creach serves as a tax planning and compliance expert for McConnell & Jones where she leads the preparation of hundreds of tax returns. With more than 30 years of experience, clients value the ability to tap into Dee Ann’s extensive experience in public accounting—which, in addition to income tax services, includes strategic family business, gift and charitable planning as well as financial consultative services. As tax manager, Dee Ann also oversees correspondence with the IRS and state governments, helping to save clients hundreds of thousands of dollars in unnecessary remittances. Connect with Deeann on LinkedIn.