Top 10 Reasons Businesses Fail- Lack of Funding

by Dawn Fotopulos on April 22, 2010

We’re going through the top ten reasons most small businesses and solopreneurs fail.

Reason one was lack of experience. In the first blog post of this series, we explained what you could do about that.

The second reason most small businesses fail is they need more funding. But we need to clarify that. Most small businesses don’t need millions of dollars to get to breakeven and beyond.

Most small business start ups need more funding because they have not planned for the following:

  • Keeping expenses as low as possible until revenues are greater than expenses
  • Researching from their chamber of commerce or industry trade association to find out how much it costs to start a business in that industry in their geography (and yes, it differs where you live).
  • Tax rates, local demand for your product or service, the level of local competition all help determine how cheap or expensive it is to start a particular kind of business.
  • The experience of the owner(s) in that industry. If you already have experience as we described in our first blog post of this series, then you have contacts, suppliers, wisdom, resources, mentors, access to distribution channels available to you the small business owner without industry knowledge doesn’t have.
  • Plan for the cost and maintenance of a web presence. There are few areas more important, more cost intensive and more prone to expensive error than building a website. Many small business owners think if they build a website, everyone will flock to it.

You may need more funding that you expected because it will probably cost at least $10K in the first year to build and maintain a website that has the ability to:

  • Capture visitor information (database of subscribers)
  • Provide adequate security
  • Upload video content
  • Sell products or services online

Building the website may cost roughly half of that. Maintaining the site, hosting the site, all those tag on fees for software licenses are in addition to the initial design fees and are factored in here.

These expenses are like mosquitoes stinging your checkbook at every turn. They add up quickly and can run into hundreds of dollars a month and thousands of dollars a year. Anyone who tells you that it’s easy to make money on line is a liar. Period. It is still possible, though, so don’t give up. Just prepare for the longer haul.

It takes upfront investment, time to build and add content and dedication to build an audience. In the meanwhile, your expenses don’t stop.

Expect that for most of us, it will take at least two years to be indexed by the most important directories and to get adequate back links to generate any meaningful traffic.

It’s also crucial the small business owner learns how to update the website. It is worth it to take a course or get some tutoring on how to upload an article or blog post. If you learn how to maintain the site, you won’t need more funding than what is required for the basics.

We at Best Small Biz changed our site platform from Site Build It to WordPress Thesis. It makes uploading content an absolute pleasure. It also takes us a lot less precious time. It’s a whole lot cheaper than paying a developer $100 per hour to do the work.

Remember, you don’t need millions, but you may need thousands to get started. Do your homework first. Speak to us or to the guys at SCORE or your local university. They’re a treasure trove of help.

Don’t start a business until you’ve created a budget on expected expenses for the first two years. You also need an expert in your industry to review your revenue assumptions.

You don’t want to be a statistic like those dot-com dudes. Their problem? They thought the money would come rolling in right away. For those who had enough start up capital like, it took them years to reach break even but they were able to weather the expense storm.

Give yourself a two year running head start when it comes to your need for more funding. Assume your revenues will ramp up very slowly in year one and build in year two.

Keep your expenses as low as possible. If you run the business out of your garage, basement, the back of your car or in your apartment, do it. Revenues should drive your need for more funding, nothing else.

At Best Small Biz, we are The Solopreneur’s Lifeline

Dawn Fotopulos

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{ 1 comment… read it below or add one }

Jesse Langel April 29, 2010 at 2:46 pm

Excellent article. “Revenues should drive your need for more funding, nothing else.” My strength is not financial management, but it’s so critically important; I’ve hired a bookkeeper to help me with my financial intelligence to make the right decisions so I do not run out of money. Thank you, Dawn.

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