It takes more than passion and great ideas to launch a sustainable business. According to the SBA, over 50% of small businesses fail in the first five years. To be successful, an entrepreneur needs a strong sense of the challenges that lay ahead and how to respond to them. Here are the five biggest challenges that even the smartest and most dedicated ones will face when starting a business.
1) Forging an idea into a business opportunity.
No matter how great your idea is; your first challenge is to ensure it can be developed into a real business opportunity. Is there a market need for your idea? Is it unique or are there lots of people out there doing exactly the same thing? Also, be sure your idea has the potential to generate profits or you may be better off as an employee. Finally, find a potential customer who will try your product or service and give you feedback. You should always test a business idea before investing a substantial amount of time and money in it.
2) Choosing the right business entity.
When starting a business, you must decide what form of business entity to establish. The structure your business assumes will determine your limitations, liabilities and the income tax return you will have to file. The most common business entities are the sole proprietorship, partnership, corporation and S corporation. Each has its own advantages and disadvantages. A sole proprietorship can be easier to create and run, but the owner is responsible for all debts in the business. A corporation, on the other hand, offers liability protection, but it is subject to capital gains tax. Your accountant or attorney can help you decide what type of business structure best fits your needs.
3) Creating a sound business plan.
If you fail to plan, you plan to fail. Before spreading your wings and flying solo, make sure you have mapped out the road in front of you. A business plan is a document that identifies the goals of your company and explains how they will be achieved. It is a blueprint for your business and it is an indispensable tool in attracting investors. Preparing a business plan takes time and energy, but it is one of the most important steps in starting a business.
4) Raising capital and managing cash flow.
Unless you have substantial personal savings, chances are you will need to borrow money from an individual or a bank to get your business off the ground. And you will need a strong business plan and good persuasion skills to sell your idea to potential investors. After you’ve ensured the capital, you will face the challenge of managing cash flow, as you may have to pay suppliers before you collect from clients. The key here is to control your costs and not let your expenses grow faster than planned.
5) Wearing many hats.
Unlike a salaried employee, business owners are in charge of the entire day-to-day functions. As an entrepreneur, you are the marketing and sales person, the bookkeeper and the web designer. Wearing many hats can get overwhelming, mostly if you are not strong in some of these areas. So, hire great people and delegate responsibilities. To be successful, you must become an expert at prioritizing tasks and pacing yourself.
These initial challenges can give entrepreneurs the knowledge and confidence needed to survive hard times. As the business grows, there are always going to be bumps along the road. But the more prepared you are, the better chance you will have at launching a new successful business.
Jen Silva writes for ChooseWhat.com and enjoys writing on topics such as how to start a business, topics related to business cards, and online faxing options. Visit Choosewhat.com to view more business advice and online articles relating to starting a business.