Wondering About Your First Year In Business? Have A Look
If you’re not sure about your first year in business, then have a look at these tips and insights to give you a good idea of what you’re up against
Is the First Year in Business the Hardest?
Your first year of business is the hardest, but to be more accurate. It’s more than one, it’s the first few years. The first is more challenging, and it’s usually because there is a lot to learn, there are numerous details to attend to, and everything is new to you.
Some of the Reasons Your First Few Years Are the Hardest Are As Follows:
Lack of Experience
If you have run a business before or are familiar with the industry is an advantage over someone who is starting fresh with no experience. Even though you do have the experience, you don’t have it to run this new business. You will run into issues you haven’t encountered before.
If you are used to being an employee, you always had instructions on what to do. Running your own business means you have to come up with and follow your own instructions, which will be challenging if you’re not sure you’re taking the right direction. It’s easy to run a business when you are guaranteed success and have a step-by-step plan. But that rarely occurs unless you start a franchise which takes away a lot of the guesswork.
Once you gain experience, you’ll start to gain confidence, and it should get easier to run your business.
Lack of Customers
When starting, you won’t have many or any customers at all. It isn’t easy to invest your time and money, open your doors, and wait for customers to come in. It takes time to build a customer base and make adjustments to cater to your customer’s needs.
Not Enough Funding
The startup phase is a time when a business requires a lot of money. You don’t have any revenue coming in to cover costs, so your expense is coming out of your bank account. One of the main reasons businesses fail is because they run out of money.
Consistent Change
Tough times can be ahead when changes occur, and sometimes you have to start over. In the early days of running your business, some of your plans may not be working, and you need to make changes or start over, and these changes cost time and money. Even though today’s business world is always changing, the changes are more frequent and something you need to prepare for as a startup.
Surviving Your First Year as a Small Business Owner
Understanding What You’re Up Against
One of the issues you’ll need to keep in mind is that running a new business is a discovery process. You won’t know what will happen for sure, except that you’ll be working many hours, but there are a few things you can do to improve your chances of success.
Surviving the first year of business includes knowing what your up against. When you know what you’re in for, even though you’re inexperienced, you won’t have many surprises. Many businesses struggle in the first year. You need to set up the business and get it to operate the way you want. You have to build a customer base and make a profit to stabilize the company.
Some businesses require more effort to get started, while others require less. For example, if you’re opening a convenience store in an appropriate busy location, you will have people coming once you open your doors. You won’t have to advertise much, because you have a busy location. Your main concern is to have a fully stocked store. Offer reasonable prices and offer good customer service.
On the other hand, if you’re opening a computer consulting agency, you will have to do a lot more to get clients. You won’t be opening your business to the public and expect clients to walk through the doors. You need to get out there and get clients.
Playing What-If
It’s a good idea to try and anticipate an outcome. When making an important decision, ask yourself questions. For example, you are starting a Deli, and you have to decide on purchasing a Coldcut slicer. You have the option to purchase a new one for $2,500 or a used one for $600.
Now you can play what-if by asking yourself questions:
- How much volume do I have, and does it justify purchasing a new machine?
- How long will the used machine last before I need to replace it?
- What if I purchase a used machine and it breaks down? Then what?
From the questions above, you are thinking ahead and looking at direct outcomes. After asking these questions, you may opt for the used machine but get it checked out first to ensure it’s in good condition and won’t break down.
For more on anticipating an outcome see, How to Predict An Outcome Using This Simple Technique
For more on surviving your first year in Business see, the articles included below:
Surviving Your First Year As A Small Business Owner
Tips for Surviving Your First Year in Business
Your First Year in Business Is Mostly About Surviving
What Should I Do in My First Year of Business?
There are several things you can do during your first year in business. Let’s have a look at some of the important ones:
Create a Business Plan
A business plan is a good document to have when starting. When you write your own, it will make you think about where you are going, set goals, define your strategies, and create an overall plan.
A business plan can be used as a road map, as well as a document that keeps you on track. If you need funding, a financial institution will want to see a business plan before discussing a loan.
You can create a business plan using software, a template, or a professional service. For more on creating a business plan see, How To Write A Business Plan Using These Resources
Set Up an Accounting System and Understand It
One of the most important parts of running a business is managing the finances. In other words, you have to know your numbers. When you understand your revenue, profits, expenses, and taxes, you’ll make better decisions.
Bookkeeping and accounting are important parts of running a business. Whether you do it yourself, hire an accountant, or decide to do the record-keeping and submit your receipts to your accountant. You want to keep an eye on your business finances. Failing to deal with the financial aspect of a business will harm you.
I was once in a partnership where we split up the tasks. I dealt with the design while my partner dealt with other aspects like sales and part of management. He would deal with the financials of the company.
When my partner went on vacation, I had to take charge. When I looked at the books, I found we were running in the red. If this were to continue, we would be out of business in a few months. Looking at the books was an eye-opener. Never again would I deal with a business without being involved in the bookkeeping.
Keep Your Expenses to a Minimum
A business can be profitable, but you could be out of business with high expenses in no time. There’s an old saying, “It’s not how much you make. It’s how much you can keep.”
Your products may be profitable per sale, but your overall profit has to be enough to cover the overhead. Keep in mind the average profit for your first year of business is low if you’ll be profitable at all.
If you operate at a loss for an extended period, you will find yourself out of business. It’s good practice to keep your expenses as low as possible without affecting operations.
Keeping expenses to a minimum is especially important when your business is in the startup phase because, during this time, you may come across unforeseen expenses. If you run out of money and have no way of getting a loan, you may have to close your doors.
Create a Cash Reserve
It’s a good business practice to create a cash reserve for emergencies or even excellent opportunities that come your way. Suppose you own a shoe store and there is an excellent deal going for the products you supply your customers. You can increase your normal profits by 50% because your supplier has an unexpected cash expenditure, and that’s why they are offering the deal.
They need the money now, or they will move on to their next customer. If you have a cash reserve, you could move forward on this deal, create a sale and get your money back to replenish your reserve fund, plus a lot of extra profit.
Without a cash reserve, you lose out on this special deal because you won’t be able to get an instant cash loan.
You can build your cash reserve fund slowly and steadily. For example, take a percentage of each sale and put that money towards your cash reserve fund. If you do this constantly, you’ll find it your fund grows every day, and in a few months, you can have a healthy fund.
Some experts claim to have three months of operating expense put aside in case of an emergency. When you have a cash reserve, you can sleep better at night!
Avoid Hiring Mistakes
Hiring mistakes can cost you dearly. Not only do you lose money, but you lose productivity either by not having enough help or having too much. Another common mistake is hiring the wrong person.
When you consider an entry-level job at approximately $30,000 a year, vs. looking at the hourly cost, you see the cost of hiring from a different perspective.
Let’s have a closer look at hiring concerns:
Over Staffing
If you hire too many people, your costs are very high, and people aren’t productive enough to cover the cost of wages. You can always pay a little extra to have people cover more job duties instead of hiring for another position. The key is not to overwhelm an employee. If an employee has too much to do, the quality of work will suffer, and a stressed-out employee is not good for anyone.
Not Hiring When Needed
When you put off hiring, it may hurt your business because you’re understaffed and when you’re understaffed, productivity drops, and customer service suffers.
In the early stages of running your business, you may have to do a lot of the work yourself, but as your business grows and expands, you may have to hire to keep your business running smoothly. When you hire the right people at the right time and for the right job, you won’t run into problems.
Hiring the Wrong Person
Hiring the wrong person can be a nightmare. First of all, you have to train that person, and during that training, someone has to stop what they normally do to train a new employee. If the new employee isn’t doing well, you may give them a chance for a few extra weeks. If they don’t pick up job requirements, you may have to let them go.
Now you have spent time training them. You have spent a few weeks of wages for nothing. You wasted weeks of nonproductive activities. Now you have to start the hiring process all over again. It’s important to hire the right person the first time. For more on hiring, see How and When to Hire a New Employee
Reinvest in the Company
By reinvesting part of your profits back into the company, you grow your business and improve stability. It’s the same as mentioned before in this article with building a cash reserve. A portion of your profit should be put aside in a separate account for growing your business.
Don’t Get Too Excited About Profits
When you profit from a product, you have to look at the overall picture, as mentioned earlier in this post. The profit you make has to cover your overall expenses for running the business. And if it just covers the expenses, then your profit margin is zero. You have to cover your expenses and have profit left over for yourself and to grow the business.
Another practice you want to avoid is getting excited about your profits and spending it all. Once your business is stable and profitable, you are free to do what you want with your money. In the early stages, don’t spend prematurely.
Paying Yourself
As a business owner, your personal finances must be in order. If you’re running a business full-time, you still have personal bills you have to pay. You can’t be running a business without an income because you need money to live on, and you don’t want to be struggling to run a new business while trying to make ends meet in your personal life.
Paying yourself is not always easy, especially when you’re starting a new business. You can pay yourself the bare minimum you need to take care of your financial needs and leave the rest in the business. Once the company is stable and profitable, then you can take out a larger wage. For more on paying yourself as a business owner see, How To Pay Yourself as a Small Business Owner
For more on what to do in your first year of business, see the articles included below:
What to Do in Year One of Running a Business, From Successful Entrepreneurs
10 Things To Do in Your First Year of Business
7 Things to Do in Your First Year of Business – Headway Capital Blog
What Do Startups Need Most
Direction and Planning
Many new business owners lack experience, which takes time. By taking advantage of other people’s knowledge, you can benefit from other people’s business experience. Many people are willing to help. You just have to ask. You can expand on this idea by building working relationships with your banker, lawyer, accountant, etc.
You can also pay a consultant for an area where you require expertise and assistance. I would rather pay someone for the knowledge and expertise they have instead of waiting years to gain the experience. I could start with the knowledge I gained from others and build on that with my own experience.
Startup and Operating Cash
Funding is a major factor for startups. New businesses require funding to survive. Running out of funds is one of the most common reasons people go out of business. They get to a certain point, and when they run out of money and can’t borrow, it’s time to close the doors for good and look for other ways to support themselves.
You want to make sure you have enough funds for a healthy start And enough to keep you going during the first few months.
Supplier Relationships
Without a supplier, you won’t be able to provide products and services to your customers. Trust me, a strong working relationship with your supplier can do wonders. They can extend credit, give you deals when available, and even ensure you get a share of your product in case of a shortage. Don’t just buy from your suppliers. Build relationships.
Customers
A customer base is what keeps a business open. It’s your customers that can make your business successful, and it’s your customers that can make you wealthy. Treat each customer with respect and do your best to give them the most value.
The goodwill of your business, or in other words, how big of a customer base you have, is a factor to value how much your business is worth.
Desirable Products
You need to offer products and services people want. Successful business owners will always focus on the value they can deliver to their customers.
Many business owners focus on what they think will sell only to find no one want’s what they are offering. “You may have heard the saying everyone needs this.” People buy more of what they want versus what they need. You have to find out what people want and provide that product or service. It’s one key to becoming successful in business. See, What Is the Demand for Your Products and Services
For more on what do startups need most, see the articles below:
6 Things a Successful Startup Needs | Inc.com
Startups Need More Than Money to Succeed — They Need Smart Money
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