What to Expect During Your First Year of Business

Surviving Your First Year in Business: What to Expect and What to Do

This guide is for anyone in their first year of running a business, or getting ready to start one. It covers why the first year is the hardest, what typically causes new businesses to struggle, and the practical steps you can take to improve your odds of making it through.

Is the First Year in Business the Hardest?

Your first year in business is often called the hardest — though to be more accurate, it’s really the first few years. The first year tends to be the most challenging because there is a lot to learn, many details to manage, and everything is new to you.

Some of the Reasons Your First Few Years Are the Hardest Are As Follows:

Lack of Experience

Having run a business before, or being familiar with the industry, gives you an advantage over someone starting fresh with no experience. Even with that experience, though, you haven’t run this specific business before, so you’ll still run into issues you haven’t seen.

If you’re used to being an employee, you always had instructions on what to do. Running your own business means coming up with and following your own instructions, which is challenging if you’re not sure you’re taking the right direction. It’s easy to run a business when you’re guaranteed success and have a step-by-step plan — but that rarely happens, unless you start a franchise, which removes a lot of the guesswork.

Once you gain experience, you’ll start to gain confidence, and it should get easier to run your business.

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 expenses are coming out of your bank account. One of the main reasons businesses fail is because they run out of money.

Research backs this up. The most commonly cited reasons small businesses fail are:

No market need for the product or service (42%)
Running out of cash (29%)
Not having the right team in place (23%)
Being outcompeted (20%)
Pricing or cost issues (18%)

Cash problems show up across nearly all of these — even businesses with real demand can fail if they run out of money before achieving stability.

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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 work, and you’ll 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

Running a new company is a discovery process. You won’t know exactly what will happen, except that you’ll be working long hours — but there are things you can do to improve your odds of success.

Surviving the first year starts with knowing what you’re up against. When you know what to expect, even as a newcomer, you’ll face fewer surprises. About 21.5% of new businesses close within their first year, according to Bureau of Labor Statistics data. You need to get the operation running the way you want, build a customer base, and turn a profit to stabilize it.

Some businesses require more effort to get started, while others require less. For example, if you’re opening a convenience store in a busy location, you’ll have people coming in once you open your doors. You won’t have to advertise much, because the location does that work for you. Your main concern is keeping a fully stocked store, offering reasonable prices, and providing good customer service.

On the other hand, if you’re opening a computer consulting agency, you’ll have to do a lot more to get clients. You won’t be opening your doors to the public and expecting clients to walk in. You need to get out there and find them.

Playing What-If

It’s a good idea to try to anticipate outcomes. When making an important decision, ask yourself questions. For example, say you’re starting a deli and deciding whether to buy a cold-cut slicer — you can purchase a new one for $2,500 or a used one for $600.

Now you can play what-if by asking yourself questions like these:

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 questions like these, you’re thinking ahead and looking at direct outcomes. After asking them, you may opt for the used machine but get it checked out first to make sure 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 look at some of the important ones:

Create a Business Plan

A business plan is a good document to have when starting. Writing your own will make you think about where you’re 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 handle the record-keeping and hand your receipts to your accountant, you want to keep an eye on your business finances. Failing to deal with the financial side of a business will harm you.

I was once in a partnership where we split up the tasks. I dealt with design while my partner handled sales and part of management, along with the company’s financials.

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 that continued, we’d have been out of business in a few months. Looking at the books was an eye-opener. Never again would I run a business without being involved in the bookkeeping.

Keep Your Expenses to a Minimum

A business can be profitable, but high expenses can put you out of business 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. First-year profit margins are often thin, and many new businesses don’t turn a profit at all in year one, so don’t assume early sales alone mean you’re in the clear.

If you operate at a loss for an extended period, you’ll 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 during the startup phase, since 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 good business practice to create a cash reserve for emergencies, or even for good opportunities that come your way. Suppose you own a shoe store and there’s an excellent deal on the products you supply to your customers. You could increase your normal profits by 50% because your supplier has an unexpected cash need and is offering the deal to move product fast.

They need the money now, or they’ll move on to their next customer. If you have a cash reserve, you can move on the deal, create a sale, and get your money back — plus extra profit — to replenish your reserve fund.

Without a cash reserve, you lose out on deals like this because you won’t have instant access to cash.

You can build your cash reserve slowly and steadily. For example, set aside a percentage of each sale toward your reserve fund. Do this consistently, and you’ll find it grows steadily — in a few months, you can have a healthy fund.

Most financial advisors recommend keeping three to six months of operating expenses set aside for emergencies.

Avoid Hiring Mistakes

Hiring mistakes can cost you dearly. Not only do you lose money, but you lose productivity — either from not having enough help, or having too much. Another common mistake is hiring the wrong person.

When you consider an entry-level job at roughly $35,000 to $52,000 a year as of 2026, depending on the role and location, versus looking at the hourly cost, you see the cost of hiring from a different perspective.

Let’s take a closer look at hiring concerns:

Over Staffing

If you hire too many people, your costs run 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’ll likely need to hire to keep it 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, you have to train that person, and during 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 the job requirements, you may have to let them go.

Now you’ve spent time training them. You’ve spent a few weeks of wages for nothing. You’ve wasted weeks of nonproductive activity. 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

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 to pay. You can’t run a business without an income, because you need money to live on, and you don’t want to struggle to run a new business while trying to make ends meet in your personal life.

Paying yourself isn’t always easy, especially when you’re starting a new business. You can pay yourself the bare minimum you need to cover your financial needs and leave the rest in the business. Once the company is stable and profitable, 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, and that takes time to build. By taking advantage of other people’s knowledge, you can benefit from their experience — many people are willing to help, you just have to ask. You can expand on this by building working relationships with your banker, lawyer, accountant, and others.

You can also pay a consultant for expertise in an area where you need it. I’d rather pay someone for the knowledge they already have than spend years gaining that experience myself. I could start with the knowledge I gained from others and build on it with my own experience.

Supplier Relationships

Without a supplier, you won’t be able to provide products and services to your customers. A strong working relationship with your supplier can do wonders — they can extend credit, offer deals when available, and help ensure you get your share of product during 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 who can make your business successful, and it’s your customers who can make you wealthy. Treat each one with respect and do your best to give them the most value.

The goodwill of your business — in other words, how large a customer base you have — is a factor in how much your business is worth.

Desirable Products

You need to offer products and services people want. Successful business owners 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 wants what they’re offering. People buy more of what they want than 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 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

Key Points and Facts About Surviving Your First Year in Business

About 21.5% of new businesses close within their first year, according to Bureau of Labor Statistics data.
The top reasons small businesses fail include no market need, running out of cash, having the wrong team, being outcompeted, and pricing or cost issues, according to CB Insights research.
Most financial advisors recommend keeping three to six months of operating expenses in a cash reserve.
Entry-level hires typically cost roughly $35,000 to $52,000 a year as of 2026, depending on the role and location — factor that into hiring decisions, not just the hourly wage.
Success in the first year depends less on avoiding every mistake and more on managing cash, building a customer base, and adjusting quickly when something isn’t working.

Action Steps for Surviving Your First Year in Business

Set Up Your Financial Foundation

Write a business plan you can use as a roadmap and share with lenders.
Set up an accounting system and review your numbers regularly — don’t hand this off entirely to someone else.
Build a cash reserve covering three to six months of operating expenses.

Control Your Costs

Track your overhead against your profit margin, not just your sales.
Keep expenses as low as possible without cutting into the operations that bring in revenue.
Pay yourself a minimal, sustainable wage until the business stabilizes.

Prepare for Hiring

Hire only when the workload genuinely requires it — not too early, not too late.
Budget for the full cost of an entry-level hire, not just the hourly rate.
Have a training plan ready before you bring someone on, so a bad fit doesn’t cost you weeks of productivity.

Build Your Support Network

Establish working relationships with your banker, lawyer, and accountant early.
Build supplier relationships, not just transactions — they can extend credit or flexibility when you need it.
Confirm there’s real demand for what you’re selling before you scale up.

Checklist for Surviving Your First Year in Business

Business plan drafted
- Goals, strategy, and funding needs are documented.
Accounting system in place
- You know your revenue, expenses, and profit at any given time.
Cash reserve started
- Three to six months of operating expenses are set aside or being built toward.
Hiring plan defined
- You know when you’ll need help and what it will cost, including training time.
Supplier and advisor relationships established
- You have a banker, accountant, lawyer, and key suppliers you can call on.
Demand confirmed
- You’ve validated that people actually want what you’re offering before committing further.

FAQ: Surviving Your First Year in Business

How many businesses fail in their first year?

About 21.5% of new businesses close within their first year, according to Bureau of Labor Statistics data.

What’s the most common reason businesses fail?

A lack of market demand for the product or service is the most commonly cited cause, though running out of cash follows close behind, according to CB Insights research.

How much should I keep in a cash reserve?

Most financial advisors recommend three to six months of operating expenses, though the right amount depends on your industry and how stable your revenue is.

When should I hire my first employee?

Hire when being understaffed is hurting productivity or customer service — not before you can afford it, and not so long after that your business suffers.

Should I take a full salary in my first year?

Most owners pay themselves a bare minimum in the early stages and increase their pay once the business is stable and profitable.

References: