There are few things sadder than a "Going out of Business" sign.
To me it's public proof that, for someone, the American Dream has just ended. I find this disheartening. I want them all to make it.
But in reality, the majority of small businesses don't succeed. The Small Business Administration reports that one-third of new businesses disappear within two years. Only 44 percent survive at least four years.
The encouraging news is, many small businesses do thrive - some even growing to become large businesses. What do they have that failed businesses don't? More importantly, what can today's start-ups do to become one of them?
In my experience as a banker, I've learned that successful small businesses share some common traits:
They plan. I've met many entrepreneurs. Each one has an idea, a passion for something they wished to turn into a money-making venture. The ones most likely to succeed are the ones who take the time to put that plan on paper.
A well-thought-out business plan is a more than just a business school exercise. When done correctly, it can be a blueprint for success. It forces you to think about your future and the challenges you'll face. That includes your financial needs, your competition, your strategy, and your marketing and management needs.
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A surprising number of entrepreneurs, however, try to avoid this step. Why? Is it a lack of time or resources? Personally, I think it's at least partly fear. Some would-be entrepreneurs are afraid someone might question their approach, suggest they look in other directions or reject their idea altogether.
What entrepreneurs fear most, however, is often the thing they need most. There is many a failed business owner who later wishes he'd have had his ideas scrutinized before investing his life-savings in a half-baked idea or a poor location. Your attorney, your accountant and your banker should all be consulted before you invest funds you can't recover.
Incidentally, it's never too late to plan. I was reminded of this recently while visiting one of my small business clients. After about an hour of talking about his future, the owner looked at me. "You know, I've wanted to grow my business this way for five years," he said. "Now that I've said it out loud, I really need to do it." His next step was to write out his plans - and then follow through.
They understand their weaknesses. Many businesses are founded because of an idea. An entrepreneur is good at making a particular widget, or providing a particular service. He or she may be less knowledgeable, however, when it comes to the "back office" - the operations, sales, billing and other business management functions.
The most successful businesses are those in which the owner understands his or her weaknesses and finds ways to compensate for them, either by hiring staff, outsourcing services or taking advantages of time-saving technologies and tools. To avoid fraud, they also set up the proper checks and balances, establishing protocols and remaining "in the loop" on all the money coming in and going out.
They are willing to change. A business plan is critical; but so is knowing when to make adjustments to it. This can be difficult for an owner who has invested his or her life savings in a business, only to learn that a competitor has come along with plans to make them obsolete.
Successful business owners, however, are the ones who recognize opportunities as they arise and are flexible enough to adapt to changing times. They understand the value of creating new products and areas of expertise, and keeping pace with the latest technologies. How many times have you walked into a small business that seems frozen in time from another era? You can see its future, even if its owner cannot.
Family-owned businesses face special challenges in this area, as there comes a time when the owner must be prepared to sell, or to hand over the business to the next generation. Here, too, planning is important, as is the guidance of professionals who can help you manage the process in ways that are financially advantageous for all the parties involved.
They know when to ask for advice. Some small business owners fear putting their plans on paper; so, too, some fear talking to their accountant or banker, for example, particularly when they face growing pains, take on too much debt or have otherwise extended themselves financially. To some, it may seem unnecessary, while others may simply be afraid of what they might hear.
But here's the real truth: successful businesses talk early - and often - with their bank, with their customers, with their suppliers - and anyone else who has a vested interest in their success.
Why? In the case of banks, we often have experience with many, many small businesses, and can provide an excellent sounding board to a company seeking to make a large financial commitment. Bankers also are good sources of referrals; if we can't help you, we quite possibly know someone with expertise in the area you need it.
The same can be said of all the other parties that contribute to a company's success. Keeping the lines of communication open now can pay major dividends later, when you're ready to expand, or need extra time in repaying a loan. It can also help keep those dreaded "Going out of Business" signs exactly where they belong - collecting dust on some warehouse shelf.
During the months of October and November, Commerce Bank is celebrating Small Business Appreciation month by highlighting the contributions that small business provides to our community.
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