So many times we hear depressing statistics about the number of start-up businesses that fail within the first year or two.  While there are no guarantees, there are ways to help prevent that failure.

 

You should, first of all, build up a 'nest egg' equivalent to what you will need to live and maintain your new business for the first year.  You should not depend upon loans to finance your business and meet your living expenses.  Why?  Most businesses do not make money the first year so you will be depending upon the income from your new business to meet your loan commitment, support your business and support your family.  If you have put up your home as collateral for the business loan, you risk losing your home if you cannot repay the loan; if you finance your business with a credit card, you jeopardize your credit rating if you cannot repay the loan.

 

Make a business plan.  If you do plan to borrow money, the lender will want to know, among other things, the nature of your business, your business goals, your potential customers, your competitors and how you plan to distinguish your business from theirs, the demographics of your business, and your financial expectations (profits and losses) for the business.  The information is presented to the lender in a business plan.  There are various organizations which can help you with a business plan; e.g., S.C.O.R.E (www.scorepittsburgh.com), and the Small Business Development Centers (SBDC) at Duquesne University and University.  If you wish to prepare your own business plan, or even to familiarize yourself with the information required for a business plan,you can find a good outline at the S.C.O.R.E. website.

 

Do not spend money you don't have.  When I started my law practice, all I had was a second-hand desk, a telephone and a computer.  I worked from home until I could afford to rent space and, even then, the space was small and very inexpensive to rent.  I did not make purchases unless I had the funds on hand to pay for them.

 

Limit your liability exposure as much as possible.  If you are a sole proprietor or in partnership with someone, make certain to have adequate insurance.  You should speak with your insurance advisor to determine how much you need.  If you are concerned about exposure to personal liability, you may wish to consider forming a limited liability company or incorporating your business.

 

Pay your bills on time and maintain good records.  Your new business will need time to establish a credit history.  Until then, you may be required to sign a personal guarantee that a business loan will be repaid or rent paid on a business lease.  Paying your bills on time (or even early) and maintaining good records will go a long way toward building a solid reputation and good credit history for your business. 

 

Hopefully, the foregoing information will help you to start off on the right -- and healthy -- foot.