Is Starting a Small Business a Good Financial Decision?

No one starts a business with the intention of losing money. Indeed, each ambitious professional who takes the plunge and decides to go into business on their own envisions success. Otherwise, they wouldn’t do it. Still, the reality is that many small businesses fail; not every startup survives the test of time. And that leads us to our question of the day: is starting a small business a good financial decision? Here, we’ll examine several major factors that influence business success to help you determine if it’s the right time to found a startup.

The Data

The numbers don’t lie: starting a small business is a risky proposition. 20% of small businesses fail within their first year. A third fail within their second year. Half are closed before year five, and over 70% of small business owners call it quits before their company turns 10. As discouraging as these numbers are, they only tell part of a pretty bleak financial story. According to one study, the average small business owner has almost $200,000 in debt. So even if you manage to keep your company afloat, you could very well have to take on a huge amount of debt to do so.

Beating the Odds

Despite the rather girm odds facing prospective business owners, the reality is that they do little to deter ambitious entrepreneurs. Indeed, the SBA estimates that over 600,000 new businesses open each year in the US alone. Even though small business owners face a difficult road to financial success, many choose to head down this path. And the good news is, you can make money by starting a small business. There are a few key things to keep in mind in this regard.

First, always create a detailed business model before you invest in a new venture. What’s more, ask yourself tough questions before you borrow money. Doing this now could save you from making a regrettable decision later.

Second, look to occupy a niche. Rather than marketing a product to a huge audience, instead appeal to specific customers with detailed offers and features. For a good example of this strategy in action, consider Retail Management Solutions. This company specializes in supplying POS systems for pharmacies, and, as such, it’s able to focus on dominating this particular niche.

Lastly, it’s crucial for inexperienced business owners to surround themselves with capable team members. Dedicated sales, marketing, legal, and accounting professionals provide invaluable insights that entrepreneurs need to build a thriving organization.

The Bottom Line

Though the data suggests that starting a small business is a losing gamble, many are compelled to do so anyway. Fortunately, by working very hard, sweating the small stuff, and getting a bit of luck, it is possible to improve your financial situation by starting a company from scratch.

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