Food for thought for the would-be entrepreneur (part 1 in a series)
The good news: about 80% of new businesses make it through the 1st year. 😊
The bad news: about 50% of new businesses don’t make it through the 5th year. ☹
Interestingly, these statistics are consistent whether it’s boom time or bust in the economy at large.
The most frequent excuse for a failed business is “undercapitalization.” What does that mean in everyday English? It means even after closing the doors, the owners still believed they would have made their requisite millions if only they’d had enough money to keep paying the bills (including their own living expenses) until their product/service caught on sufficiently.
So, if the business isn’t paying its own bills, and if the business isn’t supporting the owners (and paying their bills,) we have to wonder how are all these bills being paid?
Most new business owners dig deep into their own pockets. Savings get depleted. Retirement funds are cashed in. An unwitting spouse works overtime at a “real” job to pick up the slack. Credit cards are maxed out. The home might be re-mortgaged. And all this cash is poured down the greedy throat of the needy new business. Worst of all, sometimes it even ends in personal bankruptcy.
Owners are frequently indignant that they can’t get a loan to keep things going. The usual lament is, “I can’t get a loan until I’m successful, but if I were already successful, I wouldn’t need a loan.”
In this series, I will address some of the underlying concerns of most wannabe entrepreneurs. Should I incorporate? What’s a business plan and why do I need one? How do I know when to hire my first employee? What kind of paperwork do I need to do? Can I write off my car? What’s this nexus thing I hear about? I am a CPA, not a lawyer, so I can’t give legal advice. However, I can tell you the tax consequences of various decisions and situations (which is something that baffles many lawyers,) and I can share my experience and observations from a couple decades of working with entrepreneurs.
So, if I haven’t scared you off… let’s go!