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Why So Many Businesses Close In Their First Year

Store closing signWhy So Many Businesses Close In Their First Year

Starting a business should be a fun, exciting experience that helps people achieve their dreams of financial independence. Of course, starting a restaurant, company or other type of business that carries with it costs such as equipment, furniture, rental and so forth, means needing money up front to do the job. Unfortunately, too many businesses that are launched wind up deep in debt and having to close within their first year of operation. 

There are several reasons why a business will crash in its first year. Not enough pre-planning, overly ambitious profit expectations to having an unexpected event pull the owner away from the business for too long and so forth. However, what follows are five of the most typical reasons why so many businesses will fail in their first year. 

Not Enough Initial Funds 

When creating their business plan, it is certainly understandable that many people are leery of borrowing what they think is too much money to cover all of their needs. Unfortunately, people tend to borrow too little and while most manage to get their business put together and ready to go, there is not enough funds to properly market their company. This means that they have no “go” at all and wind up stalling out. 

Using a Personal Credit Card for Their Business

This often spells real trouble as they borrow money off of their credit card with the idea that they can quickly put it back. But that doesn’t happen usually because they are not pulling in enough money so that they can properly market their own business. Pretty soon, those credit card bills that were once manageable are now pushing them to the point of breaking just when they need capital the most. 

Using all Their Personal Savings for Their Business

Sinking their personal savings is the next unfortunate step in trying to keep their business afloat. There are many reasons why their personal savings are used, but mostly it is for unexpected expenses or trying to keep the business running for one or two more months, but not having enough to properly market what they do. 

Over-Utilizing Their Personal Credit

This is usually a side effect of starting a business is not having enough money for personal needs. This is where the credit gets used too often and suddenly they find themselves in a personal debt situation that is now pulling funds that should be going to their business. 

Not Having Enough Available Credit 

Another symptom of not having enough money at the start, having credit available is vital to pay unexpected expenses, take advantage of solid marketing efforts and keep yourself afloat until the profits of your business are enough to pay the bills. Unfortunately, most people do not get enough credit to get the job done. 

However, if you do the planning and get enough business capital, you can avoid these five common mistakes and watch your business grow. Getting the appropriate business funding without having to have a personal guarantee will set you off on the right foot, getting you the money needed in order to get your business past the first year and beyond. 

Posted in: Business Credit, Business Start Up

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