Owning your own business is one of the American Dreams. We have seen it over and over. Small town stores become chain stores that span the globe. That transformation from small town store to major chain could bring you and your family wealth and prestige. Unfortunately before you experience that wealth and prestige, your company will need remain financially stable while it grows. Mistakes could transform your dreams into nightmares.
Opening Up a Small Business—Fighting Against Statistics
Opening your own business is a gamble. Potential business owners should know that the majority of businesses fail within 10 years. By the 5 year mark, 55% of businesses are no longer in operation. Business failure in our financial environment is a reality that every business owner should accept as a possibility. Once you accept failure as a possibility, you can begin to proactively work to make your business financially stable from the beginning.
Before starting your business, you should carefully plan out your budget. Around half of all small business failures are due to financial incompetence. This makes creating a mock budget that covers all your expected expenses vital. All of the different pieces that go into a budget are complicated. If you have no knowledge of finance, record-keeping or pricing, you will need to complete extensive research before you open the business. Once your business is running, you should continue to track your expenses.
There are a myriad of different budget and accounting programs that can help business owners manage their finances. Programs like Dropbox, SmartVault, iDonatedIt, UPS Mobile, Freshbooks, Accounter, Budget Tracker can make keeping track of your expenses easier.
Budget Tracker, in particular, is a free online service that:
- Allows you to create a budget.
- Keeps track of all your bank accounts and money transactions in one place.
- Has a business management section that allows you to track your business deductions, your venders, and clients.
- Allows you to access the website from your computer, phone, or iPad.
There are a myriad of different budget programs. Budget Items You Might Forget:
- Location repair before opening.
- Money you will need to support yourself and your family.
- Money you will need to repay your loans if you will need to take any out to open your business.
Below I will cover two items that will most likely be included in your budget: insurance and marketing funds.
You may want to plan business insurance into your budget. After natural disasters 25% of businesses do not reopen their doors due to the financial strain. There are many insurance agencies across the United States that all offer plans that will ensure that your business will be protected from unforeseen accidents. Business insurance will ensure that you will not experience significant financial loss that may not have been planned into your budget. The policy that you choose will be based on the type of business you will open and the amount of money you can afford to put towards your insurance each month. Below is a list of general and then specialized insurance options that you might want to include in your insurance plans.
General Insurance for All Businesses
- Income protection insurance will help you keep your business financially stable while your business is closed for a short period of time due to unexpected events like fire, wind storms, vandalism, and equipment damages.
- Equipment breakdown insurance will pay to replace or repair broken equipment.
Insurance Coverage per Industry:
- Liability insurance will pay fees incurred if employee sues you after a personal injury.
- General liability insurance will pay fees incurred if a customer sues after incurring injuries after an employee, product, or service has injured the customer on your property.
- Utility services insurance and spoilage will cover the loss of your inventory if your utility services have been interrupted.
- General liability insurance
- Utility services insurance
- Commercial auto insurance will help pay for losses when employees are in an accident while driving a company vehicle.
- Crime and employee dishonesty insurance protects you from losses due to theft from customers and employees.
Opening a business is as hard as it is fulfilling. As a future business owner you will need to take many precautions to ensure that your business will be lucrative. While a solid accounting department and insurance plan will not ensure that your business will have enough funds to operate, it will at least give you and your business a fighting chance.