bnenin/ talking to an lawyer
By Alan Wozniak
Founder, Business Health Matters
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Garages, backroom offices, and coffee shops are some of the starting points of many successful businesses— representing the founder's several trials and tribulations to build up their companies and brands.
However, many may look at these companies, and while they aspire to grow their business to that level, they need to remember the risks and challenges they face when setting up their own business. From financial to legal troubles, each business owner must be aware of the perils they may face when starting and running their business.
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Starting your own business can be an exciting and rewarding venture, but it's essential to be aware of the potential pitfalls that can arise along the way. According to U.S. Bureau of Labor Statistics data, about 20% of new businesses fail in their first year, while about 50% fail within their first five years. That's a high mortality rate.
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The Perils
Here are some perils to keep in mind when starting your own business:
1. Financial Risks: Starting a business typically involves investing your own money, and there's always a risk that your investment won't pay off. Be sure to have a solid business plan in place and consider seeking the advice of a financial advisor.
2. Time Commitment: Starting a business takes time and effort. You may work long hours and sacrifice personal time to get your business off the ground.
3. Uncertainty: Starting a business is risky, and uncertainty is always involved. You may face unexpected challenges, such as changes in the market or unexpected expenses.
4. Loneliness: Starting a business can be lonely, especially if you work independently. Consider joining a business group or seeking a mentor or business coach to help you stay motivated and connected.
5. Legal Issues: Many legal considerations are involved in starting a business, such as registering and obtaining the necessary licenses and permits. Be sure to seek the advice of a lawyer to help you navigate these issues.
6. Competition: Starting a business often means competing with established businesses in your industry. It's important to do your research and develop a unique value proposition that sets you apart from your competitors.
One significant risk that many fail to plan for properly, and the defining risk that leads to many businesses closing shop prematurely, is the financial risk. Companies do not run on hopes and dreams; they need financing. How are you going to finance your business? Will you take out loans? Or will you have investors? If you decide to take a loan, what are you willing to put up as collateral to the bank? Your car? House? Would you rather minimize your risk and have investors from the outside? Taking on early investors will almost always lead to your ownership stake in your company being diluted. This can often lead to your company following a direction you need to be more supportive of despite being unhappy with it.
Hiring
Hiring the right people is one of the biggest challenges of a startup business. Not just people with the skills for their job but people willing to be role players and step up when needed. Are the right people in the right seats? In simpler terms, people who are not only employed for the paycheck but also because they believe in your vision.
The Changing Market
Also, every business owner needs to constantly keep in touch with the ever-changing market that they are in. This needs to be considered when creating your business plan, and the goals and direction of the business need to change according to the market's needs. That is the only way you will be able to keep your business afloat and stay relevant. This may be especially hard for some as the market may be heading in a direction you dislike. At that point, you need to ask yourself, what are you willing to do to achieve success?
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Legal Risk
Moreover, legal risk is another critical and technical aspect of a business's risk. As Murphy's law states, anything that can go wrong will go wrong. Lawsuits are lurking in every transaction your company makes with other businesses and customers. All it takes is one disgruntled person to initiate this process. What is your plan then, and more importantly, will you be able to fund said plan?
The Benefits
With significant risk comes reward. Despite the high failure rates of new businesses, there are still many benefits to running your own business. Here are some of the good news:
1. Control: When you start your business, you can make decisions and set your direction. You're in control of your business's day-to-day operations and long-term strategy.
2. Flexibility: Running your business can offer more flexibility than a traditional job. You can set your schedule and work from anywhere, which can be especially beneficial for those with family or personal commitments.
3. Financial Rewards: Running a successful business can be highly lucrative. As the owner, you have the potential to earn more than you would in a traditional job and can reap the rewards of your hard work.
4. Personal Growth: Starting and running a business can be a great way to challenge yourself and grow as a person. You'll learn new skills and gain valuable experience that can benefit you in other areas.
5. Impact: Running your own business can allow you to make a positive impact on your community or industry. You can create jobs, support local causes, and offer products or services that make a difference in people's lives.
Overall, running your own business can be a challenging but rewarding experience. While the failure rates are high, a strong business plan, a vision, a well-defined strategy, and complete due diligence in your business venture, along with a mentor or a business coach who are committed, persistent, and adaptable, can keep you accountable to overcome the many adversities and help find success and fulfillment as entrepreneurs.
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