By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs
Does the approaching new year have you thinking of starting a new business? New businesses with impressive, innovative ideas and products enter the marketplace all the time, but they are often short-lived and end up closing their physical or digital doors. According to the SBA (The U. S. Small Business Administration), almost 80% of new businesses started will survive their first year. That sounds wonderful until you research further and find that only about half of new businesses survive for 5 years, and only about one-third last 10 years or more. Those numbers can seem daunting when considering whether or not to start a new business.
There are several reasons why new businesses fail — failure to research the market, business plan problems, not enough capital, etc. To lessen the risk of closing prematurely, there are several steps that a potential new business owner can take. First, do your research. Research your target market and your competition to see how you can stand apart from your competition. Second, prepare a comprehensive business plan. The more detailed your business plan, the more prepared you will be to begin operations. A detailed business plan can assist you in identifying and anticipating issues that could make your venture suffer or thrive. Next, choose your legal structure. Which structure will work best for your business? Is it better to structure your company as a corporation? Partnership? Sole proprietor? There are pros and cons to each structure, so you will need to decide which is best suited for your business.
Once you have decided on the legal structure, it is time to register with the tax authorities, both federal and state. Check with your state on the requirements for businesses, and if you are conducting operations in other states, check on their requirements as well. Will you be adding employees? If so, then you will need to set up payroll accounts. To keep track of filing requirements, payroll information, employee information, sales, income, expenses, and other items, it is critical that you develop and use a comprehensive bookkeeping and accounting system. The bookkeeping system that you put in place will allow you to run financial reports that will let you gauge where your business is financially.
Cash planning and forecasting is also a key factor for new businesses. Take some time to really delve into the cash planning process. Be as detailed as you possibly can in this endeavor. When it comes time to secure financing for your new business, a detailed cash forecast will be vitally important. The more detailed you are, the better your odds of obtaining the desired level of financing — whether it be through a bank, family and friends, or non-traditional means.
If all of this sounds overwhelming, there are resources that can assist you. Holbrook & Manter has a guide to starting a new business available on our website. It can walk you through how to begin the process of starting a new company. We stress the importance of finding and engaging competent legal and accounting professionals who are knowledgeable in your area of industry. The partnerships that you form will be vital to your success.
If you are looking at starting a new business and have questions, we Holbrook & Manter would be happy to assist you. Contact me for more details and I can share our new business kit with you.
Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs. Brian has been with Holbrook & Manter since 1995, primarily focusing on the areas of Tax Consulting and Management Advisory Services within several firm service areas, focusing on agri-business and closely held businesses and their owners. Holbrook & Manter is a professional services firm founded in 1919 and we are unique in that we offer the resources of a large firm without compromising the focused and responsive personal attention that each client deserves. You can reach Brian through www.HolbrookManter.com.