Why small businesses do NOT need to fail?
During our business search in Canada, we are bombarded with negative and scary news and statistics from all over, that more than 50% of the businesses are failing in their first 5 years of their operations in Canada. However they forget to mention that those statistics are referred mostly to newly set up businesses.
There are many reasons for these high rates of failures of new businesses opportunities in Canada when:
- The business owners mostly have no experience in the industry
- They feel; they learned about it in schools,
- Saw that their neighbor did well in such a business,
- Know how to make scrambled eggs or BBQ a hamburger so it would be easy to run a Breakfast place or a Hamburger joint.
- Run a similar place in their country, (different products or language) and they feel it should be the same in Canada
- They quit a well-paid job to be independent and then they realize that owning your business is not a 5 day 9-5 job, actually you have to work there a lot more,…. and so on.
- Not having a proper business plan; many new operators spend their money or loan in the new set ups and nothing left to run it.
The fact is that most people are really not prepared or understand what it takes to run a business when they open their first business. So it is not surprising that the business will fail in the first year.
The answer is: buy an existing business.
Even if an existing business is not doing great, but at least you are not starting at zero sales and with tons of unknown expenses.
You will know:
- what to expect in the first few months
- You will have the previous owner teaching you the good and the bad; he will introduce you to the clientele, suppliers, and will be around to give you advice.
- you have the existing employees who will help you in the transition
- you have a base; an existing clientele, a brand, sales and then you can slowly make changes to your liking and build the business from there.
If you decide to rather start a new business with a good chance of success, instead of purchasing an existing one, than do the following:
- Chose an industry you have experience in;
- Check out your competitions, their successes and their failures;
- Prepare a detailed business plan with 2 years of cash flow projections; be realistic with the projected sales, and hire an expert to prepare such projection. It will be worth every penny you spend on that;
- Get your financing in place; make sure you have at least 4-6 months of working capital in your bank. Allow sufficient money for marketing;
- Hire experienced employees, pay them salary plus an incentive (the total should be a bit more than what the competitor pays); they are the ones who will make you money;
- Don’t sign up for a long lease for your premises. You should have the option of breaking it, just in case you need to get out in a few years;
- Be prepared to work hard; in small businesses there is no such a thing as absentee owner, you have to be part of it otherwise it will fail for sure.
As you can see there is a way to avoid failure. It is all hard work and realistic planning.