Your Chances of Success

What are your chances of success if you go into business? New businesses are always being started. Almost as many are failing or being discontinued. A year of poor business conditions is likely to be followed by a greater than average number of failures or closings. A year of good business conditions tends to be followed by large increases in the total number of businesses. In general, the number of firms increases with increases in human population, total personal income and per capita income and since these factors have increased regularly, the total number of small businesses usually rises every year.

This growth is not free of growing pains, however. At the same time new businesses are being born other businesses are being discontinued. Some of these discontinuances are legally business failures; other owners give up to avoid or minimize losses and are not failures in the strict sense. Still others discontinue for reasons such as the death or retirement of the proprietor, the dissolution of a partnership, or the sale of the business to a new owner.

Younger businesses tend to discontinue first. Many do not make it through the first year. The discontinuation rate of those that survive this first year "burn-in" declines steadily until at the end of several years the rate has dropped dramatically. So, your chances of success improve the longer you stay in business.

Poor management is the largest single cause of business failure. Year after year, the lack of managerial experience and aptitude has accounted for around 90 percent of all failures analyzed by Dun & Bradstreet, Inc.

Many factors may adversely affect individual firms over which owners have little control. In such cases, the astute manager can often soften the blow or, sometimes, change adversity into an asset. Examples of factors over which the owner has little control are overall poor business conditions, relocations of highways, sudden style changes, the replacement of existing products by new ones, and local labor situations. While these factors may cause some businesses to close, they may represent opportunities for others. A local market place may decline in importance at the same time new shopping centers are developing. Sudden changes in style or the replacement of existing products may bring trouble to certain businesses but open doors for new ones. Adverse employment situations in some areas may be offset by favorable situations in others. Ingenuity in taking advantage of changing consumer desires and technological improvements will always be rewarded.

In the final analysis, it is up to you. Will your management be competent? Will you be able to judge, and then satisfy, your customers' wants? Can you do this accurately and quickly enough to more than compensate for risks due to factors beyond your control? Such accomplishment requires expert management.

Will the rate of return on the money you invest in your business be greater than the rate you could receive if you invested your money elsewhere? While your decision to go into business for yourself may not depend entirely upon this, it is a factor which should interest you. Too frequently people invest money in their own businesses under the misapprehension that the financial return will be far greater than the return from other investments. Investigation of the average annual returns in the line of business in which you are interested may be worthy of your time.

Your decision to go into business may not depend entirely on financial rewards. The size of the potential return on your investment may be overshadowed by your desire for independence, the chance to do the type of work you would like to do, the opportunity to live in the part of the country or city you prefer, or the feeling that you can be more useful to the community than you would be if you continued working for someone else. Do not overlook such intangible considerations. But remember, you cannot keep your own business open unless you receive an adequate financial return on your investment.

Say that you're the type who is beginning new small business. You Have given attention to the general chances for success, and
have selected the new company you want to establish.

What technical problems will you face in establishing the organization? How Much money will you need for starting new small
business? Where can you obtain it? What kind of business organization does one have? Where should you locate the business? (start
company tips to follow)

The first question you want to answer is: Just how much money will I need? However, this question can't be answered until other
questions are answered and many decisions are made.

To decide how much cash is needed to start a company, enter all Of your prospective income and all your planned expenses onto a
work sheet or kind.

Even though you might feel that This Type of preparation is more than You have to start a simple small business it's beneficial to
get started with this approach to management which puts down figures in black and white. You will discover the same approach
valuable within an established business.

First, estimate your sales volume. This will depend on the overall Amount of business in the area, the number and ability of
competitors now sharing that business, and your capability to compete for the consumer's dollar. Obtain assistance in producing
your sales estimate from wholesalers, trade associations, your banker, and other business-people. A number of business and
statistical books may be useful in making sales volume estimates.

In reaching your final estimate of sales do not be over-enthusiastic. A new company generally grows slowly at the beginning.
Should you overestimate sales you are most likely to invest too much in gear and initial inventory, and devote to thicker
operating expenses than your real sales volume will warrant. Since you're just beginning you may have no sales for the first few
months. At any rate you may expect your first few months to be quite low.

You must also decide what percentage of your earnings will be money And what percentage will be offered on credit. If you estimate
that a certain part of the sales will be on credit then you must figure whenever you're likely to get the money for all these
sales. 1 month? 2 months? More? Never?

Next, in our guide to beginning new small business, estimate how Much cash will be paid out. Bear in mind that in starting a
business you might be purchasing equipment, paying fees and licenses, making deposits on lease, utilities and so forth, several
months until you open the doorway. A few of these expenses are easy to estimate. In case you've opted to lease a building (more
about that later) then you understand what your deposits will be and just how much you will have to pay out monthly. You can
probably get the cost of fees, permits and utility deposits with a few telephone calls.

Other expense figures might take a little more work to get. One way Is to acquire average operating ratios for the type of company
in which you're interested. One of the sources for such ratios are Dun & Bradstreet, Inc., trade associations, publishers of trade
magazines, technical accounting firms, industrial companies, and schools and universities. The normal ratios for your kind of
company multiplied by your estimated sales volume will serve as bench marks for estimating the several items of expense. However,
do not rely solely on this way of estimating each cost item. Verify and modify these estimates through investigation and quotes in
the particular market place where you plan to operate.

Don't forget to pay yourself too. You Might Need cash to live on if You have to quit your job. If your partner is working and can
encourage the family for some time you may not need to withdraw money from the business. The more time you can go without taking
money out, the faster you will build up a solid cash position. Now you've estimated your money receipts and expenses, write down
the quantity of cash you will put into the business to begin. This goes on line 1 at the example below. Next, add lines 1 and 2
for your first month to find line 3. Then add up all of the expenses to get line 5. Subtract line 5 from line 3 to find line 6.
This cash at the end of month then goes to line 1 to the start of the following month, and so on.

If you continue this for the entire year, very soon you'll find You have negative numbers or even a negative cash flow. About this
time you will also realize that you ought to be operating on this kind with a pencil which has a good eraser.

In this overly-simplified case, you notice that by the end of June you are minus $200 in cash. Two solutions can be attempted -
reduce your buys at June by $200 or start with $200 more. You may not be able to reduce expenses (they will likely go up as your
company starts). That means you will need to put in $200 more to begin with. If all you have is 4000 then the additional $200 you
will need is capital you must get from someplace else.

Do not be misled by this very simple illustration. Many small businesses Start with the 200, and try to get the $4000 from
someplace else. Since a Major reason for failure in the early stages of a company is Under-capitalization, be very careful in your
preparation at this point. You can Almost always plan on several unexpected expenses and some flaws in anticipated income.

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