Having been in absolute turmoil due to our health situation in the country, many of us have considered building our own businesses. And indeed, I applaud those who have started out as a small online business that eventually flourished into a more stable one as the months pass by. But then again, others are still afraid to take that step for fear of having significant losses in their first year. This will only be possible if the entrepreneur fails to handle the business properly.

However, about 75% of startups are likely to fail in their first year. And this can be caused by different factors. The number is relatively high, and you, being focused on gaining rather than losing, should be able to know how to prevent this from happening.

One major cause why businesses fail in the first few months after startup is not being prepared financially, physically, and emotionally. Apart from having the funds to start a business, one should be ready to "expect the unexpected" and continue learning how to run the business. The investment return is unlikely to happen in the first 6 months, depending on the kind of business. But losing a large amount of money due to a high overhead cause against the actual sale can genuinely affect the industry.

As a startup, you need to weigh how much you need to shell out to run the business. Sometimes, entrepreneurs can be too excited to add so many things which can actually be done when the company is getting more revenue. I mean that some entrepreneurs would spend so much money by making unnecessary purchases to the extent that they have overlooked their projected profit every month. Now, loaning would mean paying the loan as soon as the business starts running. But what happens if all the supposed profit of the company is not even enough to pay the loan? Now, that will definitely be a huge problem.

Scenario 1: The business is not gaining traction as anticipated due to the failure to provide high-quality products and/or services. Not realizing this can instantly mean losing the company in just a few months. Imagine your overhead costs: rental fee, utility fees, employees' salary, taxes, and loan payment. If you do not have enough funds set aside, how do you think you would continue the operational costs?

Scenario 2: The business is slowly gaining customers each month. And although ROI may still be months away, you realize that the profit you make can cover all your overhead costs.

Can you see the difference in the possible outcome of a business? You need to do a lot of work to gain a spot in the market. While there is no need to hurry to hit the top spot, remember to maintain the business planned. Hence, creating a business plan is always essential to ensure that it can serve as your guide as your business starts operating.

Here are some tips to avoid substantial financial loss in your first year in business.

       1.  Keep your expenses low. As I have mentioned, although you may think that adding this will make the business look better, it is best to carefully choose which should be prioritized. Only focus on the essentials. You can always upgrade once the company picks up and gives you a steady income.

One of the failures of rookie entrepreneurs is that once they realize that they are earning, they use the money to invest with another business or add more products for their existing business. This may not be a wise move during the first year. The first five years are crucial; it would take a lot of time for the entrepreneur to look into each day to ensure that the sales are going up and not the opposite way. Hence, to use the money to invest in another business should be thought out carefully.

      2. Focus more on how to manage the business properly.

      3.  Failure to hire experts to do specific jobs. Some entrepreneurs might be too conservative in spending more on their startups. And I suppose that the fear of losing money is always on their mind. However, if you are not knowledgeable in certain areas, never attempt to take a shortcut by doing it all by yourself. Always consider hiring others to do tasks such as bookkeeping or accounting. You wouldn't want to blame yourself for being too stingy to make the right decisions for your business.

      4.  Mixing personal and business finances. One can be so excited learning that the company is slowly picking up tends to use the profits from the industry for personal use. While you also need a certain amount as your share from the business, it is always best to not overspend. Not because you have hit past the "profit goal" for the month doesn't mean you can use it unnecessarily.

     5.  Undervalued products and services. Your aim may be to gain more customers. However, it does not mean you need to set the prices too low. You need to check on your competitors' prices to assess how much you will charge your customers. You may be losing out on recurring customers and profits primarily because the low cost you set may have made your customers think you are offering low-quality products and/or services.

Have a clear understanding of how much it would cost to stay in business and ensure that your pricing reflects those costs to keep your business running.

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You may contact Armando "Butz" Bartolome for questions and more information.

By email: aob@gmb.ph

FB Page: Armando Bartolome

Linkedin: https://www.linkedin.com/in/franguru/ 

Website: https://www.gmb.ph