Launching a new business is a difficult venture, and many don’t succeed. In fact, data shows that 18% of businesses fail after the first year, and almost 50% of businesses falter after 10 years. Ultimately, success versus failure comes down to how strong a financial foundation an owner has set for their business.
The members of Forbes Finance Council understand how critical it is for a business to achieve certain goals within its first year to survive. To that end, below, 15 of them discuss essential financial tasks or milestones a business should accomplish in its first year, and why they’re so important.
1. Separating The Owner’s Business and Personal Finances
The one foundational task every business owner should complete is separating their business finances from their personal ones. Many small-business owners don’t even know if they’re succeeding or failing when their finances are co-mingled. They think they’re doing well, only to realize too late that they were accidentally shoring up their business with their personal emergency fund. – Sameer Gulati, ZenBusiness
2. Growing Net Cash Flow
Growing net cash flow is the one essential financial task a new commercial real estate investor must accomplish within their first year. Raising rents and occupancy and controlling costs are the key determinants to successfully increasing property values. This is particularly important when interest rates, inflation and cap rates are rising. – EJ Paul, Eagle Commercial Funding Solutions, LLC
Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?
3. Articulating And Solving A Specific Problem
Small businesses improve their chances of success if within the first year they 1. are able to clearly articulate the problem they are solving, 2. have a solution that uniquely addresses that issue (this is “product-market fit”), 3. understand the unit economics of their offering when they are sub-scale and at-scale. Failing to achieve these objectives in year one can be a risky proposition. – Sean Brown, YCharts
4. Making The First Sale
There are many financial milestones for a business, but the most important is to get out there and make one dollar. So many entrepreneurs get bogged down with thinking about the different facets of starting a new business. The focus should be on getting your first sale—if you have not established your market, then how can you successfully grow a company? – Patrick Rood, Rood Financial Services
5. Establishing A Repeat Client
Most business owners know how to attract new customers, but a great business owner knows how to retain them. Your first milestone is to sell your service or product to a repeat client. It is imperative for your business to have a strong online presence; utilizing social media is the best way to maintain client relationships and then reward those clients for their loyalty. – Crystal McCullough, The Spearhead Group Inc.
6. Hiring A Financial Expert
Don’t go it alone. Speak with a financial advisor or CFO to understand the potential areas for financial risk, and have a team in place, ready to go, for when or if those problems arise. Also, don’t just plan for the negative. It is essential to have a plan prepared for when you’re exceeding your expectations. – Karim Nurani, Linqto
7. Outlining A Spending Plan
I think the best principle to stick with is the “lean startup” method. Stick to the essentials. If you don’t need office space, don’t get it. Bootstrap your business and extract as much feedback from mentors and peers in the industry as possible. Many businesses fail in the first year from a lack of proper financial planning. Make sure you have a solid outline before you start spending real cash. – Ben Jen, Ben Jen Holdings SLLC
8. Analyzing The Competition
Analyzing your competition is crucial in the first year of forming a business in 2022 and beyond. Consumers are smarter than ever, and we’re living in a saturated market for numerous industries. Take the time to research who your competitor is and how you can differentiate yourself, and make your company or product unique to let your value be shown. – Charlene Wehring, Wehring Wealth Management
9. Gaining Access To Capital
Access to capital is critical for a startup at any stage. As such, it is important to find and develop a business banking relationship as quickly as possible. If possible, leverage any existing banking relationships you may have. The sooner you focus on building your business banking relationships, the more access to capital you will have down the road. – Robert Reeder, GlassView
10. Understanding The Business Model And Unit Economy
I think it’s essential for a new venture to have a solid minimum viable product in place within a one-year timeframe. Another crucial point is to understand your business model and unit economy—at least have an understanding of how it should work and have some proof from the market. This data could come from trials with prospective clients or from some presale. In this way, monthly recurring revenue could be in place or future MRR could be calculated. – Alexey Posternak, Intema.ai
11. Knowing Your Cash Position
Make sure you know your cash position at all times. A slow start is better than a fast one, which could leave you with too much inventory and/or no cash to run the business. If you need capital, try a friends and family funding round to kick start the business, but don’t take on debt unless it’s working capital debt. Don’t give a guarantee on “personal” assets unless you can really afford it. – Marcel Bens, Emil Capital Partners
12. Having Two Months’ Cash On Hand
Have cash on hand to cover business operations for at least two months. Many businesses cite cash flow as their top reason for failing. Keeping expenses low and having cash available ensures the business has a chance even if (as is likely) cash flow fluctuates due to an unstable new client base. – Nick Chandi, ForwardAI
13. Identifying Sales Numbers And Price Structures
Within the first year, a new business owner must identify sales numbers and price structures and understand what their break-even point is on the items or services they are selling. This will enable the entrepreneur to plan out their growth in a measurable way and set appropriate sales goals to break even and become profitable. – Luz Urrutia, Accion Opportunity Fund
14. Hiring An Employee
Too often, entrepreneurs get consumed with working “in” their business rather than “on” their business. Hiring employees is often a tough decision, and it’s a hurdle many businesses never cross. However, an entrepreneur is more likely to treat their business as a business rather than as a source of income when they’re responsible for others’ financial well-being. – Michael Jay Markey, Legacy Financial Network
15. Keeping Expenses In Check
Expenses rarely get the spotlight that total revenue does, but they’re just as vital to a company’s cash flow. While turning profits is the endgame for new businesses, excessive spending will ultimately drain a company’s cash on hand regardless of how profitable the business is. With this in mind, it is imperative for new businesses to keep expenses in check, especially during year one. – Mara Garcia, Phonexa Holdings, LLC