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10 Common Problems for New Businesses


8
Not Enough Startup Money
If you're going to start a business, you're going to need capital to get it off the ground.
If you're going to start a business, you're going to need capital to get it off the ground.
© iStockphoto/YanC

In a 2004 survey of new business closures, 79 percent of respondents cited starting out with too little money as one of the chief causes of their failure [source: Sugars]. This is where a detailed and honest business plan can really save the day.

A common and deadly mistake is to assume instant profitability [source: NFIB]. The experts recommend planning for the worst, meaning at least two years before turning a profit. In your business plan, write up a detailed budget that will sustain you through those lean times. Once you've figured out how much startup capital you'll need in the bank, add 50 percent just to be safe [source: Krotz].

One way to save startup capital is to start as simply as possible. A common mistake of new businesses is to invest heavily in unnecessary luxuries like fancy office chairs or even an office at all! Many successful businesses begin in the home. Don't run out and hire 10 employees or launch an expensive marketing campaign. Be patient and start slowly.

Remember that even if you have clients locked in before you launch, not all of those clients will pay immediately. There might be a significant lag between the time you perform your service and time you have the cash in the bank. In the meantime, you'll still have employees and suppliers to pay. Don't let cash flow problems sneak up on you.