Forming a small business might seem to be an extremely attractive option, especially if you have the capital and the idea in mind. However, before you make that big jump, perhaps a bit of research into the “real deal” with small businesses might work in your favor as well.
However, perhaps it’s important to start with the overall impact of small businesses in the economy. In fact, it’s interesting to note that small businesses have a large contribution to the economy at large. Statistics from the Small Business Association indicate that more than 1.4 million jobs were added into the economy last 2014 courtesy of small businesses, with 39 percent coming from “very” small businesses that comprise of less than 50 members.
On The Digits, Financing
Data from the National Small Business Association suggests that another common problem businesses experience is that not enough funding are pulling businesses back from growing their companies properly.
Financing can generally come from credit cards and business loans, but sometimes business owners also allot personal investment on their end as well. In terms of exact numbers, it appears $10,000 is the average startup capital needed by small business owners in order to start a business. Others estimate the amount to be around $80,000.
On Credit Scores, Applications
Credit scores are in fact still important when starting your own business, especially if you take into consideration that your own credit score and your business’ credit score are taken into account when applying for loans and financing. Factors taken into account in terms of credit score include the following:
- Credit mix takes up 10 percent, and this defines the kind of credit that make up your history such as loans, utilities, and mortgages.
- New credit also takes up 10 percent, and this takes into the account the new loans and credit you’ve applied for recently.
- Age of credit history takes up 15 percent of the credit score, and this defines how long you’ve been borrowing money.
- Credit utilization takes up 30 percent, and this refers to the credit you’ve used versus the credit currently being offered to you.
- Payment history takes up 35 percent, and this refers to how diligent you’ve been in terms of paying your bills and if there are any late payments.
On Challenges, Failure
When it comes to failure for small businesses, it appears cash flow is an extremely necessary component in businesses. In fact, numbers from a United States Bank study indicate that 82 percent of businesses in the country fail because of problems in terms of cash flow.
- When the term “cash flow” is used, it doesn’t necessarily just mean the amount of money getting in and out of your business, but the timing as well. For instance, if you work with an invoicing system, if your loan payments are due prior to your invoice payments, then you might be in trouble.
- Businesses that depend on seasons, such as landscaping companies, are also always in tricky situations as money doesn’t flow until the season they operate as well. As such it’s important to always take your budget into consideration and make sure your finances are in order as you pursue your business.
If there’s anything the above would say, it’s that small businesses hold very big potential. However, with these potential comes risks you should always take note of before forming your business. If you’ve decided to transform your idea in to an actual business, the above may hopefully give you a heads up on what to expect when your business is formed. You may also consider getting an attorney, such as those from Dickson Legal, who may be able to help with regards to business law.