Surviving the First Five Years

Q: What year is the most critical for business survival?

A: The statistics indicate the first four to five years are the "survival years." Each year, one out of 12 businesses in the United States closes its doors, but this rate is one in six in the first four to five years. A recent study of new businesses in British Columbia found "there is no abnormally dangerous year among the first five. By the same token, the risk of going out of business does not lessen in any of the first five years."

Of course, not all businesses that close are failing. In fact, the IRS tells us that 57 percent of business owners with employees and 38 percent of those without employees who went out of business reported they were successful at the time of closure. Consider, for example, the homebased worker whose major client offers her a job she cannot refuse.

Still, the first one to two years are hardest for many, and specifically for certain industries, such as independent (not franchised) restaurants and network marketers. It's also true that in a fast-changing world, any business can be faced with survival issues at any age. New technology, changing distribution patterns and shifting consumer tastes can all bring a business' survival into question.

What makes the first five years the most hazardous? For a homebased business, it's not having a financial plan to cover family living expenses particularly during the first two years. It takes time to develop and concentrate on marketing techniques that produce business, to find a profitable mix of products--whether you offer products or services and sometimes both--and to develop repeat and referral business. Most people say everything takes longer than they expected.

If you're thinking about starting a business, what can you do to give your business the best shot? Start it on the side part time before you give up your day job, and let your current income absorb the learning curve most new businesses must go through.

Paul and Sarah Edwards are the authors of several homebased business books, including Working From Home. Their latest book is Why Aren't You Your Own Boss?