When not to start a small business

JohnTaylor October 30, 2011 0

Starting a small business is a time and labor intensive operation and it will require an extreme amount of focus and discipline on your part. If your head isn’t in the game, or if the stars aren’t aligned properly, it’s likely that your business will fail. Knowing when not to start a small business, instead choosing to hold your cards and plan for the future, is important to eventually starting a business and getting it off to a good start.

Probably the most important consideration to take into account when starting a small business is financing. If raising the capital you need to start your business will put your home or retirement savings in severe jeopardy, it may be worthwhile to hold off on starting your business until you’re able to find a source of collateral that won’t leave you in the street if things go south.

Loan rates are also an important factor to consider when getting financing for a new small business. If the interest rate on your loan is too high, you may want to wait until your credit improves, you can find a partner or until you can find an alternate source of financing to start your business.

Gauging the demand for your potential business is also important. If the local market for your business is already thoroughly saturated, or if the online niche for your products or services already appears to be filled and you’re unable to offer something different from the existing businesses, you may want to hold off on starting your business.

Compliance with zoning and other regulations is also a key factor to consider when starting a new business. If your new venture is on shaky legal ground concerning zoning laws, state health and safety regulations or other rules, you may want to delay starting a business until you can get a black and white determination of the legality of your venture.

Supply chains are important to businesses in that they determine whether the business will be able to meet its customers’ needs. If you can’t get the logistics of how you’ll get supplied with the materials you need for your business, you may want to wait on starting up until you can find a better solution or better location.

Your personal life also plays a role in whether you’ll be able to successfully start a new business. If you’re going through a divorce, it may not be the time to start a small business, as the legal proceedings could put the status of your investment in your new business in jeopardy. Also, significant health problems or substance abuse issues may need to be resolved before you can put your best foot forward in starting a new business.
Buying an existing business

If you’re considering buying an existing business and making it your own, there are a few red flags that might be worth heeding.

For example, if you’re stepping into the shoes of a partner who is departing a business, it’s worthwhile to look into the history of the partnership and the background of the other partner before buying. A history of contentiousness between partners or evidence of recklessness or negligence by the remaining partner may dissuade you from buying into a bad situation.

Finances are another key factor, if not the most important factor, to consider when buying in to another business. You should evaluate your finances carefully to see whether you have the money to fund renovations or changes that may be necessary and absorb losses in the transition period.

Also, while finding undervalued assets and turning them around is a common aim of many businessmen and women, it’s not always attainable. If you’re considering buying a business that’s had some public image problems or difficulties related to its facilities or logistics, you may want to think twice before making a potentially expensive plunge. Consider the problems of the business you’re acquiring and whether you have the skills, know-how and will to turn them around.

While entrepreneurs shouldn’t be discouraged from taking risks and starting new ventures, it is important to consider the risks of a new venture carefully and determine whether the likelihood of success adequately outweighs the risk of failure when starting a new business.

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