Your first year in business could be the best or hardest of your life – likely both. You can roll with the punches better if you're prepared for these scenarios and factors.
You've finally taken the plunge and opened that little store you always wanted. Perhaps you've even planned for this moment for years, but the reality is often far different from what you imagined.
The United States government reports that 90 percent of retail sales still happen in brick-and-mortar stores. There are many reasons people shop in-store instead of online, including 62 percent indicating they like to see or touch an item before buying. There are many advantages to owning a brick-and-mortar store, even if you also have an online presence.
However, with any new business, there are unexpected situations you'll face in your first year.
1. Dealing with cash flow issues
Nearly every company deals with cash flow issues at some point in its growth process. Either revenue doesn't come in as quickly as you think it will and you owe your suppliers and employees more than what's coming in, or you have so many orders to fill that it's hard to find the funds to keep inventory in stock.
About 59 percent of small business owners told researchers they've suffered from cash flow issues at some point in their business. It's common to run into these issues in the first year because you have so many startup costs. Fortunately, there are a few things you can do to prepare for this scenario:
- Set up accounts with suppliers now. This way, you'll likely have some leeway on payments if needed. While it's best to pay your invoices immediately, having net 90 instead of cash on delivery may make or break you in the first few years.
- Create an emergency fund. When cash flows well, set aside some for when it doesn't.
- Take out a personal loan. While this isn't the best option, it is an option if your business is profitable but you're short on funds at the moment.
You can also look into taking on an investor or two, but then you'll have to share profits, which creates another set of issues.
2. Preparing for customer payment fraud
A small percentage of people will complete a transaction and then file a claim for a refund through their credit card company. In most cases, the credit card company sides with the cardholder. You are then out the money from the transaction and the item you sold to the customer. Over one year, about 16 percent of survey participants indicated they experienced payment fraud.
When estimating profits and losses, factor in losses from payment fraud. It isn't common, but it does happen, so count on several each year and plan for how you'll overcome the loss of income.
3. Investing in a POS system
One thing you'll discover in your first year is how complicated keeping up with inventory flow is. You must get a handle on which items sell quickly, what needs to be ordered and items that aren't doing well (so you don't order more). A POS system allows you to see at a glance what's in your inventory and what is and isn't selling. Look for a system that provides an option for a customer loyalty program as well.
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4. Attracting foot traffic with signage
The proper signage announces your business to the world and draws in the foot traffic a startup needs in the beginning. The majority of people still prefer shopping at a brick-and-mortar store, but they have to know where to find you and what you have to offer.
Think through the messages you share on your signage. Add outdoor signs, a prominent business sign, and even signs on the floor or sidewalk in front of your store. Plan your signage so that you have a variety and it's easy to spot from a distance, at eye level, and up close.
5. Knowing the market
If you don't fully understand the market in your industry, you risk becoming irrelevant. Around 42 percent of business owners point to a lack of need in the market for their product or services as the reason for their failure.
Spend time studying your market and any technology changes or advances. Look forward to what might be important in six months or a year. Blockbuster Video is an example of a brand that was huge but failed to see the technological changes taking place around it. Because the company didn't prepare for streaming and mail-order video rental services, it lost its edge and faded into obscurity.
6. Studying your competition
About 19 percent of small businesses fail because the competition overtakes them. If you want success in your first year and beyond, understand who your competition is, what their message is and how they promote their brand.
If you want success, you must not just do the same amount of marketing – you must also rise above what the competition does. If they are known for their customer service, make yours that much better. Look at every aspect of your competition, identify their weaknesses, and make their weakness your strength.
7. Choosing the right team
The team working for your startup can make or break you. Because you're new, many of the top workers in your field may shy away from taking on a position with you for fear your business will fold after the first year. However, if you offer decent pay and a fun work environment, there are others who'll take a chance on you.
Communicate your goals and philosophy as a brand during the interview process, and only hire those who are as excited as you are about building something amazing from the ground up. If you hire someone who winds up not being a good fit, be fair, but tell them it's time for them to look for something else. You can't afford to keep someone on board if it isn't working for either of you. Your team can make or break you in your first year.
Enjoying the ride
Your first year will fly past. In that time, you'll gain knowledge, make mistakes and have success. You might want to keep a journal and note any lessons about running a business you learned along the way. You never know when you'll come across the situation again and need to refer back to the solution, or at least not repeat the same mistake. A startup is exciting and holds the potential for fantastic success, so dig in, enjoy the journey, and learn from those who came before you.