Avoiding the cause of 79% of business failures

In a 2004 survey, 79% of failed small businesses cited “starting with very little money” as a cause of their failure. Those who are just starting out often overestimate how much they will earn in sales in the first few years. What you really need to do is budget for few or no sales for longer than you think.

Murphy’s Law has its own version when it comes to bookkeeping: “Everything will take twice as long and cost twice as much as you expect.”

So how much do you need?

The short answer is that there is no magic number that can be considered a safe amount for every type of business. Average costs estimated by different organizations vary widely. The Ewing Marion Kauffman Foundation puts it at just over $30,000 for the average new business, but its numbers skyrocket for certain industries, like construction ($82,000), retail ($98,000) and manufacturing ($175,000). Babson College puts it at around $65,000 for the average start-up.

The correct amount will actually differ from business to business, even if they are similar in all other respects. When determining what’s best for you, don’t overlook the many types of costs that could apply to your business. Jennn Fusion of Demand media generally classifies them into six:

1. The actual costs of making your products are, of course, the most obvious for having something to sell in the first place. This includes raw materials or materials, equipment and supplies, transportation costs, and storage costs.

2. Professional fees for any services you may need, such as those provided by lawyers, accountants, etc.

3. Technology costs must also be taken into account. In today’s connected world, it’s important to take inventory of computers and software, Internet access, cell phones, and anything else your business may need to streamline processes and also communicate with customers and vendors.

4. Administrative costs include everything needed for your business office, such as supplies, furniture, and other equipment. This also includes costs like licenses and permits, rent, and utilities.

5. Marketing costs are one of the most crucial categories to the success of your business, besides the number 1 actual cost of business. As we quoted Greg Head of Small Biz Trends in a previous post, “All Successful Businesses They have a clear marketing strategy that makes everything they do more effective.” Invest the right money and for it.

6. Salaries – Don’t forget to pay your employees too, including yourself. Managing payroll can be complex, and this includes providing fair wages and benefits and withholding the correct taxes.