The 5 Elements All Successful Businesses Have In Common
Sometimes it seems like building a successful small business plan is like making a wish on a shooting star or finding the pot of gold at the end of a rainbow.
The statistics for a long-term “open” sign aren’t too appealing. According to the Bureau of Labor Statistics, approximately 20% of small businesses fail within the first year. Even more alarming, by the end of the second year, it’s 30% before skyrocketing to 70% by the end of year ten!
Keep in mind that in business (as in life), nothing is guaranteed. While long-term success might seem like a unicorn, there is something special to be learned from companies that have been active and thriving for several years.
Let’s explore a few foundational principles that successful businesses share.
Craft A Business Plan
Your business started from an idea. The idea only lived in your head in its infancy, but with each step forward, it grew. A great way to make that growth organic to your business and its values is to build a strong foundation—a financial roadmap.
A financial roadmap plans the monetary aspects of your business—cash flow, taxes, retirement, exit strategy, etc. A successful business doesn’t just rely on a good idea; there needs to be immense financial support to stay afloat. What elements make up a financial roadmap?
- Legal Structure: Which type of business entity is right for you? Sole proprietorship? LLC? Corporation?
- Cash Flow: How quickly do you need to generate revenue to be successful? Does a business loan make sense? How much of an initial investment do you need to start the business? Do you have a financial runway for the first year or two?
- Risk: What types of risks are associated with your business plan? Do you need business liability insurance? Property and casualty insurance? Disability insurance?
- Retirement Planning: How do you plan on saving for your retirement within your business? Should you start a company 401(k) plan? SEP IRA? Pension plan?
- Benefits: If you plan on having employees, what types of benefits will you offer them (401k with a match, healthcare, sick leave, or PTO)?
- Tax Opportunities: What is your plan for minimizing your tax liability? Are you familiar with the types of tax deductions and credits available to you?
All of these items are part of an overarching financial roadmap. Your business idea will get you to the door, but your financial roadmap will help you thrive after you walk in.
Continually Drive Value
It may seem obvious to provide value to your customers/clients, but the idea of continuously driving value gets lost on many founders over time. Getting clear on your “why” is critical:
- Why did you start the business in the first place?
- What opportunities did you perceive in the market?
- What problem did you see that needed to be solved?
- How is your company uniquely positioned to serve your target market?
- What makes your business different from the competition?
Businesses begin with ideas on products, services, technology, etc. Make your ideal customer one of the essential pieces of the puzzle. Being connected to your audience helps your business grow.
With that idea in mind, periodically put yourself in the customer’s shoes. Are they better off as a result of working with you? How so? Are there ways your product or service could better serve your customers? What pain points could you solve, and can you level up your business to address those needs?
You want to make it abundantly clear how your customers benefit from working with you—it’s a critical step to staying in business. Driving customer value should remain at the forefront of your business plan at all times.
Carve Out a Clear Identity
To craft your financial roadmap and continuously drive value to customers, your business must have a clear identity.
In a world of endless competition, a niche can help you stand out from the pack. A niche is simply a focused and targeted area that you serve exceptionally well. Identify an ideal customer and determine how you will attract others like them to your business.
- Customer Avatar: Where do they live? What drives them? How do they spend their time? How would you describe their personality traits and habits? What do you like about working with them? What are they struggling to achieve?
- Unique Service Model: Once you have your customer avatar, craft a service model that benefits clients with similar needs. Let’s imagine your ideal customers are young working mothers in their 30s who live within 50 miles of New Orleans. How can you make it as easy as possible for these ideal clients to find you and work with you? You probably realize that 7:30-9:00 am and 2:30-4:00 pm are always busy if the kids are in school. A simple adjustment to your daily schedule could accommodate your niche while simplifying life for your target market. Apply this logic to everything you do for your ideal customer.
- Differentiated Marketing: When you have a niche, marketing your business gets a lot easier. Using our previous example, how would you choose your brand colors? What would your tone be in marketing communications? What current events may motivate your ideal customer?
Create A Robust (Yet Flexible) Financial Plan
You must separate your business plan from your personal goals. The business may help feed your personal goals, but you must differentiate between the two. The business is how you earn a living, and your personal goals should dictate how you use the earnings. Even though it’s challenging, it’s a balance worth finding.
There a few common mistakes business owners make when it comes to their financial plan:
- Fail To Separate Business & Personal Finances: If you start your business off by co-mingling business and personal finances, you are setting yourself up for trouble. You should have a business entity, separate bank accounts/credit cards, and clear insights into the financial success of your business. There shouldn’t be confusion around your business’ financial affairs due to a lack of separation between business and personal expenses.
- Do Not Account For Taxes Properly: As a business owner, you need to keep track of your tax liability. You no longer have a set salary and an employer deducting your taxes for you. Working with a CPA to track your taxes over time and paying quarterly estimates is often advisable.
- Underestimate The Initial Investment: It’s easy to make a list of all the expenses your business will require to get started. Unfortunately, there are almost always a significant amount of unexpected costs. From that perspective, you need to expect the unexpected and budget far more than you think. Compare this to buying a home. You can calculate the mortgage payment, property taxes, and homeowners insurance, but what about ongoing maintenance? Is a new roof included in your initial budget?
Once you have a detailed business plan in place, you can start to think about how you will use the earnings from your business to craft your personal financial plan.
Build A Succession and Retirement Plan
It isn’t easy to imagine your business without being involved in it. When you consider the long-term goals of your business, you should also consider an exit strategy. Remember, when you sell your business, you will no longer be a part of it, so how will the buyer perceive value if you can’t separate yourself from the business now? If you’d like to sell it or pass it on as a legacy, you have to prepare. How can you do that?
- Create robust processes: Early on in your business, detail your processes. It may feel like overkill at first, but it will enable you to hand off tasks as you grow and start to hire. Detailed and efficient processes are critical for scaling and eventually for passing the business onto someone else.
- Contingency Plans: If you were unable to work, would your business be able to function? If so, for how long? If you were to sell your business in the future, could someone else actually take over? At some point, you need to see a path to handing the company over to someone else.
- Legal Documents: As a business owner, you are only as good as what you write down. In the world of legal documents, you should take that quite seriously. Legally speaking, how would your business affairs be handled if you were to pass prematurely? Would you prefer to hand it over to a business partner or family member?
Form a Business Plan That Works for You
Entrepreneurship is a giant leap of faith, time, money, and dreams. If you’re ready to take the next steps in your business, consider all of the elements that comprise successful companies around the globe.
Starting and running a successful business takes time, heart, dedication, and an ironclad financial plan. We love working with business owners to help them make financially smart choices that keep their doors open.
Once you are ready to create a bulletproof business plan and understand how it will impact your financial plan, schedule some time with our team. Let us help you get started on the right foot and create a framework for long-term success.