Starting a business is one of the most exciting, empowering, and intimidating things someone can do. Entrepreneurs aim to transform a passion into their livelihood, and often start off with energy and enthusiasm to spare. While both are important for success, many small business owners struggle with pragmatic aspects of being their own boss, including managing the company’s finances, protecting their business assets, and taking on extra responsibilities.
According to a Fundera article reporting on Bureau of Labor Statistics data, about 20% of businesses fail within their first year. Fifty percent are out of business by year five. Certain challenges are difficult to foresee, such as the pandemic or geopolitical impacts on supply chains, and there’s no way to guarantee a company succeeds. However, the following tips can help new business owners address fundamentals that have been known to hurt upstart companies in the past.
- Get a D-U-N-S Number: Dun & Bradstreet’s D-U-N-S Number® is a unique nine-digit identifier assigned to a business. Dun & Bradstreet collects publicly available data on businesses, along with information like trade references, when reported by certain trade providers. Other companies, lenders, and the federal government may request the D-U-N-S Number to consult a business’s credit file before extending trade credit or a loan. Businesses can apply for a D-U-N-S Number for free online.
- Establish the Business as a Separate Legal Entity: Many first-time business owners operate as sole proprietors, commingling their personal finances with those of the company. This can be a costly mistake, leaving the entrepreneur liable for debts incurred by the business. In addition, previous financial struggles can come back to haunt them if prospective partners or lenders learn of debts or defaults incurred by the business owner. Incorporating or forming a limited liability company (LLC) are two ways business owners can help draw a legal distinction between themselves and their companies–an important move with potential benefits for both.
- Open a Business Checking Account: Opening a separate business checking account for the company’s finances can further differentiate a business from its owner. Entrepreneurs who use their personal financial accounts can be pursued by creditors for outstanding debts incurred for the business. Second, even positive financial data can be associated with the person rather than the business. This is a missed opportunity to build up a new business’s credit file.
- Prepare to Be the Boss: There’s something romantic and inspiring about starting a business–after all, what could be better than calling the shots? However, new business owners aren’t always prepared for the amount of work and responsibility that comes with being the boss. Entrepreneurs should expect to put in more hours than at a traditional nine-to-five job and work harder than anyone else on staff. Paying rent, hiring, keeping track of earnings and expenses, managing employees, and marketing are just some of what many business owners have to deal with as part of their everyday responsibilities. While they may outsource certain jobs, the buck still stops with the person who owns the company.
- Begin Building Business Credit: Customers, suppliers, and lenders may check a business’s Dun & Bradstreet credit file before working with a new company. These business credit scores and ratings are informed by many factors and data points, including past payment experiences, public financial documents, and legal judgements. Steps that may help build business credit include making timely payments to lenders and suppliers and requesting they report payment experiences to Dun & Bradstreet. An up-to-date business credit file may result in more favorable loan and trade credit terms, helping the company save money.
- Protect Yourself with Business Insurance. Running a business takes a significant investment of time and money. Unforeseen events like fires and hurricanes can damage or destroy property, while injuries may result in costly lawsuits. There are a variety of insurance products available to help protect companies from these risks, including commercial property insurance, product liability insurance, and professional liability insurance. Business owners should consult with an insurance professional to find the right policies for their needs so they don’t find themselves facing financial stress that can negatively affect the company.
- Don’t Be Afraid to Ask for Help. Starting a business is challenging even under the best of economic circumstances. There’s a lot for the first-time entrepreneur to learn and many opportunities to make mistakes. Luckily, other people have already been through the process and those who aren’t competitors may be willing to share their experiences. It can be helpful to seek out friendly local business owners to hear what’s worked for them–and what hasn’t. There are also resources like Dun & Bradstreet that work with small businesses to help businesses understand and manage certain aspects of business ownership and management.
While nothing is certain when it comes to starting a business, a cautious and thoughtful approach can pay dividends. Taking the time to learn more about the steps above and consulting experts can help a business owner avoid common mistakes and be better prepared to face the unexpected on their way to success.
The information provided in this article is for suggestion-purposes only and based on best practices. Dun & Bradstreet is not liable for the outcome or results of specific programs or tactics undertaken based on your use of the information. Please contact an attorney or tax professional if you are in need of legal or tax advice.
Chris Moss is the General Manager, SMB, Dun & Bradstreet.
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