It’s no secret that the odds of startup failure are high. According to a report by CB Insights, 90% of startups fail within the first 18 months and 97% fail within five years. When you start running a company, it’s easy to feel like you’re invincible, but the reality is that there are many risks associated with starting a business and even more ways for things to go wrong. It can be difficult to predict how those problems might arise or how they will affect your business – which is why it’s important to plan ahead when it comes to protecting your finances:
Know your success rate.
Before you start your business, it’s important to know your failure rate. You might be surprised at how high it is.
A study by Portland State University found that only 2% of tech startups make it past the five year mark and only 1% make it past 10 years. And these numbers are even worse for first time entrepreneurs who have no funding or experience running a company: they have an 80% chance of failure within 3 years!
If these numbers scare you–and they should–you need to plan accordingly by saving money so that if your business doesn’t succeed, you’ll still be able to pay rent and put food on the table while searching for another job (or starting up another venture).
Plan your exit strategy.
You need to have an exit strategy in mind. This should be part of your business plan, and it should include a timeline for when this will happen. It’s important that you know when and how you’ll get out of the business, so that it doesn’t become a burden on your life or someone else’s (especially if they’re depending on their income from the company).
Some examples of exit strategies:
- Selling the business for cash – this may not be possible for every type of company, but if there is demand for what you’re selling and other people want to buy it from you, this could be one option for getting out with minimal hassle. A buyer would likely pay more than what was invested into starting up initially because they wouldn’t have any responsibilities associated with running day-to-day operations anymore…so long as things are going well!
Find an investor who understands tech startups.
Finding an investor who understands the tech industry is important. You should also look for investors who understand your business, and are willing to take a risk on you.
Look for someone whose track record of success in your industry is good, or better than average.
Have a plan for how you will handle cashflow problems, such as delays in getting paid or vendor issues.
You should have a plan for how you will handle cashflow problems, such as delays in getting paid or vendor issues. If you don’t have a plan, then you may find yourself in a difficult situation where there is no money coming in and bills piling up. You need to be prepared for unexpected expenses and revenue that might come along with your business plan.
If the unexpected happens, here are some tips on how to stay afloat:
Make sure that you have thought through what happens if you hit a funding plateau and no new money comes in.
Make sure that you have thought through what happens if you hit a funding plateau and no new money comes in. You need to know how to manage cashflow problems, delays in getting paid, vendor issues and even the possibility of having to let staff go.
If it’s not already in place, put together an emergency plan for this situation. You can use it as part of your business plan or incorporate it into your day-to-day operations when things are going well so that everyone knows what their roles would be during an emergency situation.
The odds of startup failure are high, but planning for it doesn’t have to be
Startups are risky. Failure is common, and it’s something that you should plan for if you want to succeed as an entrepreneur.
Failure can be a learning experience–a chance to identify what went wrong in your business model and adjust accordingly. You’ll learn from your mistakes and become a better entrepreneur as a result of them; this is something that many successful people will tell you about their failures: they learned more from failure than they did from success!
So how do we prepare ourselves for financial failure? By making sure we have enough money saved up so that even if our startup fails completely (and doesn’t generate any revenue), we will still be able to survive without having to go back into debt or ask others for help with our finances again
The odds of startup failure are high, but planning for it doesn’t have to be. You can avoid many of the common pitfalls by having a good understanding of your business and its risks, as well as knowing how you’ll respond when things go wrong.