Recently, I have been receiving a lot of calls from people wanting to start their own business. Hopefully, this is a sign that the economy is growing and people have more confidence.  Starting a business, however, is only part of the equation. Staying in business is and being successful at it are the other necessary ingredients. And all the ingredients are dependent on each other because the key to success and longevity in business is to start it the right way. So, here are my new annual key ingredients to starting a successful small business:  Planning; adequate capitalization; knowledge and persistence.

Thirty five years of working with Long Island entrepreneurs have demonstrated to me that these are essential ingredients if one wants to create a successful, lasting business. While there are a lot of entrepreneurial dreams out there, dreams don’t pay the rent. A successful business requires a realizable dream and the means to implement it. There are guidelines and sources of assistance on Long Island to help provide three of the ingredients (persistence is not something you can contract for- it comes from believing in the dream).

The Small Business Development Centers and Service Corps. Of Retired Executives, along with many accountants, business consultants and financial planners can help you put that business plan together. In that plan, you must anticipate everything that can go right or wrong with the business and have contingency plans in place. Planning involves things like: what is the target market; how will you make the product; who will deliver the service; who will manage the operation; how do you market; inventory control; how to collect moneys due; who are your vendors; how much money is needed to start and get through to break even; where is the money coming from, etc. etc. etc. 

Adequate capitalization is a must for any start up (or existing businesses). The rule of thumb on startups is at least one third equity and a lender will consider lending two thirds. Not only must you anticipate the hard costs but also the working capital needs until the business generates enough cash flow to break even (including paying you a living salary). And don’t forget about contingency funds for emergencies, and opportunities.  Lack of adequate capitalization is one of the main reasons for small business failure.

Knowledge is a key element in small business success. The most successful entrepreneurs take the time to learn everything about their business. Even with the best employees, it behooves the owner to know as much and more than them. Knowledge can often be the key to making it in the small business world. And, lenders want to see a business plan that reflects the fact that the entrepreneur knows all he/she needs to know about the business. More knowledge increases the chance of success.

Persistence is a character trait, not something that can be learned. If you don’t have the persistence necessary to survive all the pitfalls of owning your own business, you might want to think twice about the venture. You have to be willing to forge through all the problems, headaches and disasters of entrepreneurship. And they don’t end after a period of time. There may always be pitfalls and issues. You have to be determined enough to stick with it and be willing to sacrifice to make your dream a reality.

Sound simple? It is not… many start up businesses fail within the first year. But chances of making it are greatly increased by the presence of the key ingredients: planning, adequate capitalization, knowledge and the persistence to turn all those ingredients into a successful business.