America needs new small businesses to succeed. New business owners need to be savvy in how they financially plan to launch their companies.

If you’re thinking about starting a business, you’re in good company. In fact, according to the U.S. Chamber of Commerce, 2023 saw a record-breaking 5.5 million new business applications.[1]

This burst of entrepreneurship is a good thing on multiple levels. For example, small businesses are a powerful driver of employment, with 55 percent of net job creation between 2013 and 2023 coming from small enterprises.[2]

Obviously, small businesses can also build wealth and economic security for those willing to launch them. Even though starting a new business is an act of optimism about the future, it’s still important to be clear-eyed about the challenges of starting and operating a business that can last for years or decades. In fact, about 20 percent of new businesses close within a year of opening.[3]

A lot of the factors that will determine whether a new business will thrive, or struggle is outside of an entrepreneur’s control. Macroeconomic factors, such as whether the economy is in a recession, interest rates change, and consumer sentiment can play a pivotal role in a young company’s fate.

Remember The Why Behind Your Business

Nevertheless, entrepreneurs can give their companies the best opportunity for success by focusing on the key areas within their control. One is all about a new business owner’s mindset.

For example, starting a new business can often feel like it involves answering a seemingly endless slew of “what” questions. What products and services should we offer? What are our stores hours and what do I want my employees to focus their time and attention on? What makes us different from competitors?

These are all very important questions to ask and answer. But new business owners also need to understand why they’re launching their company. Is it for personal reasons, like a desire to control your schedule and time in a way that may be impossible with a traditional job? Is it because you have developed an innovative product or service that can benefit customers and communities in unique ways? Is it because you think you can make more money as a business owner than as an employee?

Clarity around why you decided to start your company is essential for both personal and financial reasons. Indeed, understanding and clearly communicating the mission of your company can connect you to customers in a way that might be impossible if the relationship is purely transactional. This can help with acquiring and retaining customers but also can make it easy to drive consistency in how you market your company.

From a financial planning standpoint, clarity about your why helps prioritize everything from the capital investments you make to hiring to finding sources of funding and even succession planning.

Funding Options and Opportunities

If you want to become an entrepreneur, you’ll need to get comfortable worrying about money. That starts with finding the money necessary to get your business up and running and operating smoothly.

Even before you consider funding sources, it’s wise to calculate how much you’ll need to get started. The U.S. Small Business Administration (SBA) provides guidance to help entrepreneurs estimate their startup costs.[4] This includes considering funds needed for office space, equipment, licenses and permits, inventory, insurance, and other necessities.

Every business will have a unique combination of expenses to cover. Once you have a ballpark idea of what it will require to transform your new business idea into reality, you’ll need to consider funding options, which include:

  • Self-funding is exactly what it sounds like. Money to launch your business can come from your savings account or by asking friends and family to pitch in. This can be attractive because it allows the business owner to retain full control over their company. But it also means you will shoulder all the risk, and the downside of losing personal wealth if the business fails.
  • Venture capital firms provide funding for certain high growth potential startups. Venture investments can be large, but they also require handing over a percentage of company ownership and some level of control in the operation of the business.
  • Angel investors are typically wealthy individuals who use their own money to back startup companies. Like venture capital investors, angel investors will want an ownership stake in your company and the ability to influence business decisions. In the case of both angel and venture investors, the expertise and guidance provided can be a big help to new business owners.
  • Personal loans can be a valuable source of funding because they are often processed quickly and can have low interest rates. But they require a strong credit score and aren’t always large enough to meet a new company’s startup costs.
  • Small business loans can be larger than personal loans. To improve your likelihood of getting one, it’s helpful to have a business plan, revenue forecasts, and a detailed calculation of your expenses. The SBA offers microloans, which are designed to support companies that don’t qualify for other funding.[5]
  • Small business grants are understandably in high demand because it is money that doesn’t have to be paid back. Grants are often designated to assist a certain type of entrepreneur, like veterans, women, and minority small business owners.[6]

Launch Your Business with A Succession And Exit Plan

Launching a business may seem like an odd time to think about leaving the company or passing it along to someone else to run or own. But the startup phase is the best time to start crafting some basic strategies for the next phase in your company’s life.

Why? At a very basic level, you may not know when the need to exit will arrive. About half of all business exits are unexpected, the result of death, disability, burnout, or divorce.[7] Devising an exit plan from the get-go of a business means that there will be a structured and coherent approach to removing yourself from the business and enjoying whatever financial upside you have labored to achieve.

A succession plan can be part of an exit plan because it provides guidance about who will take over your company and what role, if any, you will continue to have.

Exhibit The Markers of Healthy Cash Flow And Proper Tax Management

In our everyday lives, we are what we do. Which means that our habits and behaviors largely define us. The same is true with businesses.

That’s why it’s so important for new companies to begin their lives with healthy cash flow and tax management habits. Building a strong foundation for cash flow and tax management increases the likelihood that companies will continue to operate responsibly as they grow and mature. In fact, establishing those good habits early will increase the likelihood that your business will grow and succeed, especially if you need to attract new investors.

Launching a new business is a time of excitement and trepidation. Paying close attention to the financial planning and habits you’ll need as a startup will help set you on a path for future success.