How to Tell if Your Business Will Be Successful Beyond Its First Year
In the world of business, the potential for success is so often measured by milestones. Since just two out of five new businesses make it beyond their first year in operation, researchers have been able to mine a few solid indicators that can help identify those companies that will inevitably survive. According to experts, there are seven chief indicators that a new business will be one of the lucky ones to make it past its one-year anniversary, and here they are.
#1 – The Business Fulfills a Fundamental Want or Need
Businesses that are essentially clones of those that came before them hold very little chance of making it beyond their first year. In most cases, companies that offer products or services that fulfill a fundamental want or need that isn’t being currently addressed are the most likely to be successful. Keep in mind that your company can be similar to another one that came before you, but if you want the best chance at succeeding, then you should offer a fresh perspective of something unique and different from what your competition is offering.
#2 – Strong Rate of Returning Customers
It costs more money to attract new customers than it does to sell to those you already sold to. And in most cases, a new company needs to convert between 25% and 50% of its first-time customers into loyal, returning customers if it wants to have the best chance at making it beyond year one.
#3 – The Business Isn’t in Debt by the End of Its First Year
It can take a new business a few years before it starts turning a profit, but that is only if it has the financial resources to stay open that long while continuing to run at a loss. Not all businesses have that luxury. On the other hand, if the business isn’t in debt by the end of the first year, then it stands a good chance that it will succeed well beyond that point.
#4 – The Business’s Taxes Are Always Paid on Time
Keeping track of business taxes and their due dates is one of the more challenging parts of running a new business. And, failing to pay business taxes on time can lead to costly penalties and fines, both of which could realistically shorten a company’s lifespan. But, if the business is financially responsible and capable of paying its taxes on time, then this is a good indicator that it will make it past its first year.
#5 – A Growing Credit Score
If the business’s credit score gradually increases as the year progresses, then this is a good sign that the company is moving in the right direction. Positive business credit growth is a primary indicator that the business is paying its debts on time and building smart business relationships – both of which are essential to keeping a business’s doors open.
#6 – Assets Are Worth More Than Liabilities
A business is considered solvent when the value of its assets exceeds the amount of its liabilities. This is very hard for new businesses to attain, especially within the first year, so if the business has greater asset value than its liabilities by the year’s end, then it is definitely moving in the right direction.
#7 – The Business Makes at Least Twice as Much as It Spends Each Month
As a standard, a successful business should make at least twice as much as it spends every month. For example, if a business spends $2,500 every month in operational expenses, then it should realistically be bringing in a minimum of $5,000 every month. As long as the company’s revenue doesn’t slip past that mark, it should be able to survive and grow through its second year and beyond.
Photo Credit: Pete, Flickr.