How to Help Small Businesses Survive — and Thrive

Small businesses have a lot of hurdles to overcome in their first few years, and unfortunately, many don’t make it. Starting a business comes with a lot of work and risk, and keeping a business alive can be even more difficult.

The statistics can be disconcerting: 10% of new businesses fail within the first year; 20% fail by the end of the second year; 45% don’t survive year five; and 65% are gone by year 10. Only 25% of businesses make it to year 15.

Inexperienced business owners often miscalculate the cost of running a business and the time it will take to achieve healthy cash flow. Currently, the average cost of launching a small business is around $3,000, and the most common reason for failure is an inability to continue covering expenses. The highest costs are usually payroll and healthcare.

Even with the high failure rate, there is a surge in new business creation in the U.S. From traditional small businesses to micro-businesses and side hustles, people are looking for ways to boost their income and to make money from doing things they enjoy.

But the statistics make it obvious that new business owners need help.

It’s time for the platforms and institutions that serve the small business market to recognize that helping new business owners succeed means success for everyone. And business owners need to expect more from banks, fintechs, and other platforms serving them.

What drives small business failure

Many people have little understanding about how banking — both traditional and digital —works. And that shortcoming is a weakness for business owners who too often think a good product can overcome financial naivete.

Another disadvantage for small business owners is not incorporating. It’s not difficult to do, and there are simple and inexpensive ways to get it done online. Registering a business with liability protection for personal assets is both a sound business practice and an indication that you take your business seriously.

Remembering that the top reason for business failure is inability to cover expenses, let’s take a quick look at some of the common denominators that contribute to that situation.

First, many founders don’t properly track their company’s P&L.

And while it’s not at all recommended, starting a business with funds from personal bank accounts, mixing personal and business expenses, is a common practice.

Even worse, many small business owners don’t use proper accounting methods or software, and they rarely obtain a credit card for the business to establish business credit.

Some people think starting a business this way, tiptoeing into the entrepreneurial waters, reduces risk — but often it increases risk. You can’t run a business without the right financial tools.

Why some small business owners succeed

No one goes into business for themselves because they dream of tracking expenses. Most of us do it because we are passionate about something, we believe we have a better solution for some problem, or we want to be our own boss. Regardless of our reasons, our ultimate goal is to make a living with our businesses.

Successful business owners understand the importance of the financial part of the business and will devote themselves to learning what needs to be done or find the right services to help them succeed.

If this obstacle can be successfully addressed in the first year, it greatly raises the probability that the business will continue to survive, and hopefully thrive.

Here are some pretty simple recommendations of steps new businesses need to take as soon as possible to succeed:

• Incorporate. It’s like waving a flag that you are a real business.
• Open bank accounts dedicated to the business.
• Start tracking business finances separately. Commingling finances opens the door to liability and makes clarity much more difficult.
• Evaluate finances quarterly. Be sure to track both time and expenses devoted to each product, project or customer to understand profitability.
• Invest in customer retention, which can be more profitable than customer acquisition.

These tasks aren’t difficult to accomplish; it just requires determination and a desire to reduce risk. Often, it’s not the complex stuff that causes business failure — it’s as simple as clarity of cash flow.

How financial platforms can help small businesses survive

Financial platforms, banks, and fintechs that serve small businesses can play a significant role in helping these important customers manage their operations and improve their likelihood of surviving.

The focus needs to be on providing financial services and tools these customers actually need, and providing guidance early on. They can’t thrive until they survive.

Offering helpful tools doesn’t have to be difficult. They can easily be added to a bank or fintech platform with APIs and fully-baked, white-labeled SDKs.

Tight’s API can be leveraged to seamlessly embed white-labeled accounting tools that help a small business manage invoicing, financial reporting, business expense tracking, and so much more. Business owners can have clarity of their cash flow without having to devote hours to updating an expensive accounting system.

Unfortunately, too many platforms serving small businesses are stuck in the past, following an outdated formula that’s no longer relevant. To serve today’s small businesses, you need to understand the phases these companies go through, from start-up to survival to growth, and maybe a potential acquisition.

At the end of the day, we should all be interested in improving the small business survival rate. Small businesses are at the heart of our economy — and their success is everyone’s success.