SAFEGUARDS

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  • Hazards for Business Beginners: The Disasters Are in the Details
    Game Plan
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    How to Plan for Success and Failure

    It’s a good idea to approach your new venture with a positive attitude—despite all the noise out there about high failure rates for start-ups. In fact, federal Census Bureau data show that 69 percent of small businesses (with more than one employee) are still operating after two years, and more than half make it past the five-year milestone.

    So plan for success by writing a business plan that captures your vision of the opportunity you’ll be working to develop. Be sure to use realistic estimates so your invested capital doesn’t get too far ahead of actual revenues.

    At the same time, you do need to build in some downside risk management provisions. The truth is that the economy can go south at any time, competitors may introduce a breakthrough product or service, or your health or personal circumstances could change. In spite of great ideas, hard work, and motivation, your business might not make it. In that case, you want to preserve as much as you can of your capital and relationships, so you can put them to work in your next venture.

    The solution is to write your company’s Operating Agreement or Articles of Incorporation with provisions for selling the business, disposing of property, and distributing any remaining assets in a pre-agreed upon fair and equitable manner.

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    Game Plan

    Take an objective look at business success rates in your industry. They’re not as depressing as you might have heard. That said, a 25 percent first year failure rate is not something you can afford to ignore. That’s why it’s important to revisit your business plan, governing documents, and contracts to make sure you’ve covered the most likely contingencies—good and bad.