Entrepreneur Resources Your source for small business information
As you’re setting up your startup, getting it off the ground, and building a customer base, you’re probably focused on the present and the immediate future. If you’re not too exhausted, maybe you’re looking a little further into the future to plan for more growth. But, more than anything, you’re focused on the here and now, and on the enthusiasm you have for your new company. And, of course, you wouldn’t become a startup founder unless you truly believed in your vision and in your company. But, remember to temper your enthusiasm with a healthy dose of realism — at least just enough to protect yourself.
It’s commonly said that 9 out of 10 startups will fail, although different sources cite different statistics. Whichever ratio you believe, the truth is that the majority of startups do fail, many in the first year and a half of operation. Now, keep in mind that this doesn’t mean your dreams of a successful startup have to go down the toilet. Perhaps your first startup will be in 10% of startups that make up. And, even if you have to scrap your first startup, there’s nothing stopping you from continuing to found startups until one makes it. In fact, a lot of successful startups were founded by people who had failed in the past — and had learned what not to do in the process.
Most startup founders view their startup as a child. Because of this, they invest all of their personal money into their startup, and do little to separate personal finances from business finances. In the moment, this makes perfect sense. If you want your startup to succeed, you need to be willing to invest all of yourself — time, money, energy — into making that dream a reality. But, if you do this and your startup fails anyway, you leave yourself with nothing. No company, no assets, and no money in your bank account.
Although it may seem like an unnecessary hassle now, it is crucial that you separate your personal and business finances from the very beginning. You can still use your personal assets to grow your business, but you must separate the two accounts. Keep a nest egg for yourself, a little stockpile of money that you will never invest in the company, but that you will use instead for basics like rent and food. If things begin to look down for your startup, fight the urge to dip into your nest egg. You must set limits on yourself, which you’ll thank yourself for later. This way, if your startup does die, you still have enough money in your nest egg to land on your feet. This nest egg may also be the beginning of a fund for a new startup, where you can apply the things you learned during your first attempt.
In addition, keep in mind that your first startup — as long as it’s separated from your personal finances — may benefit from declaring bankruptcy on its way out. Although it’s a point of pride among many entrepreneurs to not declare bankruptcy, there are times when it simply makes business sense. If you’re considering bankruptcy, you can speak with a GTA bankruptcy trustee to determine if it’s the best option for you and your future success.
By protecting yourself against the potential collapse of your startup, you aren’t assuming failure. You’re simply protecting yourself and your finances so that one day, you can be a successful startup founder — even if that success isn’t on your first try.
