3 Tips To Avoid Bankruptcy In The Start-Up Phase

One in two companies will definitely close their doors before reaching the age of six. Worse, one in four settles in the first two years of his life! The mortality of young companies is a risk that hinders the ambitions of many project leaders.

Difficulties in finding sufficient funds for start-up, catching up on social security contributions, lack of public aids and subsidies, unequal competition with heavy trucks already well established … The threats to young businesses are numerous. Not easy for a creator to overcome so many obstacles, even with the best will in the world. As a result, the mortality of projects in their early years is enough to thrill people interested in entrepreneurship: 25 % of companies file for bankruptcy before two years, 50% before six years.

Mature your project

France has 3.82 million companies, of which a very large majority of VSEs and SMEs. According to INSEE, in 2016 alone, more than 554,000 companies were created, 6 % more than the previous year! It must be said that entrepreneurship attracts and is a way to create one’s own job when unemployment affects more than 3.4 million people (in the first quarter of 2018, unemployed category A) and that 44 % are jobseekers long-term (source OECD).

With such numbers, we imagine the level of competition to find financing, partners and especially customers to gain market share. This is why the thought process that precedes the launch of a business is fundamental. The future creator must answer a whole series of questions (see 50 questions to ask before opening his franchise ) to ensure that his project is viable and that he has the profile to become a business leader.

Do not underestimate the initial investment

To start a business, you need money. This is especially true in commerce where, typically, the creator has to find a trading premise and acquire stock before he can replenish his cash several days or even weeks after opening, but also in the field of services when he has to pay several salaries before raking in turnover.

The issue of initial investment is therefore fundamental. Too often, project promoters underestimate this amount, considering only the most obvious elements without projecting themselves. The need for working capital, which plays a major role in whether or not the cash flow is good and therefore the payment of suppliers, salaries and expenses in general, must be part of the designer’s calculations from the start of the project. . What needs to be able to project itself but especially to ensure its rear during a phase as critical as the launch of a company.

According to a study by INSEE in 2015, exceeding 40,000 euros of initial investment significantly increases the chances of survival. Of course, this is an average, each situation being different.

To be accompanied

According to INSEE, the death rate of young companies drops from 50% to 34% in the first six years when they are accompanied by professionals. The support that can take different forms: lawyer, chartered accountant, business consultant, law firm market research. In a franchise network, the support of the creator takes on an even more sustained dimension since the franchiser is supposed to provide assistance, advice, and know-how to the new franchisee. And since the latter integrates an existing network, most brands try to create synergies between each member so that good practices are exchanged.

This means, for example, the organization of regional meetings, national conventions, working commissions in which voluntary franchisees get together to draw up action plans on topics such as marketing, product development or marketing systems. information in the network. According to the French Federation of Franchising (FFF), 70 % of franchisees are also coached or sponsored by a franchise already installed. For 41% of respondents in the annual survey published for the year 2017, the first advantage of the franchise is to benefit from support and means that would not be available in a solo launch. Next come brand awareness (40%) and reduced financial risks (29%).

In associated trade networks (cooperatives and groups) too, this support from other members already installed is seen as a force in the start-up phase. According to the Federation of Cooperative and Associated Trade (FCA), the survival rate of companies in the sector amounts to 95 % over the first three years. A record in comparison with the overall average.

Originally published at Entrepreneur News and Startup Guide.