by Debi Enders
If you’ve got solid business skills and a strong work ethic, you can make any business succeed. Right? Wrong. The fact is, even the most seasoned entrepreneur will have a hard time building a successful video rental business in 2017. Video on demand options and streaming services have made video stores virtually obsolete.
This is just one of many businesses and industries that bankers consider high-risk. Restaurants are another, with nearly four in five closing before their fifth anniversary. Businesses with high startup costs and greater-than-average environmental risks also raise red flags.
That’s not to say a bank won’t consider financing a business in a high-risk industry. It just means that you will need to be able to demonstrate a plan for mitigating those risks, along with good saving discipline and a strong track record of success.
At the other end of the spectrum are businesses with a lower-than-average risk of failure. These include professional services: doctors, dentists, engineers, accountants and other professions that employ highly educated specialists.
Similarly, service industries that don’t require expensive equipment or inventory – think heating and air-conditioning contractors, plumbers, and senior service providers – tend to have favorable risk profiles. To find out where your industry stands, ask your banker. Many maintain a list of nonstandard, high-risk industries.
A common way to lower startup risks is by purchasing a franchise. If you choose this route, do your homework first. Some franchises have greater rates of success than others – even within the same industry.
To learn more about franchise success and failure rates, check the Small Business Administration website. The bottom line: Starting a new business is challenging enough. Selecting the right one is a smart way to boost your chances of success.
Debi Enders (debi.enders@commercebank.com) is vice president, small business banking at Commerce Bank.
Submitted 7 years 302 days ago