Experts expected the pandemic and subsequent inflation to scare away new business owners, but the opposite seems to be true. Records from the US Census Bureau show a massive surge in business formations in late 2020, and the levels have remained high ever since. Holly Wade, executive director of the National Federation of Independent Businesses (NFIB) Research Center, attributes the increase to the fact that, because of the stimulus and lower spending, household savings are much higher over the past two years than they were before the pandemic. “Their savings and the savings of their relatives are usually what they use to finance a startup,” she explains. “Because people had this extra cushion of savings, a lot more people were able to start a business.”
If you’ve managed to start a business and keep it running in the midst of uncertainty, you know that most people don’t understand the realities of being a small business owner. So many small business myths misrepresent the real challenges of running one. Those myths don’t just mislead the general public; they can also prevent small business owners from reaching their full potential. When you don’t know the facts, you go looking for solutions in all the wrong places. This article addresses four pervasive myths to help you avoid or address some of the most common struggles in running a small business.
01. Build it and they will come
This might’ve been true when everyone shopped on main street, but most people do that—plus hire and network online now. Today, a business owner needs to have a website to gain success. And yet, one survey found that only 64% of small businesses have a website.
A business website isn’t just a marketing tool; it can also make running your business so much easier. Adding an appointment scheduler to your site prevents the tedious back and forth of figuring out a time that works for you and your clients. You can create an online form so that customers can easily contact you about their questions and you can keep records of all your correspondence. You can enter all your offerings into an online store so that processing orders is as simple as possible for both you and your customers. The opportunities that a website offers far surpass those that a brick-and-mortar storefront provides, and it’s exceedingly easier and more affordable to build.
Tip: In addition to Wix’s free tools, like our small business name generator, the website builder also has an app market with options for building your site exactly the way you imagined.
02. Most small businesses fail within the first year
There are a number of misconceptions at play here. For one, the Small Business Association (SBA) says 99.9% of US businesses are small businesses, meaning that they have fewer than 500 employees. If most small businesses failed in the first year, that would mean that almost all businesses in the US failed in the first year. And in fact, the SBA says 67.6% of small businesses survive for at least two years and 48.9% survive for five.
Wade argues that “fail” is a bit of a misnomer. Instead, we should understand the statistic to mean that 32.4% of small businesses close. “Some close their business because they failed,” she said. “Others, and this is a lot of them, close shop because they don’t want to do it, and they weren’t getting what they thought they would get out of it.” Indeed, only 25% of businesses that closed did so because of a lack of cash flow. The second most commonly cited reason was retirement, which accounted for 21.9% of closures.
You can do little to prevent life getting in the way of your business. But you can avoid cash flow issues. The data seems to suggest that getting a loan can help you avoid closures down the line—although only 48.9% of all small businesses survive for five years, 73% of small business owners that received an SBA microloan survived in the same time frame.
Still, a loan isn’t a sure bet. The Biz2Credit Small Business Lending Index shows that it is twice as difficult to get a loan today as it was in December 2019. That said, you can take actions that'll improve your chances of getting a loan; coincidentally, these acts can keep your business running for years to come.
Lenders often cite a lack of understanding, experience or commitment as their reason for rejecting a loan application. To address those issues, you might consider working at a similar business for at least a year to get a sense of the industry and gather enough knowledge to develop strategies for dealing with the largest challenges.
As an established business owner, consider looking into classes or mentorships to learn how to better manage your finances, manage a team and create a business plan. The resulting knowledge can help in your application for a loan to improve your cash flow.
03. Small business owners grow their businesses quickly
Believe it or not, most small business owners don't look to build the next Facebook or even to franchise their establishment. In fact, the vast majority (80%) are non-employer small businesses and most have no desire to grow their business. “They don’t want to lose control over their business,” explained Wade. “They want enough money to support their families, support themselves, do something that’s creative or have more flexibility in their life.”
If you have thought about growing your small business, you know that it is a lot easier said than done, especially if you want to mitigate risk along the way. You can’t grow your business responsibly if it doesn’t have a steady cash flow or effective operations management. You’ll need that cash flow and structure to develop more sophisticated marketing strategies, expand your team or merge with another company.
04. Most small business owners are wealthy
Considering that the average business owner has a $40,934 salary, this small business myth is drastically untrue. “So much of the money that is generated through small firms is the main financing tool that they have to build, expand and support their business,” said Wade. “So, the income they generate often goes back into the business.” Only 40% of small businesses turn a profit. The other 60% are evenly split—30% break even and the other 30% are in the red.
One thing that might be keeping businesses owners from strong profits is a lack of time-management skills. According to Wade, it’s one of the most common small business challenges that NFIB members report. The E-Myth Revisited, a popular book about what prevents small businesses from succeeding, explains that owners spend too much time working in the business rather than on the business. By that, the author means owners focus on doing everything themselves rather than thinking about building the business. Because of that, he argues, owners get stuck in survival mode.
In other words, it’s important to devote time developing systems and strategies that help increase cash flow and decrease inefficiencies, busy work and catastrophes and increase your cash flow. For example, Lindy Alexander—a freelancer who takes in a six-figure salary—often writes about the non-billable hours she spends on business development. She builds relationships with potential clients, hunts for better paying jobs, pitches and takes on other efforts to work on her business rather than just in it.