After a lack of market need for their product or service, and a resulting inability to find customers, the second most common reason for business startups to fail is running out of cash. According to a U.S. banking study, 82% of business failures are due to poor cash management. Securing adequate cash flow to maintain the business and to sustain personal needs was a top concern for startups.
SCORE’s latest infographic examines how entrepreneurs finance operations in their first year of business.
This infographic highlights the findings of part 2 of The Megaphone of Main Street: Startups report.
Startup entrepreneurs rely on personal savings and income for funding.
How much cash did you have in startup funds before starting your business?
- Personal funds: 66.3%
- Income from another job: 27.6%
- Borrow from friends/family: 11.3%
- Bank loan: 11.2%
- Cash advance from credit cards: 9.0%
- Donations from friends/family: 6.4%
- Investors: 3.4%
- Grants: 2.1%
- Crowdfunding: 1.7%
42% of entrepreneurs started with less than $5,000 in cash reserves.
49% started with more than $10,000.
24% started with more than $50,000.
78% did not seek outside financing
% of startups successful in obtaining financing:
- Bank or other financial institution: 8.2%
- Friends / family loan: 4.8%
- SBA loan: 3.1%
- Online lenders: 2.3%
- Angel investors: 1.4%
- Crowdfunding: 0.8%
Only 10% of all entrepreneurs received startup funds of more than $25,000.
Most startups used outside financing for equipment, supplies and marketing.
What did you use your first year outside financing for? (check all that apply)
- Purchasing equipment: 63%
- Purchasing inventory: 48%
- Marketing: 48%
- Leasing and preparing business location: 41%
- Product development: 27%
- Hiring staff: 26%
- Paying my salary/support during startup: 24%
- Other (licenses, operating expenses, etc.): 11%
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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.