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Cost versus value: Careful business formation leads to success

Many Illinois residents dream of owning their own businesses, but only a few will actually bring their ideas to fruition. Business formation can be quite challenging, and this causes some to quit before they ever launch their product or hang an "open" sign over their doors. Understanding what causes many startup plans to fail may help prevent various problems down the line.

It's crucial to make sure that the cost of acquiring a customer does not exceed the lifetime value of the same. A typical formula for determining customer cost is to divide total sales and marketing expenses by number of customers per quarter. To be efficient, many business advisers say it's important to recover customer cost within one year of acquisition.

Finding the appropriate market for a particular product is also a key factor in successful business startups. If no one is interested in what's being sold, a business is not likely to turn a profit. Sometimes, one simply needs to change a marketing plan to link new products with the right customers.

Another reason many business startup plans fail is substandard management. In fact, some say this is the only reason, and all other failures stem from poor management. An entrepreneur can have the best product or business idea in the world, but if it's not supported by strong management, a business can't get off the ground.

Careful business formation allows Illinois entrepreneurs to customize their companies to suit current demographics, as well immediate and long-term business goals. It's generally wise to ask an experienced business and commercial law attorney to review a proposed plan before it's finalized. An attorney can also remain on hand, should any legal obstacles arise during the business planning and/or launching process.

Source: forentrepreneurs.com, "5 Reasons Startups Fail", Accessed on May 3, 2017

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