It’s common knowledge for entrepreneurs that California’s Bay Area is an incubator for new businesses. But like a diverse ecosystem, some thrive while the weakest fade away and die. Similar to many ecosystems, some environments create a rich, supportive foundation for organisms to do well and protect themselves during harsh times.
The Silicon Valley start-up community has some similar characteristics. New businesses can grow or die based on the environment they surround themselves with. For instance, Y-Combinator brings a strong network of venture capitalists, consultants, and financial experts ready to help a new business get off the ground and flourish. Startup founders run the company and have helped to fund over 5,000 early-stage enterprises. Their purpose is to help company founders create products and services people want, then help provide the resources to continue down the path of success.
Y-Combinator can take credit for helping to launch businesses that have become a “household name” in recent years, like:
- Stripe is an online payment system for internet businesses valued at around $20 billion.
- Instacart is a leading online grocery delivery service that is now essential to millions of people in the United States and Canada.
- Coinbase established in 2012, offers a platform for buying, selling, and managing digital currency such as Ethereum and Bitcoin.
- Airbnb is a worldwide marketplace for unique accommodations for travelers seeking distinct shelter experiences.
These companies disrupted their sectors and became industry powerhouses. But it isn’t only Y-Combinator’s support that gets new start-ups moving in the right direction. Foundational assistance also includes savvy CPA firms that can help consult when company finances are still precarious.
Why do most startups fail? Follow the money!
According to Exploding Topics latest data shows that 90% of startups fail. Two-thirds of startups shut their doors before they can even show a positive return. In fact, 10% of new businesses don’t even survive the first year. There are several reasons for failure, such as miscalculating the market need, bad timing, or a flawed business plan. The top reason a startup fizzles is the loss of investors and simply running out of cash.
Financial responsibilities for a startup business are steep. Covering costs for employee payroll, product development, marketing, workspace, and supplies is a big juggle for a baby business.
This is why partnerships between companies like Y-Incubator and CPA firms are essential to keeping a new business afloat. While Y-Incubator brings social and investor networks, plus valuable consulting resources, a CPA firm brings the expertise to manage, and leverage, cash flow. Our Safe Harbor CPA team of accountants (https://www.safeharborcpa.com/startup/) partners with startup leaders around financial guidance and long-term goals. This includes financial analysis, budgeting, and tax planning. We also help startup leaders with the following:
- Financial Reporting: Preparing financial statements to keep investors interested and share the company’s financial health with key stakeholders.
- Risk Management: Develop strong internal controls and risk management practices. Identify financial risks early and suggest strategies to help avoid them.
- Tax and Investment Strategies: A top CPA will help startup leaders review the best tax plan and investment portfolio to help minimize financial losses and leverage returns.
It’s important to remember business challenges never end. The struggle continues even when a new business has survived the first few crucial years. Several threats can arise and bring a company to its knees. Market fluctuations increase or deflate interest rates, exchange rates, and stock prices. The risk of fraud, either inside or outside the company, can cause damaging and expensive legal trouble. Tax compliance mistakes can also financially burden a company.
Any change in the market and financial hardship can threaten a company’s existence after it’s made a successful launch. For instance –
45% of new businesses don’t survive the fifth year.
65% of new startups fail during the first ten years.
75% of American startups leave businesses within the first fifteen years.
Like a natural ecosystem, winning in the business environment is about adaptability and resilience. Incubator services like Y-Combinator can help young businesses pivot when the market changes. And a business-savvy Certified Public Accountant can help manage long-term financial challenges (https://www.safeharborcpa.com/contact-us/). The combination between Y-Combinator and CPA firms provide a strong foundation for thriving!
