Why do most new businesses fail? - Tax and Financial Insight with Stan Kleja

Thank you for listening to The Champion Forum Podcast with Jeff Hancher! Most businesses don't fail because the founders are lazy — they fail because the math doesn't work. In this episode, CPA and business strategist Stan Kleja breaks down the hidden traps that take down even the most passionate entrepreneurs. Whether you're just launching or knee-deep in the grind, this episode is packed with hard-earned wisdom to help you stress less and scale smarter.

How did you get started?

Stan earned an undergraduate degree in music. While using QuickBooks in his work for a small recording studio, he developed an interest in finance and earned his MBA and MSA before becoming a CPA.

Why do most new businesses fail?

Cash flow issues are some of the most significant issues new businesses face. It could be that your business plan didn't make as much sense as you thought, your margins are not as strong as you thought, or your target market isn't acting as you thought it would. The best way to determine whether your plan is viable is to test it! Depending on your current financial situation, you don't necessarily need to quit your job to start a small business. Try testing your idea on nights and weekends to see if it works. If you can sell it to your friends, that's a start. Get advice from people in the industry you want to get into, and see what you can learn about the business that you may not be aware of while designing your business. Finally, many new businesses aren't aware of the costs of doing business. Having a strong business plan will allow you to determine whether your business will be profitable enough to meet your needs.

How do you know you have a usable business plan?

Business plans should give you a guide for what your pricing should be. Consider what your competitors do in your area and the industry standards. You must consider your overhead and the cost of goods to determine if your prices need to change. If you can't raise your price to a point where your product is profitable, you must reevaluate your business plan because it is not working. If you're in a service-based industry and your lead time on products is going further and further out, or people are scheduling months out, you can raise your prices until that pipeline shrinks to a place where you are comfortable with it. A good business plan will help you start your business and navigate changes you may need to make to support new products or adjust to new competitors.

How do you invest in your business or keep your reserves?

Most people will keep at least one month's cash reserves, depending on their risk tolerance. The earlier in your business, the harder it is to identify patterns and use them to guide your decision-making. You can always make smaller decisions to ensure it's worthwhile before you take the more significant risk, like hiring someone part-time before jumping to full-time or renting a space before buying.

What do successful businesses underestimate or overlook?

Pricing. Your prices might look good today, but you must stay in tune with the market and the demand. You must have a good idea of how you are doing, where you are going, and how you will adapt to change. For example, AI might make a product less valuable because AI can do it for a fraction of the cost. You have to stay aware, and you have to be prepared to adjust.

How should businesses navigate inflation?

There are a couple of ways to handle inflation based on your industry. You could build inflation into your contract. This is common for construction companies because the price of lumbar can vary a lot. But inflation isn't going anywhere for most businesses, so you have to pace with that standard inflation level. It's much easier to do a slight percent increase every year instead of suddenly asking your customers to pay a significant amount more. You may lose customers with price increases, but those people will usually nickel and dime you. But those who stick around will understand the value and be more appreciative of what you offer.

What is the role of debt in business?

Debt is a tool. Some people don't like to use debt, but some people live their whole lives on debt. This is where, again, having a good business model determines whether or not debt is a good idea. A good question is this: When I pay off this debt, will I be in a better place than before I had the debt? If you need capital to make more money, that's generally a good reason to have debt. If the debt is just trying to solve a cash flow problem, you can get into a bad place where you're using debt to try to fix a problem that can only be solved by changing your business plan. The terms of a loan can also determine whether or not it is a good loan, so make sure that the terms will not affect your cash flow.

How do you save on taxes?

I tend to push back on this problem a bit. The goal shouldn't be to just save on taxes. The goal should be to make money. You have to check your priorities. One way you can help your business is to make an S-election so you can be treated as a corporation. Then, you can shelter some of the money that you get paid from self-employment tax. But this depends on what you were initially formed as, how much money you're making, if you already have payroll or not, etc. There is a lot of nuance to this. A good accountant will help you discuss your business and how you can maximize your benefits while still being tax-compliant and doing things the right way.

Application Activities:

1. If you are an entrepreneur, consider your current business plan. Does it give you a model of what is acceptable or unacceptable for your business? Are you using your business plan? Does your business plan account for inflation, the unseen costs of labor, and the local market for your product or service? If needed, take some time to make revisions and ensure that this plan is something you can return to over and over.

2. What trends are you observing in your business? What trends are you observing in your market? Based on those trends, what changes should you make to ensure your business continues to grow and support your needs?