This Podcast Is Episode Number 479, And It's About Ways Reasons Why Contractor Startups Fail And How To Avoid Them Many surveys and reports show that nearly half of all new construction companies close their doors within the first five years of opening them. When we speak with contractors who failed, most say it was due to a lack of cash flow. It was pretty obvious, yet when questioned, all of them said they were "Blind-Sided" and were not aware they were running out of cash until it was too late.   There is a point when a contracting company starts to fail, and nothing short of a massive cash infusion can stop it, and a domino effect begins, which is when a series of similar or related events occur as a direct and inevitable result of one initial event.   Planning is essential to give your business the best chances for success. Planning means anticipating challenges and developing ways to successfully address them, so they don't upset your startup.    Here are three reasons why contractor startups fail and ways you can avoid them.  Lack of market demand Before spending your time, money, and energy starting a construction business, make sure there's a need for it. You need to have a market to make money. That means there needs to be enough people who need your product or service and are willing to pay money to buy or use it. Without that, you won't be able to cover your costs or earn enough to survive.  Some ways you can identify need: Look for competition. If no one else is offering the service, there's a chance there's no market for it. That might not initially stop you from moving forward, but if no one already offers your product or service—or anything close to it—you'll have to do more to prove there's a market.  Conduct market research. Studies and interviews help determine whether people in your target market agree with you that there is a need for your offering and that they would pay for it.  Lack of expertise Entrepreneurs might be tempted to partner with or hire their friends or family—people they genuinely like and would work well with. That doesn't always translate to success, however. For your business to succeed, you need specific expertise and people whose skills complement yours.  It would be best if you also had people willing to discuss your decisions with you and ensure there's a business case for each decision you make. Someone with a differing perspective provides a vital way to double-check whether your choices are best in the long-term for your business or whether other options are available.  Ensure you hire people with balanced competencies. If your roofing business involves installing solar panels, you might need a technical expert to ensure the technology runs smoothly. You'll likely also need a financial expert to help you with bookkeeping and possibly a manager to oversee employees. Hiring people you like is fine, but make sure your team also has the skills to manage your business successfully.  Lack of finances You need money to produce your services and ensure all employees are paid, including you. It's not enough to know how much money you need month-to-month; you need to forecast your development cycle, how inventory moves through your supply chain and variations in seasonal income.  If your construction business doesn't earn as much in the first few months as you predicted, you'll need to bring in more money quickly to save your business.  Lack of cash holds up material deliveries, which causes labor to be idle and continue costing money, and then payroll checks bounce, and your construction workers take your tools and equipment to the pawn shop to get paid that way, and the contracting company spirals down to its end. One accounting tip that could help your new contracting business is opening three business checking accounts. If you were to ask contractors about the big mistakes they made when they started,...