The Attributes of Business Failure & How to Avoid it

Dear M & M:

What can you attribute business failures to? Is there anything I can do to put me in a better position not to fail?

– Joan

Dear Joan:

Market conditions, management capabilities and disrupting technologies are just some of the things that can put anyone out of business.  According to Profit Mastery, “of all the new businesses that are formed each year, about 80% will fail within the first 10 years.

Profit Mastery records show 90% of failures are attributed to poor financial management.” Some areas one should pay attention to in the financial management category include the following; Failure to plan financially before start-up is a leading killer, (getting off on the wrong foot).

Inaccurate forecasting of expenses and income, failure to account for all expenses and not having an adequate source of working capital or financing is the huge burden to overcome for any start-up.

Questions to ask include; have you figured break-even, will you have the proper operating cash once opened to carry you, do you have enough capital to buy equipment, inventory, supplies, permits, utilities, wages, remodel or new construction costs?

Managing cash flow and having adequate sources to provide additional funding if needed in slower months or emergency situations is crucial to survival for all businesses. Once you are going are you monitoring your financial position?

Are you comparing past balance sheets, income statements, and monitoring profit and losses?

Gaining control of one’s financial information is the first step in implementing corrective steps to get back on course. Comparisons to forecasted sales expenses and profits are as equally important to make comparisons to past or historical financial information.

How did you do last year on this same day, how about last month or even considering comparisons against last week or yesterday is important? Everyone should know how much money they need to take in today just to cover their costs.

Many businesses are selling products and services not understanding or even bothering to calculate relationships between price, volume and costs. Many people do not have a clear understanding of what their daily costs are or even be able to answer the following question, if I sell $300 worth of product how much do I have left over to cover my other expenses.

If you don’t know the true costs to produce how you can put a price on that items to sell it? If you own a restaurant do you know what the costs are on every dish you sell? When was the last time you calculated your cost of goods sold?

Sometimes one needs to step outside the business and not get caught up in the daily whirlwind or all the things that need to be done and start working on your business. Make sure you understand cost of goods sold, what is your break-even costs, how am I doing compared to what I thought I was going to do. Remember the forecasted calculations you based going into business on? Well how are you doing?  

-M&M

To ask your questions: Call the Small Business Development Center(SBDC) at Cochise College (520)-515-5478 or email schmittm@cochise.edu or contact the Sierra Vista Economic Development Foundation(EDF) at 520-458-6948 or email  hollism@svedf.org

 

 

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