We all know the most obvious reason why small businesses fail – running out of money
According to David Mellor, a business mentor and author, insufficient capital is not the only reason why small businesses fail.
First of all, some start-ups don’t know what they were getting themselves into. Doing (tons of) research is crucial to know the industry you are entering. You need to be aware of the risks and opportunities ahead of you. The second reason why the might fail is that they are not getting paid promptly. Regardless of the kind of client you have, your accounts receivable will be essential to survive. The third reason is choosing the wrong business partner. What starts out as a harmonious partnership can quickly drift off course when no code of conduct has been established in the beginning.
- Make sure you are on top of all management information (MI). Know what the financial drivers of your business are such as your gross and net margins and your break-even point.
- Be aware of your risks and have a plan B in place.
- Have enough cash to support your expansion.
- Avoid focusing on one client. Instead, have multiple small or medium-size clients to be on the safe side. If you lose one, you’ll still make money.
- Keep your core values in mind so you can build your business on a good foundation.
Finally, ask for help. It’s not easy to do things by yourself, and a good professional (lawyer, accountant, coach, insurance agent), should be able to give you feedback on your how well you’re performing here.