The primary reason for financial failure:
· Not having a financial cushion
· Poor cash flow
When a business is already out of cash (and borrowing potential), it may not be able to recover states Jay Goltz, ‘Top 10 reasons why Small businesses Fail’ http://nyti.ms/JeKRk2
Not all entrepreneurs will have a head for the numbers, before starting in business, do a course and learn the basics; if you are already in business, try to learn something new every year to slowly gain a better understanding, from your accountant or book-keeper of how your business finances function.
Start by creating your invoices and recording your income and expenditure, then reconciling the bank account, before taking on the quarterly VAT return. Check your income and expenditure regularly and then start to forecast the following month, quarter and year. If there is a shortfall in your forecast (e.g. not enough income to support expenses in the coming months) having forecast you will have time to do something about it, before it becomes a problem.
Too many business fail due to lack of financial viability (lack of volume) or poor financial accounting (mixing personal and business or little regular financial management and control).
It is a misconception that an accountant is looking after your business, unless you are paying your accountant or book-keeper to sit in your office and or produce regular and relevant management accounts with advice; it’s not their job – it is yours!
So often I meet entrepreneurs who tell me their accountant is really good, but they cannot tell me what the accountant is doing for the business. I am not knocking accountants; after all, they can only works on the information that they are given and respond to questions they are asked. If the figures are one year old, then in a dynamic business it has little relevance.
An entrepreneur cannot afford to assume someone else is looking after their business or wait a year to find out they have made a loss of £10,000. If a £1 loss is made, immediate action is required to stop the loss increasing over time. You cannot be in control of a business if you are not in control of the finances of the business.
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Janice B Gordon: The Problem Solver Business Growth Consultant, Mentor, Speaker and Author. Business Evolution – Creating Growth in a Rapidly Changing World will give you the guidance you need to evolve you and your business and exceed your customers wants and needs.