By Deepak Dutta
http://www.classifiedsforfree.com
© 2007

About 500,000 new businesses will start over the next 12 months. About 400,000 of them will fail. Want to know the top 10 reasons why? Here they are:

1. Inadequate Accounting Records - In other words, failure to properly manage cash flow. Think about it. Most new entrepreneurs start their businesses because of a love for a product or service. They start it because they love what they've created and think others will love it too. Or they love working on certain kinds of problems, from wedding planning to building design. What they don't love is numbers. Unfortunately cash-flow is the blood of any business. When you're out of it, you're
   dead.
   
   
2. Disregarding or Misinterpreting Financial Records - This is related to reason number one. There's plenty of inexpensive software that can do a good job of counting cash in and cash out for even the most mathematically challenged of us, but you also have to know what the numbers mean. The numbers tell a clear story. If you disregard that story or misinterpret it, surprises are not just likely, they're a virtual certainty. And they're probably not going to be pleasant surprises.
   
   
3. Not Controlling Costs - Starting to notice a pattern here? Again, a cash issue. There's an old business saying that goes "if you can't measure it, you can't manage it". It's applicable to almost all business activities but certainly is important in controlling your costs. Unless you are one of the fortunate few who have more than enough financial capital to launch and run your business and can run in a negative cash flow situation while you build your business, you absolutely must be obsessed with cost control. As stated earlier when you run out of cash
   you're dead.
   
   
4. Inviting Fraud Through Poor Internal Controls - You may be surprised to see this one on the list. But remember what we're talking about here, small businesses. Companies like Dell, Microsoft and Home Depot, to name just a few, have both the deep pockets and usually the financial controls in place to survive or completely avoid any serious harm through fraud. Joe's Electric, or Mom and Pop's Corner Deli, or Smith Brother's Tool and Die usually don't have that luxury. Cash is almost always an issue from week to week or even day to day and one dishonest
   employee can wreak havoc. It happens all the time. For example, small tool theft is a huge problem for most small contractors, It's not that they don't remedy the situation if it happens, the problem comes when they don't prevent thefts in the first place. It's your money. Keep a close watch on it.
   
   
5. Improper or Inadequate Planning - Where do you want your business to be a month from now? How about a year from now? It's always surprising how many small business owners treat what is probably their first or second most valuable asset with such a casual attitude. Consider the case of the owner of a small (10 employee) auto body shop. The owner had absolutely no idea what his sales were on a daily basis. When asked how he can do any sort of planning or exercise any sort of control over his business without that most basic of daily reports, he simply
   said that his accountant takes care of that. A classic case of the small business owner who started his own shop because he liked what he did (auto body work in this example) but didn't have a clue when it came to the "business of his business". That alone is sad enough. But very often, even when the help they need is readily available, planning for the future, retirement, their family's well-being, the attitude is simply "Hey, I've succeeded so far. What could anyone possibly teach me?" A classic case of the "my business is unique syndrome."
   
   
6. Failure To Sell Aggressively - There's a saying in business that goes "nothing happens until somebody buys something". Perhaps more appropriate from the small business owners point of view is to say "nothing happens until somebody sells something". Many business owners look on competition as a good thing in general (i.e. when they're the customer) but a bad thing for their business. That's short-sighted thinking. Competition makes an individual business better. The trick is to be more aggressive than the competition. Consumers have a lot of choices; more now than ever before. The next "store" is just a mouse click away. Whether the selling is face to face, over the phone, direct response or on-line, aggressiveness is required. And aggressive doesn't mean pushy or obnoxious. That just drives people away. Aggressive is being where the customer is with what the customer wants at a price the customer finds acceptable.
   
   
7. Insufficient Working Capital - Working capital is defined as current assets minus current liabilities. For most small businesses it simply means your bank account balance. Working capital is what lets you run your business day-to-day. If a business fails to control costs effectively (see #3 above), it can quickly run out of working capital and would more than likely have to find alternative means of financing business operations through a cash infusion. This usually means a bank
   loan, but it could mean cash advances on credit cards, or personal loans from friends or family. It is very important, however, that business owners fully understand the reasons behind the shortage of working capital and address those root causes. A small business can only borrow so much before it becomes a case of throwing good money after bad.
   
   
8. Not Carrying Adequate Insurance - Every business needs to carry insurance. Depending on the type of business, the type of insurance will vary. For most businesses liability insurance is enough. For brick-and-mortar type businesses, other types of insurance will be necessary. But the point here is that one incident without adequate insurance coverage can easily destroy or do serious damage to a small business. This also goes to the structure of the business. A sole proprietorship leaves your personal assets wide open to lawsuits. The type and amount of insurance is beyond the scope of this article. The small business owner should seek professional help from accountants and lawyers when making these decisions. Some time and money invested up front will more than pay for itself should the need for insurance arise.
   
   
9. Failing to Adequately Train Employees - When it comes to hiring employees, a typical scenario is for the small business owner to hire the person he or she thinks is best qualified, and turn them loose on the job. While this can work, it's not the best way of going about running a business. Again the amount and type of training will vary from business to business. Employees who deal with customers face-to-face will require much different training than employees who are in the back room. The point is, you expect your employees to perform and to carry out the job they were hired to do. Give them the training they need and the tools they need to reach those goals. While failing to train employees usually a failure that can be overcome and usually won't kill a business by itself, your business will not be running at optimal levels.
   
   
10. Not Seeking Professional Help or Advice When Needed - At the beginning of this article we talked about the typical small business being started by a person who loves what they do or by a person who has a product that they have developed. It's not usually the case that the small business owner has all the skills necessary to run a small business right from the start. This is particularly true as the small business grows. The complexity of running the business grows with it. This is not at all a deficiency in the small businessman. It is simply a matter of him or her needing a new skill set to match the new demands of the business. The smart business owner will seek out those who have expertise and get training, coaching, or mentoring in those areas. Unfortunately, most small business owners are hesitant to admit that they are wrong and even more hesitant to admit that they lack some skill needed to run the business. Seeking help is a good thing. It's not a sign of weakness. It's not a sign of lack of intelligence. It is simply a sign that the
    business is growing and the owner must grow with it.

So that's the top 10 list. The more aware the business owner is of these problems, the better position he or she will be in to address them early before they become critical.

Credit:

About the Author: Dr. Deepak Dutta, creator of the oldest online classified site: http://www.classifiedsforfree.com, has launced Million$Dig, http://www.milliondollardig.com, to help users increase traffic to their websites using a unique method. Users also get a chance to win one million dollar.

Related Information:

NBA Benefit Provider - AgriPlan/BizPlan

NBA Resource Article - Are You Thinking Too Small And Dooming Your Small Business To Failure?

NBA Resource Article - The Chief Cause of Business Failure and Success

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