How to Prevent Business Failure
According to a study commissioned by the U.S. Small Business Administration (SBA), one out of three new small businesses fail after the first two years. The same study showed that more than half (56 percent) fail after the first four years. Regardless of current economic conditions, small business owners can take several precautions to prevent the loss of all their time, money and effort in a failed business venture.
Manage Cash Flow
Many startup businesses struggle with cash flow issues. These companies must maintain a balance between getting cash in the door through sales and covering their expenses. When a company experiences extended periods of negative cash flow, the effects on the business is the same as that on an individual who experiences a loss of blood flow: lethargy, incapacitation and eventual death. A fragile startup company must do what it can to bring in revenues while limiting expenses.
Develop a Strong Business Plan
A famous quote goes, "If you fail to plan, you plan to fail." While no entrepreneur goes into business planning to fail, many of them start off failing to plan. A strong business plan is a vital outline for business success. This document details the path by which a company intends to bring in its revenues. The SBA provides resources for small business owners to develop their business plan before they launch their efforts.
Avoid High Debt
Loans, credit cards and other forms of debt can be a double-edged sword for a small business. Although most companies rely on some level of credit to get the capital they need to launch, the downside of credit comes when the time to repay the loans arrives. When a company spends most of its cash flow on repaying debt, rather than expanding the customer base or adding employees, it lacks the flexibility to keep up with the competition.
Make Accurate Projections
Many entrepreneurs are optimists by nature. They see that their ideas can change the world and adapt a positive outlook toward their endeavors. However, this optimism can also lead them to overestimate their potential revenues and underestimate their future costs. These unrealistic projections can lead business owners to make poor decisions based on inaccurate data. The owners must take off the rose-colored glasses and make accurate projections for both revenues and costs to keep their business dreams alive.
Source:
https://smallbusiness.chron.com/prevent-business-failure-64835.html
