I did a web search for the top reasons why small businesses fail and came up with some interesting information. According to a study done by Dunn & Bradstreet the following is true:
- "Businesses with fewer than 20 employees have only a 37% chance of surviving 4 years of business."
- "Of those failed businesses, only 10% of them close involuntarily due to bankruptcy and the remaining 90% close because the business was not successful, did not provide the level of income desired or was too much work for their efforts."
- "Nine out of ten business failures in the United States are caused by a lack of general business management skills and planning."
Now comes the really interesting part:
"over 90% of small businesses were still in business after five years IF they had the help of a Small Business Development Center or other expert assistance."
This goes against the conventional thinking of many entrepreneurs and small business owners. In their line of reasoning, it is best to do as many things as possible themselves. The idea is to save money. Many also believe that certain business aspects, especially financial management, are intuitive and easy to do. The above statistics belie that notion.
Of the 14 top reasons for business failure given by Entrepreneur Magazine a full 50% (7) are financial management related. Here’s a sampling:
- Poor cost control
- Bad or nonexistent budgeting
- Insufficient working capital
- Inadequate financial records
Of the top 12 reasons given by Jessie Hagen of U.S. Bank 58% are financial management related. Here are a few:
- Lack of well-developed business plan
- Poor cash flow management skills
- Not pricing properly
The good news is that there is a proven formula for success that will improve your odds from 90% chance of failure to 90% chance of success: Hire an outsourced CFO. The simple act of adding a financial management expert to your team can get you more than halfway to success. What is it about a CFO that gets you on the right path and keeps you there?
- Determine the amount of cash required to fund your plan. If you don’t have enough money your company is likely to starve.
- Professionally manage cash flow to insure there is enough money to pay bills on time and to save for future expenditures.
- Help to understand your cost structure in order to properly set prices and to calculate the amount of sales volume required to break even.
- Analyze your business on the fly so corrective action may be taken quickly and timely.
- Interpret results so you can focus on managing growth profitably.
The list goes on for quite a while, but I think the above gives a good flavor.
If you’re an entrepreneur or small business owner follow this proven formula to vastly improve your chances for success. If you know an entrepreneur or small business owner, please share this article so they can take advantage.
