Top seven reasons businesses fail
If you own a business, we are here to help your business succeed as well. Whether it’s utilizing our low-rate commercial loans, taking advantage of our free business checking, or just listening to our advice, we hope you can benefit from the services we provide to our business members.
Speaking of advice, recently we ran across an article that was published a few years ago in the Corn & Soybean Digest and Steve Abercrombie (lecturer at the Louisiana State University School of Banking) gives some great tips on how to prevent your business from failing. These are the 7 reason he believe that businesses fail:
Failure to plan before startup
Many businesses have no written business plan before startup or before launching another firm. Most times this results in a shortage of capital that is not evident until the business is up and running.
Failure to monitor financial position
Firms fail to retain a good accountant that understands the business. Then there are times when the proper financial data is not being monitored to recognize the financial progress or decline.
Failure to know the difference between price, value and cost
Steve indicated that when businesses get into problems, choice number one is usually to increase value and sales. Many don’t know the breakeven prices thus increasing size digs them deeper into the hole.
Failure to manage cash flow
Checks cannot be written on profits. Inventory, whether it is corn, beans, or widgets, must be sold to generate cash flow. In a business, cash is king.
Failure to manage growth
Wow, 25 percent of all businesses filing bankruptcy were coming off their best year profit-wise. Businesses that grow need capital and working capital specifically. Many growing businesses just outgrow their capital.
Failure to borrow properly
Many times part of the problem in business failure is the lender. Borrowing with the wrong terms such as funding long-term assets out of cash flow, and short term borrowing can be devastating. Low interest rates are only one of the many factors to consider when selecting a lender.
Failure in business transition
Many businesses fail to train the successor or have a succession plan in place.
In the list above it talks about capital and working capital. Below are definitions of these two terms:
- Capital is the money or wealth needed to produce goods and services. In the most basic terms, it is money. All businesses must have capital in order to purchase assets…
- Working capital is defined as the difference between current assets and current liabilities. Current assets are the most liquid of your assets, meaning they are cash or can be quickly converted to cash. Current liabilities are any obligations due within one year.
If you have questions about the financial side of starting a business or keeping it healthy, feel free to contact our business department today at 877-794-6712.