Over the past four weeks, I’ve been addressing the top five reasons why businesses fail. The statistics are not only tragic, but staggering. One out of two small businesses or startups are destined to fail and one in five will fail in their first five years.
- You can’t go it alone – in my blog, I addressed this as small business myth #1. You need help. Even if you are a business who can produce a product or service all by yourself, you will not grow with this mindset and your boundless energy will morph into burnout in say… the first five years.
- Marketing doesn’t just happen. The first part in this series of three “If You Build It…” addresses the second small business myth. Just because you exist does not mean your customers or donors know anything about you. Just because you have a passion, doesn’t mean that everyone will share that passion, or even if they do, how will they find you? Last week I shared some practical ways to market in my blog “Growth Happens” and last week talked about “Telling Your Story”.
- Cash Flow must be managed
- You need a team – why hiring employees should be part of your business plan.
- Leadership – Good or bad leadership does not happen in a vacuum, it is learned.
Let’s talk about Cash Flow Management. The last thing any for profit or nonprofit startup wants to think about is managing cash flow. The subject is usually shrouded in a mist of mystery, overwhelming and fraught with peril. I want to take the anxiety out of it and assure you that you do think about cash flow management in almost every business transaction. Income in and expenses out are the ebb and flow of cash flow management and even if you don’t know it, you have a cash flow management system.
Mismanagement of cash flow or even worse, no effective management of cash flow is a business assassin. I know because I’ve spent the last five years helping small businesses in crisis. If you don’t know what cash flow is, watch “What is Cash Flow?”.
Every small business owner I’ve helped is in almost the exact same posture by the time I get there. They are usually alone in their office, overwhelmed, with mounds of paperwork flanking their desks. They hand me a stack of letters from either the state or the IRS with penalties and interest mounting at a rate they are helpless to stop. If that sounds bad, the most tragic scenarios involve an opportunity for growth with absolutely no cash flow to support it. He or she will take a blind leap of “faith” with no cash flow to support the risk, or become paralyzed and pass on the opportunity. In both scenarios, the business fails and the owner is left with the bitter taste of regret at what could have been.
When money seemingly flows out of the business at alarming rates and there is no record, the business owner is at a loss to answer the question, “Where did all of your money go?” Or “Is your business profitable?” I cannot stress the importance of knowing in real-time (as in right now) the answers to these two questions.
Here’s the good news – you can start managing your cash flow, right now. If you want to know the different ways you can manage cash flow, you can watch “Show Me the Money” where I compare and contrast different cloud based accounting programs and best business practices for managing your cash flow.
It takes courage to change the way you’re doing things, but the business owners who survive the statistics find ways to do better and do it quickly.