It is a known fact that after about three years, only about half of small businesses are still in business. There are many reasons for this, but business failure is the most important one. Failure in business doesn't just happen to new, small businesses. It can also happen to big businesses that have been around for a long time and have had some success.
It's true that all businesses can go bankrupt, but small businesses are more likely to fail. This is because small businesses don't have the kind of financial support that big businesses do. Also, most small businesses have trouble getting loans from banks because they don't have enough security or can't find any.
Many businesses fail because they can't keep track of their money. Managers who don't know much about accounting procedures and practises don't notice when cash flow problems start to happen. If a manager doesn't know how to do the books, he or she needs a good bookkeeper to do the job. Cash flow is one of the reasons why businesses fail, so it's important to keep track of it.
Cash flow is a big problem for new businesses that are just getting started. A cash flow problem happens when the money from sales isn't enough to pay for the cost of making the product. Some businesses, on the other hand, don't make money for a while. One example is a company that sells Christmas decorations. Almost 80% of the sales will be made in November and December, the last two months of the year. Since the company needs to pay its employees, pay taxes, and cover the cost of making goods, it needs enough operating capital. This leads to another reason why a business might fail: not having enough money.
Most small businesses run into trouble when they don't have enough money to start up. At the beginning of the business, the owners will have to take money from anywhere, even if it has a very high interest rate. When interest rates are high, debts are bigger than assets. The business owner takes out loans with high interest rates and impossible payment plans, not realising that this could cause his business to fail.
One of the most common ways to get money is to use a credit card. Even though entrepreneurs think credit cards are a gift from heaven, they should know that the interest rate on credit cards can be as high as 20% per year. This will use up most of the money coming in and won't make a big dent in the amount borrowed.
Your business problems are not the only thing that can put you out of business. It could be caused by a domino effect from outside the business, like customers, suppliers, or other businesses that are in competition, or it could be caused by government restrictions. Business failure starts when it's no longer possible to do business without running into new problems, when debts aren't paid when they're due, or when it's no longer possible to pay for operating costs.
It is important for the business owner to face the fact that the business is having money problems so that he or she can decide early on whether to keep running the business or to get help from people who know how to run a business.
