5 Reasons Why Small Businesses Fail

5.) Being Undercapitalized

            Businesses that are undercapitalized have owners who are constantly in a state of stress.  Where will I come up with payroll on Friday?  Which bills do I pay first?  These types of questions take the focus of the business away from positive development and growth, and the business owner gets caught in a cycle of emergency management.  The solution to this problem is to identify the proper level of capitalization for the business and work toward developing a good lending relationship while building financial reserves and rainy day funds that will cash flow the business through down cycles.  As with most things in business, this is easier said than done.  A cash management strategy not just a good idea, it is a plan that ends the cash crisis cycle.

4.) Failure to Develop a Management Team

            Small business owners have a tendency to do things themselves rather than rely on the people around them to help with the management of the business.  This is the primary reason why businesses stay small, and ultimately the reason why many fail when the founder retires or is no longer in the business.  The solution is to delegate key responsibilities to key employees.  A key employee is one who has direct decision making control over budgeted parts of the business.  The key employee is involved with the budget process, is responsible for controlling the budget in part, or all of the business, and is held accountable for financial performance.

3.) Balancing Tactics and Strategies

            Tactics are daily activities that lead to a higher level of sales revenues, cost controls or performance within the business.  Strategies are long range plans and ideas that guide the business into the future.  Long range plans without daily actions simply become a wish list that never comes true in reality.  Daily tactics without a long range goal or purpose become unproductive or pointless and eventually are abandoned by the business and its staff.  The solution is to understand the difference between the two and strike a balance that keeps the daily activities fresh while constantly working toward longer range goals.

2.) Development of a Pull-Back Position

            Most businesses do very well when they are growing, or so it seems.  Healthy cash flow can cover up a lot of sins.  As soon as the business experiences a slowdown, or a retraction in sales for a month, a quarter or even a year, all of the problems that were being covered up come to the forefront.  A pull-back position is a formal part of the budget process that defines when and where cuts need to be made when revenues drop to pre-determined levels.  The goal of any successful pull back position would be to preserve profitability and owner return without damaging the overall integrity of the business.  It is a part of a comprehensive strategic plan.

1.)    Lack of a Formal Budget Driven By a Plan

            Budgets are like diets, everyone is on one, but many people are not on the right one.  A budget for a business is a working tool that identifies the expected performance of the business in very specific terms.  It establishes the daily, weekly, monthly, quarterly and annual financial requirements of the business and then becomes a measuring stick to determine the health and wellbeing of the business throughout the course of the year.  When the budget numbers are organized properly and reported regularly, the business management team can make decisions based on simple, straightforward facts rather than on gut instinct.  A properly designed budget defines performance benchmarks for sales, productivity, overhead, profit and owner return.  The business plan then becomes simply a narrative written to explain how each of these areas are expected to perform and how they will be controlled.  The business plan and the budget need to be functional, meaning that they are both used as tools throughout the year to manage the business more specifically.  A properly structured budget tool can help to identify the cost of every decision and activity that takes place within a business, before and after the fact. 

            The Legαcy Alpha program is designed to control every aspect of the business with financial benchmarks and incentives for everyone within an organization.   When expectations are clear, and everyone has the motivation to meet or exceed them, you achieve EVERLASTING BUSINESS PERFORMANCE™.