Three Cash Management Areas That Led To Business Failure

Statistics has it the 50% of new businesses fail within the first year.  And out of the 50% of business that remain 95% will fail within the first five years.  This is not very encouraging however it is the realty. Since am within the first five years of my business, am always researching into areas that will improve my business.  This blog looks at three areas of cash management that lead to failure of start up businesses.

Lack of cash.

Any new business will need operating income and sustaining income before it generates profits.  This is what is commonly referred to as initial capital. They tend to be an underestimate of how much will be needed to run the business.  Other incidental costs that were not provided for surface that led’s to cash shortages.  Hence it is advisable to have various lines of credit.  Even in real estate where one can buy property for no money down.  Some capital is needed for marketing these properties.

Inadequate cash flow

Three to four months later the inadequately financed business lacks money for daily operations.  This is commonly referred to as cash flow.  A cause of inadequate cash flow is when the outgo exceeds income. This can be overcome by having reserves in lines of credits.  Optimizing cash flow management is one of the most important tasks in achieving overall financial health.   It is also a leading cause of business failure in the first year of operation

Not protecting yourself

This occurs when someone finally makes it and is now attracting unwanted guests.  This unwanted guests come in form of lawsuits.  It is no wonder they are more lawsuits now more than ever. To best protect what one has worked so hard for.  Business should be in business entities such as: in limited liability companies, s corporations, c corporations limited or limited liability partnership. Note that l have intentionally left out sole proprietorship as it does not protect you against laws suits.

Having understood the three cash management areas that cause business failure, it is important to educate oneself on how to best be prepared before the inception of a business endeavor.  The best time to have cash is when you do not need it.

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