Why the majority of small business owners fail
Many of us know the majority of small businesses fail within the first five years. But a recent study by U.S. Bankcorp found the real reason for this is poor money management [no judgment]. In their study, they found that 82% of small businesses fail because they don't have a solid financial framework in place. This is a huge problem and one that can be easily fixed with a little inspiration and education.
I believe the real solution is to empower small business owners with the insight and intel needed to understand the fundamentals of founder finance. Giving them the tools to build a sound financial strategy and the motivation to implement, measure, and modify that strategy diligently. When we do this we help to rebuild and grow our economic and entrepreneurial ecosystems.
The breakdown of financial failure
Founders are vital to our economy, and their continued success is crucial to our nation's economic prosperity. However, while small businesses offer many benefits to society, they also face significant challenges due to flawed financial frameworks. Cited on SCORE's website:
82% – Poor cash flow management skills/poor understanding of cash flow
79% – Starting out with too little money
78% – Lack of well-developed business plan and financial forecast, including insufficient research on the business before starting it
77% – Not pricing properly or failure to include all necessary items when setting prices
73% – Being overly optimistic about achievable sales, the money required, and what needs to be done to be successful
70% – Not recognizing or ignoring what they don’t do well and not seeking help from those who do
To avoid these pitfalls and succeed as a Founder, it's essential to be aware of the key concepts underpinning the numbers – such as forecasting and budgeting – as well as implementing good practices for managing your finances properly from day one. Founders should also ensure that they start out with, and maintain, enough capital in reserve [aka retained earnings] so they can weather any unexpected costs or shortfalls that arise down the line.
How to tell if your financial framework is flawed
Easy. If your expenses exceed your cash, then you have a cash flow problem.
It's essential to remember that in order for your company to succeed, you must bring in more than you spend. Not simply breakeven. This requires careful planning and an ability to stay focused as you work through the various challenges associated with securing market traction, sales and marketing efforts, administrative tasks, and relationships with contractors and other key stakeholders.
With careful planning and diligent execution, today's Founders can build a competitive, dynamic, and successful company, while helping to create a robust and resilient economy for years to come.
How can we help?
We've been there! Money's not a comfortable topic for most people, let alone for Founders as we're expected to "know" better. If you're unsure whether you have a cash flow problem, or simply want to discuss strategies for creating sustainable growth, reach out to one of our experienced Founder Finance Coaches by clicking the button below. There's no charge and the conversation is confidential.
About the Pro, Taunya Woods Richardson
Taunya Woods Richardson is the Founder and CEO of Nail the Numbers, and architect of the Financially Fierce Formula - a proven six-step process to building a profitable business.
After her business went bankrupt in 2009, in large part due to a faulty financial model, Taunya has made it her mission to financially empower any business owner who has the guts, grit, and gumption to get real about where they're at, where they need to be, and how to best get there!
Connect with Taunya at email@example.com