The No. 1 Reason Why New Businesses Fail

The No. 1 Reason Why New Businesses Fail

Any entrepreneur will tell you that starting a new venture entails more than just money. You also invest your blood, sweat, and tears in setting up a new business. Okay, that may be hyperbole, but you do focus a lot of your time, effort, and energy to ensure your startup is a success.

Sadly, studies indicated 8 out of 10 businesses close shop. A lot wonder why small businesses fail! It would certainly be disheartening if you belong to this dismal statistic. After spending so many valuable resources, the last thing you want to do is cease operations.

Financial Mismanagement and Cash Flow Concerns

If you want to belong to the 20% that succeeds, you need to remember that the number one reason why businesses fail is financial mismanagement. Even popular startups that make a grand debut, go trending, and become viral can eventually find themselves in this pitiful situation if they don’t handle their cash flow properly.  

 

Keep in mind that even if your offerings sell, you will not be able to grow your business if your financial statements and accounting books are disorganized. You could be bleeding money and not know where it is going to. If you want to stay on top of your game, you must be able to have a good grasp of your finances.

Blanket Statement With Underlying Causes

However, financial mismanagement and cash flow problems are general issues. You can think of them as mere symptoms. When you dig deeper, you’ll realize that there are underlying causes why businesses fail. Let’s take a look at them below:

1. Failure to develop a viable budget: When you launch and grow your business, you need to be conservative when it comes to spending. If you don’t use a lean budget, you will not be able to save and will be ill-prepared hard times. In short, stay cheap and be frugal!

 

2. Inability to pay loans on time: Mismanaged funds equate to delayed bill payments. This sets you up for trouble because you’ll be incurring stiff penalties and late payment charges. Vendors will also get fed up with your lack of professionalism. This will hurt you in the long run because it will be harder to secure a loan. 

 

3. Mishandled inventory: Disorganized inventory tracking will significantly impact cash flow. This includes unfulfilled orders, ordering unnecessary items because stocks are missing, extra costs for backorders, etc. All of these are expensive problems that hurt your finances. 

 

4. Lacking cash reserves: Expanding too suddenly will hurt you if you do not have sufficient cash reserves. You’ll never know when an emergency will strike. Hard times do happen, so you need funds to tide over the hard times.

Finding the Key to Solve the Problem

Unfortunately, many entrepreneurs have a passion for starting businesses, but most don’t have the skills to sustain operations because they can’t manage their finances well. As a business owner, you must know how the money is coming in and where it is being spent. It is not enough to merely address your customers’ needs. Satisfying your clients is paramount, but failing to keep track of your back end operations will result in problems.


Thankfully, you can rely on proper bookkeeping and accounting methods to help you manage the cash flow of your business. Hiring experts will provide you with concrete data that can be measured and predicted so you can get a better handle on your finances. 

When you can efficiently track your assets, liabilities, incomes, and payables, you can make smarter, educated decisions for your new business.

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