Able, Willing, But Not Ready - A Short Discussion of Staying Solvent in a Small Business

The Small Business Loans For Veterans Administration (SBA) gives the top three reasons that small businesses fail as 1) expansion too much, 2) inadequate capital structure and) excessive spending. Although this is not meant to be a piece about failure, I hope it will be helpful that we can consider the factors to be considered when starting a new company and how to ensure it continues to grow while transforming to become a viable business.

Before we do that, let's examine what's on the SBA guide to the three most common reasons for failure that we have previously discussed. Overexpansion is often a result of trying to get to the top of your industry by increasing your overheads without revenue growth (income). It is a simple way to say that you've got "over the over" projections of growth that aren't real. Please don't get fooled by your desire to achieve it happen. Your income will determine what you will invest in growth. Reinvest into your business when you earn money, and not extend your borrowing unnecessarily. Note that I said unnecessarily. In the case of a business you operate, you may have obtained a small-business credit from SBA. It's an excellent idea, but when we consider the two other leading causes of small-scale business failure, You may want to think about what your business strategy should be to bring about expansion.

The second reason for the failure of small businesses in the SBA is a poor capital structure. What is this? It is a sign that small businesses could take on too many loans and ignore the inflow and outgoing funds. It's a huge issue when the record-keeping is so ineffective that you don't know what you're getting in the form of revenue or expenses. If you cannot answer the questions, what amount of money did I earn this week, and how much cash I have spent, you've got an excellent recipe for disaster.

The third most common cause of small-scale business failure is excessive spending. It is closely related to the other two reasons: spending money for seed before the cash starts to arrive more quickly than it is spending. Many startups do not understand the way business works and think that the time for a return on their capital investment could be decades away. A business needs to be aware of the breakeven point for income and expenses so that when that threshold is reached, it isn't a time to be able to recover what you have gained by spending too much. It is possible to plot this point using a chart that shows the ratio of expenses to income over some time.

This time frame could be a whole year, two years, or even three years. This kind of chart will assist you in determining whether or not you should make specific financial commitments. Many unwise financial decisions are made by people who use the wrong measurement tool to measure their growth. The SBA recommends that you seek veteran business owners within your region with whom you can exchange ideas before making any significant financial commitments that could end in destroying your business. Averting spending too much is a sure way to avoid failing as an entrepreneur in a small-sized business.

Based on the three causes that small businesses fail, You may be able to start a business determined to work, but if you don't have a proper plan and a clear idea of managing your income and expenses, you'll not be able to achieve success.