Why entrepreneurs fail….
Success is not so difficult, but eludes many a businessman. The more ‘educated’ the more difficult to do business…here my summary…
- Not reviewing finances regularly: Shocked? I know one entrepreneur who does not understand cash flow, marginal costing, fixed costs, ..he just does not. Pretends to understand, deals with investors, banks, etc. but has zero understanding of basics of finance. Every business has a pattern of income and expenses. Sometimes it’s due to the duration of projects and the contract terms. Weekly and monthly financial reviews are an exercise in understanding the frequency and scale of your business operations and the extent to which your business may be growing or at risk due to clients who pay late. In fact he does not even understand pricing – so this could be a far away reality.
- Maintain a budget: Imagine running a business with no budget!! there are companies which do that. What expense is to be incurred is a whim or fancy of the CEO – and at the lower level by some ‘favorite’ executive. I was shocked too. A budget is simply an expectation for business results – what product do you have and what price it will sell at. At the beginner level, you need to make a budget on the first day of the month to estimate how much income you’ll receive that month and how much you will spend in expenses. At the end of the month compare actuals with budgeted. Of course there will a yawning gap. Use that to revise the budget, increase efforts,….DO SOMETHING. Stop fooling yourself – you do not have a profitable product. SHUT DOWN that division…or whatever. As time goes by, you will get better at budgeting. And because of budgeting, you’ll make more informed decisions and identify potential problems before they occur.
- Pay taxes, file returns properly, on time, with the attached schedules: – need one say more?
- If you have debt, make all efforts to reduce debt. Getting rid of debt is proof that your busines is profitable! And there is cash flow that can be taken out of the business to do something else.
- Once they get outside funding…they spend on travel, eating out, …and there is a huge, huge blow of cash.
- Poor business documentation. Repeat poor paper work.
more will follow…
Arun Basil Lal
While I can agree that these can be some valid reasons for failure, these are not just the only ones. Here is a list of many startups and their failure stories: http://autopsy.io/
I believe that the greatest factors for success are:
– Team
– Timing
– Market fit
I ran a startup and we didn’t violate any of the 6 points you mentioned and still failed. We were late to the market.
Ramesh
Sir,
I believe you are telling some reasons of why a business might fail, but in my opinion there are multitude of reasons why entrepreneurs fails.
Can you please share your views on cash flow management where receivables need not necessarily arrive as expected, while expenses must be incurred on time to run the business. This might be easy on the paper, but the fate of a small business is matter of depriving it off few months of cash flow.