Business failure and Personal finance
Many small businesses fail – in fact the word I should be using is “most”. It is easy to see the way a small businessman fails – and the fact that he hides the real story from the world.
Welcome to accounting shenanigans that a businessman does (oops that is another story). Here I am going to tell you the personal finance mistakes that a young/ new entrepreneur makes…
- Not taking a salary – when a man starts a business he finds it wrong or stupid to take a salary and pay Income tax on that. Also the business may not be able to afford a salary. So he ends up taking a small salary – just a token – enough to run the household, and not a salary that he deserves.
- Not collecting money from friends to whom he has supplied services – “I can always collect it from friends” . Sounds idiotic, but commonly done.
- Not having a personal budget – for earning and spending. This also means that the business and the personal life cash flows get mixed, and you really have no clue about how much money the business is making.
- Not creating assets outside the business. If all the money that you have and the assets that you build are inside the business, you run a huge concentration risk, and that has killed many businessmen – big and small.
- Not paying ENOUGH Income tax – all businessmen pay taxes, but not enough taxes. Suddenly when you want a US Visa for your kids education abroad you do not have enough money to “show”.
- Many of them have no written down goals for their personal life.
- Not having enough life and medical insurance – this brings risk into the business. As a lender/ investor I want the full concentration of the entrepreneur to be in the business. When suddenly there is an illness in the family and he has no cash, his attention and cash turn to the problem solving at home.
if u think there are more…please comment…
Pradip Chinnakonda
1. Taking personal loan to pay debtors.
2. Taking business loan and using it for personal means like marriage, travel or vacation.
3. Taking overdraft and utilizing it for personal means or to pay debtors and indirectly extending free credit limit to creditors.
4. Mortgaging property 10X times the value of loan and then struggling to get the property released.
SS
(India only) No business feasibility study, stiff competition from foreign corporate, No business conducive environment (in many states), spur of the moment decision by businessman, internet businesses killing conventional, sub-standard Quality of products, fine balance between domestic and business life. In India specifically, we are trying to come out of corruption, hafta wasooli, nepotism, license/permission raj, favouritism, scanty regards for law & others private/public property, jealousy and revenge based actions, infrastructure issues.
Parag Jani
The two biggest mistakes of small businessmen,
1. Not knowing how to price their product or service.
2. Not collecting receivable’s on time every time.
Krish
99% of the small businessmen operate out of their memory. No one maintains any proper accounts. Even if some of them do maintain, one can’t make head and tail. It is really surprising that they spend life selling stuff and thinking that they are making profit and doing good. They realize the failed game in the end i.e in 50s and some how kids (job/NRI) comes to their rescue. Once you are associated with anything for several years, no one would accept that you are in a losing game. They refuse to see the reality and account numbers. Personally came across so many businesses who are adept at rolling losses each year into decade and longer hoping for a recovery or miracle.