According to the Small Business Administration and the Bureau of Labor Statistics, about two-thirds of businesses survive at least 2 years, only 50% will survive 5 years; and one-third will make it to 10 years.
We were wondering why there are so many failures. There are many factors that can lead to business failure, but we found that, according to a Dunn and Bradstreet study, 90% of businesses fail because of financial management, specifically poor cash flow planning.
Small business owners need to take this statistic to heart if they are serious about sustaining and growing their businesses. Staying on top of finances is even more important when the livelihood of employees are at stake – it’s an obligation of business owners to always know their numbers. We strongly recommend the following financial activities which we perform for many of our clients:
Track finances using accounting software (we recommend our cloud QuickBooks service).
Set up a budget and track against actual performance each month. Update budgets quarterly.
Establish a 12-Month and 13-Week cash flow forecast to identify possible cash shortfalls in the future, and update quarterly.
Before making unplanned purchases or hiring, plug the numbers into your cash flow model to see the effect on your cash flow. You may need to delay purchases based on the timing of cash flows.
Weekly cash and credit planning and management. FOSS manages weekly cash flow and processes payments for many of its clients.
If there are projected cash shortfalls, it’s easier to plan for financing alternatives now before it’s too late.
If bookkeeping and financial management is not the skill set of the business owner, outsource this to a professional to safeguard the business.
