So what are the pitfalls that lead to lack of health and the premature demise of a start up?
- Insufficient business operating experience. Most “would be” entrepreneurs go into business to find some level of satisfaction (i.e., be their own boss, set their own destiny, etc.) which becomes the “seed of the businesses’ own destruction”. Your primary objective in business; PROFIT. With profit, satisfaction becomes automatic. Without it, satisfaction is not possible. It’s hard to be satisfied when you cannot pay the bills.
- Poor choice of opportunity. You could purchase a franchise. You could start a business from scratch. You could purchase an existing business. Regardless of choice, you must honestly evaluate your chances for success with the venture or business idea. This requires consideration as to your abilities, your interests and the amount of money available for this business as well as, a whole host of other things.
- Inadequate start-up capital. A terrific quote I will never forget goes “The only reason they can take you out of the game is if you run out of cash.” Being thinly capitalized is the kiss of death, regardless of the opportunity.
- Too much investment in non-critical assets. Investing in non-essential fixed assets consumes critical reserves. While a well-appointed office may be necessary, perhaps buying used versus new makes sense. Conserve, conserve, conserve that limited resource called cash. Though generally our philosophy regarding leasing anything is “death before leasing” there are times where you simply have to hang on to the working capital and do so.
- Poor choice of location. I am always amused when a prospective business owner visits us and we address location options for their business. You might think that the consideration as to where includes traffic flow, parking, location of competition, cost per foot of facility, etc., but all too often the most important consideration to this would be entrepreneur is proximity of the new location to the owners’ home. Wrong approach!!!
This is a guest post from Gary Field of Numerico, PC. Visit www.numerico.com if you’d like more information about their accounting practice.
