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Why Some Small Businesses May Fail

The Floyd Law Firm PC > Legal Sen$e > Why Some Small Businesses May Fail
Legal Sen$e - The Floyd Law Firm PC
By Dalton B. Floyd, Jr.

Working with a number of small businesses over the years, and seeing many of them fail, has caused me to develop an acute awareness of the consequences of poor fiscal management. Sealing the fiscal leaks in a small business and accomplishing a financial turnaround is possible if trouble areas are promptly identified and addressed before it is too late.

One of the first danger signals to watch for is a business that consistently pays bills late. Losing trade credit for a small business can be disastrous if suppliers either withhold shipment of your purchases, or place your business on a “cash and carry” basis.

Another danger sign is an uncontrolled growth of accounts receivable. This may be a symptom of a poor or non-existent credit policy, or other internal problems. Getting your receivables paid quickly must be a priority item for small businesses if it is to establish a good credit with suppliers and other creditors. Good credit is imperative to the success of your business.

Commingling of business and personal funds is another danger sign that can invite disaster. Not only can it be the cause of losing the unlimited liability that your corporation gives you if your business is incorporated, and exposing your personal assets to lawsuits from your creditors, but it can result in undisciplined personal spending.

Poor planning and over-staffing your business with too many employees is another symptom of poor fiscal management, and can result in an uncontrolled growth of overhead causing crisis management. A solid strategic plan with a conservative approach to overhead expenses is crucial to keeping your business on course toward achieving financial stability.

Finally, a small business where the boss makes all the decisions is a sure fatal business pitfall. Business is now too complex not to use outside expert help and guidance. Attorneys and accountants must be primary sources of help to you in order for you to avoid the many legal and fiscal pitfalls that seem to plague many small businesses. Generally, the prime cause of small business failures is not the inability to do the primary work of the business, but the lack of attention to the many legal and financial issues affecting the business.

Take a good look at your business, and check for the danger signals discussed in this article. If you identify one or more of these danger signals, take immediate action to correct them, and get your business back on the right course for success before it is too late to reverse course.

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