5 Big Business Killers, According To Accountants

For a profession that is all about the numbers, accountants can put a financial reason to why most businesses fail. Although some businesses fail due to other reasons, problems like cash flow and over valuation can be highly credited to failed business. This is why starting with the numbers can be a good way to drive successful business. By being proactive about numbers and your financial situation you can avoid the big business killers.

Cash Flow Problems

One of the largest problems in today’s business world, especially small businesses is cash flow problems. The reason being is, even if a business is profitable, a company can still bust from cash flow problems. For example, even one customer missing a payment can cause a domino effect of problems. That domino effect can cause the decline of a business, or even kill a startup. There are solutions to this, although they may not work right away they are a step in the right direction. Solutions like updating to the latest technologies, new cash management techniques, and outsourcing your books are a good way to manage cash flow.

Overestimating and Underperforming

Another problem with financials in business is overestimating how they believe they will perform, verse how they will actually perform. Especially when it comes to new company's. Estimates of start up costs, fixed costs, variable costs, and cost of goods sold are crucial. The problem, is that most companies don't even bother with these calculations, and there are two main things a company should focus on right away. Those are validating demand and making sure the math or accounting works. Businesses need to be realistic about the numbers so they can put themselves in a place to succeed. Of course loss is expected at first, but businesses need to have a plan or a road map in place for profitability.

Actively Lowering Cost

Cost management is key in the early stages of a business. Having a proactive accountant that is actively looking for ways to lower cost will prove beneficial for many businesses. Companies cannot get complacent and cannot have accountants that get complacent when it comes to this. There are multiple ways that a company can be proactive in this sense. Embracing technology by focusing on HR, Payroll, and Bookkeeping, outsourcing by focusing on marketing and advertising to increase ROI, making sure services are being used to their full potential, and staying active on where your money is going are all ways to do this.

Pulling Company In Too Many Directions

Companies will try to expand too quick or offer too big of a variety of their product or service. This can happen at multiple stages in the business whether it is a young company or even a matured company. Companies tend to think more product is more money, when less can really be more. When trying to grow, focusing on the cash cow will be the key to growth and profitability, not spreading and wasting money on products that will not turn profitable. Focusing on quality product is the most financially effective way to grow and sustain a company.

No Fallback

When companies have early success they tend to spend their money pretty freely. With all the money going in and going out, especially at an early stage in a business, it is hard to make a realistic valuation. This can cause a company to get careless if they are over evaluated and not focus so much on a backup or safety net. When companies do not have a cash cushion and they start to struggle it becomes a build up and eventually can cause the company to fail.

ABOUT THE AUTHOR

Vinnie Fisher is a two-time best-selling author of The Best Investment: A Better You and The CEO’s Mindset: How to Break Through to the Next Level, and the CEO of Fully Accountable, an accounting, finance and human resources full service and software solution for small businesses. Vinnie also hosts his own podcast the Total CEO, where he talks with business owners and entrepreneurs regarding the joys and challenges of growing and scaling a small business effectively.