Controlling the Money

Abstract

Small businesses have a high mortality rate. Most of those that fail do so within two to three years of being set up. Various reasons are advanced to explain why this occurs and there appear to be three principal causes of failure:

• 1. The market in which the firm hopes to operate has been insufficiently researched. The numbers of potential customers and their need for the product or service on offer is not as predicted. As a result, the volume of orders, or offers of work, is insufficient to provide the necessary inflow of revenue to sustain the business.

• 2. The business is under-funded. The capital sum available is insufficient to set the business up in a way that is appropriate to the kind of operation it is engaged in. Premises, or stocks, or production equipment are too limited and the business cannot perform adequately. Where the funding is too restricted, there is not enough money to support the operation during the initial period, when sales are relatively small and the revenue they generate does not cover costs.

• 3. The money side of the business is not managed properly. The majority of individuals who set up in business working for themselves usually have some experience either in selling or producing. Those who start a service business often do so because they have a particular skill or talent related to the work involved. Only a comparative few have an understanding of the financial difficulties involved in running a small business.