How to Kill Your Business in 6 Easy Steps

As a cautionary tale, allow me to present the main causes of the vast majority of all business failures. Unfortunately, these causes are alarmingly common and are arranged in descending order of occurrence.

• Insufficient Money to Start- This means a business has started out under capitalized and since it generally takes a while to get to the breakeven point, you run out of cash. When you are out of cash, you are out of business!

• Uncontrolled or Unexpected Growth- A mentor told me a number of years ago that there are two sure ways of killing a business. One is to do something stupid and the other is growing too fast. Unplanned growth can quickly outstrip the cash you have available to operate your business. When you are out of cash, you are out of business!

• Poor Credit Arrangements - When you get terms of 'net 30' from your suppliers, they aren't really looking for the money until the 30th day. After the 30th day they will get rather cranky, but they are not expecting your money until then. If you pay your invoices as soon as it arrives, you could run out of cash. This is especially so if your customers are late in paying you the money they owe to you. Additionally, giving credit to your customers is always a challenge. Your customer could go to a competitor if you don't give terms. However, will they pay you in a timely manner or at all? When you are out of cash, you are out of business!

• Poor Inventory Management- Sometimes inexperienced or overly enthusiastic business owners will buy an overabundance of inventory that is way beyond the short term needs of the business. Thus eating up the cash needed to run the day-to-day operations of the business. When you are out of cash, you are out of business!

• Over investment in Fixed Assets- An example of this is a construction company that buys a backhoe which may cost $50,000-$80,000 and only uses it a few weeks out of the year. However, they will have to make payments for a $80,000 piece of equipment to just let it sit and rust the rest of the time. When you run out of cash, you are out of business!

• Low or Unprofitable Sales- This is obvious. No sales, no cash, big problem. When you are out of cash, you are out of business!

You should be seeing a common theme by now. Good and timely cash flow planning is the main solution to the above business killing problems.

For assistance in determining your businesses cash requirements and developing the necessary strategy to manage your cash flow, contact your University of Georgia's Small Business Development Center. For an appointment please contact: Rand Riedrich at rriedrich@georgiasbdc.org.