you have a great idea you have a product or service for which the crusade has been waiting you've grinded together enough currency to get your ID off the anchor you have a location you've done your ad you just know this is going to work and six months later you're out of business statistics from the Small-scale Business Government have shown that about half of new businesses fail in the first five years countless brand-new enterprises disappoint and the reasons are many and varied in this course we're going to address some of the primary fiscal intellects that brand-new ventures don't make it there are of course countless non-financial grounds that new customs fight inadequate market inadequate spot inadequate product quality we're going to limit this course to the financial reasons for business failure if you get everything right but the financial side of things your business is going to struggle of course if you get the financial side of things right and drop the ball with the non business particular aspects of the brand-new business you'll strive as well with this course we'll stick with the financial aspects of struggling new transactions because that's what we know a little something about we have identified five common reasons that new occupations that conflict seem to face of course this is not an extensive listing but these five concludes seem to consistently pop up when it comes to new firms that battle those five rationalizations are insufficient capital poor cash management poor record-keeping and controls improper product pricing and uncontrolled increment before we get started let me first say that various of these reasons for struggling are interrelated uncontrolled emergence can relate to poor currency control poor cash conduct can are addressed to poor record-keeping and so on while these topics can be interrelated we will address each one separately and then comment on the interrelationships when they are apparent so let's get started you let's begin with the money needed to start a business too many brand-new jobs start their business without enough capital they are only don't have enough money in the bank to support them while their cash flows get up to speed it turns out that the tariff has to be paid the utilities have to be paid equipment may need to be purchased or rented the employees have to be paid the armory has to be purchased all of your expenditures have to be paid but you're waiting for possible customers first to find you and then second to pay you there's often a slow between when you get paid for providing a good or service and when you have to pay your dealers and generally that lag is not in your advantage likewise when starting a business it takes time for your customers to find you and for you to get your marketings and sell tries up to full speed during that time your expenses will continue to need to be paid it would be nice if all customers would pay immediately it would also be nice if vendors would wait to be paid until you are paid yeah that would be nice many occupations are forced to close before they are able to find out if their business model has a chance to demonstrate that its resounded they are only run out of fund when starting a business realize that it will take time for cash inflows to start flowing but the cash outflow start flowing immediately make sure that you have access to sufficient capital to allow your new business dare enough time to succeed so how much cash is enough cash the answer to that question can only come through a careful budgeting of cash inflows and cash outflows it is critical that is part of your business contrive you sitting there and carefully and realistically map out your expected cash inflows and outflows for at least the first six months of your new business this exercise will allow you to determine any calculated money shortage and will allow you enough time to arrange for needed financing either from partners or from creditors knowing well ahead of time that you will need cash allowed you to make necessary arrangements for financing finding out today that you need cash tomorrow leans you in an superfluous secure we will talk a little later in the course about the specifics of currency control but it is critical upfront that you have an understanding that not having fairly money to get started can be achieved through a good sentiment fit and early die make sure you have sufficient capital or access to sufficient capital before you open the doors to your new business again countless new business with great business doctrines don't make it through the critical first few months a great hypothesis not sufficient you need to ensure that you have access to enough capital to got to get through those first few months by the way if you plan on going to a bank to ask for financing for your new business one of the first things they will ask about is your cash forecast they will want to know what capital you currently have available to you if you plan on questioning friends and family to invest if they are smart they will ask about your cash forecast to obtain capital from others you need a money foreshadow you might as well prepare one for yourself the currency prognosi will allow you to determine how much uppercase you will need to get you through those critical first few months you we know you'll need ample capital get your brand-new business through the critical first few months let's assume you've made it through those first few months you will still need to track your cash inflows and outflows to ensure that you have sufficient cash to pay the bills that are surely coming whether you are at the start of your business or well into the lifecycle of your business managing cash is critical for the well-being of your business and cash management does not happen by chance it is up to you to ensure that your cash is managed we will do this by preparing a cash foreshadow or plan let's start our discussion of cash management by distinguishing between two types of costs fixed costs and variable expenditures fixed costs are exactly that they're fastened planning for fixed costs is relatively straightforward the amount is fixed at least over the short-term variable overheads are payments that vary relative to some activity or cost driver for a diner for example expenditures might motley based on the number of patrons first shop at the mall costs may go based on the number of hours that the shop is opened labor costs utility costs and so forth now there can be a number of cost moves or in other words expenditures can alternate for a number of reasons it exactly depends on how complicated you want to get adding more motorists fixes the arithmetic a bit more complicated but the concept is still the same now step one in currency administration is find all of your cooked and all of your variable payments all of those costs it's easy to forget an outlay here or an overhead there and before you know it your cash forecasts are useless the money prediction is merely as good as the inputs next we'll talk about variable overheads answering the issues to how many clients can we expect is the hard part please don't gloss over this question your business will flunk or supplant based on the answer to this question how many patrons can you realistically expect many costs will run based on predicted client involve answering this big question is beyond the scope of this video but it would involve such things as scoping out your competitors work of business assessing expected population growth in your expanse surveying potential clients a entire emcee of things your outlook of sales will be critical in helping to prepare your forecast of cash inflows and outflows we will do some sensitivity analysis with these lists to determine what might happens to our benefits if more or fewer patrons show up now that we have a reliable prognosi of our cost motorist at least as reliable as possible we can now compute our variable expenses please note that as our business originates and matureds we will be able to determine a much more reliable estimate on the number of clients we can expect let's now turn our attention to the next orbit where new business owners tend to drop the ball that is the area of poor record-keeping most brand-new business owners hate to worry about the record-keeping they would rather worry about customers and sales and evasion and growing and everything other than record-keeping proper record-keeping and internal authorities are the blocking and attacking of new businesses not unusually glamorous and not very interesting but it needs to be done and it's safe to say that it needs to be done well you can liken proper record-keeping and adequate internal ascendancies to the deterring of statistics in a football game the person tracking the statistics is not on the field playing the game but those statistics are very helpful to those who are on the field playing the game as we discussed in the previous video on cash handling you need to track your inflows and outflows of money so that you can forecast future cash flows all we're talking about here is developing a structure of moving your inflows and outflows your obligations to others and others obligations to you it can be as simple as that depending on the size of your business you can purchase accounting software off-the-shelf there are a number of enormous concoctions that will do the job with minimal teaching but it is critical that someone take responsibility for keeping the books why is it critical well three reasons off the top of my head first more accurate information about your business will help you in extending your business better you will need information about cash inflows and outflows and about who you owe and who owes you second if you ever need external financing bankers or investors will insist on accurate financial results they will need that information to assess business risk you need that same information for that same reason and third taxes payroll taxes asset taxes income taxes the index goes on and on you need a organization that tracks your tax obligations to ensure that you pay the right amounts at the right times if the government has to come in and do your taxes for you via an examination remember they don't work for you they work for the taxing officials they will not be looking out for your best interest that will not be their hassle so get yourself a system for tracking your inflows and outflows get a system that will keep track of who you owe and who owes you get yourself a method that will provide you with the information that you will need to better run your business now about controls what are they ascendancies our procedures that should be in place to ensure that one the information that is being collected in your accounting system is accurate and reliable thereby helping you to run your business better and to to safeguard your resources and your records now what sort of control should I have on information that I will rally you will need to answer questions like how will you document that your cash outflows our legitimate business expenses you better have proper documentation if I'm in a business that has inventory for resale how will I are aware of much I have on hand how do I know how many hours my hires have worked you better have a system for tracking this information and of course you will need a system that collects information about your cash inflows and your cash outflows and you also need to know who you owe and who owes you we've talked about that what else well you'll have information that's confidential about hires offer proportions Social Security digits etc that all has to be safeguarded what about purchaser lists what about pricing intelligence as you can imagine there's a lot of top-secret information relating to the inner workings of your business that you don't want get out you need to ensure that you have organizations that protect your information and ensures that the system rendering your info are correct and reliable one last-place thing to mention that is often taken for granted you will need to safeguard your money you will need procedures in place to make sure that cash and checks are quickly and correctly deposited in the bank and that exclusively countenanced expenditures are made this is no fun to talk about but we tend to assume that those with whom we work are looking out for the best interests of the company now that is often the example but is also often not the case numerous characters are looking out for them you need to make sure that those individuals are never given the opportunity to be exposed to a situation where they might compromise their stability that is done by developing a specify of buttons within your business to ensure that information is collected quickly and correctly and that procedures are in place to ensure that assets specially cash are handled properly now remember we said at the outset that this topic is the no enjoyable part of business no one likes to talk about paperwork if you don't talk about and establish a system that rallies accurate information in a timely fashion and safeguard your assets you will have plenty time to talk about that topic last-minute when your business crimps up a good organisation of record-keeping and controls is what the scientists would call a required but not sufficient condition a good knowledge structure will not ensure the success of your business but a bad information method will certainly contribute to your lack of success you so what can be so hard about pricing a product don't you time figure out what your overheads are and then add some sort of markup for profit oh that it were that easy if your rate is too high regardless of your rate someone in world markets will open premium you assuming that the quality of product or service is similar in many cases you will be a price taker and you will have to manage your payments so that you can earn a profit given a certain price is determined by the market now let me say that again in most instances you don't price your make to cover your penalty instead you determine if given a certain market price your payment arrangement is such that you can earn a profit the biggest mistake brand-new business owners form in product pricing is not considering and covering all of their costs when registering a market now it is true that when you are initially trying to imbue a market you may be willing to lose a little coin to gain market share but that strategy is not sustainable over time over the long term you must cover all of your penalties all of your penalties you now to our last topic uncontrolled expansion proliferation is awesome increased market share is good auctions tending upward is the dream and unmanaged swelling has killed a lot of companies emergence must be carefully done or well lethal to your business the above reasons being is that growth often necessary currency and cash is often the one thing that new professions is not "ve got a lot" of in fact a lot of new business owners when faced with the cash flow issues associated with starting a brand-new business they erroneously think that the solution to their cash flow problems is to grow faster not realizing that the fast expansion is causing the cash flow problem in the first place in other words they make the gas when they should hit the damper so how does expansion motive cash flow problems well "ve been thinking about" it in a usual business that is selling a make to a patron on recognition that is the customer will offer and say 30 daylights you as the business owner need to pay your lease money your assurance offer your employees pay for the inventory that sell that armory and wait for 30 daylights to collect the money to grow faster means you need to buy and pay for more inventory and then sell that record and is looking forward to 30 epoches to collect the currency the more inventory you have to buy the more inventory you have to pay for and then still wait 30 epoches to collect the currency well let's just have our suppliers wait longer to collect from us until we accumulate from our customers remember this your suppliers are having the same cash flow issues that you are facing they would like to receive their currency sooner rather than later so what should you do next that depends on what you identify is your particular small business problem are you having trouble with poor records are you finding your financial reports to be uninformative or too often non-existent and like it or not you need to learn something about accounting why are you having trouble managing your cash flow are you always feeling currency crushed with not enough financial capital to invest in the assets message of parties that you need and you need to learn a little more about the field of Finance maybe you feel like you are operating your business blind your profitability seems low-grade but you can't figure out why and it is necessary to some revelation to some simple techniques of fiscal analysis finally remember that there are lots of prepared business advisors out there sometimes it obligates some smell to deplete a little money to meet with an experienced business adviser describe your business your programs and your exasperations to the south side advisor she or he can then help you sort through the shortcomings of your business to identify the things that you need to work on firstly small businesses are the source of creativity in an economy a small business is a prized thing the realization of a person's intuitions forces and aspirations I salute those of you "whos been" the entrepreneurial spirit and are now starting or thinking of starting your own small business I wish you enormous hilarity and success you
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