Profitable Businesses Go Bust?

… But Why?

All bank managers, lots of angel investors and many, many failed business owners will all tell you that profitable businesses go bust. Why? Because they run out of cash! The saying profit is vanity and cash is sanity is just so true and the roadside is littered with businesses that failed to live by that mantra.

Sadly too many businesses don’t seek help soon enough, they prefer blissful ignorance of what was happening in their business. A recent CoachSME survey found that around 60% of businesses don’t track any KPIs at all. No wonder they don’t see the inevitable hurtling towards them.

I am constantly amazed at how many trading businesses do not have a forward cash flow – 12 months would be nice but even a couple of months is better than nothing at all. Some businesses don’t even pay attention to the monthly management accounts preferring a quick check as and when they remember.

So am I surprised that successful businesses fail?

Not really.

Can it be avoided? Not in every case but many more businesses’ would have survived if they had watched their cash flow like hawk and done something when the trend appeared to be changing direction!

So, what should you be looking out for?

1. Are you spending what cash you have unwisely
2. Spending cash that you don’t have yet
3. Cash –flow forecast out of date, or non-existent. If necessary track it daily.
4. No KPIs to track key figures and performance and so there is no early warning system in place
5. Tempted by, and spending  the ‘cash in bank’ figure – ignoring your future bills – especially the quarterly VAT payment
6. Greed – buying the Porsche too quickly
7. Inexperience, naivety, ignorance or just blissfully unaware – this is absolutely no defence
8. Forgetting that the sale isn’t made until the cash is actually in the bank – after all the money might not come in at all
9. Poor credit control procedures and
10. No credit checks on customers before giving credit – perhaps ignoring the benefit credit insurance v. the cost
11. Too much stock which is tying up cash – time to release the cash – sell some product
12. Mountains of obsolete or discontinued stock
13. Competitors launched a better product  than you have – you need to react quickly
14. Selling products below cost or for very little profit, perhaps not even realising you are not making money
15. Too much emphasis on non-profitable clients
16. Customers drift away without you noticing
17. Competitors are shouting louder than you are and attracting your customers
18. Overheads running out of control  - Purchase order processes missing or out of control
19. Theft, pilfering, wastage,
20. Buying ‘cheap’ insurance – It’s too late to find out that it doesn’t cover anything when you really need it! So take your business insurance seriously

Related Post:  Are You Paying Too Much?

If you don’t know the answers to these 20 points then you could be hurtling towards a problem. It’s time to change because if you don’t you might wake up one day and find that you don’t have a business anymore!

More Help Available at : 3 Pieces of Paper