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If you're not careful, your new business can start out amazingly, then fail quickly.

3 minute read

Not all entrepreneurs fail because they don’t sell enough. Often, it’s the external environment that’s thought to be at fault. But while market conditions might be to blame in certain cases, sometimes there are internal reasons behind the failure.

According to a 2014 Gallup study on why new companies fail in the first five years, it’s that the entrepreneur didn’t organize enough to manage the money that their business was earning because they lacked the talent, knowledge, and experience necessary.

Organize strategy and structure

Entrepreneurs often are just so relieved to have revenue flowing in that they let it continue organically rather than developing solid and detailed plans that guide its ongoing growth. They mistakenly believe that the money will just keep rolling in as the business gains customers and a reputation, but the reality is that preferences among your audience change and external factors have to be considered.

This means you should research, and understand the areas of risk and opportunities while creating a strategy and structure that reflects that understanding. You may also want to regularly review the effectiveness of this strategy and structure to reflect certain external changes or internal expansion.

Organize functions and business processes

A lack of planning and organization can also happen within various functions and business processes. Some failures include hiring new talent every time there appears to be a need, rather than balancing needs with resources by looking for ways to automate certain processes.

Marketing is another area that often lacks organization, because it can turn into an aimless search rather than focusing on a targeted approach or leveraging available marketing tools that provide the information for a detailed marketing plan.

Other plans that need to be in place include sales, human resources, product development, and technology investment. If you do not have these specific plans tied to each function that relate back to the overall strategy, it’s easy to spend resources in an ineffective way that hinders greater revenue that is necessary to sustain the business through all market cycles.

Organize finances and cash flow management

Organizing and managing the company’s finances is one of the most important areas within a business where an entrepreneur can fail miserably. First, debt is a common issue with entrepreneurs due to the need to borrow funds to fuel development and expansion of the business.

Many mistakes happen here in planning with the debt load you take on, including how much you carry in relation to the revenue that comes into the business. That debt always has to be repaid at some point, often sooner than you may realize. You need a plan and schedule related to how you will pay that debt back so you don’t end up owing more than you make despite good revenues.

Cash flow is another money management issue that entrepreneurs often face. You may not take into account that other businesses may not pay their own invoices as quickly as necessary to maintain cash flow. Without a plan for managing cash flow and ensuring a regular flow of money into the business, you may quickly find that you cannot pay expenses or repay debt despite the fact that a significant amount of money is owed to you but just hasn’t been paid.

Having an online invoicing system can help ensure you get paid faster along with numerous payment processing options. The ability to offer the greatest convenience to your customers means you are more likely to increase your cash flow and manage how money flows in and out of the business.

Other important tactics related to organizing and managing finances includes having a contingency funding plan, which involves creating monetary reserves in case of an unexpected expense or financial crisis.

You may also want to take the time to educate yourself about taxes, expenses, and basic accounting practices to ensure that your ignorance about financial issues doesn’t become the downfall of your business. You can also turn to outside expertise in the form of a professional bookkeeper or certified public accountant if you have the funds to do so.

Lastly, just because money is flowing into a business doesn’t mean you have to spend it. The most valuable lesson for an entrepreneur is sticking to the mindset of doing more with less and pretending like you are still strapped for cash rather than becoming blinded by the ever-increasing revenues.

It is a well known adage that the more money a person makes, the more they tend to spend. To ensure your business doesn’t fail, throw that behavior out and focus on thriftiness. Classify your expenses and regularly review options that can help you save more money.

Plan for sustained success

Taking the time to focus on organizing processes, functions, strategy and structure with a particular emphasis on financial management is critical if you want to sustain your startup business and continue to grow revenue over time.

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About the Author

John Rampton

John Rampton

Rampton is an entrepreneur and connector who advises several companies in the Bay Area.

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