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Many small business owners are brilliant when it comes to creative thinking,
business planning, and selling or marketing a great idea. But many times, the
downfall for an entrepreneur comes when handling the financial side of things.
In fact, according to an article published in Community Banker this
month, those in the lending business identify small business owners as needing
improved management skills when it comes to money. In this series, we’ll discuss
the problems that come with lacking financial management experience, and ways
you can better prepare yourself to face this area of your business.
As anyone who launches a new business knows, the odds are already stacked
against you. According to Dun & Bradstreet, businesses with fewer than 20
employees have only a 37 percent chance of surviving four years and only a 9
percent chance of surviving 10 years. Restaurants have only a 20 percent chance
of surviving two years. The failure rate for new businesses seems to be around
70 to 80 percent in the first year, and only about half of those that survive
the first year will remain in business the next five years.
As the previously mentioned article in Community Banker stated,
various studies of the reasons for small business failure usually show poor or
careless financial management to be the most important cause:
- A nationwide survey of approximately 1,000 small business owners and
managers conducted at the University of Texas found that more than half of the
individuals interviewed said "lack of management expertise" was the primary
cause of small business failures.
- According to testimony offered before the Securities & Exchange
Commission's Government-Business Forum, "One primary cause of the high failure
rate for small businesses is a lack of knowledge on the part of owners and
managers about accounting -- particularly management accounting and internal
control."
- The Dun & Bradstreet Business Failure Record indicated that
"incompetence, unbalanced experience, and lack of managerial experience creates
problems in areas such as operating expenses, receivables, and
inventories."
So what’s a business owner to do? Apparently, seek more education and gain a
higher level of financial expertise. This is easier said than done. In the next
installment of this series we’ll take a look at this topic, and explore ways you
can prepare yourself for the financial side of business ownership.
Source: Community Banker, May2007, Vol. 16 Issue
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