Start-up Capital
The number one reason businesses fail is lack of sufficient capital to continue to grow and improve. Business leaders often plan financially for the obvious: inventory, staff, and rent. But their downfall is insufficient capital to cover a negative cash flow; this reserve is vital to keep afloat until your business is profitable. Sufficient funds will be necessary for marketing, advertising and capital investments like equipment and vehicles, so plan your funds well.
Personal Case Study: Each one of us has life experiences that mold us and help us become better leaders. Some of the greatest lessons come from setbacks and failure. Personally, I’ve learned more from failure than success.
One experience came through the failure of a business start-up. When I was 45, I lost my first wife to cancer. After her death, I decided to step out of my corporate career and start a business.
I’m a planner, so the preparations to launch the business came naturally. I developed plans for our strategy, operations, sales, marketing, advertising, accounting, technology, and financial projections.
The company was a web-based service launched during the initial stages of the internet and was based on member subscriptions. Online subscription services are now widely popular, but at that time, they were a new concept.
I prepared three forecasts: best case, worst case and expected case. Unfortunately, the slow growth exceeded my worst-case scenario causing me to burn through my cash reserves.
When planning, it is hard to plan for every potential outcome. Two unknowable challenges arose that caused the business to fail:
1. I launched the business making non-recoverable investments three weeks before 9/11.
2. The radio station I selected for advertising closed the week before I opened.
Planning is critical but be aware that business is risky. You’ll need sufficient cash reserves to survive the lean times, and a plan B in the event your new business is not successful.