A by cathy.

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I am Cathy. I am a Certified Public Accountant and a business consultant for years. I want to share my expertise thru this blog which is intended to help people who are planning or who are already in business. The topics range from Accounting for Small Business, Cash Management, Inventory Management, Assets Management and Financing. The terminologies will be simplified for laymen and business jargons will be explained for clarity.

Monday, October 08, 2007

Reasons for the failure of small businesses

Subtitle of the blog: Why the businesses of Overseas Filipinos and or OFWs fail.

After working abroad, the OFWs/OCWs dream of putting up their own businesses so that they can make their savings last without having to go back abroad. The overseas Filipinos aka permanent residents of foreign countries set up businesses back home to provide employment/sources of revenues for their dependent relatives.

I read somewhere that ninety per cent of these ventures fail. The news did not mention the causes of failure. So here I am enumerating what must be the causes.

1. Lack of experience- Most of the wannabe entrepreneurs are enticed by the relatives to go into a type of business which they think are making money. One of them is internet cafe.

The first time, I made a balikbayan, I went to an internet cafe near our place. The per hour rate was 50 pesos. And I still have to go to Alabang. That time, the internet cafes are not yet dime-a-dozen. The second time I went home, I found many internet cafes closer to where I was temporarily staying. The charge was 30 pesos per hour. There were only 10 units that obviously are home assembled pcs ala Frankenstein. Malaki tipid than buying the finished branded. I thought that the guy knows the business.

A friend here in the US asked me if I know somebody who want to partner with him in the internet cafe that he is buying from a friend who's also here in the US. First question, I asked was, why is the owner selling?

He said something about misappropriation of funds by the trusted relative who managed the business. He did not say, it is "bloody bleeding" at the bottom. translation: losing.

It was a principle of instead of giving fish, teach them how to fish that made the overseas Filipino financier/owner to set up the internet cafe for his relative in the Philippines.

house-mousecomputer mouse
The relative's knowledge about computer is only the distinction between a pc mouse and that little rodent that run on the keyboards every night when the lights are out.

He hired someone who he thought was more knowledgeable of the operation. Ito ang sinasabing, pinagkatiwala sa pusa, ang pusa naman pinagkatiwala sa daga.

The projected payback is one year. hohoho.

People mistake payback from recovering back the investment. Malaki ang difference kagaya ng difference between divorce and annulment na sinabi ng senatoriable Richard Gomez, walang pinagkaiba kung hindi spelling. hohoho.

Sandali bakit tayo napunta sa divorce.

In paybak computation, you make use of the net profit from the project, NET PROFIT mga ineng at mga totoy. Ibig sabihin pagkatapos alisin ang mga gastos sa mga natanggap ng kaperahan. Most people use the gross receipts.

Tipong kagaya ng internet cafe napapawow sila pag kinompute sa kanila na sa 10 units at sa 30 pesos per hour, at 12 hours operation, ang investment daw ay marerecover after 5 months.
hohoho .Oo nga naman pag ang computation ay ganito at ang assumption ay full capacity.

30 x10 unitsX 12 hoursx24 days a month= 86,400 pesoses
Kung ang capital ay 400,000 para sa sampung units, limang buwan nga naman ay kuha na ang investment at ang mga susunod na taon ay panay na profit. MALI.

Bakit mali?
1. The assumption is one hundred per cent capacity utilization. Ibig sabihin ang lahat ng computer ay gamit oras-oras, araw araw, gabi-gabi. Oops may kanta niyan. In the real world, kailangang may agimat kang katulad ng aking lola na pinapahiran ng bawang.... oooops ano ba ang pinagsasabi ko para unang buwan pa lang ay pinupupog ka na ng mga customers.

2. After deducting expenses, cash expenses/disbursements the net would be what's left for you to roll over to the next month's operation. Is there enough to pay the monthly amortization from the cash advances that you get from your credit card or bank?

3. How much is the roi per month? Is it more than the interest rate of the cash advance or bank loan?

If you are making an roi lower than the interest rate, magdasal ka na ng paluhod sa St. Jude, the saint of desperate causes.

Some people think that the money that rings the register in is already the income, No honey, because cash registers also ring out not to mention the checks that are used to pay other expenses.

These are but cash matters. There are problems of dsl connections, power outage, pilferage and potential competitors before recovering the investments. Alam mo naman ang mga Pinoy, may sari-sari store mentality where in one street, there may be one store for every two households. Dito sa States, may mga regulations sa county or city where a business of the same nature may not be allowed within a certain radius where there is already one of the same type.

So going back to this friend of mine, I said no way. I heard from some friends back there, that there are price wars going on among internet cafes to get more customers.

Related Articles:

1. Reasons why small businesses fail Part 4.
2. Reasons Why small businesses fail part 3

3. Reasons for the Failure of Small businesses Part 2

4. Reasons why small businesses fail Part 1


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