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.

Tuesday, November 06, 2007

Reasons why small businesses fail 4

Having been in business and a business consultant myself, I feel that publishing the small businesses that an OFW may engage into is not enough. The manuals and the articles do not discuss the whole shebang of putting all your hard earned money in a business that spells SUCCESS. Although there is no such thing as guarantee in getting into business, the risk of loss is minimized when there is adequate planning before the first peso saved rolls out from the pocket.

1. Verifiying if there is really a market demand or demand is not yet fully satisfied--in short the market is not yet saturated. You do not need to hire someone to conduct a survey.

For example, you like to put up a beauty parlor. Easy. Wear your walking shoes, start from the point where you plan to open the business, count the number of beauty parlors that you can find within the next few kilometers. Same with fastfood or restaurants eateries, not unless it is located in a food court in a mall. But even then, the kind of food served in that location where you compete with a lot of food stalls will make you stand out from the rest. If you see that beauty parlors are more in number than the street blocks that you have passed by, forget the business.

Not because your relative can cook and or you learned the " how tos" in some seminars or manual, you can already put up a sign and say welcome to my business. That's dealing only with one aspect, the technical. The market demand is the most important factor in considering a business. Not because, you have some hobby that makes your friendslashrecepientslash of the custom made or handmade stuff as gifts encourage you to start producing in quantities, you will already start arranging for a loan.

Honey, try looking at your products and your friends. Are they only patronizing you, then keep the gifts in their closets --never used or displayed. Were your gifts recycled like the fruit cake that goes around the neighborhood or offices that if you're lucky, you get it back in a different
cute wrapper?

There may be success stories about how hobby turned into multi-million business but the writers may have omitted the part where the successful business owners learned the nuts and bolts of the businesses the hard way before they saw their "bottomlines" with profits.

2. Starting a business without adequate capital

Okay so there is a market. Allelujah. So you dance the dance of joy and start registering the business, getting the place and buying the equipment and other fixed assets.

Honey, the word CAPITAL does not refer to the size of the letters or the fonts used in writing. In business, there are three kinds of capital that you need. Kung baga, magkakamag-anak sila.

Fixed Assets Capital- Does your business need big capital outlay before you can even open your door to start the business ? Does you business need some special equipment like oven, stoves, kitchen utensils, tables, chairs and other minor machines to operate a restaurant? Does your business need a lot of chairs, computers, need renovations for the rented office or place to operate an internet cafe ?

Inventory Capital- Does your business require you to stock up some inventories of the products to be processed or sold or to be used in the day-to-day operation? You can not start a beauty parlor with just one color of nail polish or one bottle of nail polish remover. Iirapan ka ng beauty counsellors ninyo or ni Parloristang si Tanya aka Tonio.

You cannot start a boutique with all goods that are on a consignment basis.

Working Capital- This is the capital that "works" for you while you are waiting for the revenues to be adequate to roll over. Salaries for employee if you have one, rental payment, utilities,
replenishment of inventory stocks, transportation and other unexpected expenses.

Dapat mahaba ito as in if you estimate that the business will pick up only after six months, then your working capital should be more than six months. Ganiyan dapat kalalim ang bulsa ninyo.

We had this experience in the business that we put up here in the US. Our fixed assets capital were merely office desks and chairs and a reliable phone system.

What we did not expect was that in a matter of days, we were able to deploy nurses in hospitals. After a week, they need to receive their paychecks. That's industry practice. Violate that and you will see them moving to another registry. The hospitals and nursing homes pay only after six weeks. Others issue their checks more than six months especially of it is a hospital system where the parent company is in another state.

The bank would like to see our profit and loss. Actual not the projected one. So what did we do? I include that in my discussion of tapping sources of capital.

Related articles:

1. Reasons Why small businesses fail part 3

2. Reasons for the Failure of Small businesses Part 2

3. Reasons why small businesses fail Part 1



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