One of the least asked questions startup entrepreneurs ask themselves is, “What will I do if the business has financial problems?” There are lots of seminars and courses that talk about business plans, marketing, operations, and accounts receivable management, but rarely do these seminars or courses address how the entrepreneur should deal with financial difficulties. While failure is obviously not a topic to be dwelled upon at the outset of a business venture, it certainly should be considered.
We know that only about half of all new businesses survive their first 5 years. Only about 1/3 survive 10 years. About 2/3 of those businesses that closed within 5 years do so because they failed financially. These percentages have not changed much at all over the last 20 years.
Problems could come from a lack of sales, poor accounts receivable management, or even from a natural disaster. Regardless of the reason, the entrepreneur needs to be ready at least to some degree to address such problems.
As with most issues in life, a modest amount of pre-problem planning can provide substantial benefits. As a financial problem solver, I find that entrepreneurs all too often come to me after they have exhausted all their resources. This then limits the options they have available and the effectiveness of those options.
If, instead, those entrepreneurs had at least a contingent plan for such problems, or even if they had recognized some warning signs and sought help then, they might have been able to stay in business.
Those warning signs often include the following:
Reacting to warning signs is important. Thinking about them in advance is better. Asking yourself how you might deal with these issues is an important question for startup entrepreneurs.
I know my perspective is slightly different, but I am here to help.