I’m sure you won’t be surprised to learn that the reasons businesses barely survive, fail to thrive or fail altogether all relate to money and behaviors regarding money. Tens of thousands of businesses in this country are barely surviving, with profitability merely a “hopefully someday” dream. But achieving financial strength and profitability are required for success. So, how do you get there? The first step involves understanding the complicated relationship many business owners have with money.
Let’s look at the top five reasons businesses (and business owners) get stuck in survival mode and often fail due to finances.
They’re Fueled by a Vicious Cycle of Desperation
As Mike Michalowicz wrote in his book, Profit First, one of the main reasons small businesses fail is the repeated cycle of sell-spend-panic business owners experience. Rather than planning ahead, owners give into the “Recency Effect”, which Michalowicz describes as, “the psychological phenomenon in which we humans place a disproportionate significance on what we experienced most recently”. In other words, we have a tendency to look at our business accounts and let what we see dictate our behavior. If the accounts are flush, we’re feeling good – and spending freely. If accounts are low, we panic, tighten the belt, and desperately set out to fill them back up.
Repeatedly going through this cycle of free-spending feast and the desperation of famine should be a huge warning sign for any business. Having a systematic plan for keeping cash flow steady is key to ending these cycles.
They Seek Fast-Fixes Instead of Long-Term Solutions
Often small business owners go deeper and deeper into debt by seeking quick, ill-advised solutions to money problems like cash flow. They fall into survival mode and just focus on getting through the current financial crisis. Profitability isn’t even on the radar as they struggle to just stay afloat.
Although it seems enticing in the moment, fast-fixes lead to extra stress from the weight of increased debt, and you can soon find yourself spread way too thin. Setting long-term goals and making positive changes to consistently improve cash flow is a much better, long-term solution.
They Avoid Problems Rather Than Face Them
Avoidance is a very easy trap to fall into. Nobody likes to face problems that don’t seem to have an easy solution. But the things we avoid don’t usually go away on their own. As a result, the situation hangs over us like a dark cloud that gets bigger and bigger until it’s even more difficult to face. Business owners who are struggling with the issues of cash flow and overwhelming expenses often bury their heads in the sand. They tell themselves next month will be better (even if they do nothing) or that making drastic spending cuts will fix the problem (which is part of the famine mentality). Neither of these is the answer. It takes an intentional plan for handling your finances to get (and keep!) a business on track.
They’re Focused on Expenses Rather Than Profitability
Business owners often make the mistake of taking the money earned from sales and using that to pay expenses first, causing their profit, as well as their salary for that month, to be disproportionately smaller. That’s because expenses are most often decided based on the total amount coming in and, as every business owner knows, somehow expenses always seem to expand to eat up every available dollar. That often means that the salary left after expenses is barely enough to get by on. How can any business owner expect to make it when they’re not getting paid enough?
Flipping the traditional accounting model of “expenses first, profit last” transforms small businesses by instructing owners how to intentionally allocate their money so that owner’s pay and profit come first. It’s a simple concept to implement, but more complex than just randomly writing yourself a check before paying your expenses. Once you reverse the way you manage your finances, you will completely change your business, position it to grow and FINALLY get paid what you deserve for all your hard work.
They Fall Into a Mindset of Defeat
Another common reason businesses fail is that business owners become overwhelmed by out-of-control expenses and lack of pay, but don’t know how to turn the scenario around. When the financial side of your business becomes a problem, a huge problem that could mean the collapse of your business, of course it’s scary to think about tackling that huge monster in front of you. This often leads business owners to become disengaged or consider bailing out to “stop the bleeding” before any more damage is done. They don’t stop to consider their options… or they don’t see any other options. They lose the drive and desire to get to where they need to be, because they’re exhausted and disillusioned.
Facing the problem and acknowledging that you need help are necessary first steps, but then you need to take action – meaningful action. As a business owner, you either control the finances or they will control you! Profitability can be achieved by simply flipping the way you think about and manage your business finances. And you can completely turn things around from your very first deposit once you’ve implemented The Miracle Money Method! The success stories are inspiring! And it’s never too late to turn your business around. Right away, you can be on track for success and avoid becoming just another failed-business statistic.
I urge you to contact me for more information if you’re one of those business owners who’s struggling… or if you know someone who is. There’s really no need to scrape by in survival mode.
With my background in accounting and training in this revolutionary method for profitability, I can guide you through the steps of The Miracle Money Method and help you get your business on track. My goal is to get you to that place of success you dreamed of when starting your business. So, don’t hesitate. Reach out to me today. The sooner we start, the sooner you’re on your way!
Wow. Great read. Good stuff.