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Why do small businesses fail?

Advice from Alan Padgett

When someone decides to start a bakery, restaurant, or hair salon, they have every intention of being successful. They have that entrepreneurial spirit! They put in hard work, long hours and they put their money on the line. So they are dead serious about being successful. So why do so many small businesses fail?

Let's fast-forward 6 months to 2 years and the business has closed their doors. They have lost their dream and their money.

Why did this happen? It could have happened for many different reasons, but the one reason that I want to discuss today is the pre-opening stage of each business. This is the first reason that most businesses will fail. They do not do the necessary planning before they open the doors. They typically worked for someone in the past, which gave them a good understanding of the day-to-day operations of the business, but not the financial working knowledge. In other words, they know how to bake a great cake, cook a great hamburger or do a really great job with hair, but have no idea how to balance their books much less glean a profit.

When we agree to help a small business owner with their accounting, it is much more than just accounting. We start with an analysis of the business and start developing a plan to push the business forward. We review every aspect of the business from the location to their pricing structure for the products or services they offer and then we drill down into the business expenses. We also analyze their current cash position. Once we get the operation in order, we start developing a strategy and marketing plan to take the business to the next level.

I truly think that if accountants would spend the necessary time with their clients we would have fewer businesses failing. Small business America, pick your accountant wisely. It could mean the difference in failure and success!


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