| It is a known fact that only about 50% of small | | | | need to pay the staff, to pay for taxes as well as |
| businesses continue to exist after about three years | | | | production cost, sufficient operating capital is needed. |
| from being formed. There are many reasons for this | | | | This gives rise to another cause of business |
| occurrence but the foremost explanation is business | | | | insolvency- lack of funds. |
| failure. Business failure does not happen only to small | | | | The lack of start-up capital is a problem most small |
| start-ups but also to big businesses that have been set | | | | businesses encounter. During the start of the business, |
| up for quite some time and have experienced a | | | | owners will be forced to take any source of finance; |
| moderate measure of success. | | | | even one with very high interest rates. High interest |
| It's true that insolvency happens to all business but | | | | rates make liabilities higher than the assets. Loans with |
| smaller businesses stand a greater risk of failure. This | | | | high interest rates and unrealistic repayment schedules |
| is due to the fact that small businesses lack the | | | | are grabbed by the business owner without realizing |
| financial back up that big businesses have. Additionally, | | | | that this can cause his business to fail. |
| most small businesses find it hard to source finance | | | | Credit card is one of the most common sources of |
| from banking institutions due to the lack or | | | | finance. Although entrepreneurs think that credit cards |
| non-availability of security to be offered. | | | | as heaven sent, they should be aware that credit card |
| Many businesses fail because of the lack of financial | | | | interest rate can be as high as 20% annually. This will |
| control. Managers who know next to nothing about | | | | eat up most of the revenues without making a |
| accounting procedures and practices fail to notice that | | | | significant dent on the principal amount borrowed. |
| cash flow problems are beginning to set in. A manager | | | | Business insolvency is not caused by problems in your |
| who does not possess accounting skill needs a | | | | business alone. It may be caused by a domino effect |
| competent bookkeeper to do the job. It is important to | | | | from factors outside the business such as customers, |
| know the current cash flow of the business since it is | | | | suppliers and other competing business and even by |
| one of the causes of business failure. | | | | government restrictions. Business failure starts when |
| For new start ups, the business cash flow problem is | | | | trading is no longer possible without meeting new |
| something that needs prime attention. A cash flow | | | | problems; when debts are not paid as they become |
| problem arises when the money generated from sales | | | | due and when financing operation cost is no longer |
| is not enough to cover the production cost. Some | | | | feasible. |
| companies however, do not generate income for a | | | | It is important to face the fact that the business is |
| period of time. An example of this is a Christmas | | | | encountering financial troubles so that early on the |
| decor company. Almost 80% of the sales will be | | | | entrepreneur will have a choice whether to continue |
| generated during the last two months of the | | | | running the business or to enlist the help of business |
| year-November to December. As the company will | | | | management professionals. |