The main reason small businesses fail is not lack of understanding of sound business or market demand, or even mismanagement. The main reason for not fault is the thin capitalization. The reason is simple: start a new business is overwhelming. There is so much to understand, usually in a very short period of time. Unexpected expenses can arise and an unknown initial capital investment. An important consideration that many new owners fail to calculate the budget is beginning to record their own pace. Very few people can expect to see an influx of customers or clients from day one.
The burning rate of a start-up company is simply the amount of cash burn each day, week or month, while gaining the all important clients, customers or contracts. Whether or not clients or customers call, the phone must be in service. The office must be maintained at a comfortable temperature, even if nobody comes forward. The owners do not mind if you expect to double its cash flow next month, when your business starts to take off, they want the rent paid now. Its suppliers or vendors are not usually in the business before you, either.
Long, take the largest share of the burn rate for employees and their benefits. You can not do without the employees you need to get out of the ground roll. As a business owner, you can not take on each role and wait to fill key positions later. Customers and suppliers to buy in your employees. As the owner, we must invest in small businesses with adequate staff from day one. Your customers and clients are reluctant if your office has one employee overworked as it is all you can afford right now. For the company you need to show that you are clear on all angles, including the personnel.
While investing in small businesses are considered a bet, it does not hurt to look around and looking for an investment firm for review. The first thing you need to do is make sure that the company is simply under-capitalized, rather than based on a sustainable profit model that will keep them in the red for years to come. You might be surprised at how little money it takes to save a good start a business from extinction. Many of them closed in an incredible amount. If you roll up your sleeves and spread your investment dollars wisely, that investment pays off in spades.
