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Sadly, when a business fails, it is often not<\/span><\/em> because it was founded on a bad idea.\u00a0 <\/span>It\u2019s because it simply runs out of money.\u00a0 <\/span>Even if the business is profitable, it can still be cash-starved out of business.\u00a0 <\/span>How does that happen?<\/p>\n Several ways.<\/p>\n If the business is a brand new startup, the entrepreneur at the controls will often underestimate his or her expenses.\u00a0 <\/span>It might be that s\/he misunderstood the labor market and ended up having to pay more than expected for key positions.\u00a0 <\/span>Or, the cost of raw materials or inventory might have spiked unexpectedly.\u00a0 <\/span>Or maybe sales just didn\u2019t ramp up as quickly as expected.\u00a0 <\/span>The bottom line is, too many startups try to get their doors open on a shoestring.\u00a0 <\/span>If their sales forecasts and expense projections are right on target, they may get away with it.\u00a0 <\/span>But more often, something is overlooked or something unanticipated occurs, and before the fledgling business knows it, it\u2019s awash in red ink.\u00a0 <\/span><\/p>\n The second problem small business owners tend to bring on themselves is trying to grow the business too quickly.\u00a0 <\/span>In almost every case, growth is expensive.\u00a0 <\/span>A business may need to add people or inventory or equipment or office space to handle the additional volume.\u00a0 <\/span>An owner may try to handle growth expenses out of earnings (rather than borrowing from a bank or a private investor), but like his startup counterpart, this owner may fall victim to an overly optimistic sales forecast.\u00a0 <\/span>When sales don\u2019t explode as planned, we suddenly have some significant extra expenses (people, inventory, equipment or office space) without sufficient new sales to cover those expenses.<\/p>\n The problem in both cases is the natural optimism of the entrepreneur . . . the expectation that everything will work out somehow.\u00a0 <\/span>The \u201ccan do\u201d spirit and \u201cfull speed ahead\u201d determination is what makes them unique and successful.\u00a0 <\/span>But it can also get them in trouble if they don\u2019t correctly anticipate their cash requirements.<\/p>\n The answer, of course, is to keep a cash reserve beyond what you believe you\u2019ll need so that when you hit an unexpected bump in the road, it doesn\u2019t put you out of the game.\u00a0 <\/span>And the bigger the reserve, the better.\u00a0 <\/span>The bigger the reserve, the bigger the bump you can hit.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":" Sadly, when a business fails, it is often not because it was founded on a bad idea.\u00a0 It\u2019s because it simply runs out of money.\u00a0 Even if the business is profitable, it can still be cash-starved out of business.\u00a0 How does that happen? Several ways. If the business is a brand new startup, the entrepreneur<\/p>\n