Small Business Failure – Reason: Funding

Funding issues are really only a problem if you do not use “bootstrapping techniques” – so I’m not that comfortable talking about this issue, since I believe everyone should start their small business and start-up business, like SOHO-, SME, SMB-, Micro-, Lifestyle-, Home-, DIY-, Hobby-, Boomer-, Professional-, Personal business on a shoestring.

Anyway here are the small business health check questions you need to ask yourself:

• What do I need the money for? Can’t you find a customer how will buy the product or service, before you even have it? It can be done you know!
• Do I have enough securities for a bank loan or overdraft? I always like the analogy of a bank will give you an umbrella (money) and when it rains (problems) they need the umbrella themselves – what than is the umbrella good for!
• Should I be looking for an external investor? You could find external investors who will tell you how to run your business, but know even less about your small business than you do?
• Do I have the detailed business plan needed to find investors? You will need a detailed business plan – which frankly may not be worth the paper it’s written on – which will be used against you when things don’t work out.
• Do I have the time to wait until a decision is made? You could be looking a 12 – 18 month before you have funding, do you have that time? Why not deal with customers today and get started on a shoestring.
• What if they say NO? This is my favorite one – are you happy to give up on your business idea if everyone things is bad or worse (?)…. if you are don’t start a business, because you are not ready and whatever you do do not borrow any money from anyone.

If you read this and think this is all b*** s*** – and you may be right, of course – let me know why you think you need to borrow money? Maybe we could come up with an idea that would allow you to start your small business, without having to borrow money and loosing some of the control in your small business.

You can see other reasons for small business and personal business, like contractors, freelancer, self-employed, sole-trader and virtual assistants failures in my Health Check Category, if you can add to this list please do so, I would welcome your comments.

12 Responses to “ Small Business Failure – Reason: Funding ”

1. MichelleVan
   
   Said on August 30th, 2007 at 3:22 pm

   I totally agree – The first step to getting more money is to sell something. It is about cash flow first. Get more to flow in. How? Sell something then go sell some more. …. I just found you. Thanks

2. Rob Smorfitt
   
   Said on September 2nd, 2007 at 9:13 pm

   Is a lack of finance not a symptom rather than the cause of SME failure. Is a lack of finance not due to poor planning, uncontrolled growth or a poor business?

   As entrepreneurs we need to accept responsibility for our failures and not keep blaming the banks and government. There are always exceptions to the rule however.

   Ever since SME’s became the flavour of the day with most governments, suddenly there is an expectation that we no longer have to find our own finance. That is the difference between true entrepreneurs and SME managers! Which are we?

   Rob Smorfitt

3. Stefan Töpfer
   
   Said on September 3rd, 2007 at 8:32 am

   Rob,

   That is a good question, and the answer is YES and NO! Whatever business you run you can get into financial trouble without it being your own doing – a big customer goes bust.

   Here you could say if the company had enough reserves it would have survived, but an early start-up will not have the resources to survive – there are many more examples where this is also true. Unless you propose to only allow start-ups who can demonstrate that they have enough resources and reserves?

   But you are right of course that funding can also be a problem because of poor planning.

   ST

4. Charles Johnson
   
   Said on September 5th, 2007 at 5:37 pm

   Most small business owners are unaware that they can
   get an immediate cash advance of $10K to $300,000
   against their credit card receivables. When you
   submit an online application @ http://www.smallbusinessloans.com we will follow-up.
   We have been helping small business owners since 1997.

5. Paul Simister
   
   Said on September 9th, 2007 at 5:50 am

   I agree with you. Funding is often seen as a panacea when it just covers up the cracks and gives people the ability to spend (and lose) money they don’t have.

   It’s not true for all businesses but generally I hate it when someone comes to me and says that they expect to lose money money for the first couple of years of trading.

   As revenue forecasts are almost always too optimistic in plans it allows excuses for poor performance and no cost control.

6. Rob Smorfitt http://main-spring.blogspot.com
   
   Said on September 10th, 2007 at 10:49 pm

   SME’s fail for a number of reasons, but are seldom acknowledged for the correct reason. As you suggested, they fail often blame a lack of finance for their failure. However, let us look at your example of say a big customer failing and not paying you.Is this a financ eproblem. I believe that the entrepreneur must take ownership of this failure.

   Who decided to allow the business to be so dependent on one client? Who failed to acquire additional clients in order to minimise the risk associated with having all your eggs in one debtor basket?

   I have had many busineses, and have also had failures together with successes. The truth of the matter was that failures created much self-doubt, until such time as I had accepted that it was a strategic error and failure on my part as the CEO. Once I took ownership I got rid of the victim mentality and could proceed with another notch in my experience belt.

   I believe all failures are due to entrepreneurial failure, not a lack of finance. If you truly have insufficient finance, should you even begin to start trading?

7. Small Business Radar - Today Top Blog Posts on Small Business - Powered by SocialRank
   
   Said on October 9th, 2007 at 9:03 am

   [...] Small Business Failure – Reason: Funding [...]

8. Work at home guide
   
   Said on December 3rd, 2007 at 7:14 am

   This is a very interesting stuff.

   Really enjoyed reading the tips. Keep up the good work.

9. Ian D. Major
   
   Said on February 4th, 2008 at 9:06 pm

   Hi Stefan. Thanks for some great information.

   It’s so sad to watch so many businesses fail because of money that was loaned against an initial business plan that tuned out to be over optimistic (as most are in my experience. Far more effort should go into research, traffic, conversion and finally product.

   Ian.

10. Jerrett Jackson
    
    Said on June 26th, 2008 at 4:44 pm

    How many or what percent of business fail each year because they were undercapitalized?

    Where can I go to find that kind of data?

    Thanks

11. Sarah Fordham
    
    Said on October 26th, 2009 at 4:25 pm

    What delicious food for thought you are serving up today!

    Plan, plan, plan! That’s my suggestion to anyone even considering financing a small business with borrowed money. It is absolutely tru that your well made business plan will most likely be thrown back in your face no matter how slavishly you adhere to it, still that is no excuse not to make the best effort when composing one. At worst it will be a map for investors ho you piece by piece but at best it will allow you to see aspects of your business you might not have considered while rehearsing your acceptance speech for ‘entrepreneur of the year’ every night before bed time.

    Who knows? Maybe while doing your detailed business plan you will discover ways (like those mentioned by Stephan above) how to start your business without borrowing at all.

12. Dawn
    
    Said on December 15th, 2009 at 6:09 pm

    It’s amazing how many people think that they can set up a business with little or no business plan. They have this sugar coated idea that running a business is as easy as baking a cake and of course, this simply isn’t the case. I suggest anyone wanting to become self-employed to take the time and really read up about planning.

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