How to Ensure Your Entrepreneurial Venture Will Fail

Pastors Ventures 2009

As a follow up to my post early this week regarding the need for business owners to make monitoring their financial statements a priority I wanted to specifically address the issue as it relates to business start-ups.  I have worked with many entrepreneurs so I understand that in the early stages of a start-up all of the attention gets focused on developing the market, making sales, promotion and so on. Many small companies just starting out let this be an excuse for shoddy recordkeeping and a general disregard for monitoring their finances. It's an easy trap to fall into, after all there usually isn't all that much money to track early on so do you really need to monitor it?

Of course, the answer is yes and not only that but the obligations you are incurring, equity and capital transactions that are being entered into and a whole host of accounting issues specific to starting a new business. The Small Business Administration has cited for years that one of the top reasons small businesses fail is a lack of adequate accounting systems. What they are seeing here is a lack of monitoring of the organizations finances at one of the most critical stages in the organizations lifecycle! 

Ok, so that sounds good and everything but your small business venture is cash strapped so what are you supposed to do. First off you need to be honest with yourself and ask, how good could your business plan be if it doesn't even contemplate the cost of having to keep records and prepare income tax and payroll filings. Can you really say you have adequately identified your capital needs if professional fees for accounting and income taxes haven't been included in your cash flow projection. What you say, you don't have a cash flow projection for your new business venture? You say you couldn't afford to hire an accountant to help you prepare one? Have you really thought this through? If you can't afford to hire a professional to assist, then you need to consider whether you can either accomplish this by bootstrapping and learning to do it yourself (highly advise against this one), seeking debt financing or raising equity. Depending on the relationship with your prospective accountant there might even be an opportunity to bring them in as an equity stakeholder in lieu of payment. Most entrepreneurial ventures that fail to adequately plan and which deny the need for professional accounting help will ultimately fail. If they survive it is rarely due to any special business acumen or insight. For them it will simply boil down to luck. 

 

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by Alex Vuchnich, CPA, CFE - Alex Vuchnich is the developer of Controlzkit an internal controls anaylsis tool and shares his perspective on how audit and accounting theory, technology and professional ethics interrelate to create forward thinking profitable firms.

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