90 Reasons Why 90 per cent of Online Businesses Fail (Part VI)
• Financial matters
Money is the lifeblood of your business. If you let these 9 ways drain the blood from your business, then you can say goodbye to your online dream:
Reason #61: Poor planning, no money
In a well developed business plan, it is stated how much money is needed for start up expenditures and what funds are required to operate the business at various cycles until cash flow becomes positive.
By developing Income Statements and Cash Flow Statements for the first two years of operations, successful web entrepreneurs know in advance what they need to keep the business going until it becomes profitable.
Reason #62: No revenue model
How do you envision bringing in income? That’s the revenue model. Dotcoms which failed are the ones which did not know what their revenue streams will be as well as how they expect to make a profit.
But those which succeeded had a clearly defined source of revenue from the beginning. Not only that, they also knew that they actually needed more than one revenue stream before they launched their business website.
Reason #63: Ignoring the balance-sheet formula
Dotcoms which failed certainly did not have financial statements drawn up showing the income and the expenses. Not being in the know, they found it easy to simply spend money before they earned it.
But dotcoms which succeeded recognized that one needed to crawl before walking.
Being cash-strapped, some of them use the financial software programs out there to help them keep a healthy relationship between their expenses and income. Only when they earned enough did they engage accountants and financial analysts to handle their accounting. Even then they still double-check what those experts do regularly. An unscrupulous accountant can cripple your business.
Reason #64: Not Paying Attention to Cash Flow
Financial planning is maybe the most important aspect of business survival. For, if money is the sinews of war then financial planning is what ensures that the money is always available.
One side of financial planning is regulating cash flow which is all of the money coming into your coffers each month minus those going out.
For most new businesses, it is quite normal that the cash flow for the first several months, or even years, of operation be negative. So, new business owners must make sure that they have enough cash to sustain the business till they reach the profit point.
To give credence to the old business adage that “Cash is King”, right from the early months of their new businesses, successful internet business owners carefully monitor Cash inflow (cash sales and accounts receivables collected) and Cash outflow (all monies paid for inventory purchases and operating expenses such as merchandise, marketing expenditures, payroll, rent, etc). And at a point in time, their revenues exceed their expenditures and their business enters a positive cash flow position.
Reason #65: Not watching Accounts Receivables
While receivables can make a business cash-strapped, lack of business acumen makes some entrepreneurs not pay attention to it.
A customer not paying you at all or on time is depriving you of much needed money.
That’s why just as the cash in the bank, successful businesses monitor carefully accounts receivables to stay afloat.
Reason # 66: Lack of Capital
Thinking that their businesses will be making them money for their beginning or operation cycles, some new online entrepreneurs go into a spending spree which deny the succeeding cycle/s the money necessary to fund them.
Owners of new businesses which succeed take every possible cost point (overhead, production, equipment, etc.) into consideration and put aside enough money that can last for at least one fiscal year.
Reason #67: Lack of Cash
Simply running out of cash is the primary reason often given for the closing down of some online businesses. But as we saw above, the troubles started well before that financial collapse came.
Other factors accounting for lack of cash can be under funding, too little financing, no real investment, or insufficient capital. That is when enough money is not budgeted from the beginning of the business for all of your start up costs as well as money to sustain the business for the first few months of operation (i.e. until cash flow from operations is positive).
Reason # 68: Financial Neglect
Cash is the lifeblood of any business. So, once that runs out the business is dead. To prevent that, strict financial record-keeping is a must for small business entrepreneurs. This way you have knowledge of every penny going out or coming in.
Reason # 69: Too much money
If too little cash is bad news for a company, too much is too. You know the saying Too much of anything is bad, don’t you?
Nowadays investing excess money in short-terms securities such as treasury bills, money market accounts, or stocks is no longer such an attractive option because of the low returns. That leaves the stock markets. But the volatility in the markets is as dangerous as that of an active volcano.
So, small business managers may be tempted to squander the excess cash on wasteful acquisitions and bad projects just for their egos. They may even push their carelessness a step further by becoming sloppy in their financial dealings. Finally, the manager will no longer feel the pressure to perform and may slide into lethargy.
All the 9 points discussed above show how important financial issues are in your online business. But what will an online business be without a website? Unimaginable. So I will handle some issues with websites next.
Do you want to succeed online?
While the web can offer immediate success for some, for most of us it will take some time and hard work on our part to build a successful online business. The secret is to avoid the pitfalls discussed above and you will have a better chance of figuring among the elite online one day.
But, now that you have an idea of why people fail online, aren’t you tempted to learn how you can be part of those who succeed on the web?
“It’s never too late to be who you might have been,” – George Elliot
Sure, you can become part of the 3% successful online workers. By joining Wealthy Affiliate.
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Your Personal Guide to Securing Your Future Online