Page 4 - How To Avoid Going Bust In Business

business organisations such as the Chamber of Commerce offer mentor services.
Use them.

You can also approach an accountant and buy an hour or two of their time to run a
practised, and disinterested, eye over your grand plan.

2: Lack of business skills

You may be a great baker, painter, mobile mechanic etc, but running a successful
business requires more than just competence in your chosen field. You will need at
least a rudimentary understanding of accounting - profit and loss, balance sheets,
cash flow projections, budgets.

You may need a bit of contract law, consumer law, employment law. While I have
known a man to run a multi-million dollar contracting business out of little more than
a notebook in his back pocket, he was an extraordinarily skilled businessmen and
that ain’t the way to bet.

If you are forming a company as a container for the business you will need a working
knowledge of the law relating to company directors. Failure to follow company
governance law can make you personally liable for company debts. It could even
land you in jail. Just ask the directors of some of the banks and finance companies
that went belly up during the GFC.

If there are gaps in your skillset buy them in. Many banks these days offer advice to
budding business people. It’s part good marketing, part damage control on their
part. Their motives don’t matter; they can be a useful source of advice.

Talk to an accountant and a lawyer. You might only need an hour or so of their time
to get a road-map of the issues you will need to address.

3: Insufficient attention to cash flow.

Here’s the first real, critical piece of advice:

PROFIT IS NOT THE SAME AS CASH FLOW.

Engrave that statement on the back of your eyeballs.

An appalling number of business that are making healthy profits still go broke
because they lack cash flow. Profit is something that exists only in the books –
these days nothing more than a string of zeroes and ones in a computer.

Cash flow is the real world.

You can’t pay your bills with profit.

Similarly, you can have plenty of cash coming but your losing on every sale you
make.