The 7 Deadly Sins of Business

Most businesses that fail do so because of their owners’ “sins.” Usually it’s not for lack of hard work. On the contrary, most owners put in long hours. The problem is that owners don’t succeed because of working hard; they succeed because they produce results, plan ahead and optimize their resources. Working hard is no guarantee of success. With this in mind, here are seven common causes of business failure. In their own way, each of these "sins" can undermine an organization, sabotage results and ultimately lead to business death.

Deadly Sin #1: Drift and Squander

Owners drift when they harbor no vision of their dream store. Remember, without vision, businesses perish. Owners squander resources when they fail to set strategies that drive their companies’ growth. Together, goals and strategies are the catalyst for growth. It’s not news, but a sad reality, that “drift and squander” describes the plight of many small businesses with fewer than 10 employees (and even some larger ones, too). Their owners continue to do business (that is, directly serve customers) instead of run it. They reap bitter fruits: (1) Burn-out, working strictly for take-home pay; and (2) flat-out, building no company equity. They own a job, not a business. When they retire or sell out, they receive the market value of tangible assets, but nothing for their years of hard work.

Redemption: Articulate your dream business in writing, then determine the strategies that will drive you there.

Deadly Sin #2: Waste Cash

Avoiding bankruptcy requires thrift. Thrift is easy when you have no cash, but it’s much harder when you are flush. Cash tempts business leaders to spend. Some forget that cash-in-hand is not spendable cash. Accrual-based accounting measures the flow of value, not the flow of cash. Many companies plunge into bankruptcy while showing a profit on their P & L. The cause of death: Lack of cash.

Redemption:: Determine your spendable cash by preparing a quarterly statement of cash flow. Ask yourself, “How effectively did we exploit our three cash-sources: operations, selling assets and borrowing? In operations, how much cash flowed in through sales and flowed out through expenses, accounts receivable, inventory, and accounts payable?” Next, prepare a forecast of cash flow to estimate future cash expenditures. If you foresee a need to borrow, confer with your banker before you actually need it. As the saying goes: “Bankers lend to the rich, not the poor.”

Deadly Sin #3: Run in the Dark

For 10 years, Frank ran his business in financial darkness. Once a year, he looked at his financial statement, but didn’t know what he could learn from it. Ignorantly, he believed he was doing okay if he had cash to pay bills and a bit left over. That ignorance led him to waste both money and opportunities.