Businesses fail, don’t they? You would have seen a million articles throw numbers and statistics at you — I wonder where these numbers come from — like 95% of businesses fail in the 1st year alone and so on. The veracity of those numbers is hard to nail at, but one thing does stand out: Businesses DO fail. Here are top 5 financial reasons why they do:

Over-estimated Sales Forecasts: Businesses, more often than not, tend to be a tad overshot on the forecasts front — investors have to be convinced; customers might have to know that they are dealing with a company that seems to sell its products/services well, and much more. In a way, this over estimation might look good in meeting rooms, on presentation slides or on paper. It might even convince all your stakeholders. But it is definitely going to harm your future and seriously jeopardize it because over-estimation tends to skew your thinking far into the future and not let you see the present bottlenecks. It might tend to make you believe that the expected sales can be done easily. Optimism can have sharp blades too that pierce through.

Under-estimating the time required to crack sales: Over-estimating your sales is one thing and not giving your forecasts the required time to convert is another major financial mistake businesses do — too much needed in too little time. Under-estimating the time required to convert the estimated sales for the present year and the next and so on can push the sales wagon harder than it should be pushed; breed shady deals and pressurize everyone within the system.

Not paying heed to actual costs — all of them: Overlooking costs incurred to get a product/service off the shelf — the actual costs, including the material costs, delivery costs and even the opportunity costs — is another mistake businesses make. Not keeping an eye on your costs and letting them out of control invariably leads to your bottom line bleeding and doesn’t help your business sustain its competitive edge. Forget competitive edge, survival becomes hand-to-mouth and eventually and your business can fail.

No control over Costs: Successful business operations requires you to be ruthless in its decisions about cost control. Everything from not allowing incompetent staff to managing machinery, service processes etc has to tread on decisions made quickly, efficiently and ruthlessly. Having no control over costs has a direct bearing on bottom lines.

A rebellious Cash flow: Do you have receivables pending? Do you give to much credit to your customers or dealers? Do you have a tight upper-hand over your cash flow? Do you even keep tab of your cash flow? Is your cash flow positive? Do you pay your suppliers too promptly? Who manages your cash and how? Cash flow is the life-blood of any organization and the day you can’t take hold of this, it is the dooms-day for your business.

Under Pricing: It is the all- too- common, sure-shot way to doomsville. Under pricing your product or service can send you straight to hell. Under-pricing is perhaps one of the most common, self-inflicted lethal injections a business does unto itself. Unless you have a sheer, almost monolithic presence over your prevailing markets, there is no way you can pull it off by under-pricing your products and services. Under-pricing might work for the walmarts and K-marts, but not little guys like us.

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