48 Of Every 100 Businesses That Go Down Are Profitable!

It's common knowledge that the survival rate for new businesses is that if you start 100 new businesses today, only 20 of them will still be in business five years from now. Recent surveys have shown that the other 80 will have gone out of business sometime during that time frame.

What isn't as well known, however, is that 48 (60%) of those 80 new businesses that failed were profitable when they went down!

How can that be?

It is easier to understand when you consider the impact of "payment terms." Payment terms measure the number of days between the time a service is provided and the time payment is actually made.

What are the average "effective" payment terms in a typical small business?

Cash in from Customers averages 45 to 60 days

Cash out for Rent - in advance & for Employees - 7 to 14 days (Federal law) & for Vendors & Suppliers - 15 to 30 days.

The timing gap between the terms on money coming into the business is quite different from money going out of the business. If you combine that with rapidly increasing sales, you can see how a profitable business failed to survive because it simply ran out of cash. Other bills were payable before revenues came in and a lack of working capital failed to bridge the gap.

However, they didn't fail simply because they ran out of money. According to the research, the cash shortfall was just a symptom of the real problem.

The underlying problem was that they didn't have the management information they needed to successfully manage a dynamic business. In other words, they failed to maintain bookkeeping and accounting systems to provide them with critical management information -- such as how much they had in the bank, which customers owed them and when it was due, which suppliers they owed and when it was due, etc. -- the type of information required on a day-to-day basis to successfully manage a business in a changing business environment!

Fluidity Business Planning Group can work with your bookkeeper and accountant on your behalf to help you manage this critical and vital information to achieve and preserve your profitability. We can recommend professionals to assist you or you can search www.smallbizaccountants.com for help.