Business goes bust for many reasons. The most common one that I have seen is indiscipline and arrogance. The other is being over ambitious.
Indiscipline
Indiscipline means the businessman cannot follow a set of rules that is supposed to be strictly followed by all businessman. A business should be treated as a different entity altogether and must not be drawn into your private life. This is especially so in sole proprietor-ships where the businessman has total control over his business. They fail to segregate business dealings with personal dealings.
You will be surprised to know that many sole proprietors don’t pay themselves a fixed salary. During the months that business were good, they will spend more and during leans months, they will be forced to spend less. They don’t have an fixed expenditure account where expenses are tightly controlled because they are the boss and there is no on to stop them from doing what they like. many a times, when business is good they over spend, thinking that what they have spent will be covered back next month. Unfortunately, not every month in the calender is a good month. So if the next month business drops they find themselves cash strapped.
Always treat your business as an entirely different entity on it’s own. Practise good accounting. For example, you have set up a Company called Com. X and you have invested 100k in that company. Treat it like you have loan ComX that money and Comx must pay back that money to you in way of a profit. You work for ComX (even though you are the boss) and ComX must pay you a salary. How and where do ComX come up with the money to pay you and it’s debt to you? You, as the boss, make sure that ComX makes a profit every month so that ComX can pay you. That needs discipline.
over ambitious
After you have made the money for ComX to recover what you have invested in that company, don’t get overly ambitious and start expanding too fast. Concentrate on making COMX a strong Company first. A strong Company is one that has a solid foundation that is unshakable even in the worst of time. It’s cash reserves will be able to sustain the Company for at least six months to a year of bad business without having to take very drastic cost saving measures like retrenchments of staffs or selling of Company assets.
If you channel money away from your company to invest in other areas too early, before that company is able to stand on it’s own, you will be asking for trouble. You might end up with 2 failed ventures instead of a single successful and strong one.