The exit rate or should it be termed as mortality rate for small business who operated less than 5 years is extremely high. According, the Small Business Administration statistic in 2007, the new registration verses the closure for small business is about 92%. While there are a hundred new small businesses registered for business venture, there were another 92 small business owners decided to cease operation.
Most small business borne out of passion and desire of the owner without considering the long term operational and management issues that might affect their business survival, let along growth. In today competitive environment, to survive, you need to grow, those who stay stagnant will be force out of the market sooner or later. However, it is interesting to know that many small businesses that are doing very well in generating high turnover and profit are also being force out of business.
Many small business owners are so focus on generating sales in order to bring in the profit but without realizing that unless and until your sales are converted into cash in your cash register or bank, profit is merely a figure in your accounts book. If your business is based on cash term like McDonald, well and good; when your sales is high, and cost is low, you will have a booming business. When you business is operated mostly on credit term, this is where you need to be cautious about your blood stream of your business; that is your business cash flow. You need to constantly feel where your business pulse is and have control over it like controlling your blood pressure.
If you apply for a credit facility from any bank, one of the documents they need from your business plan will be cash flow statement. The bank knows that while the importance of cash flow as it determines the sustainability and viability of the business model and plan. The cash flow statement is different from profit and loss statement, while the profit statement shows income and overheads; the cash flow statement indicates where the cash is flowing in and out of your business operation. Many small business owners who operate their business with credit term customers often run into liquidity problem when the sales is good but suppliers are not willing to offer same credit term to them.
So keep close watch on your business pulse while implementing your profit strategy, you do not want to see you being force out of business because of cash flow problem. Always have a feel of your business pulse by know where the cash is coming in and out of your business.