POOR FINANCIAL CONTROL

Sound management is the key to a small company's success, and effective managers realize that any successful business venture requires proper financial control. The margin for error in managing finances is especially small for most small business. Two financial pitfalls are common in small business: under capitalization and lax customer credit policies.

Lack of Capital. Many small business owners make the mistake of beginning their business on a "shoestring", which is fatal error. Entrepreneurs tend to be overly optimistic and often misjudge the financial requirements of going into business. As a result, they start off undercapitalized and can never seem to catch up financially as their companies consume increasing amounts of cash to fuel their growth. "A little bit of cash is a dangerous thing" says one consultant

Lack Customer Credit. The pressure for a small business to sell on credit is intense. Some managers see an opportunity to gain a competitive edge over rivals by granting credit; others feel forced to keep up with competitors who already offer their customers credit sales. Whatever the case, the small business owner must control credit sales carefully as failure to do so can devastate a small company's financial health. Poor credit and collection practices are common to many small business bankruptcies.

Effective Small Business Management fifth edition