Most businesses never reach their full potential –
And never bring full value to their owners.
Wouldn’t you like to be different?What’s the problem?Approximately one million businesses will start this year in the United States. Half of them will fail by the end of their first year of existence. In the first five years, 80% will fail. During the next five years 80% of the remaining will cease to exist. So why does this happen? In Ledger Solutions terms, it happens because the owners built a poorly constructed three-legged table. How can that be so? Why businesses fail!Most businesses are started by people who have mastered a trade or specialty, or are high-performing sales reps. These entrepreneurs are accomplished in their areas of expertise and are willing to put their money, energy, and time into growing a business. Their friends and families support their efforts. Their cities need their businesses to succeed. They have all collected all the ingredients to succeed, except one. They do not have the business training and experience they need to meet every financial challenge. A good friend of mine, Jack Black, came into my office yesterday. The frown on his face told me something was amiss and he needed to talk. Jack founded a company two years ago that builds quite an innovative product. Most people consider Jack to be a savvy businessman: he buys the best equipment at rock bottom prices; he keeps his production people fully trained on the latest production techniques; and his salespeople are the envy of the industry. Before starting his business, Jack was an engineer for an oil company. While out at a drill site, he came up with a great idea for an oil field tool that helped make the drilling process less expensive. One thing led to another, and he quickly had a new business with a hot product. Unfortunately, Jack was like so many new business owners. Like them, he had created a product needed by an industry. Other owners might have mastered a skill so they could provide services or create products. However, their years of learning are focused on mastering these skills or developing the products instead of the intricacies of running a business. Although they all know a great deal about running their businesses, they fail because of what they do not know. . At first, Jack’s business did quite well. Sales grew, first slowly, and then faster and faster. As sales grew, Jack decided he needed more control over his financial information, so he bought QuickBooks, assigned a trusted clerical employee to the task, and said “you’re in charge of bookkeeping. Now, let’s rock & roll!” He even sent her to a QuickBooks training class, thinking that was all she needed to get the job done. He did not realize his business was growing at a rate that outstripped his "bookkeepers" abilities. Jack put most of his payroll into sales and marketing. After all, they’re the engine of growth, right? Operations rolled out more capacity to keep pace. As Jack said, “You’ve GOT to focus on sales, customer service and production. Once you lose a customer, it’s REAL hard to get them back.” His focus was in his area of expertise. He had no financial expert watching his business with an eye toward the future. I had been trying to get Jack to use Ledger Solutions for quite some time, because he needed more help than he was getting from his current tax professional. In fact, when I was at Jack's house last week, he confessed that the only time he talked to his tax professional was when he picked up the tax return. That was just ONCE A YEAR!!. Finally, Jack ended in my office with a frown on his usually happy face. "I don't know what to do. I am out of cash. I have sales tax due on Thursday; I have payroll on Friday; and I have to pay my largest vendor $500,000 on Monday, or they are going to stop shipping materials to me. How is this possible when we’re growing, have been in business for two years and are selling at a profit?" The problem is the third leg to his table is not strong enough to carry its burden. The bookkeeper and Jack don’t have the knowledge (or the time) to provide the necessary financial expertise the business now needs. Without warning, Jack is forced to frantically figure out how to get more money to keep the business afloat, without a clue where to go to get the money and with no idea how to solve the cash flow problem Even if Jack finds a way through his present crisis, he has no process in place to anticipate the next problem. If Jack’s business were a table, his sales leg and operations leg had grown wonderfully, but Jack’s financing leg couldn’t keep pace. He had not allocated enough resources and acquired the proper talent in the areas of finance to keep his business balanced How can a business fail while it’s succeeding? Jack’s business, as well as many others, ironically begin to fail as a natural result of the business’ early growth. It outgrows its owner’s expertise and time. The problem is, the owner has to be a salesman, a production person, and a financial manager in order to keep the company growing, and one person cannot serve all those functions and sustain growth. At Ledger Solutions, we believe that in order for a business to create the greatest financial value for its owner, the owner must create an organization with three strong legs: First Leg: Sales and Marketing. This leg sells and markets products to new and existing customers, and represents what the company is to the rest of the world. Second Leg: Operations. This leg produces the product that the customer expects, whether it’s a manufactured or distributed product or a service. – This is often where the company is strongest. Third Leg: Finance. This leg is responsible for billing, collecting, compliance with tax codes, and securing both working and investment capital to run the business.
The 50% of businesses that fail in the first year do so primarily because the owner cannot do all three business-critical functions, and does not hire out the work that would have filled the most serious gaps. The remaining businesses that fail in the next five years usually collapse because they cannot grow like a well balanced three-legged table, and the owner runs out of energy trying to keep the table top balanced. The question for business-owners who want to grow isn’t “is my three-legged table always in balance?” Rather, it’s “if I have an opportunity to grow, can all three legs (critical functions) rise with the increased demand, and still keep my table solid?” How Does Ledger Solutions Help?We can help your business build a strong, growth oriented financial leg to your business. We provide basic Bookkeeping to CFO level advice and everything in between. By using the latest remote computing technologies and bookkeeping software we eliminate unnecessary costs and provide a response rate that is the best in our industry. Our highly skilled employees can access your data anytime, anyplace, anywhere giving our clients timely, high qualtiy services at an affordable cost. With Ledger Solutions, you can have the financial expertise your business needs without committing to full time employees. We have the expertise in every one of the bookkeeping and finance areas that you will need as your business grows. With a strong financial leg to your table, you can concentrate on building your customer base and your product line. With that kind of focus, you can’t help but grow your business.
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