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Why Black Businesses Fail (Part 4): Insufficient Financial Capital

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Starting a business can be viewed as a strategic game. Like all games that one intends to win, one must begin with a sound strategy. A key component of a business startup strategy is to have sufficient financial capital to promote the business to profitability.

Not operationalizing this strategy is akin to beginning a battle knowing that there are 10 kill targets, but having only seven rounds of ammunition. Such a situation seems doomed to failure, and generally is.

Why do entrepreneurs find themselves in this situation? Quite often, it is because of a poor business plan. That is, a business plan can be based on an inaccurate market study, the plan can overstate the potential market share that the new business might garner over the course of time, or a business plan’s proposal for price setting can be inconsistent with reality.

In these cases, the business plan leads the entrepreneur to believe that the financing required to initiate and sustain the business to profitability is less than what will actually be required.

Consequently, after the business is underway, the available financing and the revenues generated are insufficient to sustain the business to profitability, unless they contact a reputable business finance company to help them out. Belly-up it goes.

On the other hand, an entrepreneur can ignore the financing required to develop the business to a point of self-sustainability as dictated by a good business plan.

In his/her eagerness to start the business, he/she charges ahead knowing that there is insufficient financing—hoping for a miracle or that some other turn-of-events will prove the business plan wrong.

Too often, the business plan is proven correct, and the entrepreneur finds that he/she must close the business because there is insufficient financial capital to develop the business to the profitability point.

A fundamental key to business success is having sufficient startup financial capital. If you want to be successful, then find a way to find sufficient financial capital to initiate your business and sustain it until it is profitable.

 

Contributed by Dr. Brooks Robinson

financial capital

Founder of BlackEconomics.org

www.BlackEconomics.org

BlackEconomics@BlackEconomics.org

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