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Don't Go There

Error-proof your business, little loans

How important is money to the success of your business? Very. "Often it's not the lack of a business plan, lack of foresight or lack of competent management that leads to failure. Rather, it's a lack of capital--even in businesses that are thriving," says Larry London, managing director of Entrepreneurs Re$ource Group in Dunedin, Florida. "In fact, a survey of successful business owners [conducted last November by Geneva Business Bank] concluded that the largest potential trouble spot is when a company is experiencing rapid growth."

London says the eight most common mistakes made by entrepreneurs are:

  • Failing to borrow funds
  • Overlooking available financial resources
  • Underestimating financial risks
  • Ignoring the downside of having investors
  • Making unrealistic estimates of your borrowing potential
  • Neglecting to manage lender relationships
  • Preparing a loan application under pressure
  • Failing to forecast cash needs

There are a number of other common errors, of course, London adds. "Most notably, too many small businesses borrow relative to their cash flow and don't leave enough money to run the business. That is, the business owner borrows as much money as he knows he can repay based on cash flow. But with payments going to service that debt, the business doesn't have enough money left for growth."

More details are spelled out in a brochure London wrote, The 8 Biggest Financial Mistakes Business Owners Make--and How to Avoid Them. For a copy, call (888) 541-5417.

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This article was originally published in the July 1999 print edition of Entrepreneur with the headline: Don't Go There.

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