Keep Your Business From Closing Think you may have to close the doors to your business? Our Financial Management Expert shows you how to save it.

Q: I've been open for eight months, and at thispoint, I may have to close my doors. When I first started, I tookout a $35,000 second mortgage on my home and made a lot of mistakesthat cost me a lot of money. I've been unsuccessfully trying torecover the lost money unsuccessfully. My location killed mybusiness, and I'm currently looking for a new location I canmove to and still try to cut my costs. I'm the only bakery inthe whole county, and there's no reason I can't run withthis opportunity. Is there any kind of funding available out thereto help me keep my small business alive without going for anotherloan?

A: There's a commonly held myth that can destroy yourbusiness: Do what you love and the money will follow. As you'vediscovered, that's not true.

Don't despair. I wouldn't advise borrowing any moremoney just yet. Put yourself in "emergency mode!" Youneed to educate yourself as a businessperson-fast! Don't beatyourself up for what you don't know about business.Unfortunately, business basics aren't taught in school. (Heck,I graduated with a degree in Business Administration, and Ididn't even know how to balance my checkbook.) Financial andbusiness information is available in books, on tapes and atcool Web sites such as You can do this.

First, put the brakes on any unessential spending. I don'timagine you're being extravagant right now, but watch yourcheckbook carefully. Your next step is to crunch some numbers.Using the data you have from your business, put together a budget.How much is it costing you to be in business?

Are you using an accounting software program? You can create abudget with that program. Or use a columnar pad and your checkbookregister. You must confront your costs. List the overheadcosts (those that must be paid whether or not anyone buys anything)and the direct costs or cost of goods sold (those costs that aredirectly related to product sold, such as flour).

Now how much can you generate in sales? Play out five or sixdifferent scenarios for sales. Use your current pricing structure.At this point, I bet you'll find exactly why you aren'tmaking any money: Your selling price isn't high enough to coveryour costs and allow for profits, which means less of a salary foryou.

Crunch the numbers again using higher prices. How high can yougo when it comes to prices? Consider the price range on awatch-$2.99 to $50,000. Who would've thought that we would pay$4 for a cup of coffee, but that's what Starbucks charges. Iknow you can charge more than you think you can. You're theonly bakery in the county. If you choose to stay in business, Iimagine you'll have to raise your prices. I'd need to seeyour financial data to be certain, but 99 times out of 100, I findthat owners set unrealistically low selling prices.

From here on out, I want you to run financial reports every day.Run an income statement and a cash flow requirements report. Enterthe bills that come in every day. You don't need to pay themuntil they're due. Just enter them as "AccountsPayable." You don't need any surprises.

If you choose to raise your prices, you must develop yourmarketing and sales skills. The market will bear all kinds ofprices. It's the marketer, not the market, who sets the price.Remember, you don't have to stay in business. Winnersmake mistakes, but they keep bouncing back. It's just abusiness; it isn't you. Meditate on this and listen to yourheart. What do you want to do?

Before you sign a new lease or borrow any more money, get outyour calculator and get busy number-crunching. That's whereyou'll find your answers.

One more thing: Read The E-Myth (HarperBusiness) byMichael Gerber. The heroine in the story is a baker. You'regoing to think he's talking about you on every page of thisbook. It should be required reading for every business owner.

  • Find outif you're charging what you're worth. Check out"NameYour Price."

Author Ellen Rohr nearly starved in her family's smallcontracting business-until she learned how to manage money."Do what you love, certainly," she says, "but themoney won't just take care of itself." Ellen's priceycollege education didn't prepare her for real-world business."Financial business basics aren't that difficult.butwhere do you learn them? Unfortunately, business literacy isn'ttaught in school. I teach the basics and take the mystery out ofmaking money." Ellen's mission as an author, columnist andseminar leader is to help people make a living doing what theylove.

The opinions expressed in this column are thoseof the author, not of All answers are intended tobe general in nature, without regard to specific geographical areasor circumstances, and should only be relied upon after consultingan appropriate expert, such as an attorney oraccountant.

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