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When a business "up and closes" you can bet cash flow was a problem for quite a while. Owners tend to scrape and claw quite a while before giving up the dream, even if they should have closed much sooner. In fact, I personally have found that closing a business is ten times harder than opening one. A bump in rent or added CAM fee alone is not enough to break the typical entrepreneur.
You keep mentioning that the landlord raises the rent because the business is doing well. How would they know? All my landlord sees is the rent checks, not my books.
It is common for LLs to require access to the books as part of the lease, especially if the location is particularly desirable. Think of it as "profit sharing." It can also lead to two sets of books.
When a business "up and closes" you can bet cash flow was a problem for quite a while. Owners tend to scrape and claw quite a while before giving up the dream, even if they should have closed much sooner. In fact, I personally have found that closing a business is ten times harder than opening one. A bump in rent or added CAM fee alone is not enough to break the typical entrepreneur.
Yes, but what led tot he cash flow problem?
Bad service?
Bad location?
A place BECOMING a bad location? I've seen that before.. Road changes and you have to pull a U-Turn to get into the place now..
Bad quality?
Just a bad business type?
Cash flow is usually the end-level cause. Something generally leads to the poor cash flow tho.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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Quote:
Originally Posted by David A Stone
.....cash flow.......
Ultimately, that is the culprit .
exactly... Cash Flows, for a number of reasons.
1) Poor financial management for the very few businesses that are actually producing profit within 2 -5 yrs
2) Inadequate (pre) planning is usually the cause. (Not having enough customers or reserves, of too high of operating costs). Should have targeted 3 - 5 yrs of reserves (usually takes that long to establish a business)
3) Poor research into available market segment / lack of incremental sales is another common reason for failure.
Excessive Rents / Leases would be way down on the list, as they don't fluctuate much, certainly not within the 'terms' usually 5 yrs +, and are 'market driven' / i.e. are not gonna spike. Any rent increases would be slight and incremental. Rents can be a significant monthly expense for a brick and mortar business., but not as much as labor / wages / benefits and other costs (Inventory or capital equipment for example).
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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Quote:
Originally Posted by hitpausebutton2
True.. good point. Pretty much the ol saying is on point.. first 2 years will make or break you..
But to a extent.. what would break a business more.. ? Rent, utilities? both.. ?
Unless a heavy manufacturing business, or other heavy into energy use, utilities are a small part of the cost of running a business. For my business of 16 years, the last 5 year lease was at about $1,700/month for 5 years, with small step increases each year. When that expired at $1,900 in 2007, the landlord anticipated some major redevelopment in the area and based on that wanted over $3,000. Rather than pay it I moved the business to my home where it did fine until the recession. In addition to me, two other businesses left their spaces and went to their homes. That landlord had about a 40% vacancy rate until they started to fill back up (at lower rent) in 2012, and now, of course, it's thriving again, but the development has never happened. I had some equipment using electricity but rent, materials and supplies were my biggest expenses. When I closed for good in 2009, it was the recession. My biggest regular customers were in construction, real estate development, commercial property management and parking management. They provided my steady revenue but many were either going out of business or just stopped buying so I soon knew I had to get a job again.
Most leases I have seen are 3 years, I think that is about standard for new startups and typically the lease rates are fixed or have a predetermined increases.
The biggest reason for failure imo is probably underestimating expenses or overestimating revenues. So basically cash flow problems. Another big reason is owners getting burned out. 70+ hours a week, week after week, isn't for everyone and it's tough to do.
Typically after 2 years into a 3 year lease, businesses can negotiate with the landlord on getting out. If you are an LLC, sometimes there is little for the landlord to sue for.
Cash flow is usually the end-level cause. Something generally leads to the poor cash flow tho.
Many times a person goes into business because they know their product or service. They know what customers want. They know how to deliver to the customers. They can explain every atom or line of a product or service. Before my father and his partners turned over the reins to me, they required that I take a number of business classes to learn and understand operating a business. I learned taxes, I learned permits, I learned employment regulations, I leaned inspections, I learned business banking, I leaned inventory, I learned purchasing, I learned profit and loss statement, I leaned marketing, I learned cash flow, I learned reserves, I learned contracts, I learned lease terms, I learned legal issues, I learned......... Despite knowing this industry and working in it and being an expert in it, I had to learn to Run A Business. Many fail because they just don't know how to operate a Business.
Many times a person goes into business because they know their product or service. They know what customers want. They know how to deliver to the customers. They can explain every atom or line of a product or service. Before my father and his partners turned over the reins to me, they required that I take a number of business classes to learn and understand operating a business. I learned taxes, I learned permits, I learned employment regulations, I leaned inspections, I learned business banking, I leaned inventory, I learned purchasing, I learned profit and loss statement, I leaned marketing, I learned cash flow, I learned reserves, I learned contracts, I learned lease terms, I learned legal issues, I learned......... Despite knowing this industry and working in it and being an expert in it, I had to learn to Run A Business. Many fail because they just don't know how to operate a Business.
great advice !
I recall what a Florida lottery winner ( $12 Million) said about going into business.
He stated his friends urged him to get into the race horse business because he loved horse racing.
He said............." the day after I won the lottery I am a whole lot richer, but not one bit smarter"
I recall what a Florida lottery winner ( $12 Million) said about going into business.
He stated his friends urged him to get into the race horse business because he loved horse racing.
He said............." the day after I won the lottery I am a whole lot richer, but not one bit smarter"
You used the word " I learned" over and over.
Yes, acquiring knowledge is a must.
You know how to make a small fortune in business?
Start with a large fortune.
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