.Lack of funds or undercapitalization is the number one reason why many small businesses fail. Many entrepreneurs fail to plan properly, expanding too soon or spending unwisely, and don’t get enough money to keep the business going for a certain period of time.
The advice of Ken Boyar in his book The Practical Dreamer: Do’s and Don’ts of Mastering a Small Business is very useful for small businesses:
I like the term “Day One Money.” It says: remember that the extra cash you set aside so you can work ON your business — not IN your business — can make the difference between staying in business and watching it slip away.
So if your great business plan is telling you that you may be undercapitalized, i.e., that you lack sufficient cash to start the business, what do you do? As I said earlier, you rework your plan, perhaps over and over again. It may mean that you need to find new sources of fumds. Either way, you’re going to do what is necessary to keep the dream alive, and to keep it alive you will carve out a practical and well-thought out plan.
Also check out the article “Why You Need a Financial Plan for Your Business” for additional tips and information.